Forecast: Washington Could Negatively Impact CA Economy

March 9, 2017 by · Leave a Comment 

Employment growth in California will likely slow over the next three years as the state nears full employment, and California’s economy could be negatively affected by decisions in Washington, particularly pertaining to deporting immigrants and restricting foreign visitors, according
to a UCLA forecast released Wednesday.

The state’s rate of employment growth has continued to outpace the nation, but it slowed during the final quarter of 2016 as employment reached a record level, according to the spring 2017 UCLA Anderson Forecast.

Senior Economist Jerry Nickelsburg estimated in the forecast for California that total employment growth would be 2.1 percent this year, slowing to 1.2 percent next year and 0.9 percent in 2019. He also called for a 3.4 percent bump in real personal income this year, then increases of 3.7 percent
and 3.2 percent in the next two years.

But Nickelsburg pointed to a series of political issues that could have a heavy impact on the state’s economy – deportations of immigrants living in the country illegally, exchange rates, international travel visas and the debate of President Donald Trump’s executive orders on visitation from select
countries.

With respect to deportations, Nickelsburg wrote that an estimated 50 percent of the agricultural workforce is undocumented, with an even higher percentage for crops “that are labor-intensive in harvesting.”

“There are reports that the chilling effect of INS raids in the past weeks is impacting the number of laborers showing up for work,” Nickelsburg wrote.

“… The threat to deport millions of undocumented immigrants, a threat that the current attorney general has endorsed, is a risk to the forecast,” he wrote. “Were this to occur, there could well be a significant reduction in the production of food, in food processing, particularly the slaughter and
preparation of meat products, in garment manufacturing and in residential construction. This is a risk that will be watched closely and were it to become more of a reality in the next three months, will lead to a downward revision of the forecast.”

Nickelsburg also said tourism will likely take a “double-whammy hit” – due to a the higher value of the dollar making travel to the United States more expensive, combined with a “less friendly environment for foreign nationals coming to the U.S.”

“After the January 27 travel ban was announced by the president, bookings searches were reportedly down by 6 to 17 percent on aggregator websites,” Nickelsburg wrote. “This does not mean they won’t come back, however, the promise of new travel restrictions including a higher threshold
for obtaining visas suggest a decline is in the offing.”

He added that Trump’s Twitter post about California being “out of control” won’t help local tourism.

On the national front, senior UCLA Anderson Forecast economist David Shulman also pointed to uncertainty from Washington, particularly on issues of trade and immigration policy, making the forecast sketchy.

“We continue to believe that the election of Donald Trump represents a major regime change with respect to economic policy,” Shulman wrote. “We expect significant reductions in personal and corporate income taxes along with a relaxing of regulation in the energy, environmental and financial arenas.”

“However, because the economy is already operating at or close to full employment, the growth spurt caused by the policy changes will be short-lived but the deficits that they create will be with us for a long time. Moreover, the policy changes will elevate both inflation and interest rates that will
have a negative effect on the housing sector,” according to Shulman.

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