October California & Metro

Transcription

1 C E N T E R F O R B U S I N E S S A N D P O L I C Y R E S E A RC H October 2018 California & Metro U N I V E R S I T Y O F T H E PA C I F I C E B E R H A R D T S C H O O L O F B U S I N E S S

2 CENTER FOR BUSINESS AND POLICY RESEARCH Del Norte Siskiyou Modoc Humboldt Trinity Shasta Lassen Tehama Plumas Mendocino Glenn Butte Sierra Nevada Lake Colusa Sutter Yuba Placer Sonoma Napa Yolo Sacramento Amador El Dorado Alpine Marin San Francisco San Mateo Solano Contra Costa Alameda Santa Clara San Joaquin Stanislaus Calaveras Merced Tuolumne Mariposa Madera Mono Santa Cruz San Benito Fresno Inyo Monterey Kings Tulare California & Metro Forecast is published by the Center for Business and Policy Research University of the Pacific Eberhardt School of Business Web Pacific.edu/CBPR Stockton Sacramento San Luis Obispo Santa Barbara Santa Barbara Ventura Ventura Kern Los Angeles Orange San Bernardino Riverside Staff Dr. Jeffrey A. Michael, Director Dr. Thomas Pogue, Associate Director Santa Barbara Los Angeles San Diego Imperial UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

3 California & Metro October 2018 Published quarterly by the Center for Business and Policy Research at the University of the Pacific Eberhardt School of Business. Copyright 2018 Center for Business and Policy Research. All rights reserved. This forecast was prepared based upon assumptions reflecting the Center s judgments as of the date it bears. Actual results could vary materially from the forecast. Neither the Center for Business and Policy Research nor The Regents of the University of the Pacific shall be held responsible as a consequence of any such variance. Unless approved by the Center for Business and Policy Research, the publication or distribution of this forecast and the preparation, publication, or distribution of any excerpts from this forecast are prohibited.

4 Contents Forecast Summary and Discussion California Highlights California Forecast Tables California Forecast Charts Fresno MSA Merced MSA Modesto MSA Oakland MSA Sacramento MSA San Francisco MSA San Jose MSA Stockton MSA

5 FORECAST SUMMARY & DISCUSSION Forecast Summary and Discussion California s economy continues to be strong, and should sustain its momentum through 2019 to become the longest duration economic expansion since World War II. Unemployment is at record lows throughout the state. The statewide unemployment rate has been steady at 4.2% in recent months, and we project a small further decline to 3.9% in Statewide job growth is projected to decline slightly to 1.6% over the next year after seven consecutive years of exceeding 2% as employers face increasing difficulty finding skilled labor. Housing starts have made a solid gain so far in 2018, and are on track to reach 120,000 units this year. However, we only see modest growth in home construction going forward and project new units will level off at about 130,000 per year by 2020, enough to keep up with current population growth but not enough to reduce the high cost of living. After another year of solid 3% growth in 2019, our forecast is for a growth slowdown in 2020 and 2021 with an increasing risk of a mild recession. There are a number of risks and challenges: global, national, and statewide that will make it difficult to sustain current growth rates. Global concerns include problems in developing economies and slower global growth, the International Monetary Fund recently downgraded their global economic forecast. Another international concern is the potential for an escalating trade war, highlighted by the U.S. plan to make another steep increase to tariffs on Chinese goods at the end of the year. In the U.S., there is a risk of escalating inflation and a more rapid increase to interest rates that could be problematic for growth. Bond yields and mortgage rates have both increased noticeably in the past month. In addition, stock valuations are currently high, and a stock market correction could have economic impacts. A sharp decline in the market over the past few days has exacerbated these fears. Finally, current growth has been supported by expansionary fiscal policy as the federal government deficit spending grows in the wake of a large tax cut and a new two-year spending plan that postponed spending cuts. By 2020, the effects of this expansionary fiscal policy will fade and we could see contraction from the government sector to address the large annual deficits. California also faces local limits to growth, most notably sky-high housing costs and land use regulations that deter faster population, labor force, and business growth. The California policy environment seems likely to continue to trend towards higher regulation and increasing business costs, with the rising minimum wage and political push for rent control as recent notable examples. While this is quite a lengthy list of risks, none of these issues seem substantial enough to trigger a sharp downturn or serious recession and must be Table 1. California Annual Forecast Summary Real Gross State Product (% change) Non-Farm Payroll Employment (% change) Unemployment Rate (%) Housing Starts (thousands) Center for Business and Policy Research 5

