For the 45th year, Chapman University President Emeritus Jim Doti on Dec. 13 forecasted the future of the economy, mixing data with insights from colleagues and humorous takes on his half-marathon runs and appearance on “The Bold and the Beautiful.”
The major takeaways of the forecast were a projected recession by mid-2023 and a drop in Orange County’s median home price. Doti and his team also projected a sharp drop in residential permits and lagging advanced industries jobs and new business growth in California.
Doti called 2021 and 2022’s consumption, real GDP and unemployment rates the “calm before the storm,” drawing a comparison to the 1974-75 recession. And residential investment – now as it did 50 years ago – is dropping and will drag down consumer spending, which is the “big gorilla” of the GDP, he said.
He projected a -6% drop in real GDP in mid-2023 – “not as deep” as the mid-’70s recession.
“The cat’s out of the bag – we are forecasting a recession for next year,” he said.
Since what started as Doti’s Orange County economic forecast in 1977, Chapman’s annual forecast has become a nationally respected indicator known for its accuracy. Doti reiterated Chapman’s pinpoint 2021 forecast for 5.7% growth in real GDP, which ranked the university No. 4 for accuracy out of 25 Blue Chip forecasts and helped Chapman stay in the top position for real GDP forecasting between 2004 and 2021.
“We were No. 1 in forecasting the most important variable that really measures the pulse of the U.S. economy,” he said. “Morgan Stanley was nipping right at our heels – good thing we had that bullseye forecast in 2021.”
In his state forecast, Doti noted that Orange County home prices have been decreasing since their $1 million-plus peak in April. A more important economic factor is new-home construction, which Doti said will be revealed through a 40% decrease in residential permits in 2023.
Additionally, Orange County median home prices will drop to $933,000 by the middle of next year, Doti said.
“For decision-making purposes, we’ve already had some of that drop,” he said, adding that there are a lot of homeowners who don’t want to give up their low-interest mortgages “so there’s not a whole lot of supply coming on the market. Without that supply, prices will be more stable.”
Doti and Professor Fadel Lawandy good-naturedly admitted their forecast for the 2022 midterm elections was off. They predicted a 44-seat pickup for Republicans in the House of Representatives, where they now have a nine-seat majority.
“We think that if you just look at economic factors, the trend was heading our way,” said Lawandy, adding that “where we went wrong is that we did not account for the fact that we had two types of Republican voters” who split the GOP vote.
Lawandy, Doti and Professor Raymond Sfeir will give their Economic Forecast Update in June 2023.