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UCLA Anderson Forecast: No recession, but U.S., California economies continue to slow

UCLA Anderson Forecast: No recession, but U.S., California economies continue to slow
PR Newswire
LOS ANGELES, Sept. 21, 2022

Inflation, rising interest rates, declining real wages and consumer pessimism among the factors impacting growth
LOS ANGEL…

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UCLA Anderson Forecast: No recession, but U.S., California economies continue to slow

PR Newswire

Inflation, rising interest rates, declining real wages and consumer pessimism among the factors impacting growth

LOS ANGELES, Sept. 21, 2022 /PRNewswire/ -- The U.S. economy is likely to muddle along with below-trend growth and continued high inflation over the next 12 months, according to the UCLA Anderson Forecast's latest report. And while no recession is forecast at this time, Forecast economists say the possibility still exists that persistent inflation and aggressive interest rate policy will lead to a "hard landing" of the economy, potentially precipitating a recession.

In California, strength in a number of sectors will buoy the economy, while increases in defense spending and demand for technology will likely keep the economy growing. The greatest risk to the state's robust economy remains the economic weakness in the rest of the country and in sectors such as transportation and logistics, as consumers nationwide continue to shift from goods to services consumption.

The national forecast

Despite mixed economic signals and competing opinions about the state of the national economy, the UCLA Anderson Forecast's data-driven analysis suggests that the U.S. is not currently in a recession and that the chance of a recession in the next 12 months is less than 50%.

This assessment is based on several factors, including a robust labor market, strong consumer spending, an easing of COVID-19–related supply chain constraints, an increase in government defense spending resulting from geopolitical instability, and the return of manufacturing to the U.S. from overseas. Business have begun to "reshore" production or have chosen domestic expansion over expanding manufacturing capacity overseas, in response to supply chain issues and mounting geopolitical instability over the past year. That means more business investment will occur domestically rather than abroad going forward.

On the flip side, a number of factors could drive the economy into recession, including persistent and broad-based inflation; the likelihood that the Federal Reserve will continue to aggressively raise interest rates, constraining consumer spending and business investment;  consumer pessimism, usually a leading indicator of economic conditions; a downturn in housing markets related to rising mortgage rates; worsening worldwide economic conditions contributing negatively to U.S. exports; and potential labor unrest, as work stoppages and strikes may contribute to supply constraints.

"There is tremendous uncertainty about what will happen over the course of the next 12 months and through the end of our forecast horizon," says UCLA Anderson Forecast senior economist Leo Feler. "While we have not forecast a recession at this time, the risks to the U.S. economy are asymmetric to the downside."

The UCLA Anderson consensus forecast is that the economy will grow, on average, 1.5% in 2022, 0.3% in 2023 and 2.0% in 2024. Quarter by quarter, the UCLA Anderson Forecast expects seasonally adjusted annualized growth rates of 0.0% to 0.4% between the third quarter of 2022 and the second quarter of 2023. It is only in the latter half of 2023 that the forecast expects growth to pick up, to around 1% in the third quarter and then 2.1% in the fourth quarter. By 2024, the UCLA Anderson Forecast expects the economy to rebound and growth to accelerate slightly above long-term trends, to 2.3% to 2.5% annualized growth each quarter.

The forecast does not expect core inflation, as measured by the CPI and PCE indexes, to decrease during the next two years to the 2% level experienced before the COVID-19 pandemic.

The California forecast

In the September 2022 forecast for California, UCLA Anderson Forecast director Jerry Nickelsburg examines the impact of the state's recent declines in population on its economy. He notes the migration out of the state, coupled with a lack of international immigration and lower birth rates, has resulted in a historic reversal of California's annual population gains. At the same time, California's GDP was $3.36 trillion, which would make the state the world's fifth largest economy if it were a country. This poses a question: Are the companies and entrepreneurs exiting California a signal that the state's great economic run is at an end, or is this out-migration merely a spillover of the state's prosperity into other parts of the U.S.?

In his report, Nickelsburg looks at a number of factors, including GDP, investment, job growth and relative housing prices. His analysis proves positive for California, as these data collectively refute the notion that the state is in decline.