6 FORECAST SUMMARY & DISCUSSION Table 2. Central Valley Metro Forecast Summary Metro Area Non-Farm Payroll Employment (% change) Unemployment Rate (%) Sacramento Stockton Modesto Merced Fresno California NOTE: Sacramento MSA includes Sacramento, El Dorado, Placer, and Yolo Counties. Stockton, Merced, Fresno and Modesto MSAs correspond to San Joaquin, Merced, Fresno, and Stanislaus Counties. Table 3. Bay Area Metro Forecast Summary Metro Area Non-Farm Payroll Employment (% change) Unemployment Rate (%) San Francisco San Jose Oakland California NOTE: San Francisco MSA includes San Francisco and San Mateo Counties. Oakland MSA includes Contra Costa and Alameda Counties. San Jose MSA includes Santa Clara and San Benito Counties. weighed against the on-going strength of California s innovation economy and attractiveness to skilled talent from around the world. Thus, we view the most likely outcome as a growth slowdown after a decade of continuous expansion. By the end of 2020, we are projecting California s real Gross State Product to dip below 2%, and job growth to fall below 1%, and the unemployment rate to tick up to 4.5%. THE REGIONAL OUTLOOK Bay Area growth job growth slowed down a bit in 2017 after a remarkable five-year run that led to considerable shortages of housing and labor that inevitably slowed growth. There has been no further slowing in 2018, and activity has actually increased in some areas. Home values had started to level off in 2017, and we thought they would continue to be under pressure as rising mortgage rates and limits to the deductibility of mortgage interest and state and local taxes would all have disproportionate effects on the high-priced market. However, that has not been the case. Bay Area home prices have continued to rise, fueled by very strong income gains from the tech economy and tight labor market. Job growth has also held firm in the Bay Area in 2018, and we are forecasting it will remain above 2% annual growth in 2019 in San Francisco 6 California & Metro Forecast October 2018

7 FORECAST SUMMARY & DISCUSSION and San Jose despite labor shortages that have driven the local unemployment rate near 2%. As we discussed in our last forecast, the Bay Area has overcome housing shortages in part due to its ability to grow its labor force faster than its population as skilled workers move to the area displace households with fewer workers like families and retirees. The tech economy continues to boom, but rising costs in the Bay Area have driven some non-tech economies to relocate or reduce growth plans. The North Face headquarters relocation to Denver is the most recent example to gain headlines. While being the center of the nation s fastest growing and lucrative tech industry has resulted in strong growth and rising incomes, and we are projecting continued growth, a less diversified Bay Area economy could be less resilient to future economic disruptions. The fastest growing area in the Central Valley is the area most connected to the Bay Area, Stockton. Stockton is on pace to surpass 3% job growth again in 2018, a sixth consecutive year of growth near or above 3% for a region that was once the epicenter of the foreclosure crisis and home to the nation s largest municipal bankruptcy less than a decade prior. The unemployment rate is below 6%, remarkably low for a region where the unemployment rate was near 17% in 2010, and in double-digits for most of the 1990s and 2000s. Growth in the Stockton metro area has been fastest in Tracy, Manteca, and Lathrop, the cities closest to the Bay Area. New home construction has posted strong gains in 2018 after a decade of lackluster performance. Many new buyers are Bay Area commuters seeking affordability. Job growth in the Stockton area has been driven by rapid expansion of transportation and warehousing jobs as Amazon recently announced it was opening its 4th enormous fulfillment center in the County. These jobs have been welcome in the Stockton region, but the area still faces considerable economic challenges and many workers endure mega-commutes to access higher-paying jobs. Modesto, Merced, and Fresno are also experiencing solid job growth and much lower unemployment rates, but not as rapid as Stockton due in part to their more distant location from the Bay Area. Sacramento area job growth has been a little slower than other areas in northern California, about 2% in 2018 and 2019, closely tracking the state average. Despite aggressive private economic development efforts, Sacramento still has a government dominated economy and its growth rate is somewhat tempered by the slowgrowing nature of government employment as California s overall population growth rate has slowed in recent decades. However, we project Sacramento will sustain its 2% employment growth rate in 2019 and 2020, even as other parts of the state slow down. Population growth will continue to surpass the state average as the area has a relatively low cost of living, and more professional and recreation opportunities than other more affordable areas of California. While we are only expecting limited residential growth in most areas of California, we believe that there is room for additional growth in residential construction in Sacramento which will help sustain job growth along with its expanding role as a healthcare center and steady growth in the public sector. CBPR ANALYSIS OF NOVEMBER 2018 CALIFORNIA PROPOSITIONS Most of the eleven propositions on the November 2018 ballot have important economic impacts including multiple measures that would control prices, change tax policies, and several multi-billion dollar bond issues. Given the significant economic impacts of these proposals and an election that is only a month away, the commentary in this issue provides the analysis and planned vote of CBPR Executive Director Jeff Michael and Associate Director Tom Pogue on these propositions. Bond Issues, Propositions 1-4: Bonds may be placed on the ballot by the legislature or through a petition. Bonds are long-term borrowing that creates a long-term burden on the state budget. Thus, in most cases, it is preferable that bonds be put on the ballot by the legislature that considers the full state budget every year rather than petitions which typically represent more narrow interests pursuing public funding for their cause. Propositions 1 and 2 are housing bonds placed on the ballot by the wide majorities of the legislature as part of its 2017 affordable housing legislative package. Proposition 3 and 4 bypassed the legislature and were put on the ballot by petitions funded by entities that would directly benefit from the public borrowing. This greater consideration of budget impacts by legislative placed bonds is noticeable as the sum of the two bonds placed on the ballot by the legislature in response to California s most critical public issue, affordable housing, is actually smaller than the single bond placed on the ballot by petition of water interests. Center for Business and Policy Research 7

