LAEDC ECONOMIC FORECAST: CALIFORNIA AND LOS ANGELES

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1 LAEDC ECONOMIC FORECAST: CALIFORNIA AND LOS ANGELES SOMJITA MITRA, PH.D. DIRECTOR, INSTITUTE FOR APPLIED ECONOMICS LOS ANGELES COUNTY ECONOMIC DEVELOPMENT CORPORATION

2 I NEVER THINK OF THE FUTURE IT COMES SOON ENOUGH --Albert Einstein

4 How Important is California? Contribution to US GDP California 14.4% All Other States 48.8% Texas 8.6% New York 8.2% Bureau of Economic Analysis, 2018 New Jersey 3.1% Ohio 3.3% Illinois 4.2% Pennsylvania 3.9%

5 California Indicators GDP Growth Unemployment 3.4% 4.2% 2.9% 3.9%

6 Looking Ahead To 2020 GSP Growth Unemployment Personal Income Growth 3.0% 3.4% 2.8% GDP: 2.4% 3.1% 2.5%

7 New Governor Priorities Housing Natural Disasters

8 So Things Look Good?

9 Unemployment Rates by County Los Angeles Labor Force: 5.2M Los Angeles Employment: 4.9M Unemployment Rate: 4.6%

10 Let s Talk About Wages

11 Wages by County

12 Wage Growth Lagging Behind -Declining Unions -Competition Restraints -Lagging Minimum Wage -Globalization -Automation -Anemic Productivity -Outsourcing -Contract Work -Gig Work Source: New York Times

13 Wages Don t Go Far Per Capita Income Nominal and $ ,000 $30,453 $30,890 $29,176 $32,413 $32,413 $25,724 20,000 $20,683 $16,149 Nominal Real 10,000 Source: ACS year estimates; BLS

14 Wage Growth Not Equal Source: Pew Research Center

15 Consumer Price Index

16 Los Angeles

17 Looking Ahead To 2020 GCP Growth Unemployment Personal Income Growth 2.7% 4.3% 2.1%

Jobs Forecast By Industry Mfg -6,600 Govt -1,400 Other Svcs Trans,Trade,Util 400 400 2019f 2020f Fin Svcs 2,100 Info

18 Jobs Forecast By Industry Mfg -6,600 Govt -1,400 Other Svcs Trans,Trade,Util f 2020f Fin Svcs 2,100 Info 5,700 Const, Natural Res, and Min 9,600 Prof and Bus Svcs Leisure & Hospitality Education & Health 24,800 47,000 39,600

19 What Are The Jobs?

20 Top 10 Occupations Total Jobs Annual Wage Combined Food Preparation and Serving Workers, Including Fast Food 8,360 Cashiers 7,840 Personal Care Aides 18,040 LIVING WAGE Stock Clerks and Order Fillers 4,000 Waiters and Waitresses 7,640 Retail Salespersons 8,160 Laborers and Freight, Stock, and Material Movers, Hand 5,240 Office Clerks, General 4,240 Registered Nurses 4,560 General and Operations Managers 4,120 $24,934 $26,425 $28,585 $29,869 $29,950 $30,406 $30,950 $31,278 $35,447 $97,130 $141,661

21 Educational and Experience Requirements Doctoral or Professional, 2.4% Master s, 1.7% None, 38.8% Bachelor's, 20.5% Associates, 1.9% High School, 28.1% Some College, 1.4% Post Secondary Non Degree 5.2% Source: Estimates by LAEDC

22 So What Does This Mean?

23 We re Working But -A Record 7 Million Americans Are 90 Days Behind on Their Auto Loan Payments -A Growing Number of Americans Have More Credit- Card Debt than Savings -The Government Shutdown Spotlights a Bigger Issue: 78% of US Workers Live Paycheck to Paycheck

24 So What Does This Mean?

25 Home Affordability Median Home Price Minimum Qualifying Income Housing Affordability Index California Single-Family Home $564,270 $122, Bay Area $910,000 $197, Los Angeles Metro Area $510,000 $110, Inland Empire $360,000 $78, U.S. $257,600 $55, Source: California Association of Realtors

26 Households by Income Households by Income Los Angeles County 2017 Less than $10,000 $10,000-$14,999 $15,000-$24,999 $25,000-$34,999 $35,000-$49,999 $50,000-$75,000 $75,000-$99,999 $100,000-$149,999 $150,000-$199,999 $200,000 or more 5.0% 5.9% 7.4% 8.1% 8.9% 9.1% Total Households: 3.3 million HHI < $40,000: 31.8% HHI > $40,000: 68.2% 11.6% 12.1% 15.3% 16.7% Source: 2017 ACS 1-yr estimates

27 Homeownership Rates California vs. U.S. 9.5% gap in % CA US 70% Peak: 69.0% 65% 64.5% 63.9% 60% 55% 50% 53.7% Peak: 60.2% 54.4% 45% Source: California Association of Realtors

28 Housing Permits Annual Housing Permits (2000 Baseline) California Southern California Los Angeles County

We re Not Building Enough Housing Permits in Los

Single-Family Units 15.2 13.7 16.3 12.9 14.3 18.

0 8.0 3.5 5.0 2 2 2 3.6 4 4.4 4.5 4.7 5.