GDP is growing, and California is chasing Germany for the No. 4 spot in the world's GDP rankings. California households are becoming wealthier, on average, than those of other U.S. states. Investors continue to flock to the state in search of superior returns, and domestic out-migration, though it will continue for some time, is beginning to taper off due to the decreasing affordability of current alternative cities.

There are several strong sectors in California, including leisure and hospitality, health care and social services, technology, and construction, each of which posted solid gains in 2021. Increases in defense spending and demand for technology will likely keep the state's economy growing.

But there are cautions in the analysis. As a consequence of the weaker U.S. economy, the forecast for California — despite the state's inherent strengths — is weaker than it was three months ago. While increased international immigration and accelerated onshoring of technical manufacturing represent an upside for California, the state faces a number of economic headwinds, including the continuing pandemic and domestic migration. 

California's unemployment rate for the third quarter of 2022 is expected to be 4.3%, and the averages for 2022, 2023 and 2024 are expected to be 4.5%, 4.1% and 4.5%, respectively. The forecast for 2022, 2023 and 2024 is for total employment growth rates to be 4.3%, 1.5% and 4.7%. Non-farm payroll jobs are expected to grow at rates of 5.1%, 2.3% and 1.2% during the same three years. Real personal income is forecast to decline by 4.5% in 2022, to grow by 2.4% in 2023 as a function of the transfers from economic relief packages expiring, and then to grow by 2.9% in 2024.

In spite of higher mortgage interest rates, the continued demand for a limited housing stock, coupled with the enactment of laws permitting the building of accessory dwelling units in neighborhoods zoned for single-family homes throughout the state, leads to a forecast of increased homebuilding through 2024. The forecast's expectation is for 124,000 net new units to be permitted in 2022 and for permits to grow to 143,000 in 2024. Still, this low level of homebuilding means that over the next three years, the prospect that the private sector will build out of the housing affordability problem is nil.

Recession Forecasting

In the UCLA Anderson Forecast's June 2022 report, Professor Edward Leamer discussed the possibility of a recession caused by rising interest rates and a slowdown in housing. In an article titled "A New Way of Forecasting a Recession: Not Much to Worry About Right Now," he examined the evidence through a statistical analysis of past recessions. His analysis concluded that it was unlikely there would be a recession in the following 12 months and, in spite of the rhetoric to the contrary, the data at that time did "not sound a recession alarm."

Leamer's premise is that the last three years of expansions of the U.S. economy are where one should look for symptoms of an oncoming recession, by contrasting the year immediately before recessions with the two earlier years.

In his September 2022 update, Leamer says that until now, he has been arguing that the economy has a "Wall Street problem, not a Main Street problem," meaning that while markets for bonds and equities have been in turmoil, Main Street activities, exemplified by the number of jobs and rates of pay, have been quite healthy.

Now, however, Leamer says the housing and manufacturing sectors look troubled. But there are two reasons why this doesn't matter much at this time: Housing since 2009 has been below the historically normal number of 1.5 million new units per year, and never in the 2 million range, as with earlier excesses. In other words, we are not overbuilt. And the share of jobs in manufacturing has declined from more than 30% in the 1950s to only about 8% now, which greatly reduces the role of manufacturing in recessions to come.

September 2022 Forecast conference:
Climate Change | Business Implications

In addition to presentations of the U.S. and California forecasts, the September 2022 Forecast conference will include a conversation about climate change and an expert panel on climate change and its business implications.

The conversation will feature Terry Tamminen, president of 7th Generation Advisors, and Andy Lipkis, founder and project executive at Accelerate Resilience L.A.

The panel discussion will feature moderator Magali Delmas, professor at UCLA Anderson and the UCLA Institute of the Environment and Sustainability and faculty director of the UCLA Anderson Center for Impact; Jacob Atalla, vice president of sustainability initiatives at KB Home; UCLA alumna Kelly Clark, ESG specialist and stakeholder manager at the UCLA Anderson Center for Impact; and Henry Friedman, associate professor of accounting at UCLA Anderson.

The UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state's rebound since 1993. The Forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001 and, in March 2020, it was the first to declare that the recession caused by the COVID-19 pandemic had already begun.

