High inflation, the most aggressive rate-hiking cycle in 40 years, rising geopolitical risks, two wars and an emerging cold war between China and the U.S.
In normal times, such unfavorable conditions would signal disaster for an economic recovery, said economist Anil Puri, director of the Woods Center for Economic Analysis and Forecasting at Cal State Fullerton.
But the recession predicted by the world’s leading economists never materialized, the economist said.
Puri opened with those remarks at the 2024 Spring Economic Forecast on April 30 at the Westin South Coast Plaza.
Hundreds of business leaders and academics were in attendance for the bi-annual forecast.
As always, sharing the stage with Puri was colleague Mira Farka, co-director of the Woods Center.
“The economy has been growing, especially in the last half of 2023, and even up to the first quarter of this year,” Puri said. “The economy is well and alive, and doing quite well, actually, at this time.”
The GDP is up, spending is up, and the unemployment rate is down.
So, given these and other positive data points, “Why is everyone so depressed?” Puri asked rhetorically.
“If you adjust it for inflation, the real value of wealth is really below what it should have been,” Puri said. “Prices are not coming down. The rate of increase has not come down.”
New-car prices and used-car prices have gone up 20% and 30%, respectively, and the cost of grocery staples such as eggs, sugar, coffee and other food items has also spiked dramatically.
“So, inflation is becoming hard to dislodge,” Puri said. “We’re not sure that the economic picture that we see really tells us the reality of what’s going on.”
The impact of artificial intelligence on employment is also an uncertainty, as trends show that AI will reduce job opportunities for lower-income earners, the economists reported.
The outlook for the economy is nuanced and complex, Farka said — favorable in the short term but a bit gloomier over the long term.
“Now, we don’t think we’re going into a recession right now,” Farka said. “But there are certainly signals that a shift is coming down the line … maybe five to six months away.”
For the first time in history, for example, nonmortgage interest payments, such as payments on credit card debt, were nearly as high as mortgage payments.
In the banking sector, borrowers were granted short-term extensions on their maturity dates, which has given both lenders and borrowers a reprieve since losses would mount were it not for these extensions, the economists reported.
However, the looming maturity wall has grown higher, with about 40% of the debt maturity coming from loans extended in 2023 coming due later in 2024.
California, Southern California and Orange County
The forecast details an array of troublesome economic trends impacting California, such as a housing crisis, a homeless crisis, budget deficits, tech layoffs and minimal employment growth.
In February, California had the highest unemployment rate in the nation at 5.3%, the report stated.
In Southern California, which includes Orange and Los Angeles counties, economic health has been mixed, according to the forecast.
Orange County has also been on a path of sluggish growth since the middle of 2023.
The county’s unemployment rate has ticked up to 4.2% in February, up from 3.4% a year ago.
Raising the minimum wage for large fast-food chains, “will unquestionably” harm large employers, though it is unclear whether small employers will benefit, Puri said.
“Well, somebody had to pay for this,” Puri said. “So, the result is that prices of fast food are going up. Now, the Happy Meal may be great for kids, but not for moms, necessarily.”
Citing a recent report from the state auditor, California spent $24 billion in attempts to solve the homeless crisis over the past five years, but the state’s homeless population increased to 181,399 people in 2023, up from 151,278 in 2019.
The auditor’s report said the state lacks good information on the homeless population and “has not consistently tracked and evaluated the State’s efforts to prevent and end homelessness.”
“So hopefully, state and local governments will adopt policies that are more effective and more efficient and have a desired impact,” Puri said.
CSUF president Silvia Alva, who was among the local dignitaries in attendance, praised the contributions of Farka and Puri.
“The economic research and forecasting that we’re doing today will give us valuable information to help us anticipate and make informed decisions about our investments, projects and economic policies,” Alva said.