29 We re Not Building Enough Housing Permits in Los Angeles County, Thousands Multi-Family Units Single-Family Units

Existing Sellers Not Moving 14 12 10 8 6 4 2 0 Years Owned

30 Existing Sellers Not Moving Years Owned Home Before Selling 11.5 Source: California Association of Realtors

31 FRM Hit 5 Percent Oct 18: 5.00% SERIES: Average 30 Yr. Fixed Mortgage Rates SOURCE: Mortgage News Daily Source: California Association of Realtors

32 Fed Raised Rates 8 Times Since January 2012 October FRM ARM Fed Raise Rate the 1 st time SERIES: Average 30 Yr. Fixed Mortgage Rates SOURCE: Mortgage News Daily Source: California Association of Realtors

Higher Rates Hurt Q2-2018 Median Price $596,730 20% Down-payment $3,200 $2,800 $2,400 $2,000 MONTHLY MORTGAGE $2,862 $3,017 $2,711 $2,563 $2,419 $2,013 $2,144$2,279 $160,000 $140,000 $120,000

33 Higher Rates Hurt Q Median Price $596,730 20% Down-payment $3,200 $2,800 $2,400 $2,000 MONTHLY MORTGAGE $2,862 $3,017 $2,711 $2,563 $2,419 $2,013 $2,144$2,279 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $141,936 $148,145 $124,203 $129,958$135,871 $107,956 $113,196$118,614 $1,600 $80,000 $1,200 $60,000 $800 $400 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE $40,000 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS Source: California Association of Realtors

34 Can You Ever Afford To Buy? Source: Zillow

35 If People Can t Buy-- They Rent Median income earners in LA need to spend 47 percent of income on rental housing Average rent is $33,400/year Source: Zillow

36 Lower Income Earners Suffer Even More Source: Zillow

37 Majority Renter State by % California Homeownership Rate 60% 57.1% 59.7% 56.1% 50% 40% 30% 47.3% 44.2% 41.0% Fast Slow Avearge SERIES: Homeownership Rate SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection Source: California Realtor Association

38 Majority Renter Cities 80% 76.0% 2017 California Renter Rate by City 70% 60% 50% 50.7% 40% 30% 20% 10% 0% Source: California Realtor Association

39 Housing Issues Homeownership Largest Source of Wealth for Middle- Class Business Location Decisions Affected Quality of Life Issues People Moving Out of Los Angeles and even out of California Constraint on Economic Growth

40 THE only function of economic forecasting is to make astrology look respectable, --John Kenneth Galbraith

41 What Can Affect Our Forecast?

42 The 2018 to 2019 Partial Shutdown Lasted from December 22 nd, 2018 to January 25, 2019 (35 days) 800,000 government employees (including our fellow Californians) went without pay The Congressional Budget Office estimates 0.1 loss to real GDP in Q and 0.2 loss to real GDP in Q1 2019; though much of the loss will be recovered in following quarters, $3 billion will be permanently lost Departments affected: Agriculture, Commerce, Interior, Transportation, State, Justice, Homeland Security, Treasury, Housing and Urban Development (HUD) Over $65 billion in federal spending in LA County last year, providing for 48,000 direct jobs REMI impact resiliency study takes into account forgone output in 2018 and 2019

43 Estimated Impacts of the Shutdown Impacts, millions ($ 2009) Year Estimated Losses: GDP: $333 million Output: $529 million Income: $252 million Gross Domestic Product Output Personal Income

44 The 2019 LAUSD/United Teachers Strike Lasted from January 14 th to January 22 nd, 2019 (8 days) United Teachers LA estimated 30,000 of their members went on strike, though LAPD estimated an average of 21,000 strikers per day At its lowest point, recorded attendance was at only 15 percent of recorded total enrollment for K through 12 grades LAUSD estimates over $125 million in costs to the district; costs likely higher due to costs to families requiring childcare and making other arrangements for children not attending schools during the strike The LAEDC estimated impacts based on estimated forgone output from the public local education sector

45 Estimated Impacts of LAUSD/UTLA Teachers Strike Impacts, millions ($ 2009) Estimated Losses: GDP: $48.6 million Output: $75.9 million Income: $38.0 million Year Gross Domestic Product Output Personal Income

46 The Woolsey Fire in Los Angeles County Burned almost 97,000 acres from November 8 th to 21st, 2018 An estimated 1,643 structures destroyed with another 364 structures damaged across both Los Angeles and Ventura counties Estimated between $4 and $6 billion in total losses, accounting for fire and smoke damage, demand surge for certain goods and services, and debris removal 1 of 7 fires greater than 50,000 acres in 2018 The LAEDC s estimates are based upon residential structure losses as a proportion of total capital stock and estimated foregone county output.

47 Economic Impacts of the Woolsey Fire 5.0 Impacts, millions ($ 2009) Estimated Losses: GDP: $12.0 billion Output: $19.8 billion Income: $6.0 billion Year Gross Domestic Product Output Personal Income

48 Conclusion Economic growth will continue Jobs being added Unemployment will continue to fall Personal income will rise Caution! Critical housing shortage Economic prosperity not benefitting all Extreme weather/climate issues Political gridlock

49 FULL REPORT AVAILABLE ONLINE TODAY! LAEDC.org LOS ANGELES COUNTY ECONOMIC DEVELOPMENT CORPORATION

50 Thank You! (213)

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