8 FORECAST SUMMARY & DISCUSSION PROPOSITION 1: YES. Proposition 1 authorizes $4 billion in bonds for various affordable housing programs. The availability and affordability of housing is a worsening problem across all of California, and is arguably the State s biggest economic challenge. The cost of developing affordable housing is extremely high in California, more than double some other states, and thus the funding in this bond will not deliver as much housing as it should. While it is tempting to vote no until stronger actions are taken to reduce costs, the need for affordable housing is so great that we support the bonds. PROPOSITION 2: YES. Proposition 2 authorizes $2 billion for housing programs for individuals with mental illness. It passed the California Senate unanimously, and the Assembly This bond deserves support, although we urge further actions to reduce the cost of developing affordable housing in order to maximize the benefits of this funding. PROPOSITION 3: NO. Proposition 3 would authorize $8.9 billion in bond borrowing for a variety of water related projects, and creates an unjustified subsidy from the state s greenhouse gas cap and trade program for 4 designated water agencies supporting the bond, including the Metropolitan Water District and Westlands Water District. While a portion of Proposition 3 s funding would go to needs that are worthy of state public funding, the majority of Proposition 3 is a terrible policy that provides undeserved subsidies to special interests that represent California water politics at its worst. Since 2014, the legislature and Governor Brown have supported over $11 billion in new water related bonds in 2 separate elections, including the $4 billion Proposition 64 in June Thus, most of Proposition 3 consists of poorly justified subsidies that couldn t make it through a legislature and Governor that have been very supportive of water spending. In addition to the enormous size and weak justification of the Bond, the hidden inclusion of an energy subsidy for water agencies that divert and pump water uphill from the environmentally troubled Delta is reason enough to vote no on Proposition 3. PROPOSITION 4: NO. Proposition 4 would authorize $1.5 billion in bonds for children s hospitals and was placed on the ballot by a petition funded by an association of children s hospitals that would receive the subsidies. While children s hospitals are valuable institutions in California, funding them through state general obligation bonds is poor public policy. PROPOSITION 5: NO. Proposition 5 would expand the property tax limitations from Proposition 13 for California homeowners over the age of 55, by allowing them to transfer the lower property tax bill of their current home to any other home they purchase in the state. Proposition 5 would address one of the negative consequences of Proposition 13, inefficient house lock that occurs since moving often triggers higher property tax bills for homeowners because the new home is assessed at its current market value. Proposition 5 eliminates this perverse incentive, and thus would have a positive effect. Unfortunately, Proposition 5 solves a Proposition 13 problem by further increasing the large tax burden inequities embedded in Proposition 13. Proposition 13 is inequitable because homeowners with similarly valued homes pay vastly different property tax bills based on when they purchased the home. It conveys large tax benefits on older homeowners who bought their houses decades ago, as well as those who had fortunate market timing and bought during the dips of California s roller coaster real estate cycles. The Executive and Associate Director of CBPR both bought houses in 2010 near the bottom of the market, and would likely benefit handsomely from Proposition 5 in a few years as we become eligible empty nesters. While we would personally benefit from Proposition 5, we oppose it because it perpetuates and expands Proposition 13 s inequities and distortion of California s real estate markets and local public finance. The house lock incentives could be addressed by reforming Prop. 13 to reduce its inequities rather than by expanding them. PROPOSITION 6. NO. Proposition 6 would repeal gas and vehicle taxes passed by the legislature in 2017 to fund transportation projects around the state. While we don t generally favor tax increases and understand that the high cost of motor fuels imposes a heavy cost burden on many Californians, these taxes are an appropriate and fair approach to funding much needed transportation improvements. Fuel and vehicle taxes are far more economically efficient than funding transportation with general fund revenues (primarily income and sales taxes) as many Proposition 6 advocates have argued. PROPOSITION 7. YES. Proposition 7 would start a process that could lead to year-round daylight savings time (DST) with federal approval. While the energy saving benefits of DST are questionable, the proposition would potentially end twice yearly time changes and 8 California & Metro Forecast October 2018

9 FORECAST SUMMARY & DISCUSSION their associated disturbance to sleep patterns. Increasing evidence shows that sleep disruption from the time changes may be associated with a range of social costs ranging from pedestrian, motor vehicle, and workplace accidents to workplace productivity losses and declines in student learning. Permanent DST could also facilitate increased consumer impacts in shops and restaurants as well as outdoor recreational activities because of the extra evening daylight. Plus, if Tom were to recommend a no vote his wife and son would combine their late night and early morning preferences to ensure he is sleep deprived no matter what the time change. PROPOSITION 8. NO. Proposition 8 would regulate prices charged by dialysis clinics based on the cost of care. In general, attempts to limit prices by law reduce economic efficiency, reduce the supply of goods and services and can have many unintended consequences. Prop. 8 has been supported and funded by labor unions seeking to unionize staff of dialysis clinics, and is opposed by the owners of dialysis clinics, and many major medical professional organizations in the State. PROPOSITION 9. Three Californias initiative was removed from the ballot. PROPOSITION 10. NO. Proposition 10 would greatly expand the ability of local governments to enact rent controls on residential property. Economic theory and decades of research are clear that rent control reduces the quality and quantity of rental housing over time, leads to an inefficient allocation of rental units by reducing mobility and encouraging overconsumption of housing by those who are able to secure rent-controlled apartments. California s affordable housing crisis is severe, and the desire for rent controls to create some immediate relief and cost savings for some is understandable. On the other hand, the many harms caused by rent controls accumulate more slowly over time and the research is clear that it will do more harm than good for California s housing market in the long-run. PROPOSITION 11. YES. Proposition 11 would allow private ambulance companies to require their employees remain on call during meal and rest breaks. This is current practice, but a recent ruling in a lawsuit requiring uninterrupted breaks for private security guards is expected to end the practice of on-call breaks by ambulance companies. Eliminating on-call breaks would significantly increase the cost of maintaining current EMT service standards, requiring increased staffing that would raise health insurance and local government costs. PROPOSITION 12. YES. Proposition 12 would require cage-free housing for egg-laying hens by 2022, and increase required space for breeding pigs and veal calves. Interestingly, UC-Davis agricultural economists have been silent on the economic effects of this bill after receiving withering criticism and a lawsuit from the Humane Society over a study of the costs of 2008 s Proposition 2, which increased space requirements for hens but did not go as far as the current proposition to require cagefree production. Economic studies have shown Prop. 2 raised egg prices in California by between 50 cents and $1 per dozen. The cost of living index data we collect for the Stockton and Sacramento areas finds that eggs are more than twice the price seen in many other parts of the county, a much higher cost differential than any other grocery product we survey. Proposition 12 will likely further increase the cost of eggs in California and its costs will be disproportionately felt by low-income households. However, the California cost difference will likely decrease over time as major retailers and restaurant chains around the country have announced plans to shift to cage-free eggs that will change production methods across the industry. Surprisingly, the most public opposition is not from the agriculture industry or consumer activists, but animal welfare activists who claim the Prop. 12 does not go far enough. While concerned about the cost to low-income households, we recognize the legitimacy of growing animal welfare concerns and that an industry shift is already underway. Plus, if Jeff were to recommend a No vote, his wife and kids would have him sleeping outside next to his backyard chicken coop. Center for Business and Policy Research 9

