Forecast: job growth hurt by housing.

It's again the season for economic soothsayers to polish up their crystal balls in an effort to figure out what the coming year will bring (even if they haven't been especially accurate these last few years).

This time, however, they find themselves in an even brighter spotlight. They're not just looking at a new year, they're looking at the outlook for the next millennium.

The initial projections: Continued job growth well into 2000, laced with growing concerns about whether the looming housing shortage will upend the economic picture.

Tom Lieser, executive director of the UCLA Anderson Forecast, cites housing costs as one of the main impediments to the growth of the local economy.

"Although there will be more jobs generated in Los Angeles than in Northern California, the rate of growth will be smaller here," Lieser said. "That is both because of the larger size of the economy in Los Angeles and because of the high density and the high cost of housing here. This puts a limit on the rate of growth that you can expect here, and most of the growth that we'll see will be on the fringes of L.A. County."

Tom Lee, chairman and chief executive of Newhall Land and Farming Co., says Los Angeles County needs between 25,000 and 30,000 new homes every year to accommodate newly created jobs, but only 12,000 are being built this year.

"Los Angeles leads the nation in the demand for housing, with just one new home being built for every six new jobs created," Lee said last week at the Foresight 2000 conference, an invitation-only event geared toward top executives at large and mid-sized companies in Southern California.

In his forecast for California, Lieser projects job growth to slow from 3.4 percent this year to 2.5 percent in 2000 and 2.3 percent in 2001. The growth rate for Los Angeles will be below that of the state, according to Lieser. (This year, the number of jobs in L.A. County is expected grow by 2.1 percent, meaning more than 80,000 new jobs will be created.)

But Lieser concedes that his projections might be conservative. Last year he predicted that the state's job growth would slow, from 3.2 percent in 1998 to 2.4 percent in 1999, and that the unemployment rate would increase, from 5.9 percent in 1998 to 6.1 percent in 1999. As it turned out, job growth increased to 3.4 percent and unemployment fell to 5.4 percent.

"The biggest surprise was how rapidly unemployment came down," said Lieser. "Also, the growth of jobs in the business services sector last year looked like it could not be sustained this year, but it was."

Those unforeseen events are what make forecasts somewhat unreliable. And the more long-term the forecast, the more unreliable it is.

According to the UCLA long-term forecast for California, non-farm employment in the state will increase by 8.2 million jobs, or an average of 2.1 percent a year, between now and 2020. That's a pretty bold claim - after all, it implies that the current expansion will continue for another 20 years, and who can predict that with any kind of authority?

"Twenty-year forecasts are always wrong," said Rajeev Dhawan, director of econometric forecasting with the UCLA Anderson Forecast. "Nobody projected 20 years ago that we'd have 2 percent inflation now, and if I were to project that we'll have 15 percent inflation in 2020, I'd be hung from the highest tree. A forecast tells us, on assumption A, B and C, this is what will happen."

Dhawan says the value of a long-term forecast does not lie in the numbers, but in what it says about the current direction of the economy and the long-term implications of that direction. It is meant to show whether the current expansion is sustainable.

"The first forecaster, Malthus, was wrong when he predicted that the world's resources would not be able to sustain the population growth," said Dhawan. "He was wrong because of subsequent technological progress, but that does not make it bad forecast. He used what was available to him, and made people aware of what would happen under the current conditions."

While economic forecasts are sometimes off the mark, that doesn't necessarily disqualify them as important tools for businesses and individuals, said Anil Puri, dean of the School of Business Administration and Economics at California State University Fullerton.

"Anyone who wants to plan for the future has to have some sense about what will happen," he said. "So the question is, what are you going to use, scientific evidence or your gut feeling?

Forecasters, according to Puri, rely on historical data, computer models, and assumptions about how the economy behaves to predict what is likely to happen. But they cannot take into account unanticipated events.

"To appreciate the use of an economic forecast, you have to distinguish between a scientific forecast and fortune telling," Puri said. "By definition, you cannot take the unforeseen into account."