Defense Spending to Increase By $24B

LOS ANGELES—According to the latest economic report from UCLA Anderson, national defense spending is expected to rise by $24 billion annually by 2016 due to increased issues in the Middle East. The report, which covers the 3Q14, also reveals that unemployment rates will decrease by 5.3% with jobs growing by 230,000 jobs per month nationally; and the national economy is continuing to expand with the GDP growing by approximately 3% over the next two years.

Senior economist David Shulman estimates that inflation will average 2% over the next two years, which is driven by increasing residential rents and healthcare costs. The decreasing unemployment and rising inflation will likely lead to the Federal Reserve raising rates as early as March 2015. Housing, nonresidential development and software and equipment investments will play a significant role in driving this economic growth. By 2016, Shulman estimates that housing starts will rise to 1.47 million nationally. Nonresidential construction is also expected to rise through 2016 by notably 8.2%. 

The report also covers California's specific economy. Senior economist Jerry Nickelsburg explains that the state's economy has grown has a “ploddingly slow pace.” Although California is in its sixth consecutive quarter of expansion, the state is still performing blow its potential output. One bright spot: unemployment is rising at 3%, higher than the national average. Additionally, new home construction is continuing to expand and is expected to continue to expand over the next several years. New home starts are rising by 5% in California, in line with the national average.

Economist William Yu also took a closer look at the Los Angeles economy, finding that long-term employment growth is slower than that of other major metropolitan markets. However, the city's economy has been growing continuously over the past two years. UCLA publishes frequent economic forecast reports. Recently, the research team partnered with Allen Matkins to review the Los Angeles office, industrial and multifamily markets, and found that the Los Angeles market is finally catching up to the San Francisco market with new construction remaining strong through 2017.