Economic Forecast & Industry Outlook,

Transcription

1 Analysis. Answers Economic Forecast & Industry Outlook, Robert A. Kleinhenz, Ph.D. Economist & Executive Director of Research Beacon Economics, LLC CBO Symposium November 17, 2017 Beacon Economics, LLC

2 Outline U.S. Economy California Economy Regional Outlook Real Estate/Construction Conclusion/Looking Ahead

3 Heard in the Headlines US Labor Market Slowing Sign of Recession? California in a Housing Crisis Policy Debate du Jour in DC Health Care Tax Reform Immigration Policy Trade Policy

4 U.S. Economy

5 Vital Signs of the US Economy Labor Market Conditions Inflation Rate GDP Growth Rate

6 Full Employment, Slower Job Growth 18% 16% 14% 12% 10% 8% 6% 4% 2% Unemployment Rate Yr-To-Yr % Change in Jobs U-3 U

7 Plenty of Job Openings, Not Enough Workers 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% JOLT Job Openings Rate Sector Level (000s) Change (%) Sep-16 Sep-17 Sep-16 Sep-17 Total 5,666 6, Professional 1,125 1, Health Care 978 1, Hospitality Logistics Financial activities Retail trade Wholesale trade Mining Manufacturing Information Construction Education Government

8 Labor Force Growth Constrained 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Labor Force Growth 67% 66% 65% 64% 63% 62% 61% 60% LF Participation Rate

9 Inflation Historically Low But Rising Kyser Center for Economic Research

10 Two Views of GDP Gross Domestic Product YTY % Change Contributions to Change in GDP Sector * Consumer Investment Net exports Government Total GDP % Chg *2017 YTD: Q1-17 through Q3-17

11 Macro-Economy at a Glance Sector CONSUMERS BUS. INVESTMENT GOVERNMENT NET TRADE Outlook Steady solid growth Acceleration, energy drag over Flat Imports & Exports up, Imports larger SUMMARY Domestic Spending Up

12 Consumer Spending: Flywheel of Economy 6% 4% 2% 0% -2% -4% -6% -8% Real Consumer Spending by Type (Y-o-Y Growth to September) 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Consumer Savings Rate Services Goods

13 Business Spending Up 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Fixed Investment Structures Equipment Intellectual Property

14 f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f Budget Deficit as % of GDP 26% 24% 22% 20% 18% 16% 14% 12% Receipts Outlays 10%

15 International Trade $ Millions (Yr.=2009) 3,010 Ex-Goods Ex-Svcs Im-All Deficit 2, ,010 1,510 1,

16 Economic Policy

17 Fiscal Policy Trump Administration/Republican Leadership Tax Cuts Investment in Infrastructure Challenging the Status Quo in Trade Immigration Reform Repealing ACA (Obamacare) MAKING CHANGE HAPPEN NOT AS EASY AS EXPECTED!

18 Monetary Policy Rock-bottom federal funds rate Adjusting to labor market, inflation, GDP Market rates less tied to FFR than before Yield curve dynamics FFR increases push up short end Balance sheet activities Markets keep long end low

19 Financial Markets 24,000 20,000 DJIA, SA 8% 7% Fed Funds Rate 30 Year Mort 10 Year Yield 16,000 12,000 6% 5% 4% 8,000 4,000 3% 2% 1% 0 0%

20 U.S. Outlook Continued US Growth in 2018: 2%+ Domestic Spending Intact Oil Prices: Steady Inflation: Low, But Rising Financial Markets: Rates Up, Equities Frothy Policy Uncertainty

21 California Economy

22 CA: Fact vs. Fiction CLAIMS Business Climate: POOR Regulatory Burden: BAD Taxes: HIGH REALITY? You decide...

23 CA & US at Full Employment 16% 14% 12% 10% 8% 6% 4% 2% 0% Unemployment Rate, Seasonally Adjusted CA: 5.1% US: 4.1%

24 2017 Job Growth Slower than Past Years 4% YTY % change in nonfarm jobs, seasonally adjusted US: +1.2% CA: +1.7% 2% 0% -2% -4% -6% -8%

