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California will lag the United States as the country recovers from a deep recession, with normal growth in the most populous U.S. state not seen resuming until 2011, the UCLA Anderson Forecast group said Wednesday.

Although there are signs now of a recovery beginning to take hold in California, the state’s unemployment rate is expected to stay above 10% until late in 2011, the forecast group said in a report.

The report comes a day after Federal Reserve Chairman Ben Bernanke said that the worst U.S. recession since the Great Depression was probably over, though he warned that recovery and job creation would be slow.

California’s economy, the world’s eighth largest, is suffering record unemployment as it staggers under the combined weight of the recession, a sharp drop in consumer spending, reduced trade flows, financial market turmoil, the mortgage crisis and a prolonged housing slump.

"Overall, the outlook for the balance of the year is for little to no growth," UCLA Anderson Forecast said in its report. "The economy will begin to pick up some tail winds towards the end of 2010 and by the beginning of 2011 we will get off the tarmac and begin to grow at more normal levels.

"The keys to California’s recovery remain a recovery in U.S. consumption, which increases the demand for Asian imports, and for products from California’s factories, increased public works construction, and increased investment in business equipment and software," the report said.

Over the near term, California will be hurt by reduced public spending. The state in July closed a budget gap of more than $24 billion opened by a plunge in personal income tax revenues. Retail sales tax revenues have been hurt by weak consumer spending, denting the coffers of both the state and local governments.

The combined blow of lower income tax and sales tax revenues "implies declining government employment through the end of the 2010 fiscal year," the report said unsecured personal loans.

High unemployment to persist

California’s unemployment rate will peak at 12.2% in the fourth quarter and average 11.6% this year, the report said.

"Though the California economy will be growing in 2011, it will not be generating enough jobs to drive the unemployment rate below double digits until the end of the year," the report added. It forecast an average jobless rate next year of 10%.

The report forecast California’s total employment will shrink by 3.7% this year and grow only at a 0.2% rate next year, then expand by 1.9% in 2011.

The report did offer glimmers of optimism: the housing market is beginning to pick up, existing homes are more affordable, "conditions are becoming ripe for new residential construction," and demand for the state’s export goods is starting to increase.

"Though the consumer goods and services sectors remain very weak, consumer confidence surveys and the response to the ‘cash for clunkers’ program provide indicators that consumer demand may be on the verge of recovery and the implosion of hospitality, retail, wholesale and transportation employment may be coming to an end," the report said.

"Everything that happens at the end of a recession is happening now," said Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast unit. "But what doesn’t happen at the end of a recession is an end to job loss, so in that sense there will still be some more bleeding." 

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