10 FORECAST HIGHLIGHTS Highlights of the October 2018 California Forecast Over the next 12 months, real gross state product is forecast to grow at a strong 3.1% pace before dropping to 2.3% growth in 2020 as recession risks grow. The California unemployment rate is forecast to average 4.2% for 2018 and fall further below its record low to 3.9% in 2019 before gradually increasing. Nonfarm payroll jobs will grow 1.6% over the next 12 months, dropping below 2% growth for the first time since Payroll growth will drop below 1% by late 2020 which is expected for an economy at full employment after a long expansion. Health Services has become the largest employment sector in the state after a period of rapid growth. Health services is projected to add more than 35,000 positions over the next 12 months, a slowdown from the 85,000 health services jobs added in Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery, and is forecast to be a growth leader in 2019 adding over 60,000 jobs. Growing tourism and a gradual shift in consumer spending from retail to restaurants has fueled rapid growth in Leisure and Hospitality sector. This sector has added up to 75,000 jobs in recent years, but we project about 10,000 new jobs in each of the next few years as rising labor costs and low labor availability drives change in the hospitality sector. State and local government employment experienced solid 2% employment growth from 2014 to 2017 as public budgets, especially in education, recovered. However, state and local government hiring will drop below 1% for the next several years in spite of revenue growth as these entities grapple with rising costs of pensions and other compensation. Construction jobs have been growing rapidly in recent years as the hard-hit sector continues to recover. We expect a slight slowdown in construction job growth in 2019, about 20,000 new jobs compared to 40,000 to 50,000 in recent years. Job growth is limited by worker availability, and construction wages have been growing fast, and we expect job growth to pick up after 2019 as workers respond to higher wages. Single family housing starts are projected to surpass 65,000 this year and level off at around 75,000 in 2020 and beyond. Multi-family production is projected to be near 55,000 units this year and stabilize near this level. This projection of 130,000 new units per year will be enough to keep up with modest 0.7% projected annual population growth, but will not be enough to provide relief to California s housing crisis. California s population growth rate has declined to 0.7% and is projected to remain at this level through California s population will reach 40 million next year, and is adding about 275,000 new residents per year. 10 California & Metro Forecast October 2018

11 CALIFORNIA TABLES Table 1. Annual Summary Personal Income and Gross State Product Personal Income (Bil. $) Calif. (%Ch) Gross State Product (Bil. $) Calif. (%Ch) Real GSP (Bil. 2009$) Calif. (%Ch) Employment and Labor Force (Household Survey % Change) Employment Labor Force CA Unemployment Rate (%) Non-Farm Employment (Payroll Survey % Change) Total Non-Farm California Mining Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehs. & Utility Wholesale Trade Retail Trade Financial Activities Prof. and Business Services Edu & Health Services Leisure & Hospitality Information Federal Gov't State & Local Gov't Other Indicators Population (thous) (%Ch) Housing Starts Tot. Private (Annual Rate, Ths.) Housing Starts Single Family Housing Starts Multi-Family New Passenger Car & Truck Registrations Retail Sales (Billions $) Center for Business and Policy Research 11

12 CALIFORNIA TABLES Table 2. Quarterly Summary 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income and Gross State Product Personal Income (Annual Rate, Bil. $) Calif. (%Ch) Gross State Product (Bil. $) Calif. (%Ch) Real GSP (Bil. 2009$) Calif. (%Ch) Employment and Labor Force (Household Survey % Change) Employment Labor Force CA Unemployment Rate (%) Non-Farm Employment (Payroll Survey % Change) Total Non-Farm California Mining Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehs. & Utility Wholesale Trade Retail Trade Financial Activities Prof. and Business Services Edu & Health Services Leisure & Hospitality Information Federal Gov't State & Local Gov't Other Indicators Population (thous) (%Ch) Housing Starts Tot. Private (Annual Rate, Ths.) Housing Starts Single Family Housing Starts Multi-Family New Passenger Car & Truck Registrations Retail Sales (Billions $) California & Metro Forecast October 2018

