The Economic Outlook. Christopher Thornberg, PhD Founding Partner, Beacon Economics Director, UCR SoBA Center for Economic Forecasting and Development

Transcription

1 The Economic Outlook Focus on Los Angeles December 2018 Christopher Thornberg, PhD Founding Partner, Director, UCR SoBA Center for Economic Forecasting and Development beaconecon.com

2 A look back NBER says U.S. recession began December 2007 Mon Dec 1, 12:20 pm ET WASHINGTON (Reuters) The U.S. economy slipped into recession in December 2007, the National Bureau of Economic Research's business cycle dating committee announced on Monday.

3 The Good: Strong Growth Trends It isn t the when, it s the why that matters Meet the Trump economy, same as the old economy Economy on a steady growth path since global commodity bust Labor markets, business investment, wages, exports, energy, housing all on good trends 2018 better: good momentum with fiscal stimulus after-burner Still a low chance of recession in next 24 months` California: Still out in front WSJ Next Recession Poll % 20.0% 40.0% 60.0% 3

4 It s Not That Good Brakes and Imbalances Labor shortages impacting employers Local Housing Shortages Recent market volatility / rising long term rates Aggressive Fed, flattening yield curves Sharp growth in government deficits Global trade / security worries Politics going in the wrong direction Little effort to deal with underinvestment in infrastructure, rising wealth and income inequality, healthcare cost inflation, pension and entitlement issues, etc etc etc The great disconnect between economic realities and political discourse 4

5 GDP: Q3 3.5%, Q4 tracking 2.5% Real GDP Growth (yoy) 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q Q2 Q3 GDP Final Demand Consumption Goods Services Fixed investment Structures Equipment Intellectual prop Residential Change inventories Net exports Exports Imports Government Federal State and local

6 Real Consumer Spending Growth (Y-o-Y) Jan-96 Sep-97 May-99 Jan-01 Sep-02 May-04 Jan-06 Sep-07 May-09 Jan-11 Sep-12 May-14 Jan-16 Sep-17 Jan-03 Feb-04 Mar-05 Apr-06 May-07 Jun-08 Jul-09 Aug-10 Sep-11 Oct-12 Nov-13 Dec-14 Jan-16 Feb-17 Mar-18 Consumer Spending Personal Savings Rate

7 Consumer Debt Loads 14.0 Financial Obligations Ratio Share Debt 90+ Delinquent :Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 15:Q4 16:Q3 17:Q2 18:Q1 CA ALL 7

8 Industrial Production Jan-09 Sep-09 Industrial Production Y-o-Y Growth May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May Exports of goods, Real 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1

9 Labor Markets Jan-10 Change Non Farm Payrolls (Smoothed) Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep Unemployment and Job Openings Jan-01 Apr-02 Jul-03 Oct-04 Jan-06 Apr-07 Jul-08 Oct-09 Jan-11 Apr-12 Jul-13 Oct-14 Jan-16 Apr-17 Jul-18 Job Opening Rate Unemployment Rate

10 Workforce Growth 3.0 US Labor Force Growth (Smoothed) Population by Age (Millions) Jan-80 Jun-82 Nov-84 Apr-87 Sep-89 Feb-92 Jul-94 Dec-96 May-99 Oct-01 Mar-04 Aug-06 Jan-09 Jun-11 Nov-13 Apr-16 - Under 5 years 5 to 9 years 10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years 60 to 64 years 65 to 69 years 70 to 74 years 75 to 79 years 80 to 84 years 85 years and over 10

11 The Cure for Secular Stagnation 11

12 Consequences Real Wage Gains for Continuously Employed FT Workers $45,000 $40,000 Real Median Income- Males 3.0 $35, $30,000 $25, Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Median Average $20,000 $15,

13 Quality of Life Life Expectancy 2.0% 1.6% Infant Mortality 4.5% 4.0% 3.5% Total Crime Rate in the U. S. 4.15% % 3.0% 2.85% % % 2.0% % 1.5% 1.0% 0.5% % 0.0% Source: Countryeconomy.com. Statista. 13

