Forecaster of Recession Fuzzy on Trump’s Future

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Christopher Thornberg has emerged as the region’s most outspoken and visible economist. Thornberg, 49, first developed a love for economics while getting his Ph.D. in marketing at UCLA. After stints at UC San Diego, Clemson University, and a Thailand university, he returned to the area to join the UCLA Anderson Forecast, where he specialized in economic outlooks for California, Los Angeles, and the East Bay. In 2006, he split from his Anderson colleagues to found Beacon Economics. He was one of the first economists to say the housing market was in a bubble and that its bursting would lead to a recession. Beacon this month issued a forecast saying the odds of another recession have increased with the election of Donald Trump as president.

Why do you think the chances of a recession will rise with Donald Trump becoming president?

With the election of Donald Trump, there will be a substantial shift in the nation’s policies. But right now, we don’t know what those policies will end up being. You could see some short-term upside with infrastructure spending and traditional Republican approaches to economic growth, chiefly tax cuts. But if the alt-right populist Donald Trump prevails, there could be substantial downsides, including trade wars.

You successfully predicted the bursting of the housing bubble a decade ago. Are we seeing another bubble forming?

There is no bubble forming. Even if there was a bubble in asset prices, it wouldn’t have too much of an impact. You hear talk of an asset bubble, but asset prices today are high because of low interest rates. Those interest rates are likely to remain low for quite a while because there’s a lot of capital out there looking for places to grow.

California’s economy was being compared with that of Greece a few years ago. How did it manage such an abrupt turnaround?

That perception was completely misplaced. California and Greece were never comparable in the first place. Greece has deep structural problems. California never had those structural issues; our downturn was due to the recession and the business cycle. So when the recession ended and the business cycle turned, California’s fortunes turned up with it.

Do you see California continuing to outperform the nation?

I’m very bullish on the economy here with one major exception: the price of housing. Unemployment in the state has now gone down to the nationwide level. So that means there is little slack in the local labor force. To keep growing, employers will need to reach outside the region to bring workers in. But that’s harder and harder to do with the lack of affordable housing.

Employment in Los Angeles County has topped 4.4 million, a record high.

What’s driving this growth?

You hear mostly about all those new tech jobs and – to a lesser extent – growth in logistics. But there’s a lot of new investment going on across all sectors. So many things doing well: professional work, restaurants, tourism. L.A. is experiencing general, broad-based growth. The world is rediscovering and reinvesting in the city and the region.

What risks do you see for the regional economy?

One big risk is the rise of NIMBY-ism across the region. You see local groups trying to pull up the drawbridge and stop investment. And that raises the question: Will this be a city for everybody or only the well-heeled? The lack of affordable housing is having the effect of driving out lower-income people.

Is that why you have consulted for opponents of the Neighborhood Integrity Initiative?

What the Neighborhood Integrity Initiative and similar measures are intended to do is put the kibosh on what little development is coming out of the pipeline right now.

Is it appropriate for economists to wade into political battles?

I don’t think this is political. I’ve repeatedly said we have a housing supply shortage: Housing is expensive for everybody.

What about traffic congestion? Could that hinder growth in Los Angeles?

Actually, it’s the other way around: Traffic congestion is a symptom of success, not decline. I know the L.A. economy is doing well if I can’t get anywhere quickly.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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