13 CALIFORNIA TABLES Table 2. Quarterly Summary 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income and Gross State Product Personal Income (Bil. $) Calif. (%Ch) Gross State Product (Bil. $) Calif. (%Ch) Real GSP (Bil. 2009$) Calif. (%Ch) Employment and Labor Force (Household Survey % Change) Employment Labor Force CA Unemployment Rate (%) Non-Farm Employment (Payroll Survey % Change) Total Non-Farm California Mining Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehs. & Utility Wholesale Trade Retail Trade Financial Activities Prof. and Business Services Edu & Health Services Leisure & Hospitality Information Federal Gov't State & Local Gov't Other Indicators Population (thous) (%Ch) Housing Starts Tot. Private (Annual Rate, Ths.) Housing Starts Single Family Housing Starts Multi-Family New Passenger Car & Truck Registrations Retail Sales (Billions $) Center for Business and Policy Research 13

14 CALIFORNIA TABLES Table 3. Employment Quarterly 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 California Payroll Employment (Thousands) Total Non-Farm Manufacturing Durable Goods Wood Products Computer & Electronics Transportation Equipment Nondurables Foods Non-Manufacturing Mining Construction Transportation, Warehouse & Util Wholesale Trade Retail Trade Information Prof. & Bus. Services Admin. & Support Prof. Sci. & Tech Mgmt. of Co Financial Activities Real Estate & Rent Finance & Insurance Education & Health Service Education Services Health Services Leisure & Hospitality Other Services Government Federal Gov't State & Local Gov't California & Metro Forecast October 2018

15 CALIFORNIA TABLES Table 3. Employment Quarterly 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 California Payroll Employment (Thousands) Total Non-Farm Manufacturing Durable Goods Wood Products Computer & Electronics Transportation Equipment Nondurables Foods Non-Manufacturing Mining Construction Transportation, Warehouse & Util Wholesale Trade Retail Trade Information Prof. & Bus. Services Admin. & Support Prof. Sci. & Tech Mgmt. of Co Financial Activities Real Estate & Rent Finance & Insurance Education & Health Service Education Services Health Services Leisure & Hospitality Other Services Government Federal Gov't State & Local Gov't Center for Business and Policy Research 15

16 CALIFORNIA TABLES Table 4. Employment Annual California Payroll Employment (Thousands) Total Non-Farm Manufacturing Durable Goods Wood Products Computer & Electronics Transportation Equipment Nondurables Foods Non-Manufacturing Mining Construction Trans., Warehouse & Util Wholesale Trade Retail Trade Information Prof. & Bus. Services Admin. & Support Prof. Sci. & Tech Mgmt. of Co Financial Activities Real Estate & Rent Finance & Insurance Education & Health Service Education Services Health Services Leisure & Hospitality Other Services Government Federal Gov't State & Local Gov't California & Metro Forecast October 2018

17 CALIFORNIA CHARTS California Personal Income (percent change from one year ago) 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 10% California Real Gross State Product (percent change from one year ago) 8% 6% 4% 2% 0% -2% -4% -6% -8% 14% California Unemployment Rate (percent) 12% 10% 8% 6% 4% 2% 0% Center for Business and Policy Research 17

18 CALIFORNIA CHARTS 18,000 California Total Nonfarm Employment (Thousands) 17,500 17,000 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 1,100 California Construction Employment (Thousands) 1, ,700 California Manufacturing Employment (Thousands) 1,600 1,500 1,400 1,300 1,200 1,100 1, California & Metro Forecast October 2018

19 CALIFORNIA CHARTS 700 California Trade, Transportation, and Utilities Employment (Thousands) ,000 California Financial Activities Employment (Thouands) ,900 California Professional and Business Employment (Thousands) 2,700 2,500 2,300 2,100 1,900 1,700 Center for Business and Policy Research 19

20 CALIFORNIA CHARTS 2,900 California Education and Health Services Employment (Thousands) 2,700 2,500 2,300 2,100 1,900 1,700 1,500 1, California Information Employment (Thousands) California Federal Government Employment (Thousands) California & Metro Forecast October 2018

21 CALIFORNIA CHARTS 2,500 California State and Local Government Employment (Thousands) 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1, California Housing Starts (Thousands) ,500 California New Passenger & Light Truck Registrations (Thousands) 2,300 2,100 1,900 1,700 1,500 1,300 1, Center for Business and Policy Research 21

22 METROS

23 Fresno MSA Total annual nonfarm employment is expected to grow approximately 1.3% in 2019 and 1.1% in 2020, as growth rates taper from previous years. The expected leading sectors for employment growth in 2019 are the Financial activities (2.9%); Professional & Business service (2.9%); and Education & Health Services (2.6%) sectors. Employment is expected to increase in all sectors except for the Federal government (-1.9%) and Other services (-0.4%). sectors. The average annual wage is expected to be $54,094 in 2019, an increase of 2.5% from the previous year. By 2022, the average annual wage is expected to be $60,213. SHORT TERM OUTLOOK The Fresno MSA population is expected to reach one million in 2018 and will grow approximately 1% each year, reaching 1,038,262 in In 2019, an increase of 1.0% is expected in the labor force. The unemployment rate is expected to be 6.9% in 2019 and 2020 but is forecasted to rise slightly in 2020 and reach 7.4% by Housing starts are expected to reach 3,814 by 2022 and then remain near that level through The majority of housing starts are expected remain single-family, but the share of multi-family starts will reach 29% by Fresno Housing Starts 380 Fresno Payroll Employment (Thousands) Fresno Unemployment Rates (percent) Fresno Employment Mix Relative to California, 2016 (California = 100) 20% % 16% 14% 12% % 80 8% 60 6% 40 4% 20 2% 0% 0 Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. Center for Business and Policy Research 23

