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CSUF Forecast: Modest Recovery for Next Two Years

Orange County’s economy will grow at a modest pace next year and in 2012, but a strong recovery is unlikely, according to a forecast from California State University, Fullerton economists.

The worst is over for the region’s economy but substantial growth is years away, given the severity of this recession, lingering problems in the housing sector, continued tight lending and high unemployment, according to the report.

“The economy is going to be slow because of such a deep hole we have to dig out of,” said Anil Puri, dean of the Mihaylo College of Business and Economics at Cal State Fullerton.

There are some bright spots.

OC households are continuing to pay down debt and rebuild their balance sheets, a shift that’s expected to carry over the next three years.

According to data from Experian PLC, household debt here fell by 7.7% since the peak at the end of 2008, faster than the national average of 5.5%.

The county and state also are expected to recover faster than the national economy.

While the forecast projects government jobs to decline over the next two years, the overall employment picture is improving here.

Employers added 4,600 jobs in September, although the gains did not sway the unemployment rate, which was unchanged from August and a year earlier at 9.6%.

More than 13,400 jobs were added in the last 12 months, a 1% gain from a year earlier. September marked the third month of consecutive yearly gains.

Unemployment rates in the region are expected to decline by approximately 1% in 2011 and another 2% in 2012, adding some 50,000 jobs in that span.

Pre-recession unemployment levels won’t be reached until 2014, according to the forecast.

OC lost 110,158 jobs last year, according to state Employment Development Department.

“2009 was the worst year on record for Orange County,” Puri said.

The construction industry was hit the hardest, losing nearly 7,000 jobs in the last year.

Financial, professional and business services, along with the government sector also took big losses.Housing, another key industry here, is not expected to improve significantly in the next few years, as current foreclosures and pending home defaults temper prices and sales activity.

“There’s substantial inventory already,” Puri said. “As the economy moves along slowly this can become worse.”

Home sales picked up in 2009 and part of 2010 thanks in large part to government programs and incentives, which have ended.

Local building permits hit rock bottom in 2009 at 2,200, down from 3,200 in 2008 and 7,100 in 2007.

The forecast predicts housing prices to show a moderate gain of 2% to 4% on an annual basis in 2011.

The median price of an OC home sold in September was $445,000, roughly the same as the summer of 2003, as the real estate crash and recession wiped out most of the gains in the last seven years.

“We’re coming out of the deepest recession since the Great Depression,” Puri said. “At least for a couple of years it’s going to be tough.”

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