Economists: California Drought Impact to Be Minor

California's drought won't dry up the economy, but it may slow job growth marginally if it persists over several years, according to a forecast released Wednesday that stresses the state's thirsty history.

Californians, like their native plants, have adapted to periodic droughts, with major ones recorded in 1864-65, 1928-35, 1947-50, 1976-77 and 1987-92, according to the UCLA Anderson Forecast.

"The fact is, aridity and recurrent drought, if expected or normal, are not a detriment to economic growth. Arid states in the U.S. over the past decade have not performed worse than their wetter brethren," said a section of the report by Anderson Senior Economist Jerry Nickelsburg. "Agriculture, industry, fisheries and households are not passive players in this game but react to drought-based incentives."

For instance, thanks to conservation, Southern California isn't using any more water than the region did more than 20 years ago, despite tremendous population growth, Nickelsburg said.

In a "normal" drought period, the expected impact of the drought won't have much impact on an economy with 16 million jobs, the report said.

"But we may not be in a normal drought," Nickelsburg cautioned. "If the change in aridity is in part a permanent change in average rainfall, the aggregate impact may well be significant. ... We will not know until after the fact if this year is an anomaly, or the beginning of a long arid era."

"Overall, the state is not likely to be greatly impacted," but given the state's already fragile recovery from the recession, a prudent estimate would figure the drought's impact to cause a fractional reduction in the expected rate of job growth, Nickelsburg said.

The impact is complicated, though, making forecasting tough. For instance, the economy could benefit from the possibility of nearly $850 million in federal and state drought assistance funds. And if California farmers, who produce a significant chunk of the world's fruits, nuts and produce, have to plant fewer crops for lack of water, they might get higher prices for them.

Overall, the forecast estimates that California's unemployment rate, which topped 12 percent in the years after the 2008 recession, will dip to 7.8 percent this year, compared with the U.S. rate of 6.4 percent.

The projected jobless rates of 6.9 percent next year and 6 percent in 2016 also will be higher than the national average, although the gap will shrink substantially and the rate is expected to fall as low as 5.7 percent by the fourth quarter of 2016.

Employment growth will hover around 2 percent, as it has since 2012, the forecast said.

Consumer prices are expected to jump 2 percent or a bit more in the next few years, but real personal income growth will more than cover it, rising 3.1 percent this year, 3.8 percent the next year and 3.7 percent in 2016, the economists said.

That's not necessarily an unmitigated good, however.

"To be sure, for most Americans, the increase in wages will be most welcome," Senior Economist David Shulman said in the report's section dealing with the nation, which will see similar increases. "But for those wary of inflation, it will be signaling a cautionary yellow light."

Copyright AP - Associated Press
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