2013 San Diego Economic Outlook. Marney Cox Chief Economist San Diego Association of Governments November 15, 2012

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1 2013 San Diego Economic Outlook Marney Cox Chief Economist San Diego Association of Governments November 15, 2012

2 The Problem Gross Domestic Product Trillion$ Annual Gap Potential GDP Actual GDP

3 Big Picture What Caused the Problem? Jobs Consumption Expenditures Disposable Income

4 US Change in Payroll Jobs Steep Drop & Slow Rebound During Recession Recession 132% Starts December 2007 During Expansion Expansion Begins July 2009 Debt / Income Ratio 66% - 8% - 7.1M Jobs 5% - 3% 1% 26 Months 40 Months

5 Why Slow Job Growth? Did $787B (6% of GDP) Federal Stimulus Generate Jobs? Employment Multiplier is zero Job created is offset by a job lost. Employment Multiplier is one or less Each dollar of spending on idle resources adds one dollar to GDP. Employment Multiplier exceeds one Earnings from newly employed resources create jobs for other idle resources.

6 US $787 Billion Stimulus Package Less than 10% of Stimulus Funds Spent Generated Earnings Targeted Stimulus (multiplier > 1) $62B - Tax incentives for homes and cars - Education layoff prevention Discretionary Spending (multiplier << 1) $428B - Jobless benefits - Health care for needy - Medicaid costs - Job training - Affordable housing programs Tax Incentives & Breaks (multiplier = 0) $279B - Renewable energy - Home energy efficiency - Faster depreciation for capital investments - Tax credits for workers

7 US Lowering the U-Rate Will Take Time Until U Falls Expect More Stimulus Policies % Unemployed 27 Weeks or More New LF Entrants % of Unemployed Expenditures 40% 10% Requires 1.2M Jobs/Yr 20% $1.3 Trillion Deficit Years Years

8 US Change in Consumer Consumption Consumption Represents 70%+ of GDP During Recession Recession 132% Starts December 2007 Expansion Begins Expansion Begins July 2009 July 2009 Debt / Income Ratio - 8% 5% - 3% - 6% 66% 1% 8 Quarters 11 Quarters

9 US Why Slow Consumption Growth? Contributors to Slow Growth Household Credit Debt Outstanding Personal Savings Rate 132% 112% Debt / Income Ratio Debt / Income Ratio 5% 3.3% 66% 66% 1% 1% Years Years Years

10 US Change in Real Disposable Income Affects Sustainability-Gap Widening During Recession Recession 132% Starts Starts December Debt / Income Ratio - 5.7% - 8% During During Expansion Expansion Expansion Begins Expansion Begins Expansion July 2009 July Begins 2009 July % 5% - 3% -9.0% 1% 26 Months 4027 Months

11 Why Slow Income Growth? Emp/Pop Ratio Discouraged Workers Wages & Hours Worked Disposable Income Y-O-Y ( Cumulative Change Index 2005=100) Ave Wkly Hours -4ppt Real -5% Wages

12 Attempts to Fix the Problem Have They Worked? Increase Deficit Spending Increase Loanable Funds Lower Interest Rates

13 US Deficit Spending & Job Openings Attempt 1 to Fix the Problem Federal Federal Revenue Surplus & Expenditures & Deficit Expenditures Unemployed Per Per Job Opening 6.8-U / Opening 6.8-U / Opening $1.3 Trillion Deficit Revenues 4.3-U / Opening 3.8-U / Opening $1.3 Trillion Deficit Years Years

14 US Interest Rates & Housing Starts Attempt 2 to Fix the Problem Federal Reserve Interest Rates FF Rate New Housing Starts 2.3M Starts $1.3 Trillion Deficit 10 Year T- Rate $1.3 Trillion 0.872M Starts Years Years

15 US Loanable Funds & Loans Excess Bank Reserves Attempt 3 to Fix the Problem $1.3 Trillion Deficit $1.3 Trillion Years Years

16 Outlook for San Diego

17 SD Payroll Jobs Change Y-O-Y by Quarter ,000 60,000 40,000 20, ,000-40,000-60,000-80, ,000

18 SD Payroll Jobs Change Y-O-Y by Month 40,000 20, ,000-40,000-60,000-80, ,

19 SD 2011 Jobs Actual vs Estimate (EDD Non-Agricultural Employment) 25,000 20,000 15,000 10, Est 2011 Act 5, ,000 Jan Feb Mar Apr May Jun Jul Aug Sep

20 SD Job Change Industries -40,000-20, ,000 40,000-31,800-9,700-23,300-7,300-13,500-11,700-4,900-1,200 6,000 19,600

21 Employment (in Thousands) Jobs by Industry (non-agricultural ) 1,400 1,200 1, Government Professional and Business Services Trade Leisure and Hospitality Educational and Health Services Manufacturing Natural Resources and Mining Construction Financial Activities Other Services Information Transportation, Warehousing and Utilities Agriculture

22 Monthly Unemployment Rates September 2011 to 2012 (YOY) 14.00% San Diego 9.7% to 8.4% California (SA) 11.9% to 10.2% 12.00% United States (SA) 9.0% to 7.9% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

23 SD Per Capita Income Real 2009$, % Growth 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, (P)

24 SD Venture Capital Funds Resources for High Tech Jobs, M$ per Year $2,500 $2,000 $1,500 $1,000 23Q12 $500 $ '00 '02 '04 '06 '

25 SD Housing Permits & Prices

26 SD Population Growth-Slow & Changing Annual Change Population, Dom & Intl Migration, Employment ,000 70,000 50,000 30,000 10,000-10,000-30,000-50,000-70, '00 '05 10 Population Domestic Migration International Migration Employment

27 SD Taxable Sales (Percent Change)

28 Trade Value M$ Trade with Mexico thru Otay Mesa $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0

29 2013 Outlook Summary Continued Slow-Below Trend-Growth in 2013 National / International No Recession, Not Out of Woods Large Output Gap-Slow Growth Recent Data-third time a charm? Uncertainties-Cliff, Europe Problem is speed not direction San Diego Job Growth 1%; U-rate 8.0% Home Price +5%; Trade with Mexico +6% Fiscal Cliff threat to San Diego

30 2013 San Diego Economic Outlook Marney Cox Chief Economist San Diego Association of Governments November 15, 2012