25 Gross State Product: YTY % Changes CA Among Fastest Growing States

26 The Big Slowdown 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% State and National Job Growth California United States Region Jul Inland Empire 1,440, % 2.9% Fresno 342, % 2.4% San Francisco 1,118, % 2.4% East Bay 1,159, % 2.2% Sacramento 968, % 1.8% San Diego 1,442, % 1.8% San Jose 1,092, % 1.8% Los Angeles 4,448, % 1.5% Kern 257, % 0.7% Orange 1,592, % 0.8%

27 Millions California Taxable Sales (+4.1% YTY in Q2-17) $180 $160 $140 $120 $100 $80 $60 $40 $20 $0

28 CA State Budget-LAO Nov 17 LAO Revenue Estimates (November 2017) Dollars in Millions Personal Income Tax $ 83,012 $ 90,912 $ 95,800 Sales and Use Tax $ 24,869 $ 25,285 $ 26,214 Corporation Tax $ 10,002 $ 10,620 $ 10,965 Total $ 117,883 $ 126,817 $ 132,979 Percentage Change Personal Income Tax 5.3% 9.5% 5.4% Sales and Use Tax -0.1% 1.7% 3.7% Corporation Tax -4.7% 6.2% 3.2% Total 3.2% 7.6% 4.9%

29 Revenue Growth Through % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% % Change General Fund 6.7% 6.7% 4.7% 4.5% 5.0%

30 CA Economic Picture CA outpacing US/many states in economic and job growth Now at full-employment, job gains harder to get Housing Affordability is a near term problem and Constraint on Economy in long run Fed/State policies: can be game changers

31 Regional Economic Performance

32 So Cal Metro Areas Vary in % Job Gains Oxnard-Thousand Oaks-Ventura MSA Riverside-San Bernardino-Ontario MSA Bakersfield MSA Fresno MSA San Francisco MD San Jose-Sunnyvale-Santa Clara MSA Stockton-Lodi MSA Sacramento--Roseville-Arden-Arcade San Diego-Carlsbad MSA Oakland-Hayward-Berkeley MD Los Angeles-Long Beach-Glendale MD Santa Rosa MSA Anaheim-Santa Ana-Irvine Metro Div Year-to-Year % Change (Sept-17) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

33 LA, IE, and SD have Largest Absolute Gains MSA YTY Change Jobs (Seasonally Adjusted) Los Angeles-Long Beach-Glendale MD 49,600 Riverside-San Bernardino-Ontario MSA 38,700 San Diego-Carlsbad MSA 18,300 San Francisco MD 15,600 San Jose-Sunnyvale-Santa Clara MSA 14,700 Oakland-Hayward-Berkeley MD 13,900 Sacramento--Roseville--Arden-Arcade MSA 12,500 Oxnard-Thousand Oaks-Ventura MSA 9,200 Bakersfield MSA 6,200 Fresno MSA 5,200

34 Prof, Sci, Tech Employment 1,300 1,250 1,200 1,150 1,100 1,050 1, Prof, Sci, Tech Employment in CA (Thousands)

35 San Pedro Ports to See Record Year Aug 17 YTD % Total: +7.9% Inbound Loaded: +8.7% Outbound Loaded: +2.2%

36 Transportation/Warehouse Employment Transportation/Warehouse Employment in CA (Thousands)

37 Wholesale Trade Employment Wholesale Trade Employment in CA (Thousands)

38 Manufacturing Employment 1,500 1,450 1,400 1,350 1,300 1,250 1,200 1,150 1,100 Manufacturing Employment in CA (Thousands)

39 and Manufacturing Output Rising Value of Production (2009=100) IE LA/OC US Source: U.S. BEA

40 Financial Activities Employment Financial Activities Employment in CA (Thousands)

41 Retail Trade Employment 1,750 Retail Trade Employment in CA (Thousands) 1,700 1,650 1,600 1,550 1,500 1,450 1,400

42 Leisure & Hospitality Employment 1,900 1,700 1,500 1,300 1, L & H Employment in CA (Thousands)

43 Healthcare & Social Services Employment 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 Healthcare & Social Services Employment in CA (Thousands)

44 000s Billions California Agriculture CA Farm Employment $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 CA Agricultural Exports Source: CA EDD Source: WiserTrade

