Chapman University economist James Doti expected a dour 2023: a recession, fewer jobs and falling home prices.
Relatively speaking, he batted zero for three. Even though the national and local economies cooled from 2022’s torrid growth, they didn’t crater. Employers continued to hire modestly, and house hunters were willing to pay just above list price for the rare home on the market.
Yet, the veteran forecaster is sticking to his thesis that economic struggles will come in 2024. The university’s semiannual economic forecast, released Thursday, Dec. 14, suggests the pain has just been delayed, and the short-run declines may be more of extended sluggishness rather than a sharp tumble.
“Just very slow growth. No recession” is how Doti sums up his outlook.
In fact, Doti thinks, the economy could use a recession to quickly rid itself of some ills, such as a surging cost of living and stubbornly high home prices.
“We’re overdue,” he says.
Doti ties his 2023 forecasting errors to the federal government’s latest $2 trillion budget deficit. It’s unprecedented economic juice for relatively stable economic times, he says. But those boosts are not without costs, such as enduring high inflation and interest rates.
“That’s historically high stimulus, nothing like we’ve had in the past,” he explains.
So if Doti’s adjusted his crystal ball is correct, expect a dull 2024. Consider the highlights of Chapman University’s forecast …
Nationally: Gross domestic product will grow only 1.2% after 2023’s surprising 2.4% jump. Inflation will cool to 2.9% – but that’s still above the Federal Reserve’s 2% target. And interest rates will remain elevated, with the 30-year mortgage running an average 7.7% in 2024 vs. 6.9% this year.
California: Expect just 0.5% job growth after adding 1.8% in 2023. Shoppers will remain thrifty, with taxable retail sales off 4% after 2023’s 3% dip.
Orange County: Only 0.6% job growth after 2.3% in 2023.
Doti warns that cheap money and huge federal deficits have distorted the nation’s economic underpinnings.
The pandemic era’s historically low mortgage rates, for example, supercharged the homebuying market. But that same low-rate financing is now muting home sales.
“People are smart, prudent,” he says. “They don’t want to give up sweetheart mortgages.”
The lack of move-up buyers is limiting supply and supporting high prices. Chapman sees Orange County housing values rising 3.5% next year after an unexpected 3.9% gain in 2023.
But there’s associated pain: Affordability. So, Chapman expects home sales to remain near historic lows – off 4.5% next year after tumbling 20% this year and 31% in 2022.
And while some observers see a resilient economy, Doti fears businesses and consumers have become too dependent on economic stimulus. This leaves business conditions vulnerable to higher-for-longer interest rates, federal spending cuts and the always lurking economic “surprise”.
Doti sees a thin line between a chilled economy and a recession in 2024.
“It won’t take much to get us into a deeper drop,” Doti says.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