14 Rising Rates? Mortgage MortgageRates Rates(30 (30Year YearFixed) Fixed)

15 Home Sales % % % % % % Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-99 Apr-00 Jul-01 Oct-02 Jan-04 Apr-05 Jul-06 Oct-07 Jan-09 Apr-10 Jul-11 Oct-12 Jan-14 Apr-15 Jul-16 Oct-17 Housing Markets: Slight Slowing Median Prices Y-o-Y Growth 5.0% 0.0% -5.0% 15

16 Affordability vs Credit Availability Housing Starts per New Household Mortgage Origination by Credit Score :Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2 11:Q2 12:Q2 13:Q2 14:Q2 15:Q2 16:Q2 17:Q2 Median 25th percentile 10th percentile 16

17 Autos? 20.0 US Auto Light Truck Sales 160 Domestic Auto Production Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

18 Tax Reform vs Fiscal Stimulus 35% 30% 25% 20% 15% 10% 5% 0% US Corporate Taxes as % Profit 1980I II III IV 1989I II III IV 1998I II III IV 2007I II III IV 2016I Federal State & Local 1,800 1,600 1,400 1,200 1, New Estimates: Debt and Deficit Deficit Net Debt % GDP

19 Twin Deficits Trade Deficit Jan-93 Aug-94 Mar-96 Oct-97 May-99 Dec-00 Jul-02 Feb-04 Sep-05 Apr-07 Nov-08 Jun-10 Jan-12 Aug-13 Mar-15 Oct Net Surplus Federal Go 1995Q1 1996Q3 1998Q1 1999Q3 2001Q1 2002Q3 2004Q1 2005Q3 2007Q1 2008Q3 2010Q1 2011Q3 2013Q1 2014Q3 2016Q1 2017Q3 19

20 The China Syndrome Value US Exports to China as % of GDP: 0.75% Value China Exports to US as % of GDP: 4.0% Demands reduce its trade surplus with the U.S. by $200 billion over two years would not challenge U.S. actions taken in intellectual property disputes stop subsidizing high-tech sectors identified in its Made in China 2025 plan cut tariffs on all products in non-critical sectors to levels at or below U.S. duties demanded that China not target U.S. farmers and agricultural products demanded that China not retaliate against U.S. restrictions on Chinese investments ease a process for approving U.S. investments 20

21 The Yuan response Yuan / Dollar Exchange Rate Country Exports Imports Total, China % % Canada % % Mexico % % Japan % % Germany % % United Kingdom % % Korea, South % % France % % India % % Italy % % Taiwan % % Netherlands % %

22 % Annual Return The Markets S&P S&P Market Selloffs Current Expansion -1.00% -3.00% -5.00% -7.00% -9.00% % % %

23 The Bond Trigger? Year Rates Why? Surge in Federal Borrowing Surge in Economic Growth Chinese bond dumping

24 Inflation 3.0 Core Inflation 14.0 M2 Growth (Y-o-Y)

25 Federal Reserve Policy: Normalization? 25

26 Another Bubble? Jan-86 Nov-86 Sep-87 Jul-88 May-89 Mar-90 Jan-91 Nov-91 Sep-92 Jul-93 May-94 Mar-95 Jan-96 Nov-96 Sep-97 Jul-98 May-99 Mar-00 Jan-01 Nov-01 Sep-02 Jul-03 May-04 Mar-05 Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15 Jan-16 Nov-16 Sep-17 Shiller P/E Ratio

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28 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 Midwest Region South 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% 28

29 Source: Business Insider/Census Bureau 29

30 State Economic Performance Real Output Q Year 5 Year Washington 4.3% 3.7% California 3.5% 3.7% Utah 3.7% 3.4% Colorado 4.5% 3.4% Oregon 3.4% 2.9% Florida 2.3% 2.8% Texas 4.2% 2.8% Idaho 3.2% 2.8% Georgia 2.5% 2.8% Nevada 4.0% 2.7% Household Employment by Metro Metro 2017 Chg, 2011 to 2017 % Absolute Los Angeles-Long Beach 6,316, ,998 Dallas-Fort Worth-Arlington 3,542, ,100 Houston-The Woodlands 3,115, ,199 San Francisco-Oakland 2,447, ,613 Phoenix-Mesa-Scottsdale 2,135, ,366 Riverside-San Bernardino 1,870, ,420 Seattle-Tacoma-Bellevue 1,935, ,383 Austin-Round Rock 1,074, ,713 Denver-Aurora-Lakewood 1,492, ,291 San Jose-Sunnyvale 1,015, ,799 Source: U.S. Bureau of Labor Statistics, U.S Bureau of Economic Analysis 30

