A New Economic Forecast Predicts California Will Lead U.S. COVID Recovery

The country is poised to bounce back fast, but California’s rebound will be even faster, UCLA economists say
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The U.S. is on the verge of the greatest financial rebound in generations—and California is going to do even better, according to a new study by UCLA’s Anderson School of Management.

“For the economy, a waning pandemic combined with fiscal relief means a strong year of growth in 2021—one of the strongest years of growth in the last 60 years—followed by sustained higher growth rates in 2022 and 2023,” Anderson senior economist Leo Feler predicts in the school’s quarterly economic outlook, released Wednesday.

In his essay, “Robust Economic Growth and Recovery After a Dreadful Year,” Feler forecasts an economic comeback that would dwarf the average 2.3 percent yearly growth rate the country experienced in the decade following 2010’s Great Recession. After 2020 saw the economy shrink by 3.5 percent, the study estimates the gross domestic product will grow by 6.3 percent this year, 4.6 percent in 2022 and 2.7 percent in 2023.

“This is a very ‘good news’ forecast,” Feler tells the Los Angeles Times. “We have finally turned the corner.”

California’s unemployment rate of 8.4 percent for the last quarter of 2020 was worse than the national average of 6.7 percent, but the study’s authors note that the Golden State implemented tougher restrictions than the rest of the country, and that it will also bounce back more quickly.

“Although the timing may be offset with California beginning a significant recovery later than some other states, we expect the California recovery to ultimately be, once again, faster than the U.S.,” writes forecast director Jerry Nickelsburg.

The economists expect California’s unemployment rate to drop to 7.7 percent in the first quarter of 2021 and to 6.8 percent for the rest of the year, followed by rates of 5.1 percent in 2022 and 4.1 percent in 2023—though these number still trail the pre-pandemic rate of 3.9 percent.

While California payrolls sank by 7 percent last year, the study predicts growth of 4.1 percent in 2020, which is faster than the U.S. average of 3.6 percent. In 2022 and 2023, California job growth is expected to reach 3.1 percent and 2.3 percent.

The Anderson outlook also bolsters a previous study that debunked media reports claiming there had been a mass pandemic exodus from California, although Bay Area rental rates did drop precipitously as low-income workers and students temporarily moved away while remote tech workers relocated to the suburbs.

Tourism and hospitality jobs in California took an unprecedented hit last year, but that sector is expected to bounce back faster than any other this year, growing by 10 percent, while employment in transportation, warehousing and utilities will rise by 5.8 percent.

Although construction will see 4 percent growth as “the continued demand for a limited housing stock, coupled with low interest rates, leads to a forecast of a relatively rapid return of home building,” the study warns that “this level of home building is low enough that the prospect of the private sector building its way out of the housing affordability problem over the next three years is nil.”

One expert, however, believes the UCLA forecast for California is a little too rosy.

Bank of the West economist Scott Anderson tells the Times to expect “the best multi-year period for U.S. economic growth since the late 1990s dot-com boom,” but adds,

“I see more potential for lingering problems from outmigration, poor housing affordability and an inability to quickly ramp up the state’s residential construction this year.”

Anderson foresees a more modest unemployment recovery than UCLA, with California’s rate hitting 7.2 percent in 2021, and dropping to 5.8 percent and 5.2 percent in the next two years.

Feler predicts the first sector to recover will be healthcare, which will surpass its pre-pandemic 2019 peak by the end of 2022.

“Everyone talks about taking vacations, going to restaurants and bars,” he says. “But first it’s: ‘Let’s go get our teeth cleaned.’”


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