In the opening minutes of the Economic Forecast Conference, Anil Puri, director of the Woods Center for Economic Analysis and Forecasting at Cal State Fullerton, painted a bleak picture of the world.
Just as the U.S. and the world started to emerge from an economy-crippling pandemic, war breaks out between Russia and Ukraine along with a deadly conflict in the Middle East, noted Puri, as he addressed hundreds of business leaders at the Disneyland Hotel on Oct. 19.
Domestically, partisan politics exist on both sides of the aisle, and the House of Representatives struggled to find its way in selecting a leader, Puri said.
“As we look around, it seems to be that the world just doesn’t want to heal,” the economist said. “And I’m sure a lot of you are thinking, what about the soft landing? Is it here? Is it going to happen? Well, economists have been predicting it for over a year.”
As always, partnering with Puri for the forecast was Mira Farka, professor of economics at Cal State Fullerton and the co-director of the Woods Center for Economic Analysis and Forecasting.
The 29th annual event was co-presented by CSUF and the Orange County Business Council, which collaborates with leaders in academia and government to help bolster the county’s economic development.
“This event is really a symbolic gesture, a symbolic expression of the relationship that we have with the business community that runs deep, and we really value and hold these relationships dear,” CSUF President Sylvia Alva said. “They’re important to our students. They’re important to our community.”
Farka and Puri predict that a recession will likely hit Southern California and the nation during the second half of 2024.
However, unlike the Great Recession that crippled the global economy from 2008 to 2012, the economists predict it will be a normal or “garden variety” recession.
Ever since the Fed embarked on its unprecedented rate-hiking cycle, raising the interest rate 11 times over the past 18 months, the U.S. economy has been on the verge of a recession, the economists said.
But despite the hikes, real GDP is still growing, and employment has increased by 5.8 million jobs, much faster than the normal rate of growth.
Additionally, the unemployment rate has picked up only slightly.
“So, it seems like whatever the Fed is doing hasn’t had much of an impact so far,” Puri said. “If anything, things seem to be picking up. If you look at the gross domestic product increase, the best measure of overall economic health, it has been very healthy since last year.”
The backbone of this strength of the economy are the consumers, he said.
Consumer spending has been pretty healthy after going down a little bit earlier this year and last year, getting back to the historical average.
And although government spending is masking the effect of “the fastest rate hike cycle in the past 40 years,” a soft landing for the economy is unlikely, the economists said.
The economy is throwing out mixed signals, Farka said.
Some parts of the economy are slowing down while other areas pick up, she said.
“All we’ve been doing over the last 18 months is talking endlessly, really, about this soft landing and recession and kind of going back and forth between the two,” Farka said.
The economist said soft landings and recessions are virtually indistinguishable in the early stages.
“And of course, everybody gets very excited that the soft landing is just around the corner the moment you think that the Fed is done with raising interest rates,” Farka said. “We think we’re going to have sort of a normal garden variety recession. You can call us reluctant and bearish. And I say reluctant because we hope we’re wrong. Bearish only because in a sense that we think it’s going to be hard for the economy to sort of avoid a recession.”
While inflation has not been halted, the rapid rate hikes of the past 16 months are beginning to have some impact, both nationally and locally, the economists said.
By late 2024 and early 2025, the economists predict the local unemployment rate to reach 5% or higher.
“We are finally at a turning point wherein the Fed policy is in search of a neutral space, hoping to tame the economy without a hard landing,” Puri said. “The strength of consumer spending and robust hiring by businesses have bolstered the overall economic outlook over the past year, but signs of weakness are proliferating. Trends in the national economy are reflected in many ways in our local economies, those of the state and Southern California.”
Farka typically weaves a bit of humor into her forecasts, and that was the case again.
“In fact, in the words of the man who built this house, Walt Disney, ‘I heard there’s going to be a recession. I decided not to participate,’” Farka said. “So, let’s actually decide not to participate, but maybe never participate in the recession. Maybe we’re wrong about everything. Hopefully, your bottom line is better than our forecast.”
