California’s economy is heating up. Here’s what economists have to say about a recession

California’s economy is looking up. Without an asterisk..

The new UCLA Anderson economic forecast for the last nine months offers two scenarios for the California economy, one if there is a recession and one if there is not.

Despite some dire economic signs — notably the Federal Reserve’s string of interest rate increases since March 2022 — no recession has developed and none appears imminent

As a result, the new forecast said, despite a weak national economy, “We have now returned to the no-recession forecast.”

The optimism is based on “strong employment and growth numbers, a muted response by housing to higher interest rates, and government fiscal policy offsetting weakness induced by Fed monetary policy.”

Those developments, as well as new investments in green technology and artificial intelligence “should keep California growing faster than the U.S.” for some time, the forecast said.

Nationally, UCLA said, “The oft-predicted but never seen ‘recession next quarter’ has now faded in the face of expansionary fiscal policy, a new national industrial policy, and a consumer who is happy to continue spending.”

The forecast also sees a slowdown in price increases. Nationally, prices went up 3.7% in the 12 months ending in August. It predicts California prices up 3.2% next year and 2.9% in 2025.

Could things go wrong?

There are risks, of course.

“Will there be a protracted shutdown of the government? Will geopolitical events upset the current growth pattern? Will the election result in different national economic policies in 2025?” the forecast asks.

It calls these risks are “substantial and bear watching as they could well drive the economy off its current growth path.”

One surprisingly brighter spot has been the housing market. Mortgage interest rates have been hovering over 7% for a fixed, 30-year loan. Rates averaged 7.31% nationally, Freddie Mac reported, the highest level in 23 years.

But the forecast noted that while home prices tend to be lower than their peak, they’ve been inching upwards in some markets, notably San Diego, Los Angeles and San Francisco.

“With existing home sales at depression levels, builders are responding with new developments,” UCLA said.

“Despite the higher interest rates, the continued demand for a limited housing stock coupled with state policies inducing new homebuilding should result in the beginning of a recovery this year followed by solid growth in new home production thereafter,” it said.

While inflation-adjusted personal income for Californians is expected to drop slightly this year it’s predicted to rebound at a 1.2% pace next year and 2% in 2025.

Technology growth will help. “The announced layoffs at large tech companies such as Twitter, Google, and Salesforce might be an indication of a contraction overall in tech,” the forecast said, “but the continuing story is that the data do not show it.”

And it found that the professional, scientific, and technical services sector, which UCLA called “a tech-intensive sector containing many of the firms announcing layoffs,” hit record levels of payroll employment in the first eight months of this year.