31 Myth Busting California's economy recently grew to become the world's fifth-largest economy if it were its own country. Sounds like great news, but that wealth mostly benefits the very rich in the tech sector. "Almost all the income growth and highend job growth took place in Silicon Valley, Joel Kotkin, professor of Urban Studies at Chapman University May 18, 2018 Share New FT Employees K 50-75K 75K-100K 100K+ State 318, , , ,322 Bay 4.4% 9.1% 24.1% 39.4% So Cal 43.1% 27.7% 29.5% 39.4% S Cen Val 19.6% 19.9% 8.8% 7.1% N Cen Val 16.1% 11.8% 12.1% 10.1% Cen Cst 5.3% 6.0% 5.1% 2.2% Other 11.4% 25.5% 20.3% 1.8% 31

32 Top City Growth: West Household Employment by Metro Chg, 2010 to 2016 Metro 2016 % Absolute Los Angeles-Long Beach-Anaheim 6,316, ,998 Dallas-Fort Worth-Arlington 3,542, ,100 Houston-The Woodlands 3,115, ,199 San Francisco-Oakland 2,447, ,613 Phoenix-Mesa-Scottsdale 2,135, ,366 Riverside-San Bernardino 1,870, ,420 Seattle-Tacoma-Bellevue 1,935, ,383 Austin-Round Rock 1,074, ,713 Denver-Aurora-Lakewood 1,492, ,291 San Jose-Sunnyvale-Santa Clara 1,015, , Real Metro Product Indexes So Cal US Balance 32

33 Job Gains Across CA Metro Areas Santa Cruz County Santa Barbara County YTY % Change in Nonfarm Jobs (Sep-18) Largest Metro Areas YTY Salinas MSA San Jose MSA Inland Empire SF East Bay LA County Sacramento MSA Ventura County Orange County 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Los Angeles County 54,800 Inland Empire 47,700 San Jose 40,400 San Diego County 28,700 East Bay 22,400 San Francisco Metro Division 21,600 Fresno MSA 11,100 Sacramento MSA 10,100 Orange County 8,500 Stockton-Lodi MSA 7,700 Source: EDD,

34 Median Household Income Region 2017 Median Household Income % Change San Jose $117, % San Francisco $101, % San Diego $76, % San Luis Obispo $71, % Los Angeles $69, % Sacramento $67, % Inland Empire $61, % Fresno $51, % Merced $47, % Median Household Income ($, Thousands) Median Household Income Los Angeles San Diego San Francisco Inland Empire Source: ACS 34

35 Poverty Levels, California Percent in Poverty (%) California Fresno Los Angeles Merced Inland Empire Sacramento San Diego San Francisco San Jose San Luis Obispo Source: ACS 35

36 Total Insured Region Percent Insured 2017 Percent Insured 2013 Percent Insured Percent Insured 2013 to 2017 Fresno 92.3% % Los Angeles 91.4% % Merced 92.5% % Inland Empire 92.2% % Sacramento 95.0% % San Diego 92.3% % San Francisco 95.5% % San Jose 95.8% % San Luis Obispo 94.0% % % Insured Los Angeles Inland Empire San Diego San Jose Source: ACS 36

37 Local Population, Sonoma County 5,000 Change Pop Sonoma County City Population 2018 Change 2017 to 2018 Year over Year % Growth 4,000 17/18 16/17 3,000 2,000 County Total 503,332-1, Santa Rosa 178, Unincorporated 142,391-5, ,000 0 Petaluma 62,708 1, Rohnert Park 43,598 1, Windsor 28, ,000-2,000 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 Healdsburg 12, Sonoma 11, Cloverdale 9, Sebastopol 7, Cotati 7, Source: DOF 37

38 QCEW: Q Sonoma Establishments Sonoma Employment

39 State Job Growth 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Jan-11 Y-o-Y Growth Payroll Jobs Industry Oct-18 YTY YTY % Total Nonfarm 17,236, , % Health Care & Social 2,357,200 63, % Prof., Scientific Technical 1,287,000 52, % Leisure & Hospitality 2,009,500 46, % Administrative Support 1,150,000 46, % Government 2,607,000 36, % Construction 858,200 30, % Transportation, 655,000 21, % Manufacturing-Durable 840,900 13, % Information 544,300 5, % Educational Services 372,800 5, % Real Estate 287,200 3, % Mgmt. of Companies 235,000 1, % Finance & Insurance 548,700 1, % Mining and Logging 22, % Retail Trade 1,698,000-1, % Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Wholesale Trade 724,900-2, % Other Services 561,600-4, %

40 California Labor Markets 1.50% 1.30% 1.10% 0.90% 0.70% 0.50% 0.30% 0.10% -0.10% -0.30% -0.50% Net Migration as a % of Pop Unemployment Rate Jan-90 Aug-91 Mar-93 Oct-94 May-96 Dec-97 Jul-99 Feb-01 Sep-02 Apr-04 Nov-05 Jun-07 Jan-09 Aug-10 Mar-12 Oct-13 May-15 Dec-16 California Source: U.S. Census 40

41 Los Angeles Economy: Long Run 4,900,000 Employment LA Economy 4,700,000 4,500,000 4,300,000 4,100,000 3,900,000 3,700, Civilian Employment Total, All Industries 41

42 Los Angeles County Average Labor Force Growth :.7% Industry Employment for Los Angeles (MD) Industry Sep Total Nonfarm % 1.4% Hospitality % 1.9% Admin Support % 2.3% Prof Sci Tech % 2.6% Health Care % 4.0% Financial Act % 0.7% Information % -4.1% Manufacturing % -2.7% NR/Construction % 3.5% Education % 6.3% Logistics % 4.9% Retail Trade % 0.4% Government % 1.0% Wholesale Trade % -0.6% Jan-90 Dec-91 Unemployment Rates Record Low for LA County Nov-93 Oct-95 Sep-97 Aug-99 Jul-01 Jun-03 May-05 Apr-07 Los Angeles Mar-09 Feb Jan-13 Dec-14 Nov-16 42

43 New Housing Supply How Much Housing Needed? Housing Needed to maintain 2% State Job Growth Method 1 Total 722,022 Per Year 206,674 Current 111,185 Shortfall 100,489 Method 2 Total 911,001 Per Year 263,667 Current 111,185 Shortfall 157, Residential Permits (SAAR) Q1-95 Q2-96 Q3-97 Q4-98 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13 Q1-15 Q2-16 Q3-17 SF MF 43

44 Housing = Economic Development Residential Permits LA County Q1-95 Q2-96 Q3-97 Q4-98 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13 Q1-15 Q2-16 Q3-17 Single Famile Multi-Family 2% Job Growth 90,000 Jobs 1.5 Jobs / HH 60,000 24,400

45 MSA Home Prices

46 How Much of a Backlog? Units Vacancy Rk Gr% Rk Ch Texas 10, % 28 34% 4 2,776 Florida 9, % 6 29% 6 2,139 California 14, % 52 16% 21 1,963 N Carolina 4, % 17 31% 8 1,099 Georgia 4, % 34 30% 9 1,001 Arizona 2, % 7 37% Washington 3, % 44 27% New York 8, % 39 8% Virginia 3, % 46 21% Colorado 2, % 35 32% Backlog Avg Growth 291 Avg Vacancy 676 Total 967 High Growth 1,408 Avg Vacancy 676 Total 2,084 Texas Growth 1,849 Avg Vacancy 676 Total 2,525

47 The Upside of Labor Shortages County Gr City Gr Pop w Earn 5, % 2, % Median Earn 32, % 31, % Share of Rent Constrained Households < HS 21, % 21, % HS 28, % 26, % SC 36, % 35, % Bach 54, % 51, % Grad 77, % 75, % City of LA County

48 Some high level thoughts 1. Affordability vs supply shortages 2. Growth on the extensive vs intensive margins 3. Focusing on the forest vs on the trees 4. Treating the symptom vs treating the disease 5. Political vs economic barriers

49 49 Rebuild Santa Rosa Housing Efforts Housing Action Plan Downtown Housing Initiative Regional Partnerships

50 SUPPLEMENTAL DENSITY BONUS Allow up to 100% Bonus Project Eligibility Requirements: üachieves 35% State Bonus and ülocated within a Priority Development Area or Station Area and ülocated within appropriate General Plan Land Use Designation Density above 35% granted for: üaffordable Housing or üaffordable Housing and Community Benefits 50

51 51 Downtown Station Area Specific Plan

52 52 Programmatic and Policy Updates EXPRESS PERMITTING PROGRAM Design Review Process Planning $30 $25 $10 Building ~ 18 Months $24,000 6 $20 $15 Engineering 10 Months 4 $9,000 3 Months $5 ~ 6 Months $0 Original Downtown City Council Ordinance ORD , May 22, 2018 NORMAL EXPRESS 52

53 High Density Residential Incentive Program (Market Rate) 10th Floor 53 9th Floor 8th Floor Downtown Zoning CD-7 and CD-10 7th Floor 6th Floor Market Rate Example 5th Floor 4th Floor 3rd Floor 2nd Floor Parking/ Commercial 0% $13,167 Parking/ Commercial 25% $9,875 Parking/ Commercial 40% $7,900 Parking/ Commercial 50% $6,584 Parking/ Commercial 67% $4,389 5 Per3Door Park and CFF Fee

54 The Big Picture Positives: It will be a good year GDP Growth Outlook for 2018: 3% State revenues will look positive Labor markets to remain tight Rising wages to put pressure on profits Exports, business investment continue to pick up Inflation to remain constrained Interest Rates Still Low Debt Levels still safe California: Still a top performer Negatives: Problems Growing Labor shortages will be an issue Local housing supply tightening Fed will continue to tighten, yield curve flattening Markets behaving oddly Federal deficit widening sharply Political uncertainty to dominate headlines Critical Policy Issues Remain Undiscussed Miserabilism warping our sense or reality 54

55 The Great Disconnect What we are worried about The Number of Jobs Who pays for Healthcare Tax Levels Income Inequality Funded Govt. Liabilities Business Investment Inflation The Cost of CA Housing What we should be worried about The Number of Workers What are we paying for? Tax Structure Wealth Inequality Unfunded Govt. Liabilities A Lack of Public Investment Slowing Lending The Supply of CA Housing What we are worried about 55

56 What can Beacon do for you? Connect with us. To view again or download this presentation and for further information, go to: Continue the conversation. Contact Dr. Chris Thornberg directly at or Let s discuss your goals and needs. Beacon has 6 Practice Areas covering a range of services and products. Our 6 Practice Areas Housing, Land Use, & Real Estate Advisory Sustainable Growth and Development Economic & Revenue Forecasting Economic, Fiscal and Social Impact Analysis Regional and Sub- Regional Analysis Litigation and Testimony For more information, see Slide 2. 56

57 Portfolio Spotlight Regional and Sub- Regional Analysis Beacon conducts analysis at an international, national, state, county, and city level -- and even down to the zip code, pending data availability. We analyze data on Employment, Industry, Real Estate, and Consumption. Past Clients: City and County of Los Angeles City and County of Riverside East Bay Economic Dev. Agency Impact (Economic, Fiscal, Social) & EB5 Analysis Beacon has evaluated the impact of entities like universities, music festivals, infrastructure projects, and real estate development projects. Beacon has also conducted impact analyses that combine more than one of the above like that of L.A s Olympic bid. Past Clients: University of Southern California Metropolitan Water District LA 2024 Olympic Bid Committee Sustainable Growth & Development Beacon conducts industry and policy analysis on topics like green innovation, tech and workforce development, and industry sector strategies. Beacon has strong in-house expertise around housing policy and economic development support. Past Clients: California Apartment Association Long Beach Downtown Dev. Corp. Santa Cruz Workforce Dev. Board Housing, Land Use, & Real Estate Advisory Economic & revenue forecasting Litigation and testimony 57

58 Thank You