STATE TO DODGE BULLET NO RECESSION, FORECAST PREDICTS.

Byline: Gregory J. Wilcox Staff Writer

A long-anticipated decline in the housing market should arrive next year but it won't be as severe in Southern California as elsewhere in the nation, nor should it trigger a recession, according a widely watched UCLA forecast that will be released today.

The fourth quarter Anderson Forecast is slightly more optimistic than three months ago but much more so than at this time last year. Economists then believed that the nation could sink into recession as the housing market contracted.

Now UCLA expects California to have anemic growth across the economy for the next two years and sidestep a recession. Meanwhile, home prices should plateau and the pace of new home construction moderate.

For California, job growth of 1.6 percent is expected this year, slip to 1.1 percent in 2006 and 0.8 percent in 2007. By comparison, growth rates for the nation are expected to be 1.6 percent, 1.2 percent and 0.9 percent over that time frame.

Anderson economists initially expected the residential real estate market turn to start in the middle of last year, then in September pushed it back to early 2006. Indicators still say it's coming, it's just the timing that's in question.

But Southern California's strong market and others in the state are likely in for a ripple rather than a shake.

Across most of Southern California home sales have been looking good. There is evidence of slowing nationally. We have not seen that in California, said Michael Bazdarich, a senior Anderson economist who wrote the real estate assessment.

Sales are on a record pace across the state and in Los Angeles County this year, and while they are expected to fall next year, they should still be at a high level, most market watchers concur. This fall autumn sales are running under year-ago levels and annual price appreciation has moderated in most areas. But it is still in the mid-teens for the state and region.

The housing market also typically cools in the third and fourth quarters.

``You have to be careful not to mistake seasonal fluctuations for underlying trends,'' Bazdarich said.

This quarter's forecast looks at California and the nation, but did not include the Los Angeles metro area. That will resume in the 2006 first quarter.

Both outlooks call for moderate job growth, with the strongest occurring this year then tapering off through 2007.

Nationally, job growth will soften but won't go negative, thus a recession is not looming on the two-year event horizon.

And while the California outlook mirrors the nation's, the scale is balanced between optimism and pessimism.

For example, economist Ryan Ratcliff, who wrote the California outlook, notes that some housing markets are slowing while others remain strong. Job growth is weakening, but taxable sales and personal income remain strong.

``In this ambiguous setting, assessing the health of the California economy boils down to your own state of mind: Is the glass half empty or half full?'' he wrote.

He also said that the trend for employment in the state is moving from ``mediocre to down right ugly.''

After a growth spurt in July and August, it's slowed to a crawl. In September and August payroll employment grew by 9,300 jobs versus 44,800 in the year ago period.

That's due in large part to the information sector, which includes the big Los Angeles-based entertainment component. In the first half of the year, it added 24,000 jobs on the strength of television-driven surge in motion picture and sound recording jobs. That represented 22 percent of California's non-farm payroll gains. Since July, 17,000 of those jobs in the Los Angeles area vanished, said UCLA's analysis.

That's the half empty take.

On the other hand, gains in personal income, taxable sales and general fund revenues add up to a vessel half full.

Taxable sales in the state for the second quarter, the latest available, are up an annual 8 percent and personal income increased 6.4 percent. And California should end the 2005-2006 fiscal year with a $1.2 billion general fund reserve.

UCLA cautions about getting giddy over the latter, even though some believe this will result in a budget surplus next summer.

``Don't buy the hype,'' Ratcliff cautions.

That's because state revenues still fall short of spending so the general fund reserve will just be exhausted a year later than anticipated.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., is a little more optimistic about job growth - 1.6 percent this year and next - than the Anderson economists. But he, too, believes housing prices will level out.

``If you look at the major industries around the state the situation is pretty optimistic. Tech is doing well, international trade should continue to do well as well as travel and aerospace,'' he said.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com

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CALIFORNIA FORECAST

Source: Daily News Research/Anderson Forecast