Media Contact

Rebecca Trounson
310-825-1348
rebecca.trounson@anderson.ucla.edu

Paul Feinberg
310-794-1215
paul.feinberg@anderson.ucla.edu

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SOURCE UCLA Anderson Forecast

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Spread & Containment

SoCal Industrial Prioritizes Speed, Power and Sustainability 

Movement is key in the SoCal industrial space. Industrial real estate occupies some 200 million square feet of space in the SoCal region, with much of…

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Movement is key in the SoCal industrial space. Industrial real estate occupies some 200 million square feet of space in the SoCal region, with much of the activity driven by the Ports of L.A. and Long Beach. The swift movement – not storage – of goods from the port to their destinations, is priority. Currently, the industrial vacancy rate sits at 4%. While the increase in e-commerce during the COVID-19 pandemic caused industrial volume in the region to surge, volumes have declined 30% over the past year, returning to more normal, though still high, levels comparable to 2019.  

Attendees of I.CON West in Long Beach, California, had the opportunity to visit three impressive industrial properties in the SoCal region. The projects by Goodman, Watson Land Company and Bridge Industrial are in three different phases of completion and range in size from 165,000-500,000 square feet. 

The I.CON West group toured a 90-acre site in Long Beach purchased by Goodman, a globally traded real estate company, five years ago. The Goodman Commerce Center Long Beach was previously a Boeing manufacturing center with 100-foot clear heights that made it well suited for the current tenant Relativity, a company that makes 3-D printed rockets.  

Power is a major consideration for tenants in the region. Tenants are also asking for clear heights that are increasingly taller; the typical height in 2012 was closer to 32 feet, but buildings in the area are inching closer to the 40-foot range.  

Environmental concerns are top of mind in California. Long Beach requires a methane mitigation system and Boeing also required a vapor barrier to be added to the site as part of their land use covenant. The area was previously heavily comprised of oil fields, so vapor barriers are common. The state is working toward a 2035 goal of having 100% of new cars and light trucks sold in California be zero-emission vehicles, so sites are considering the current usage and future expansion of EV charging stations. Goodman’s site is equipped with 26 EV-charging stations but has the capability to expand to 100 more, as needs require. 

Watson Land Company’s site in Carson, California, is located in the South Bay, an area that includes many 1980s-era Class B buildings that are being redeveloped to meet modern usage and demand.  

One of the main challenges faced in this area is the heavy clay soil; Watson had to install an underground storm drain system to allow for percolation.  

One of the main advantages of the area is that it’s within the “Overweight Container Corridor” that allows for heavier vehicles – up to 95,000 pounds – to pass through with containers from the port.  

Watson Land Company is pursuing U.S. Green Building Council LEED Gold certification for this site; they were able to reuse or recycle 98.6% of the material crushed from the previous buildings. The company aims for LEED Silver or Gold in many of their buildings in California, part of its early legacy dating to the founding of Watson Land Company in 1912 with a commitment to serve as “good stewards of the land.” 

Another feature of the Watson Land Company’s building: ample skylights – a 3% skylight to roof ratio – and clerestory windows to bring in maximum natural light. 

For the final stop of the tour, attendees visited a former brownfield site in Torrance, California, developed by Bridge Industrial. Bridge Industrial considers their team problem solvers who can tackle sites like this one that require significant remediation. They have transformed the brownfield site into a modern, airy industrial facility with two stories of office space.  

Power, again, came up as a critical concern for tenants. Bridge Industrial used to provide 2,000 amps as the standard but now provides 4,000 amps as the new standard in response to tenant needs. One of Bridge Industrial’s buildings in Rancho Cucamonga (roughly a two-hour drive east from Long Beach) offers 4,000 amps with provisions for additional future service up to an astonishing 8,000 amps.   

With the dual ports and the LAX airport nearby, SoCal is poised to continue its strong industrial presence. Port activity, environmental regulations and evolving tenant demands – including for increasing power capabilities – are critical considerations for developers, owners and investors operating in this bustling region.


This post is brought to you by JLL, the social media and conference blog sponsor of NAIOP’s I.CON West 2024. Learn more about JLL at www.us.jll.com or www.jll.ca.