24 METRO SUMMARY - FRESNO Quarterly Outlook for Fresno 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

25 METRO SUMMARY - FRESNO Quarterly Outlook for Fresno 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 25

26 METRO SUMMARY - FRESNO Annual Outlook for Fresno Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

27 METRO SUMMARY - FRESNO Merced MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 2.3% in 2019 and 2.1% in The expected leading sectors for employment growth in 2019 are in Professional & Business Services (14.4%); Wholesale Trade (8.7%); and State & Local Government (3.4%) sectors. Declines are forecasted in 2019 for the Construction & Mining (-1.7%); Manufacturing (-1.5%) and Financial Activities sectors (-1.4%). In 2019, the average annual wage is expected to be $55,973, an increase of 2.6% from the previous year. By 2022, the average annual wage is forecasted to be $62,277. The Merced MSA population is expected to reach approximately 278,494 in 2019 and will grow steadily at around 1.1% each year, bringing the population up to 288,080 in The labor force will by 1.9% in 2019 but its growth will gradually slow to 0.8% by The unemployment rate for the Merced MSA is forecasted to be 7.6% in 2019 and will gradually rise after 2020 to 7.9% by Approximately 1,039 housing starts are expected in 2019, an increase from 730 in Housing starts are expected to reach 1,105 by 2022, with 9l% single-family starts Merced Housing Starts 80 Merced Payroll Employment (Thousands) % 18% 16% 14% 12% 10% 8% 6% 4% 2% Merced Unemployment Rate (percent) Merced Employment Mix Relative to California, 2016 (California = 100) Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 0% Center for Business and Policy Research 27

28 METRO SUMMARY - MERCED Quarterly Outlook for Merced 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

29 METRO SUMMARY - MERCED Quarterly Outlook for Merced 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 29

30 METRO SUMMARY - MERCED Annual Outlook for Merced Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

31 Modesto MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 1.4% between 2018 and 2019 and 1.1% in The leading sectors for employment growth in 2019 are the Professional & Business Services (4.8%); and Education & Health Services (3.1%) sectors. Declines in 2019 employment are expected in the Other Services (-2.7%); and Construction & Mining (-0.5%) sectors. Average annual wage is forecasted to be $56,480 in 2019 and will grow to $63,726 by Annual wage growth between 2020 and 2022 is expected to decrease from 1.4% to 1.2%. The population in the Modesto MSA is expected to reach 562,115 in 2019 and will reach 584,100 in Modesto s labor force is expected to grow approximately 1.1% in 2019 and approximately 1.4% in Unemployment is estimated to decline to 6.3% in 2019 the, rise steadily to 7.4% in Housing starts will reach 1,306 in 2019 and grow to 2,107 in While the vast majority of starts will remain single-family the share of multi-family starts is expected to rise from 3.3% in 2019 to 13.7% in Modesto Housing Starts 190 Modesto Payroll Employment (Thousands) Modesto Unemployment Rate (percent) Modesto Employment Mix Relative to California, 2016 (California = 100) 19% % % % % % 40 7% 20 5% 0 Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 3% Center for Business and Policy Research 31

32 METRO SUMMARY - MODESTO Quarterly Outlook for Modesto 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

33 METRO SUMMARY - MODESTO Quarterly Outlook for Modesto 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 33

34 METRO SUMMARY - MODESTO Annual Outlook for Modesto Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

35 Oakland MSA SHORT TERM OUTLOOK Annual nonfarm employment in the Oakland MSA is expected to increase 1.3% in 2019 and Leading sectors for employment growth in 2019 are the Professional & Business Services (5.1%); and Information (3.6%) sectors. Meanwhile, decline is expected in the Financial Activities (-1.7%); Federal Government (-1.1%); Other Services (-0.9%); and the State & Local Government (-0.3%) sectors. For 2019, the average annual wage is expected to be $80,181, up from $77,767 in Annual wage growth is expected to rise from 3.9% in 2020 to 4.3% in The Oakland MSA population is expected to reach 2,866,800 in 2019, a growth of 0.9% from The population is expected to reach approximately 2,942,100 by Unemployment in Oakland is expected to decrease to 2.8% in 2019 where it will remain in 2020 before rising to 3.3% in The labor force is expected to grow 1.3% in 2019 then taper to 0.8% growth in Housing starts will reach 10,704 in 2019 and 11,496 in Multifamily starts are expected to continue to outnumber single-family starts between 2019 and ,000 12,000 10,000 8,000 6,000 4,000 2,000 Oakland Housing Starts Oakland Payroll Employment (Thousands) % 10% 8% 6% 4% 2% Oakland Unemployment Rate (percent) Oakland Employment Mix Relative to California, 2016 (California = 100) Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 0% Center for Business and Policy Research 35

