The sluggish housing market hasn’t stalled the overall California economy so far, but researchers at a prominent forecasting group expect lower construction employment to drag growth lower next year.

“We’ve been expecting to see housing weakness take a toll on California and the fact that it hasn’t has been a surprise to us,” said Ryan Ratcliff, economist at the UCLA Anderson Forecast, which releases its forecast on the California economy today. “But based on the historical record, it wouldn’t be wise to say we’ll dodge the bullet.”

Ratcliff does not foresee a recession for the state or nation but said the economy will remain lethargic until the real estate market begins to pick up around 2009.

For 2007, UCLA forecasters say payrolls will increase by 1.4 percent — a notch above their earlier 1.3 percent prediction — but decline to 0.9 percent in 2008 before bouncing up to 1.6 percent in 2009.

One of the biggest hits will come in construction jobs, which accounted for 27 percent of all job creation in California from 2003 through 2005. Sector payrolls will drop by 1.9 percent this year and 5 percent next year (46,000 jobs), before returning to 1 percent growth in 2009.

After studying more than 40 years of construction data, the researchers found average construction employment falls two to three years after annual building permits hit their peak — indicating that the building slowdown will filter through the economy in quarters to come.

Still, the fact that the manufacturing sector — which includes computer and some other technology jobs — has held its ground should help offset the construction slowdown. In past economic cycles, downturns in two major sectors usually touched off a recession, Ratcliff said.

The report calls for manufacturing employment to edge up from 1,504,000 jobs this year to 1,515,000 jobs by 2010.

In addition, education and health services, government and tourism employment remain healthy, said Howard Roth, chief economist for the California Department of Finance.

And Roth says the housing market may begin turning around in mid-2008 as builders sell off excess inventories of new homes.

Other economists cautioned that such predictions might be too optimistic.

The UCLA report stresses construction and real estate jobs, but may not give enough weight to other areas affected by the languishing home market, said Esmael Adibi, director of the Anderson Center of Economic Research at Chapman University (not related to the Anderson Report at UCLA).

Though, like Ratcliff, Adibi doesn’t predict a recession, he fears consumers will pull back spending, affecting sellers of items such as cars and home furnishings.

Ultimately, self-employed contractors, retailers and others — who aren’t tracked in official payroll statistics — could see business falter, which could have a broader impact on the state’s economy.

“In the stock market, corrections are very quick,” Adibi said. “But in the real economy, the adjustments and corrections are very lengthy. This is going to linger because I think home prices are going to continue to decline and sales will stay in the doldrums.”

Source:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/06/19/BUGICQHFBR1.DTL&hw=real+estate&sn=008&sc=478