Catch 22 -- Logical Paradox of this Recession and The Recovery

An Economic Catch-22 —A Logical Paradox for Job Growth?

A recent report from the UCLA Anderson Forecast issued June 15th 2010, predicts that the California economy is expected to grow a bit slower than the nation's economy for 2010, and only slightly faster thereafter. This slow growth rate will result in only modest inroads into the state's high unemployment rate.

The report titled “A Homeless Recovery,” concludes that this time around, the economy can’t count on free-spending consumers to boost it along. The report cites today’s “frugal consumers” and describes “If the next year is going to bring exceptional growth, consumers will need to express their optimism in the way that really counts; buying homes and cars. And that is not going to happen if businesses continue to express their pessimism in the way that really counts by not hiring workers.”

In another element of the forecast, the economists predict the recovery will be “rocky” in the commercial real estate sector. “There is just too much debt that has to be worked through”.

The report cites an “Economic Catch-22.” (A Catch-22, coined by the author Joseph Heller in his novel of that same name is a logical paradox wherein a situation exists in which an individual needs something that can only be acquired by not being in that very situation; therefore, the acquisition of this thing becomes logically impossible.) The challenge is that significant reductions in the unemployment rate require real gross domestic product growth in the range of 5% to 6%, compared with normal GDP growth of 3%. As a consequence, consumers concerned about their employment status are reluctant to spend and businesses concerned about growth are reluctant to hire.
UCLA Anderson’s forecast for GDP growth this year is 3.4%, followed by 2.4% in 2011 and 2.8% in 2012, well below the 5% growth of previous recoveries and even a bit below the 3% long-term normal growth. In the California forecast they indicate that the state “will grow slower than the US and a slow recovery in jobs will leave unemployment at 12.1% for the year.” “The latter part of our forecast (through 2012) calls for health care, professional and business services, exports, construction and technology-related manufacturing sectors to generate a bit more robust growth in California.”

The Anderson report is another estimate of a “jobless recovery”. Their conclusion is that the state will grow more rapidly in the following two years but that job creation will not be fast enough to push the unemployment rate below double digits until 2012. “Unlike other deep recessions, the rapidity of the recovery, at least on the unemployment front, will be muted”…

To read more here is a link to additional coverage from UCLA Anderson:
http://newsroom.ucla.edu/portal/ucla/ucla-anderson-forecast-u-s-recovery-160346.aspx

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