Anil Puri, director of CSUF’s Woods Center for Economic Analysis and Forecasting, and co-director Mira Farka, also predict that the “sizzling house price increases” in OC will slow down.
The two presented their closely watched forecast in an online forum last week. In a sign of growing confidence, Puri started his presentation with the prediction that “we will have a face-to-face event next year, and hopefully with lunch.”
Overall, the economic and social picture is picking up with the steady progress of vaccinations and strong government support.
Puri and Farka predicted the nation could reach “herd immunity” against the coronavirus in June, while OC is likely to get there a bit sooner.
California is aiming to fully reopen the economy on June 15.
The CSUF economists project that the U.S. economy will expand 6.8% this year, a once unthinkably high number, following “the shortest recession in history,” one they say ended before the middle of last year.
Wall Street appears to be betting on such a recovery. Major stock indexes have been moving upward, and President Joe Biden has vowed to fight for a wide-ranging infrastructure, jobs, climate and social spending plan carrying a price tag estimated at more than $2 trillion.
CSUF’s rosy forecast is mirrored by fellow economist, and Chapman University President Emeritus, Jim Doti.
At Chapman’s latest annual economic forecast in December, Doti predicted that the U.S. economy would expand 5.7% in 2021. That was among the county’s more optimistic predictions, he noted during a talk at the Pacific Club in Newport Beach last week.
GDP growth could end up surpassing that figure in 2021, and perhaps top 7%, Doti said.
The recession is over, and the recovery is very much a V-shaped one, Doti said.
Jobs Recovery
“As the pandemic threat recedes, the country and Orange County appear ready to bounce back with a bang,” said CSUF’s Puri and Farka last week.
“From December 2020 to December 2021, we estimate the county will add more than 85,000 jobs,” Puri and Farka said. Orange County is now down about 137,000 payroll jobs compared to the pre-pandemic level of February 2020.
The county gained 17,800 jobs in March, according to state figures. More than half of those gains were in the hard-hit leisure and hospitality sector.
CSUF expects the OC unemployment rate to fall to 4.9% this year from the 6.4% level seen in March. Unemployment here reached 14.9% in May of last year. Prior to the 2020 recession, OC’s unemployment rate was about 3%.
“OC’s job recovery has been slower relative to California and the U.S. primarily because of its greater loss in leisure and hospitality sector that has been slow to recoup jobs,” Puri said.
California is lagging behind the U.S. in general because the state locked down more strictly and imposed stricter business and economic restrictions throughout last year due to COVID-19, Farka said.
“Employment in many industries, especially in the leisure and hospitality sector, will achieve pre-pandemic levels towards the end of 2021 or early 2022, though most other sectors would fully recover only in mid- or late 2022,” according to the forecast.
The Fullerton economists leave no doubt that the county, like the rest of the country, has been hard-hit by the coronavirus and “some of its effects will linger for years to come.”
Housing Watch
Inflation is an ever-present risk, and could have a major impact on OC’s hot housing market and its base of lending companies, both set of economists agree.
The median sales price of a home in OC is near an all-time high of $835,000, according to data from Irvine’s CoreLogic. That price is up nearly 11% year-over-year.
Thirty-year mortgage rates at around 3% are propping up sales, Doti said last week. If inflation results in a boost to once-normal interest rates of just 5%, it would have a dramatic effect on what borrowers can afford, and negatively affect both pricing and sales volume, he cautioned.
The annualized pace of increase for home prices, from August 2020 to February 2021 was 12.4% compared to the same seven-month stretch the year before, according to CSUF’s data.
That blistering pace is expected to decline to an annual growth rate of between 5% and 7% during 2021 and 2022, they predict.
Mickey Unhappy
CSUF economists underscored once again the outsized role that Disneyland plays in the local economy.
“A back-of-the-envelope calculation shows that Disneyland’s closure may have cost the Southern California economy approximately $6.2 billion in output and 60,000 in jobs of which approximately 43,000 are in Orange County,” according to the spring forecast.
As Puri put it during the April 21 online presentation: “Mickey is not happy. Disneyland has been closed for a whole year.”
Disneyland Resort in Anaheim says it plans to open on April 30, subject to limitations.
However, during last week’s presentation of the center’s comprehensive outlook, she acknowledged there are still some risks. They include:
• Inflation. “We don’t think inflation is a problem right now this year, because we have a lot of slack, especially in the labor market, but come next year, I think inflation will pick up meaningfully and that will become a problem.”
• The U.S. economy could become overheated, leading the Federal Reserve to raise interest rates earlier than the central bank planned. Farka and her colleagues forecast the Fed will raise rates around the July-to-September period of next year.
• Growing public debt that could curb initiatives in the future.
• “Market over-extension is a real concern going forward.”
Her colleague, Woods Center director Anil Puri, added that President Joe Biden is determined to raise the tax burden for businesses to pay for the recovery program.
“Taxes are like dog bites. They bite. They’re going to hurt,” he said.
—Kevin Costelloe
