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May 08, 2008 (The San Diego Union-Tribune - McClatchy-Tribune Information Services via COMTEX) -- Job losses, rising gas prices and continuing weakness in the real estate market will plague San Diego County's economy for months to come, according to a forecast released today by the Anderson Forecast of the University of California Los Angeles.

The economists at the Forecast -- a pre-eminent economic think tank -- refrained from saying that the local economy is in a recession. But they got close.

"The continuing litany of bad news sure sounds like it could be a recession," wrote UCLA economist Ryan Ratcliff and Alan Gin, economist with the University of San Diego.

They added that so far there has not been a sudden, precipitous drop in employment, which has marked recessions in the past. But other than that, their outlook on the economy sounded very much like a recession:

-- Employment in San Diego County, which declined 0.1 percent last quarter, will drop an additional 0.4 percent by the end of this quarter. It will not resume a healthy growth rate of above 1 percent until spring 2009.

-- The county's unemployment rate will rise from its current 5.3 percent in San Diego to 5.5 percent by June and will remain above 5 percent through summer 2009.

-- Retail sales this summer and fall will grow less than 2 percent, which translates into nearly a 1 percent decline after adjusting for inflation. That could lead to more layoffs at retail stores, which have shed 700 workers over the past year.

-- Home foreclosures will continue to be a drag on the real estate market for another 9 to 12 months. "It may very well be the middle of 2009 before we see a housing market that starts to look 'normal,' " Ratcliff and Gin wrote.

* The office market in San Diego County will remain weak, with few new projects through 2010. UCLA economist Jerry Nickelsburg wrote that the boom in office space that began in San Diego County in early 2006 put too much supply onto the market. He predicted that lower growth in demand would result in lower rental rates and more vacancies.

-- Rising fuel prices could cut into tourism to San Diego County at a time when new hotel rooms have just come onto the market. The increased supply of rooms and softening demand from visitors could spell trouble for the regional tourism industry.

Though those predictions sound bad enough, they could easily get worse, Ratcliff said. The forecast assumes that the rate of foreclosures, government budget cuts and gasoline prices will not rise much beyond their current trends.

"We're already forecasting things to be bad, but they could get worse," Ratcliff said. "A further spike in energy prices is one of the downside risks that we could be facing. Or if there are significant government job losses this year instead of 2009, which is already reflected in our forecast."

Ratcliff does not see much chance that the economy will do better than the forecast. He said the recent stimulus package coming out of Washington -- which includes a multibillion-dollar corporate tax credit -- won't have any major effect on the economy.

"There's no silver bullet here," he said. "Tax credits help a little at the margins, but they don't change the fundamentals of the economy. I don't think any of the policies (being discussed in Washington) will make a big difference, although they could make things a little less painful than they would have been otherwise."

Kelly Cunningham, economist at the San Diego Institute for Policy Research, agreed with the thrust of the UCLA report. "It is similar to what I've been seeing in San Diego -- having a slowdown, but technically avoiding a recession," he said.

On the other hand, Cunningham said unemployment will probably be worse than the forecast predicts.

"If we're already at 5.2 percent now, it will probably be above 5.5 percent in summer when students are out and looking for work," he said. "We're still losing jobs in construction and real estate, although we're adding jobs in other sectors -- such as high-tech, health care and tourism."

Marney Cox, economist at the San Diego Association of Governments, said that if employment were to decline for two quarters -- as the UCLA report suggests -- he would expect an unemployment rate of 5.8 percent or 6 percent. But instead, he expects a high of 5.5 percent, thanks to summertime employment.

"We're coming into the time when San Diego's visitor industry really begins to add people," he said. "Spring and summer typically show positive growth in employment."

With gas prices hovering around $4 a gallon, however, the UCLA report says that the tourism industry could be in trouble in San Diego and elsewhere in California, which could further threaten summertime employment.

High gas prices could discourage domestic travelers, whether they are driving from Arizona or Northern California or flying in from elsewhere in the country. The cheaper dollar could lure visitors to the United States from overseas, but most of those visitors will be Europeans who typically visit the East Coast.

The currencies of Japan and Taiwan, where many West Coast visitors originate, have not depreciated against the dollar, meaning there is less incentive for them to travel to the United States.

"This does not bode well for employment nor growth in the (tourist) industry," Nickelsburg wrote.

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Dean Calbreath,

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