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UCSB Economic Forecast Offers Dim Hope for State, Local Prospects

Speakers at Thursday's seminar urge proceeding with caution amid signs of recovery

The tunnel is long, but there is difficult-to-see light at the end — a phrase that sums up comments made by speakers at this year’s UCSB Economic Forecast Project seminar, held Thursday morning at The Granada in Santa Barbara.

The event attracted a healthy crowd of business owners, elected officials and others, nearly filling the hall.

“Enjoy the next year, but be very worried about 2011 to 2012,” said Chris Thornberg, founder of Beacon Economics, speaking about state and national economic outlooks. “Something has to break; we just don’t know what it is.”

In an analysis of economic forecasting, Peter Rupert — vice chairman of UCSB’s Economics Department — extended the caveat that even at its best, forecasting often creates projections that end up being far from reality.

“Forecasting is a science, but it’s a science with a huge standard of error,” he said, pointing to a chart that showed discrepancies between the predictions of the Blue Chip Forecast and the figures that eventually materialized. While some of the predictions were fairly close, many were far off the mark, and Rupert said that conditions nobody could have forseen played a hand in the more extreme errors. An x-y axis graph showing the distribution of error looked like a collection of birdshot holes on a paper target — forecaster accuracy was spread evenly all over.

While California as a whole is engaged in an all-out economic struggle — the state has been hit especially hard because economic facets such as real estate and technology exports are a big part of its economy — Santa Barbara County is in decent shape. Compared with the state unemployment average of 12.6 percent, Santa Barbara County sits at 9.5. Even so, that number has bounded from 7.7 percent in 2009 and from 4.8 percent in 2008.

In their analysis, researchers divided the northern and southern sections of the county because of their economic disparity. Housing prices in both areas have come up a little bit since the housing bubble popped in 2008, but forecasters noted that increases are likely to be slow and steady. The current median single-family home price has risen from about $250,000 last year to a little more than $330,000 this year.

“It’s a mess, but it’s not the end of the world. These are all problems that we can push through if we have the political will to do so,” said Thornberg, noting that in Santa Barbara, even when the going gets tough — economically speaking — the area’s natural beauty does a lot to mitigate the damage by providing high quality of life. “The ocean and the mountains are right here, and some of the best wine in the world is 25 minutes away. What else do you want?”

Dan Walters, a columnist for the Sacramento Bee, painted a more bleak picture, calling for statewide political reform as a means to correct economic ills.

“There’s no reason why California can’t become a bastion of prosperity. These problems are self-inflicted — they’re political problems,” he said, adding that the upcoming gubernatorial race most likely will be centered on negative and not necessarily productive political campaigns. “We have become a collection of mutually hostile tribes. It’s a dark scenario, but it’s realistic.”

Consensus among the speakers indicated that while the recession is over, there are more factors at play from this most recent one than has been encountered during the relatively recent recessions of 1981, 1990 and 2001. Those, Rupert said, were rooted more in housing price instability.

He also noted that current economic trouble — a perfect storm of unusual federal monetary policy, a national housing meltdown and a work force poised to produce an unprecedented number of retirees in the near future — is unlike anything forecasters have encountered.

With state and municipal budgets in a particularly bleak state — the city of Santa Barbara faces a $9 million budget shortfall, and the county’s soars close to $40 million — Thursday’s speakers could only tell people to have patience. Rupert pointed to consumer spending as a good sign, even if it is particularly baffling in today’s economic climate.

“If you believe consumers know something,” he said, “maybe they’re telling us something these forecasters aren’t.”

Noozhawk staff writer Ben Preston can be reached at .(JavaScript must be enabled to view this email address).

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