Orange County will likely face a somewhat higher unemployment rate this year with slower job growth, economists at California State University, Fullerton said in their annual spring forecast.
At the same time, the U.S. will be caught up in a “garden-variety” recession starting in the second half of 2023, according to the university’s economists.
“Orange County is going to weather the storm, but we’re going to get wet,” says Anil Puri, director of CSUF’s Woods Center for Economic Analysis and Forecasting.
The housing market is a key focus of attention in the forecast, released at an event heavy with local business execs at the Westin South Coast Plaza on April 27.
The supply of homes for sale remains tight as owners hang on to favorable mortgages, according to the CSUF team, led by Puri and Woods Center Co-Director Mira Farka.
Median home prices hit a high of about $1.3 million in spring 2022, but since have fallen 5.8%.
“Housing prices we expect to fall by another 5% by the end of this year or early next year,” Puri said.
For Orange County, the average time on the market for a home for sale has jumped from six days in March 2022 to 23 days in February 2023.
84,000 in 2022
Puri and Farka, who is an associate professor of economics at CSUF, said that Orange County gained 84,000 jobs last year. That 5.3% growth, its largest ever annual increase, was partially the result of pandemic recovery.
This year will be a different story.
“We should expect job growth to slow down and actually turn negative by the end of the year,” Puri told the Business Journal on April 27, shortly before the forecast was released.
Payroll jobs are expected to grow by a “feeble” 0.4% in 2023, and decline by 0.6% in 2024.
The economists expect the average annual unemployment rate in Orange County to rise to 3.6% this year and 4.2% in 2024, from 3.2% last year.
“Orange County’s labor force is still below the pre-pandemic level,” according to Puri.
While the recent failure of Silicon Valley Bank and the last-minute rescue of First Republic Bank have rattled financial markets, Puri says: “Orange County banks appear to be, as of now, in pretty good shape.”
He added: “We don’t see any big flight of deposits.”
For more on OC’s banking industry, see next week’s print edition of the Business Journal.
“As we anticipated over a year and a half ago, inflation has played and will continue to play a significant role in the fortunes of the local and national economies,” the CSUF forecast said.
Farka told the Business Journal the greatest threats to the economy include “the drop in commercial property values for investors, lenders and others in the real estate business.”
“For others, it will be a profit squeeze: maintaining/offering higher wages while contending with reduced power to pass on these costs in terms of higher prices,” Farka said. “For some others, it will be the ease (or rather unease) at accessing credit and more onerous terms of credit/loans.
“Overall, the biggest threat will be the credit crunch and the downshift in economic activity, which we anticipate will hit the economy likely at the very end of this year/early next year.”
Recession Ahead for US, But Not Devastating
The U.S. will be hit by a “garden-variety kind” of recession in the second half of this year, according to economists at the University of California, Fullerton.
“Our outlook calls for a ‘normal recession,’ not the heart-stopping calamity of the financial crisis but a garden-variety kind akin to the early 1990s or 2000s,” according to their just-released spring 2023 economic forecast.
The report was prepared by Anil Puri, director of the Woods Center for Economic Analysis and Forecasting, and co-director Associate Professor Mira Farka.
“The recession is going to last 10 to 14 months, somewhere in there,” Puri told the Business Journal on April 27, shortly before the forecast was released.
He sees recovery from the recession starting in the second half of next year.
A whole array of economists has been predicting a recession will start this year.
Puri believes that the Federal Reserve made a mistake in waiting as long as it did to raise interest rates.
“They were too slow in recognizing the threat of inflation,” he said. “They should have done something earlier.”
He emphasized a key question is how big the mistake was, given the severe difficulties in predicting inflation rates.