36 METRO SUMMARY - OAKLAND Quarterly Outlook for Oakland 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

37 METRO SUMMARY - OAKLAND Quarterly Outlook for Oakland 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 37

38 METRO SUMMARY - OAKLAND Annual Outlook for Oakland Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

39 Sacramento MSA SHORT TERM OUTLOOK Total nonfarm employment in the Sacramento MSA is expected to increase 2.0% in 2019 and then slow steadily to 1.0% growth in The leading sectors for employment growth in 2019 are the Professional & Business Services (6.2%); Financial Activities (2.9%); and Information (2.8%) sectors. Declines are only forecast for one sector in 2019, Federal Government (-0.4%). The average annual wage for 2019 is predicted to be $65,669, an increase of 3.0% from the previous year. By 2022, the average annual wage is forecasted to be $74,051. The population of the Sacramento MSA is expected to be 2,389,503 in 2019, an increase of 1.4% from The labor force is expected to grow by 1.7% in 2019, which is up from 0.1% growth in The unemployment rate is expected to be 3.5% in both 2019 and 2020, but it is forecast to rise to 4.0% in Approximately 11,083 housing starts are expected in 2019, growing to 13,133 in 2021; just under 80% of which are single-family starts Sacramento Housing Starts 1050 Sacramento Payroll Employment (Thousands) % 12% 10% 8% 6% 4% Sacramento Unemployment Rate (percent) Sacramento Employment Mix Relative to California, 2016 (California = 100) Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 2% Center for Business and Policy Research 39

40 METRO SUMMARY - SACRAMENTO Quarterly Outlook for Sacramento 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths) Pct Chg Year Ago Labor Force (Ths) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

41 METRO SUMMARY - SACRAMENTO Quarterly Outlook for Sacramento 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths) Pct Chg Year Ago Labor Force (Ths) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 41

42 METRO SUMMARY - SACRAMENTO Annual Outlook for Sacramento Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths) Pct Chg Year Ago Labor Force (Ths) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

43 San Francisco MSA SHORT TERM OUTLOOK Annual nonfarm employment in the San Francisco MSA is expected to grow 2.4% in 2019 and 1.6% in The expected leading sectors for employment growth in 2019 are the Information (6.3%); Professional & Business Services (5.6%); and Construction & Mining (4.0%) sectors. Meanwhile, employment declines are expected in the Federal Government (-1.1%); Manufacturing (-0.6%); and Other Services (-0.3%) sectors. The average annual wage is expected to be $126,181 in 2019, an increase of 3.4% from The average annual wage is predicted to be $143,833 in The San Francisco MSA population is expected to reach 1,677,068 in 2019, an increase of 0.5% from the previous year. With steady population growth of 0.5% annually through 2021, by 2022 the population should be 1,699,788. The labor force is expected to grow 1.4% in 2019 and 0.8% in The unemployment rate is expected to decline to 2.1% in 2019 from 2.3% in 2018 and is expected to be 2.4% in Total housing starts are expected to continue the decline that began in There are 3,903 total housing starts forecast for 2019 which will decrease steadily to 3,387 in The proportion of multifamily starts will decrease slightly from 90% in 2018 to 86% in San Francisco Housing Starts 1250 San Francisco Payroll Employment (Thousands) % San Francisco Unemployment Rate (percent) 250 San Francisco Employment Mix Relative to California, 2016 (California = 100) 11% 200 9% 150 7% 100 5% 50 3% 0 Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 1% Center for Business and Policy Research 43

44 METRO SUMMARY - SAN FRANCISCO Quarterly Outlook for San Francisco 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

45 METRO SUMMARY - SAN FRANCISCO Quarterly Outlook for San Francisco 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 45

46 METRO SUMMARY - SAN FRANCISCO Annual Outlook for San Francisco Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

47 San Jose MSA SHORT TERM OUTLOOK Total annual nonfarm employment in the San Jose MSA is expected to grow 2.1% in 2019 and 1.5% in The leading sectors for employment growth in 2019 are in Professional & Business Services (4.9%); and Information (4.1%). No sectors are forecast to decline in 2019, but the Federal Government (0.10%); Leisure & Hospitality (0.14%); and Construction & Mining (0.3%) sectors will grow the least. In 2019, the average annual wage is estimated to be $137,784, an increase of 3.8% from By 2022, the average annual wage may reach $158,085. The San Jose MSA population is expected to reach 2,026,958 in 2019, an increase of 0.7% from the previous year. The population will grow steadily at a rate near 0.8% annually until it reaches 2,075,833 in The labor force is expected to increase by 1.2% in 2019 then growth will taper to a rate of 0.4% growth in The unemployment rate is forecasted to be 2.4% in 2019, down from 2.6% in Approximately 6,360 housing starts are expected in 2019, a decrease of 1,832 starts in Nearly two-thirds of the housing starts between 2019 and 2022 will be multifamily San Jose Housing Starts 1250 San Jose Payroll Employment (Thousands) % San Jose Unemployment Rate (percent) 250 San Jose Employment Mix Relative to California, 2016 (California = 100) 11% 200 9% 150 7% 100 5% 50 3% 0 Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 1% Center for Business and Policy Research 47

