Chicken or the Egg
An excerpt on housing from the latest UCLA Anderson Forecast:
In his September forecast, UCLA Anderson Forecast Senior Economist David Shulman labels current conditions in the United States as “the muddle-through economy,” noting that the economy continues to limp along at a very sluggish pace, as it has since the low point of the “Great Recession” in mid-2009. Shulman notes that real GDP growth has been in the 1-3 percent channel and is now operating at the lower end of that range.
Shulman says this tepid growth, combined with a structural adjustment in the economy, has caused employment gains to be modest, resulting in an unemployment rate above 8 percent for three and a half years.
“Simply put, job growth on the order of 160,000 a month in 2013 will not be sufficient to make any real dent in the unemployment rate. However, as job growth accelerates to 200,000 a month in 2014, the unemployment rate will begin to meaningfully improve,” writes Shulman.
Shulman’s optimism about 2013 and 2014 is buoyed by what he calls “the lone bright spot in the economy,” the long awaited rebound in housing construction.
“Led by multifamily construction, housing starts are ramping up from 612,000 units in 2011 to 763,000 units this year and just under 1 million units in 2013,” Shulman said. “By 2014, we anticipate that housing starts will be in excess of 1.3 million units (and) the growth in housing will account for about a full percentage point in GDP growth by 2014.”
Shulman says the strength in housing is underpinned by gradually rising home prices, record low mortgage rates, improved household formations and modest employment growth.
On the flipside, Shulman warns that if Congress and the president fail to agree on an end-of-year compromise on taxes and spending, the economy could fall off the “fiscal cliff,” leading to a downturn in 2013.
In a companion essay to the two forecast reports, UCLA Anderson Economist William Yu discussed economic conditions in China. In an essay titled, “The End of China’s Economic Marvel,” Yu said that a prognostication the forecast made last December about China’s economy has proven true.
“We predicted that China would experience a ‘hard landing’ and expect that it will be worse than the free fall in the 2008 financial crisis because their stimulus medicine will not work this time.”
Yu anticipates that China’s economic hard landing will be ongoing through 2013 and that China’s three-decades-long period of rapid growth will end in 2012. Yu explains that the structural change in China’s economic growth was both natural and inevitable; that if China continues its current investment spree, it will delay, but exacerbate, the hard landing in 2013 and 2014; that growth in Chinese consumption is the key to avoiding long-term stagnation; and that China’s GDP growth decline from 10 percent to 5 percent will result in a growth reduction in U.S. GDP of only 0.2 percent.
(The latest quote on the 2012 housing starts is 750,000)