“Weakness in the real estate sector will finally spill over into the job market as the combination of job losses in construction and real estate finance pull overall payroll job growth in California to less than 1% for the next five quarters. Unemployment will rise to 5.5% and broad measures of real output (Gross State Product and Personal Income) will grow at a less-than-average rate of just-below 3%. The Forecast believes that weakness in the housing sector will finally spill into consumption spending, noting that retail sales stalled in April and that auto sales have been weak.

With housing and consumption both “down,” the strength of the national economy lies in the rest of the world. “The global economy is booming,” the report states “Indeed, it is the strength of the global economy that is powering the stock market to new highs (and) it is no accident that the Wall Street rally is being led by the giant global corporations who are benefiting most from the worldwide expansion.”

The dollar is poised to decline to a record low against the euro and extend its drop versus the pound on speculation U.S. economic growth is slowing, dimming the value of the currency. The U.S. currency fell yesterday as investors bet the Federal Reserve will cut borrowing costs as inflation slows, while the European Central Bank and Bank of England will keep raising rates. The dollar also fell against the yen as investors reduced holdings in higher-yielding assets funded by loans in Japan, unwinding what are known as carry trades. “The euro is obviously testing its historical highs,” said Axel Merk, head of Merk Investments LLC in Palo Alto, California. “We are going to breach those in the near future”.