48 METRO SUMMARY - SAN JOSE Quarterly Outlook for San Jose 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

49 METRO SUMMARY - SAN JOSE Quarterly Outlook for San Jose 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 49

50 METRO SUMMARY - SAN JOSE Annual Outlook for San Jose Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

51 Stockton MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 2.1% in 2019 and 1.6% in The expected leading sectors for employment growth in 2019 are in Professional & Business Services (5.6%); Manufacturing (4.9%); and Transportation, Warehousing & Utilities (3.5%). Meanwhile, decline is expected in the Other Services (-6.7%); and Construction & Mining (-0.9%) sectors. The average annual wage is expected to be $54,507 in 2019, an increase of 2.8% from the previous year. By 2022, the average annual wage is forecasted to be $61,120. The population in the Stockton MSA is forecasted to increase 1.3% in 2019 to 766,753 and will continue to increase, reaching 796,453 in The labor force is expected to grow by 0.9% in 2019 and The unemployment rate is forecast to be 5.4% in 2019, down from 5.9% in Housing starts in 2019 are expected to total of 3,492, which is a decline of 4.1% from In the period from 2019 to 2022, single-family start will account for 86% of all housing starts Stockton Housing Starts % 16% 14% 12% 10% 8% 6% Stockton Unemployment Rate (percent) Stockton Employment Mix Relative to California, 2016 (California = 100) Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 4% Center for Business and Policy Research 51

52 METRO SUMMARY - STOCKTON Quarterly Outlook for Stockton 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2018

53 METRO SUMMARY - STOCKTON Quarterly Outlook for Stockton 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Personal Income (Annual Rate, Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 53

54 METRO SUMMARY - STOCKTON Annual Outlook for Stockton Personal Income (Billions $) Total Personal Income Pct Chg Year Ago Wages and Salaries Nonwage Income Per Capita Income (Ths.) Average Annual Wage (Ths.) Pct Chg Year Ago Establishment Employment (Place of Work, Thousands, SA) Total Non-Farm Employment Pct Chg Year Ago Manufacturing Pct Chg Year Ago Nonmanufacturing Pct Chg Year Ago Construction & Mining Pct Chg Year Ago Trade, Trans, & Utilities Pct Chg Year Ago Wholesale Trade Retail Trade Trans, Wrhsng, & Util Information Pct Chg Year Ago Financial Activities Pct Chg Year Ago Prof & Business Services Pct Chg Year Ago Educ & Health Services Pct Chg Year Ago Leisure & Hospitality Pct Chg Year Ago Other Services Pct Chg Year Ago Federal Government Pct Chg Year Ago State & Local Government Pct Chg Year Ago Other Economic Indicators Population (Ths.) Pct Chg Year Ago Labor Force (Ths.) Pct Chg Year Ago Unemployment Rate (%) Total Housing Starts Single-Family Multifamily California & Metro Forecast October 2018

55 CENTER FOR BUSINESS AND POLICY RESEARCH University of the Pacific A national doctoral university, University of the Pacific is recognized for an education combining exceptional professional preparation in a student-centered tradition of close interactions between students and professors. With a core liberal arts college and eight professional schools, more than any university enrolling fewer than 10,000 students, Pacific offers professional opportunities associated with far larger institutions in the environment of a small learning community. Pacific is California s first chartered institution of higher learning, having received its articles of incorporation from the California Supreme Court on July 10, The University enrolls more than 5,600 students on three campuses situated in the Northern California cities of San Francisco, Stockton and Sacramento. President Pamela A. Eibeck Eberhardt School of Business The Eberhardt School of Business offers a Masters in Business Administration (MBA), Master of Accounting (MAcc), Bachelor of Science in Business Administration, Bachelor of Science in Accounting, and Minors in Management, Business Administration, and Information Systems to nearly 700 students. With an emphasis on interactive classes and studentfaculty engagement, the program is committed to developing successful future business leaders through a learning process that is personal, relevant, and professional. In addition to developing well-rounded and highly skilled graduates, the Eberhardt School of Business has demonstrated its commitment to community service and regional economic development through a variety of outreach programs and activities including the Center for Business and Policy Research, Career Management Center, Institute for Family Business, and Westgate Center for Management Development. Center for Business and Policy Research The Center for Business and Policy Research, founded in 2004 and housed in the Eberhardt School of Business, produces quarterly economic forecasts of California and 8 metropolitan areas from Sacramento to Fresno to the San Francisco Bay Area. In addition to its forecasting program, the Center conducts policy and planning studies on topics such as water, transportation, housing, and economic development for public and private clients throughout Northern California. Jeffrey A. Michael, Ph.D. Executive Director, Center for Business and Policy Research Ph.D., North Carolina State University; M.S., University of Maine; B.A., Hamilton College (NY) Dr. Jeffrey Michael is Executive Director of the Center for Business and Policy Research and Professor of Public Policy at the University of the Pacific. Jeff s areas of expertise include regional economic forecasting, and environmental economics and policy and including work the economic impacts, costs and benefits of water and transportation infrastructure, the Endangered Species Act, climate change, and regulation on land use, property values and employment growth. His research has received numerous grants, been published in scholarly journals and received extensive coverage in the regional and national press. Prior to joining Pacific in 2008, Jeff was at Towson University in Maryland where he served as Director of the Center for Applied Business and Economic Research, Associate Dean of the Honors College, and Associate Professor in the School of Business and Economics. Jeff received his Ph.D. from North Carolina State University, M.S. from the University of Maine, and B.A. from Hamilton College. UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

56 University of the Pacific Eberhardt School of Business Sacramento Office: th Avenue Sacramento, CA Pacific.edu/CBPR Stockton Office: 3601 Pacific Avenue Stockton, CA 95211