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Economists Project OC Economic Future

'Breaking Free' — At Least in the Short Term

Oct. 24, 2014

Cal State Fullerton economists Anil Puri and Mira Farka expressed optimism about the nation's economic future — at least in the short term — as they delivered their projections Oct. 23 at the 20th annual Economic Forecast Conference, sponsored by Cal State Fullerton's Mihaylo College of Business and Economics and the Orange County Business Council.

"The U.S. economy is doing very well compared to other countries," said Puri, dean of Mihaylo College, noting positive growth in consumer spending, less drag from fiscal policy and even some uptick in spending from state and local governments, robust gains in the labor market and a notable recovery of household wealth.

"There are lots of positives," Puri said. "Breaking free is a real deal."

"The short-term optimistic outlook is fueled primarily by the fact that this recovery has been so miserable," said Farka, noting that there is "pent-up demand for virtually everything: cars, housing, labor and investment."

But in the longer term? "The recession may have left some permanent scars," she said, pointing to the lack of business investment in capital stock, weak productivity growth, a precipitous drop in the labor force participation rate, and a drop in total aggregate hours due to a weak labor market.

The drop in hours can be explained as cyclical but "the other three factors are more permanent and may have caused a lasting damage to economic growth," Farka said. "All combine for a gloomier long-term economic outlook."

"Even though we've recovered all the jobs we've lost during the recession, if you look at it, there are far fewer full-time positions than before — 2.5 million fewer."

And the composition of jobs by age group is highly uneven. Of all the new jobs being created, only one-fifth are being filled by "prime-aged" workers — those in the 25-54 age group, even though they account for more than two-thirds of the labor force. More than half are being filled by the 55+ demographic, who make up less than one-fifth of the labor force.

The two economists summed it up by saying that they believe the short- and medium-term will be much brighter than the last couple of years — the "Breaking Free" part of the outlook. The long term is less optimistic because of adverse long-term structural trends like demographic changes and lower productivity growth — the "Breaking Bad" scenario.

"Additionally," said Puri, "there are a number of risks and headwinds: the unwinding of the monetary policy, the global economic slowdown and the geopolitical situation."

Those concerns notwithstanding, Puri and Farka expect the global economy to continue to expand over the forecast horizon, growing by 3.3 percent this year and by 3.7 percent in 2015 and 2016, roughly at historical rates.

Locally, the economists reported that the "positive momentum should sustain the regional economies over the next few years, with the pace of the expansion accelerating as the recovery enters a more mature phase."

Prior to the forecast presentation, Cal State Fullerton President Mildred García announced that a $1 million endowment campaign goal to support and sustain Mihaylo College's annual economic forecast and analysis has been reached. The campaign lunch had been announced during an economic forecast two years ago.

A copy of the 2015 Economic Forecast Report is available on the James and Jeanette Woods Center for Economic Analysis and Forecasting website

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