Last month the UCLA Anderson Forecast released its second quarterly report of 2005. The report indicates that the nation's cooling housing market will lead to slower than normal growth in the coming year.

The Forecast is one of the most watched economic outlooks for California and the nation. In recent years, the report has strongly advocated the position that consumer spending, largely supported by rapidly increasing real estate values, has been keeping the economy buoyant. The report suggests that the housing market will continue to cool into 2006, and this, combined with the consequent decrease in consumer spending, will create conditions that are right for a recession, though Forecast Director Edward Leamer believes that a recession is unlikely to occur within a year. UCLA Anderson Senior Economist Christopher Thornberg's California forecast suggests that the state's "current economic growth is in a fragile condition." The housing bubble doesn't have to burst to have an impact on California's economy; just the cooling market is enough to affect the real estate "wealth effect" that drives consumer spending. Reduced spending means less consumer demand and, in turn, diminished employment growth.

To read the UCLA Anderson Forecast press release or find information about how to purchase a copy of the report, click on http://uclaforecast.com/contents/archive/media_6_05_1.asp