45 Residential R.E./Construction

46 Units Sold Median Home Price California Sales and Prices 120, ,000 Existing Single Family Residences $600,000 $500,000 80,000 60,000 40,000 20,000 0 $400,000 $300,000 $200,000 $100,000 $0 Sales Median Price

47 Units Sold Median Price Condo Activity 25,000 20,000 Existing Condo $500,000 $400,000 15,000 10,000 5,000 0 $300,000 $200,000 $100,000 $0 Sales Median Price

48 California Housing by Metro County/Region/Sector Sep-17 Aug-17 Sep-17 Price Change Sales Change MTM % YTY % MTM % YTY % CA SFH (SAAR) $555,410 $565,330 $516, % 7.5% 2.2% 1.7% CA Condo/Townhomes $450,400 $446,760 $415, % 8.4% -13.4% -4.2% Los Angeles Metropolitan Area $504,990 $499,970 $463, % 8.9% -8.8% -2.5% Inland Empire $343,260 $341,340 $319, % 7.5% -13.0% -4.0% S.F. Bay Area $852,230 $856,200 $762, % 11.7% -14.2% -4.2% San Diego $605,000 $605,000 $569, % 6.3% -16.7% -4.3% Sacramento $347,750 $348,000 $317, % 9.5% -10.3% -7.0%

49 Housing Affordability: % of HHs Affording Median Priced Home State/Region/County Q Q CA SFH 28% 31% CA Condo/Townhomes 38% 40% Inland Empire 43% 47% Los Angeles Metropolitan Area 30% 34% S.F. Bay Area 23% 27% Sacramento 43% 46% San Diego 26% 28% US 55% 57%

50 Apartment Rents $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 Metro Rents County Wages Rents Share Ventura $57,789 $1,700 35% Los Angeles $63,236 $1,830 35% Santa Barbara $52,911 $1,526 35% Orange $63,849 $1,827 34% Riverside $45,219 $1,293 34% San Bernardino $45,762 $1,293 34% Inland Empire Los Angeles MD Orange County MD San Diego San Diego $60,887 $1,696 33% San Luis Obispo $44,816 $1,147 31%

51 State Housing Construction 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Permitted Units Single Family Multi Family New Pop / Permits California 4.1 Tulare 4.0 Ventura 6.8 Los Angeles 4.0 Contra Costa 6.6 Fresno 4.0 Sonoma 6.1 San Mateo 3.4 Alameda 5.9 Kern 3.0 Santa Barbara 5.3 Santa Clara 3.0 San Bernardino 5.0 Orange 2.8 Solano 4.6 Placer 2.1 Riverside 4.5 San Francisco 2.1 San Diego 4.2 Sacramento 0.7

52 Housing in CA: New NOT Normal Signs of stress: Homeownership rate at lowest in decades Escalating rents Insufficient building despite growing demand How to Address Chronic Housing Problems Less about making housing affordable to households Really about supply: Construction Aligning construction with actual needs

53 The Future of Our State Country Club California?

54 Nonresidential R.E./Construction

55 Non-Residential Real Estate Vacancy Rate (%) by Metro Area in California Office Retail Location Q3-16 Q3-17 Q3-16 Q3-17 Los Angeles (MD) 13.5% 14.0% 6.3% 6.0% Orange County (MD) 16.1% 16.0% 5.4% 5.3% Sacramento 18.6% 18.1% 10.4% 10.5% San Diego 14.9% 15.0% 6.6% 6.2% San Francisco (MD) 9.5% 9.8% 3.3% 3.0% San Jose 17.1% 17.4% 5.6% 5.3%

56 Nonresidential Construction by Type in California Valuation Indexed: 2000.Q1 = Garage Hotel Indust Office Other Retail

57 Conclusion

58 Conclusion/Outlook US & CA growth steady, full-employment, job growth harder to achieve Leading industries: health care, construction, leisure and hospitality, trans/whsg Real Estate: Housing shortage not just affordable housing MORE SUPPLY needed NO Recession without a significant, persistent shock

59 Thousands And Long Run...Less Migration, More Homegrown Workers CA Population Changes Natural Increase Domestic Migration International Immigration

60 Thank You! Our Services Economic & Revenue Forecasting To view or download this presentation or for further information, visit: Contact Robert Kleinhenz Regional Intelligence Reports Business & Market Analysis Real Estate Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis