Southwest Regional Economic Forecast

Transcription

1 Southwest Regional Economic Forecast

2 Forecasting 101 2

3 Anger of the Electorate American families; no raise in 15 years The crushing burden of the Affordable Care Act Secular stagnation /declining productivity Excessive Miserabilism taxes and regulations US manufacturing output decimated by trade Federal debt levels out of control Crime on the rise, The inner philosophy cities of in pessimism decline or Undocumented Trying migrants really hard stealing to convince US jobs everyone that Income inequality things are at record really bad high when, levels in reality, they The Fed holding rates dangerously aren t. low Technology-real estate-bond-stock-inflationary bubble brewing 3

4 The Victory of Miserabilism If it ain tbroke don t fix it US GDP is growing slow, but it is growing Fundamentals still fine, no chance of recession U.S.: 5% world s population, 20% of the world s consumption Real incomes have been rising, true well-being even more so Labor markets are tight Inflation slow, interest rates low Business investment solid, profits are high US energy: too successful for its own good Manufacturing: doing fine Housing market signs of progress California still way out in front The true challenges Slow growth due to self-inflected wounds / political gridlock The global commodity glut State and Local budgets still stressed, decaying Infrastructure Health cost inflation Underfunded pensions and entitlements An under-performing housing market / bad financial regulations (Dodd-Frank) Growing wealth inequality The shift to the information economy The growing disconnect between political debate and reality 4

5 GDP: Accelerating Despite Weak Start 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% Real GDP Growth (Y-o-Y) 1997I III 2000I III 2003I III 2006I III 2009I III 2012I III 2015I III II III IV I GDP FinalDemand Consumption Goods Services Investment Structures Equipment Intellectual property Residential Change inventories Net Exports Exports Imports Government Federal State and local

6 Production Activities Jan-11 ISM Indices Smoothed to April Aug-11 Mar-12 Oct-12 May-13 Manufacturing Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Non-Manufacturing 12.0% 8.0% 4.0% 0.0% -4.0% -8.0% -12.0% Industrial Production Growth Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Manufacturing Mining 6

7 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% External Accounts Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jan-96 Nov-97 Sep-99 Jul-01 May-03 Mar-05 Jan-07 Nov-08 Sep-10 Nominal Export Growth Y-o-Y $US: Real Broad Index Jul-12 May-14 Mar-16

8 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Global Economy: Accelerating China Growth Real Trade Imports Exports OECD Leading Indicator Index

9 Consumer Spending Jan-12 Real Consumer Spending Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan % 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Personal saving as a percentage of disposable personal income Real Spending Y-o-Y Growth 9

10 Consumer Credit to Q1 20.0% 15.0% 10.0% 5.0% 0.0% Y-o-Y Growth Consumer Credit Change (Billions) Q3 Q4 Q1 Mortgage -$12.0 $130.0 $147.0 HE Revolving -$6.0 $1.0 -$17.0 Auto Loan $32.0 $22.0 $10.0 Credit Card $18.0 $32.0 -$ % 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 Student Loan $20.0 $31.0 $34.0 Other $11.0 $10.0 -$

11 Consumer Debt 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Household Debt / Income 1980Q1 1982Q3 1985Q1 1987Q3 1990Q1 1992Q3 1995Q1 1997Q3 2000Q1 2002Q3 2005Q1 2007Q3 2010Q1 2012Q3 2015Q1 18.5% 18.0% 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% Household Financial Obligation Ratio 1980Q1 1982Q4 1985Q3 1988Q2 1991Q1 1993Q4 1996Q3 1999Q2 2002Q1 2004Q4 2007Q3 2010Q2 2013Q1 2015Q4 11

12 Jan-06 Dec-06 Nov-07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 Labor Markets 2.5% 4.0 Job Openings Rate 2.0% % % % % May-13 Apr-14 Mar Feb-16 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Employment Growth Change Y-o-Y Growth

13 Unemployment 18.0 US Unemployment Rates Y-o-Y % Growth Median Wages Y-o-Y Growth Labor Force Jan-94 Dec-96 Nov-99 Oct-02 Sep-05 Aug-08 Jul-11 U-3 U-6 Jun /1/97 2/1/00 4/1/02 6/1/04 8/1/06 10/1/08 High school of less 12/1/10 2/1/13 4/1/15 Bachelors degree or higher 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Jan-03 Feb-05 Mar-07 Apr-09 May-11 Jun-13 Jul-15 13

14 Local Economic Performance State Unemployment Rate Nov 2016 Alaska 6.9 Wyoming 5.3 Iowa 4.2 New Mexico 6.7 Missouri 5.2 Maryland 4.2 Louisiana 6.4 Oklahoma 5.2 Maine 4.1 DC 6.1 Georgia 5.1 Wisconsin 4.1 Mississippi 6 Kentucky 5 Arkansas 4 Nevada 5.8 New York 5 Minnesota 4 West Virginia 5.8 South Carolina 4.9 Virginia 4 Pennsylvania 5.7 Ohio 4.8 Idaho 3.8 Rhode Island 5.6 Texas 4.8 Colorado 3.6 Washington 5.6 Florida 4.7 Massachusetts 3.6 Arizona 5.5 North Carolina 4.7 Utah 3.4 California 5.5 Michigan 4.6 Hawaii 3.3 Illinois 5.5 Tennessee 4.6 Vermont 3.3 Oregon 5.5 Indiana 4.5 Nebraska 3.2 Alabama 5.4 Kansas 4.4 North Dakota 3 Connecticut 5.4 Delaware 4.3 New Hampshire 2.9 New Jersey 5.3 Montana 4.3 South Dakota 2.9 State Participation 2015 Minnesota 70.2 Pennsylvania 62.8 Wisconsin 68.0 Ohio 62.5 Maryland 66.8 California 62.2 Colorado 66.7 Georgia 61.3 Missouri 65.6 N Carolina 61.2 Virginia 65.2 New York 61.1 Mass Louisiana 60.5 Illinois 64.7 Michigan 60.3 New Jersey 64.1 Arizona 59.8 Indiana 63.7 Tennessee 59.3 Texas 63.7 Florida 59.3 Washington 63.0 S Carolina

15 Population Shifts 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% Net Migration (% of Pop) by region Northeast Region South Region Midwest Region West Region Net Migration by State Florida 1.51% Ohio -0.05% Nevada 1.27% Penn -0.06% Colorado 1.10% Wisconsin -0.08% Oregon 1.08% Michigan -0.08% South Carolina 1.04% New Jersey -0.14% Washington 0.99% Vermont -0.19% Arizona 0.96% W Virginia -0.26% Texas 0.90% New York -0.27% North Dakota 0.79% Mississippi -0.28% Idaho 0.77% Kansas -0.30% Delaware 0.66% Connecticut -0.32% North Carolina 0.66% Wyoming -0.35% Montana 0.60% New Mexico -0.47% Georgia 0.54% Illinois -0.58% Tennessee 0.53% Alaska -0.73% Utah 0.49% 15

16 Income Stagnation? $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 Real Mean Household Incomes Census Cash BEA Disposable What is better today? Communications Medical care, Pharmaceuticals Entertainment options Transportation Shopping, Product quality Food quality / variety Access to information Environmental conditions Legal Marijuana What isn t? 16

17 Secular Stagnation? 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Real GDP Growth Y-o-Y 1985Q1 1987Q2 1989Q3 1991Q4 1994Q1 1996Q2 1998Q3 2000Q4 2003Q1 2005Q2 2007Q3 2009Q4 2012Q1 2014Q2 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% US Population of Year Olds % 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Growth Share

18 Immigration 18

19 California fact versus fiction 19

20 As for California 5Year Change in Payroll Jobs by State New Jobs Ann Gr US Share Utah % 1.8% Nevada % 1.5% Florida 1, % 9.5% Idaho % 0.8% Colorado % 2.7% Oregon % 1.8% Washington % 3.2% California 2, % 16.1% Georgia % 4.1% Texas 1, % 11.2% Arizona % 2.3% South Carolina % 1.7% Tennessee % 2.5% North Carolina % 3.3% Montana % 0.3% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% State and National Employment Growth Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 California Feb-14 Jul-14 Dec-14 May-15 Oct-15 Balance US Mar-16 Aug-16 20

21 State Employment / Income Employment (Index) Jan-95 Jun-97 Nov-99 Apr-02 Sep-04 Feb-07 Jul-09 Dec-11 May-14 US CA Unemployment Rates Jan-08 May-09 Sep-10 Jan-12 California May-13 Sep-14 US Jan % 13.5% 13.0% 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% CA Share National Personal Income 1972Q1 1977Q1 1982Q1 1987Q1 1992Q1 1997Q1 2002Q1 2007Q1 2012Q1 21

22 Business Activity State Taxable Sales Non-Residential Permit Values State GDP (Index) Q1-00 Q4-01 Q3-03 Q2-05 Q1-07 Q4-08 Q3-10 Q2-12 Q1-14 Q Q1-00 Q4-01 Q3-03 Q2-05 Q1-07 Q4-08 Q3-10 Q2-12 Q1-14 Q :Q1 2006:Q3 2008:Q1 2009:Q3 2011:Q1 2012:Q3 2014:Q1 2015:Q3 United States California 22

23 California Employment Feb-17 1 Yr Ch Total Nonfarm % Education % 19.8 Government % 46.4 Wholesale Trade % 18.3 Financial Activities % 14.1 Health Care % 69.3 Prof Sci Tech % 32.9 Other Services % 12.9 Retail Trade % 11.3 Management % 2.8 Logistics % 18.9 Manufacturing % -9.6 Information % 15.8 Hospitality % 48.9 Admin Support % 0.5 NR/Construction % , , , , , , , ,000 50,000 0 Change in Employment by Income Level up to $24k $25l to $50k $50k to $75k to $75k $100k $100k Up 23

24 Where is Growth? Payrolls Mar California 16, % 2.1% Inland Empire 1, % 3.5% Oakland (MD) 1, % 2.8% Ventura % 2.8% Fresno % 2.7% San Francisco (MD) 1, % 2.5% Sacramento % 2.0% Stockton % 2.0% San Diego 1, % 2.0% San Jose 1, % 2.0% Santa Barbara % 1.8% Los Angeles (MD) 4, % 1.7% Orange County (MD) 1, % 1.3% Santa Rosa % 0.6% Bakersfield % 0.6% (Dec-11 = 100, SA) Total Nonfarm Index, Dec-11 to Dec-16 Dec-11 Jul-12 California Feb-13 Sep-13 LosAngeles (MD) Apr-14 Nov-14 Jun-15 Jan-16 Inland Empire 24 Aug-16

25 IE Economic Output Real GMP Index Gr Gr-US LQ All industry total 8.2% Government 3.1% 4.1% 7.0% Retail trade 8.2% -0.6% 3.4% 125 Transportation 15.5% 16.0% 2.6% Construction 21.7% 12.2% 2.1% Other services 6.0% 2.5% 0.9% Wholesale trade 31.0% 21.1% 0.9% 110 Education, health 12.4% 5.4% 0.7% Entertainment 7.6% 0.3% 0.2% Manufacturing 9.7% 4.9% -2.9% Information 15.5% -2.7% -3.9% Financial -0.2% -3.6% -4.2% US IE Professional 7.5% -2.4% -5.6% 25

26 Inland Empire Jobs Industry Apr-17 (000s) Change Change (%) (000s) Government Education/Health Retail Trade Leisure and Hospitality Trans, Warehouse, Util Construction Manufacturing Admin Support Wholesale Trade Other Services Financial Activities Prof Sci and Tech Information NR/Mining Total Nonfarm Payroll v Household Jobs 15 th Largest in US Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Payrolls Household 26

27 Unemployment and Local Unemployment Rates % Inland Empire Orange County 900 University Ave. Riverside, CA Los Angeles Average Payroll Wage communication@economicforecasting.org Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q2-11 Q1-12 Q4-12 Q3-13 Q2-14 Q1-15 Q4-15 Q3-16 Riverside San Bernardino 27

28 Consumer Spending Index (100 = Q3 '06) Indexed Taxable Sales Category Q Yr. Chg. 1-Yr. % Chg. Autos& Transp. 31,651,440 1,834, Building& Const. 16,780, , Business & Ind. 28,328,014-1,502, Food & Drugs 8,378, , Fuel & Service Stat. 16,407, , Consumer Goods 38,835, , Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12 Q4-13 Q4-14 Q4-15 Q4-16 Rests& Hotels 19,008,160 1,022, Inland Empire California Total 179,007,880 3,804,

29 Local Employment Q = Indexed Total Industry Employment Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Lake Elsinore Menifee Murrieta Temecula Wildomar Riverside Number of Establishments, Seasonally Adjusted Location Q YoY Growth Lake Elsinore % Menifee % Murrieta 1, % Temecula 1, % Wildomar % Riverside 59, % San Bernardino 55, % 29

30 Local Employment Local Payroll Jobs Largest Local Sectors by City Lake Elsinore Menifee Murrieta Temecula Wildomar Total Private Q ,744 YoY (%) 2.0 Q ,785 YoY (%) 1.3 Q ,889 YoY (%) 0.9 Q ,074 YoY (%) 0.8 Q2-16 4,534 YoY (%) 3.8 City #1 #2 #3 Lake Elsinore Menifee Murrieta Temecula Wildomar Retail Trade Construction Leisure Hospitality Leisure Hospitality Retail Trade Health Care Health Care Retail Trade Retail Trade Health Care Construction Leisure Hospitality Leisure Hospitality Health Care Leisure Hospitality 30

31 Taxable Sales Taxable Sales City Yr % Chg. 5 Yr % Chg. Lake Elsinore 827, % 30.5% Menifee 616, % 46.1% Murrieta 1,338, % 38.6% Temecula 3,226, % 36.4% Indexed Taxable Sales Wildomar 149, % 28.1% Lake_Elsinore Menifee Murrieta Temecula Wildomar 31

32 Non Residential Permits Temecula Wildomar Menifee Lake Elsinore Murrieta Type YrGr (%) YrGr (%) YrGr (%) YrGr (%) YrGr (%) Other 16, , , , , Non ResAlt. 15, , , , , Commercial 7, , , Total Non Res 40, , , , ,

33 Resident Employment Income Total EmployedResidents Menifee, Elsinore & Canyon Lake Murrieta & Wildomar Temecula Yr % Chg Yr % Chg Yr % Chg. Total 80, , , Incomefor Full Time 2015 Temecula 3 Yr Chg (p.p) Murrieta & Wildomar 3 Yr Chg 2015 (p.p) Menifee, Elsinore & Canyon Lake Yr Chg(p.p) 2015 Riverside County Orange County 3 Yr Chg (p.p) Yr Chg (p.p) Income < $25, $25-$49, $50-$74, $75-$99, $100-$149, >$150,

34 Demographics cont d Education Attain. Menifee, Elsinore & Canyon Lake Murrieta & Wildomar Temecula Orange County Riverside County Househole Income 2015 Growth (%) Yr Chg (p.p) Yr Chg (p.p) Yr Chg (p.p) Yr Chg (p.p) Yr Chg (p.p) < High School HS Graduate Some College BA Degree Grad Menifee, Lake Elsinore & Canyon Lake 60, % Murrieta & Wildomar 76, % Temecula 88, % Orange County 78, % Riverside County 58, % San Bernardino County 53, % 34

35 Quiz Time Match the payroll employment growth rate (letters) ( ) to the California region (numbers) A 23.6% B 25.8% C 27.0% D 33.8% E 39.8% 1 Bay Area 2 Central Coast 3 Greater Los Angeles 4 Greater Sacramento 5 So Central Valley 35

36 Housing Market 800, , , , , ,000 Median Home Prices Thousands Median Home Price Comparison 200, ,000 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 California Inland Empire Los Angeles Orange Lake Elsinore Menifee Murrieta Temecula Wildomar 36

37 Residential Real Estate cont d Median Prices. $000s Single Family Home Sales and Prices Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q Units Sold Month's Supply Housing Inventories 5 0 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Riverside County San Bernardino County Sales Median Prices 37

38 Residential Permitting Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q2-11 Q1-12 Q4-12 Q3-13 Q2-14 Q1-15 Q4-15 Q3-16 Multi-family Single-family Residential Permits City Yr % Chg. 5 Yr % Chg. Lake Elsinore % 156.7% Menifee % 73.9% Murrieta % 142.7% Temecula % 5.2% Wildomar % 1,023.5% 38

39 Population Trends Components of Population Growth 0 Q2-06 Q1-07 Q4-07 Q3-08 Q2-09 Q1-10 Q4-10 Q3-11 Q2-12 Q1-13 Q4-13 Q3-14 Q2-15 Q1-16 Natural Increase Net Migration City Yr. Chg. 1-Yr. % Chg. Riverside 326,792 3, San Bernardino 216,972 1, Fontana 212,786 3, Moreno Valley 206,750 2, R. Cucamonga 177,324 1, Ontario 174,283 4, Corona 167,759 3, Victorville 123, Murrieta 114,914 2, Temecula 111,024 1, Unincorporated 682,661 8, Incorporated 3,862,378 53, County Total 4,545,039 61,

40 Demographics 125 Indexed Population Growth Lake Elsinore Menifee Murrieta Temecula Wildomar 40

41 41

42 The Future of Obama-care? US Population Insurance Status Change 65+ Public 44,731 7, Employment by Sector Private 1, Uninsured Total Public 117,107 21,831 Private 169,586 9, Jan-90 Feb-92 Mar-94 Apr-96 May-98 Jun-00 Jul-02 Aug-04 Sep-06 Oct-08 Nov-10 Dec-12 Jan-15 Uninsured 29,758-15,907 Manufacturing Healthcare 42

43 The Healthcare Crisis 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% National Health Spending % GDP 2.1% / Decade 3.3% / Decade Per Capita Healthcare Spending 2015, PPP Adjusted USA $9,402 Norway $7,832 Switzerland $7,300 Sweden $6,285 Netherlands $6,209 Germany $6,204 Austria $6,143 France $5,428 Canada $5,421 Belgium $5,340 Australia $4,873 Finland $4,467 Japan $4,255 UK $3,717 43

44 Social Insurance Population Growth Projections Medicare Spending Projections CBO Deficit Projections Total 321,369 25, % 23, % Fed M. Spending / Senior $400 $200 $0 $400 $200 $ $5,461 -$200 -$200 <18 years 73,635 1, % 2, % 18 to 24 31,214 (478) -1.5% % 2015 $13, * $43,395 -$400 -$600 -$800 -$400 -$600 -$ to 44 84,657 8, % 3, % 45 to 64 84,032 (1,797) -2.1% 3, % 65 years+ 47,830 18, % 13, % 85 years+ 6,304 1, % 4, % Spending Share Federal Rev % % 2035* 41.0% -$1,000 -$1,200 -$1,400 -$1,600 -$1,800 Federal Budget Balance: FY -$587.3B CBO Forecast: FY -$1,407.6B $1,000 -$1,200 -$1,400 -$1,600 -$1,800 44

45 Public Sector 2,400 2,200 2,000 1,800 1,600 1,400 1,200 Public Employment Jan-05 Oct-06 Jul-08 Apr-10 Jan-12 Oct-13 Jul-15 State Government Local Government Major Sources State Revenues Q1-95 Q3-97 Q1-00 Q3-02 Q1-05 Q3-07 Q1-10 Q3-12 Q1-15 Pit Sales Corp Average Total Compensation: California $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 Private State & Local 45

46 Tax Reform not Tax Cuts 35% 30% 25% 20% 15% 10% 5% US Corporate Taxes as % Profit 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% Corporate Net Income as % National Income 0% 1980I 1982I 1984I 1986I 1988I 1990I 1992I 1994I 1996I 1998I 2000I 2002I 2004I 2006I 2008I 2010I 2012I 2014I 2016I Federal State & Local 2.0% 0.0% 1980I II III IV 1989I II III IV 1998I II III IV 2007I II III IV 2016I 46

47 Long Run Trends in Investment Real Net Investment % GDP Business Eq and Gov Real Net Investment % GDP Structures 3.0% 4.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% -0.5% 0.0% Government Business Non Residential Residential 47

48 Implications 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% Income Taxes Share of Income 1980I IV III II 1987I IV III II 1994I IV III II 2001I IV III II 2008I IV III II 2015I Real Net Worth Mean Net Worth by Percentile of Net Worth Less than 25 -$1.0 $0.1 -$ $41.8 $58.4 $ $162.2 $219.9 $ $411.6 $594.0 $ $2,294 $3,631 $3,962 Taxes S I Payment 48

49 Where can growth come from? 49

50 US Inflation 14.0% 12.0% Y-o-Y Growth Net Monetary Base US Core Inflation Rate 2.5% 2.0% Federal Funds Rate 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1/2/02 1/2/05 1/2/08 1/2/11 1/2/14 1/2/ M1 2002M M9 2006M7 2008M5 2010M3 2012M1 2013M M9 1.5% 1.0% 0.5% 0.0% Jan-08 Mar-09 May-10 Jul-11 Sep-12 Nov-13 Jan-15 Mar-16 50

51 Employment Driven Inflation? The Philips Curve: Inflation Regime Dependent 16.0% 14.0% 12.0% 10.0% Interest Rates % Jan-57 Apr-61 Jul-65 Oct-69 Jan-74 Apr-78 Jul-82 Oct-86 Jan-91 Apr-95 Jul-99 Oct-03 Jan-08 Apr % 4.0% 2.0% 0.0% Unemployment Rate 1 Year Ahead Inflation 51

52 The Big Bubble Part III? S&P 500 Y-o-Y Growth Bank Balance Sheets % % 6.0% % 2.0% % -2.0% % 0 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Sep-15 Nov % 1/5/11 1/5/12 1/5/13 1/5/14 1/5/15 Direct Loans 1/5/16 1/5/17 52

53 The Big Picture The Economic Outlook Economic Growth Outlook for 2017: 2-2.5% even with the weak first quarter Labor markets to remain tight, wages to put pressure on profits Financial markets a bit frothy, but interest rates to remain low Exports, business investment to pick up California to slow utmainly due to housing shortage LA: Still solid-but growth is constrained by housing, infrastructure The Trump Factor The Good: Infrastructure, Mortgage Reform, Government Efficiency, Trade negotiations The Bad: Interest Rates, Federal Deficit, Personal Liabilities, Deregulation of Wall Street, Foreign policy, Healthcare The Ugly: The potential for a trade war, Immigration and the Environment, Entitlements, Revenge of the Left 53

54 900 University Ave. Riverside, CA