A recession is headed America’s way next summer or fall. The economy in 2023 will decline 0.4%, compared to the 5.9% increase in 2021 and 2% increase in 2022. That’s the topline prediction from Chapman University’s 45th Economic Forecast, held on Dec. 13. The school’s forecast last year was the most accurate of 23 other forecasts, according to economist Jim Doti.

The slump, he said, is the result of the Federal Reserve Board raising interest rates to dampen inflation, which was caused by the federal government’s excessive spending of recent years.

Earlier on the day he spoke, the United States Department of Labor announced inflation for November clocked at 7.1%; that was down from 7.7% in October and 9.1% in June. Doti expects this “disinflation” to continue, eventually leading to the Fed cutting interest rates, which will encourage more investment. Doti said residential investment is “down 35 to 40% in terms of spending” from last year. “That reduces consumer spending, which is going to zero, maybe going negative.”

For California, it’s taken two years, but almost all the 2.3 million jobs lost during the COVID-19 lockdowns have returned. But recovery has been uneven, with Riverside and San Bernardino counties soaring; San Diego, San Benito and Santa Clara counties above average; and Orange, Los Angeles, Alameda and Contra Costa counties lagging. The expected economic slump will bring unemployment with it.

Doti brought up the Chapman-UCI Innovation Index, which tracks jobs in high-tech and other high-skill industries; such jobs pay “twice the median salary of all other jobs.”

Unfortunately, in the same two years studied, these golden jobs in the Golden State rose just 2.5%, compared to Texas’ 3.8% and Florida’s 4.3%. The culprit? This state’s high taxes. Our top income tax rate is 13.3%, compared to 0.0 percent in those two rival states.

“Taxes really matter,” Doti warned. “Our state government and the governor seem oblivious to it.”

Doti also warned Gov. Gavin Newsom’s proposed windfall profits tax on oil companies — what the governor calls a “price gouging penalty” — would be a disaster. The Legislature will take it up in January.

Doti pointed to the spring of 2020, during the COVID lockdowns, when oil prices “went negative. There was no more investment. No more supply. Then prices went up. That’s the key for investors for capital to move into that industry. Profits are the magnet that draws capital to industry. They bring prices down in the long run. It’s Economics 101.”

We encourage Southern California’s state legislators to oppose this foolish tax increase, and to call Doti in for testimony to set them straight.

For Orange County, where Chapman University is based, he expects housing prices to drop 7.3% and home sales by 10.5% in 2023. Single-home permits are estimated to drop 21%. We would add the recession especially would stress those city budgets in the worst shape, beginning with Anaheim and Costa Mesa. They should have used the recent boom years for pension reform, but didn’t. Now they and their residents will pay the price.