State’s economy predicted to slow in 2019 KATHLEEN PENDER

California’s economy is likely to slow next year, along with the rest of the nation’s, in part because it’s running out of workers, economists at UCLA said in their annual forecast for the state and nation, released Wednesday.

A further drop in the techheavy Nasdaq index could exacerbate the slowdown if it causes a decline in funding for tech companies, the authors said, noting that “employment in the tech industry has been one of the keys to the growth in California, particularly in the Bay Area.”

Nationally, growth “will gradually taper off in all of the major sectors of the economy,” the report said. “The economy is in the process of downshifting from the 3 percent growth in real GDP this year to 2 percent in 2019 and 1 percent in 2020. At full employment, 3 percent growth is not sustainable,” the Anderson Forecast said.

“With the Fed tightening, trade tensions rising, the impact of the fiscal stimulus coming from tax cuts and spending increase waning, financial markets will likely experience increased turbu-

lence. Over-leverage in the corporate sector represents the major financial risk to the economy. Nevertheless, Main Street will likely experience higher real wages coming from a very tight labor market, as evidenced by a 3.5 percent unemployment rate. Thus, a good year for Main Street and choppy year for Wall Street.”

In California, nonfarm payroll employment in October was up 1.8 percent from October 2017, slightly higher than the previous year’s growth rate.

The growth in those jobs continues to be dominated by health care, leisure and hospitality, “reflecting the demand of aging and retiring baby-boomer Californians,” the report said. “However, the spurt in payroll jobs in the past three months was driven by professional, technical and scientific services,” which is heavily tech oriented. “On a percentage basis this sector is the fastest growing in the state. One of the risks to continued robust growth in the state is from a drying up of funding for this and other tech sectors,” it said.

The authors noted that tech funding is closely related to the Nasdaq exchange because rising stock prices let venture investors cash out and roll their money into new startups. Also, valuations of tech companies depend on the prevailing price-earnings ratios for tech stocks. The lower the Nasdaq, “the more difficult it will be for start-ups to obtain venture capital.”

After a 3.8 percent drop in the Nasdaq Tuesday, the index is still ahead 3.7 percent year to date.

The Nasdaq “is clearly not the only factor affecting Bay Area employment,” the report said. The Bay Area housing shortage and continued full employment “are contributory and possibly dominant factors.”

“However, venture capital and other start-up funding ... has the greatest potential for dramatic swings,” it said.

That forecast calls for California’s average unemployment rate to rise slightly to an average of 4.5 percent in 2020, a rate that is consistent with full employment. “In part this is due to running out of workers. Though we expect positive net migration as well as natural population growth, it will not be enough to stem the trend of slowing job growth. Nevertheless, 2019 ought to see faster job growth in California than in the US as a whole.”