With COVID-19 concerns still lingering, spurred now by fears of a surge fueled by the Omicron variant, California’s economy will continue to rebound in the coming months, but at a slightly slower pace, according to a UCLA economic forecast released Wednesday.
“As with our forecast for the U.S., the outlook for California is for continued, but slightly slower, growth,” UCLA Anderson Forecast Director Jerry Nickelsburg wrote in his quarterly report on the state’s immediate economic future.
Nickelsburg noted that the COVID-19 surge brought on by the Delta variant of the virus is “waning,” but he said a new winter surge is now beginning to appear.
“Though economic activity continues to pick up, Delta 2.0, not assumed in a our previous forecast, will have a dampening effect on the rate of growth and time to recovery,” he wrote.
Nickelsburg projected that while COVID-19 cases will likely increase during the winter months, his forecast assumes that there will not be any new measures “to restrict people or businesses.”
“With this assumption, we expect some labor market head-winds in the state for the end of this year and early in to next,” he wrote. “We expect, based on past patterns, that a rise in cases will curtail economic activity in some sectors due to consumers pulling back from — or being more wary about returning to — in-person activities and travel.”
He suggested that job growth will slow in sectors involving “high levels of person contact” and in tourism industries. A slower-than-expected return to in-person activities will also lead to “a slower decline in goods purchases.”
“This will contribute to the high demand in the logistics industry, and we expect solid growth in this sector as ports continue to work through backlogs,” Nickelsburg wrote. “We have already seen high demand for goods: taxable sales in the state were much stronger over the summer than we expected, a trend that we anticipate will continue.”
He forecast the state’s unemployment rate will reach 7% in the fourth quarter of the year, then fall to an annual average of 5.6% next year and 4.4% in 2023. Nonfarm payroll job growth was forecast for 1.9% this year, 4.7% next year and 2.5% in 2023.
“The timing of our forecast for California is slightly different from last time, weaker late this year and early next with the economy picking up in mid-2022,” he wrote. “The potential economic effects arising from the emergence of the Omicron variant are a downside risk to our forecast.”