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International

Chronic stress and inflammation linked to societal and environmental impacts in new study

From anxiety about the state of the world to ongoing waves of Covid-19, the stresses we face can seem relentless and even overwhelming. Worse, these stressors…

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From anxiety about the state of the world to ongoing waves of Covid-19, the stresses we face can seem relentless and even overwhelming. Worse, these stressors can cause chronic inflammation in our bodies. Chronic inflammation is linked to serious conditions such as cardiovascular disease and cancer – and may also affect our thinking and behavior.   

Credit: Image: Vodovotz et al/Frontiers

From anxiety about the state of the world to ongoing waves of Covid-19, the stresses we face can seem relentless and even overwhelming. Worse, these stressors can cause chronic inflammation in our bodies. Chronic inflammation is linked to serious conditions such as cardiovascular disease and cancer – and may also affect our thinking and behavior.   

A new hypothesis published in Frontiers in Science suggests the negative impacts may extend far further.   

“We propose that stress, inflammation, and consequently impaired cognition in individuals can scale up to communities and populations,” explained lead author Prof Yoram Vodovotz of the University of Pittsburgh, USA.

“This could affect the decision-making and behavior of entire societies, impair our cognitive ability to address complex issues like climate change, social unrest, and infectious disease – and ultimately lead to a self-sustaining cycle of societal dysfunction and environmental degradation,” he added.

Bodily inflammation ‘mapped’ in the brain  

One central premise to the hypothesis is an association between chronic inflammation and cognitive dysfunction.  

“The cause of this well-known phenomenon is not currently known,” said Vodovotz. “We propose a mechanism, which we call the ‘central inflammation map’.”    

The authors’ novel idea is that the brain creates its own copy of bodily inflammation. Normally, this inflammation map allows the brain to manage the inflammatory response and promote healing.   

When inflammation is high or chronic, however, the response goes awry and can damage healthy tissues and organs. The authors suggest the inflammation map could similarly harm the brain and impair cognition, emotion, and behavior.   

Accelerated spread of stress and inflammation online   

A second premise is the spread of chronic inflammation from individuals to populations.  

“While inflammation is not contagious per se, it could still spread via the transmission of stress among people,” explained Vodovotz.   

The authors further suggest that stress is being transmitted faster than ever before, through social media and other digital communications.  

“People are constantly bombarded with high levels of distressing information, be it the news, negative online comments, or a feeling of inadequacy when viewing social media feeds,” said Vodovotz. “We hypothesize that this new dimension of human experience, from which it is difficult to escape, is driving stress, chronic inflammation, and cognitive impairment across global societies.”   

Inflammation as a driver of social and planetary disruption  

These ideas shift our view of inflammation as a biological process restricted to an individual. Instead, the authors see it as a multiscale process linking molecular, cellular, and physiological interactions in each of us to altered decision-making and behavior in populations – and ultimately to large-scale societal and environmental impacts.  

“Stress-impaired judgment could explain the chaotic and counter-intuitive responses of large parts of the global population to stressful events such as climate change and the Covid-19 pandemic,” explained Vodovotz.  

“An inability to address these and other stressors may propagate a self-fulfilling sense of pervasive danger, causing further stress, inflammation, and impaired cognition in a runaway, positive feedback loop,” he added.  

The fact that current levels of global stress have not led to widespread societal disorder could indicate an equally strong stabilizing effect from “controllers” such as trust in laws, science, and multinational organizations like the United Nations.   

“However, societal norms and institutions are increasingly being questioned, at times rightly so as relics of a foregone era,” said Prof Paul Verschure of Radboud University, the Netherlands, and a co-author of the article. “The challenge today is how we can ward off a new adversarial era of instability due to global stress caused by a multi-scale combination of geopolitical fragmentation, conflicts, and ecological collapse amplified by existential angst, cognitive overload, and runaway disinformation.”    

Reducing social media exposure as part of the solution  

The authors developed a mathematical model to test their ideas and explore ways to reduce stress and build resilience.  

“Preliminary results highlight the need for interventions at multiple levels and scales,” commented co-author Prof Julia Arciero of Indiana University, USA.  

“While anti-inflammatory drugs are sometimes used to treat medical conditions associated with inflammation, we do not believe these are the whole answer for individuals,” said Dr David Katz, co-author and a specialist in preventive and lifestyle medicine based in the US. “Lifestyle changes such as healthy nutrition, exercise, and reducing exposure to stressful online content could also be important.”  

“The dawning new era of precision and personalized therapeutics could also offer enormous potential,” he added.  

At the societal level, the authors suggest creating calm public spaces and providing education on the norms and institutions that keep our societies stable and functioning.  

“While our ‘inflammation map’ hypothesis and corresponding mathematical model are a start, a coordinated and interdisciplinary research effort is needed to define interventions that would improve the lives of individuals and the resilience of communities to stress. We hope our article stimulates scientists around the world to take up this challenge,” Vodovotz concluded.  

The article is part of the Frontiers in Science multimedia article hub ‘A multiscale map of inflammatory stress’. The hub features a video, an explainer, a version of the article written for kids, and an editorial, viewpoints, and policy outlook from other eminent experts: Prof David Almeida (Penn State University, USA), Prof Pietro Ghezzi (University of Urbino Carlo Bo, Italy), and Dr Ioannis P Androulakis (Rutgers, The State University of New Jersey, USA). 


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Acadia’s Nuplazid fails PhIII study due to higher-than-expected placebo effect

After years of trying to expand the market territory for Nuplazid, Acadia Pharmaceuticals might have hit a dead end, with a Phase III fail in schizophrenia…

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After years of trying to expand the market territory for Nuplazid, Acadia Pharmaceuticals might have hit a dead end, with a Phase III fail in schizophrenia due to the placebo arm performing better than expected.

Steve Davis

“We will continue to analyze these data with our scientific advisors, but we do not intend to conduct any further clinical trials with pimavanserin,” CEO Steve Davis said in a Monday press release. Acadia’s stock $ACAD dropped by 17.41% before the market opened Tuesday.

Pimavanserin, a serotonin inverse agonist and also a 5-HT2A receptor antagonist, is already in the market with the brand name Nuplazid for Parkinson’s disease psychosis. Efforts to expand into other indications such as Alzheimer’s-related psychosis and major depression have been unsuccessful, and previous trials in schizophrenia have yielded mixed data at best. Its February presentation does not list other pimavanserin studies in progress.

The Phase III ADVANCE-2 trial investigated 34 mg pimavanserin versus placebo in 454 patients who have negative symptoms of schizophrenia. The study used the negative symptom assessment-16 (NSA-16) total score as a primary endpoint and followed participants up to week 26. Study participants have control of positive symptoms due to antipsychotic therapies.

The company said that the change from baseline in this measure for the treatment arm was similar between the Phase II ADVANCE-1 study and ADVANCE-2 at -11.6 and -11.8, respectively. However, the placebo was higher in ADVANCE-2 at -11.1, when this was -8.5 in ADVANCE-1. The p-value in ADVANCE-2 was 0.4825.

In July last year, another Phase III schizophrenia trial — by Sumitomo and Otsuka — also reported negative results due to what the company noted as Covid-19 induced placebo effect.

According to Mizuho Securities analysts, ADVANCE-2 data were disappointing considering the company applied what it learned from ADVANCE-1, such as recruiting patients outside the US to alleviate a high placebo effect. The Phase III recruited participants in Argentina and Europe.

Analysts at Cowen added that the placebo effect has been a “notorious headwind” in US-based trials, which appears to “now extend” to ex-US studies. But they also noted ADVANCE-1 reported a “modest effect” from the drug anyway.

Nonetheless, pimavanserin’s safety profile in the late-stage study “was consistent with previous clinical trials,” with the drug having an adverse event rate of 30.4% versus 40.3% with placebo, the company said. Back in 2018, even with the FDA approval for Parkinson’s psychosis, there was an intense spotlight on Nuplazid’s safety profile.

Acadia previously aimed to get Nuplazid approved for Alzheimer’s-related psychosis but had many hurdles. The drug faced an adcomm in June 2022 that voted 9-3 noting that the drug is unlikely to be effective in this setting, culminating in a CRL a few months later.

As for the company’s next R&D milestones, Mizuho analysts said it won’t be anytime soon: There is the Phase III study for ACP-101 in Prader-Willi syndrome with data expected late next year and a Phase II trial for ACP-204 in Alzheimer’s disease psychosis with results anticipated in 2026.

Acadia collected $549.2 million in full-year 2023 revenues for Nuplazid, with $143.9 million in the fourth quarter.

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