CENTER FOR BUSINESS AND POLICY RESEARCH. May California & Metro UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

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1 CENTER FOR BUSINESS AND POLICY RESEARCH May 2017 California & Metro UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

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 San Francisco Marin San Mateo Napa Yolo Solano Contra Costa Alameda Santa Clara Sacramento San Joaquin El Dorado Amador Stanislaus Calaveras Merced Alpine 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 San Luis Obispo Kern San Bernardino Santa Barbara Web Stockton Sacramento Pacific.edu/CBPR Ventura Los Angeles Staff Dr. Jeffrey A. Michael, Director Dr. Thomas Pogue, Associate Director Nahila Ahsan, Research Analyst Jesse Neumann, Economic Research Analyst Neriah Howard, Student Researcher Anjul Shingal, Student Researcher Sydney Stanfill, Student Researcher Santa Barbara Ventura Santa Barbara Los Angeles Orange San Diego Riverside Imperial UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

3 California & Metro May 2017 Published quarterly by the Center for Business and Policy Research at the University of the Pacific Eberhardt School of Business. Copyright 2017 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 California Highlights... 5 Forecast Summary 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 HIGHLIGHTS Highlights of the May 2017 California Forecast Real gross state product is forecast to grow 2.7% over the next 12 months, followed by a gradual decline in growth rates to 2.1% in 2020 as the risk of recession increases. The California unemployment rate has dropped below 5% and is forecast to stabilize between 4.5% and 5% for the next three years as the labor force and employment will grow at about a 1% annual rate over the forecast horizon. Nonfarm payroll jobs will grow 1.5% over the next 12 months, about half the pace of the previous four years when job growth was between 2.5% and 3%. This slower growth is to be expected for an economy nearing full employment. Health Services has become the largest employment sector in the state, and is projected to add about 40,000 positions over the next 12 months, less than the 65,000 jobs added in recent years. With federal health funding expected to decline, growth in Health Services jobs will drop to 20,000 new jobs per year by Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery. Growth in this sector will slow to about 25,000 jobs over the next year compared to over 50,000 in some recent years as Silicon Valley growth cools. Growing tourism and a gradual shift in consumer spending from retail to restaurants has fueled rapid growth in Leisure and Hospitality sector. However, this sectors growth is slowing to 30,000 new jobs over the next 12 months and will cool further to 20,000 new jobs by 2020 as higher minimum wages lead to slower hiring. State and local government employment will be one of the slowest growing sectors, projected at 1% or less job growth over the next several years as state and local governments grapple with slower revenue growth and rising pension costs. About 25,000 new Construction jobs are anticipated in each of the next three years, about a 3% annual growth rate. Despite this expected growth, there will still be fewer Construction jobs in 2020 than before the recession. Single-family housing starts are growing slowly, only reaching 50,000 units in We project an increase to 58,000 units in 2017 and 68,000 units in Multifamily production recovered to 45,000 units in 2015 and has stabilized at this level. We expect modest multi-family growth to 55,000 units by Despite some growth, housing production will be insufficient to relieve the state s growing housing shortage. California s population growth rate is gradually declining due to lower birth rates, housing costs and availability, and lower immigration. By 2020, we project California will add about 250,000 new residents per year, down from 350,000 annual population growth seen earlier in the decade. Center for Business and Policy Research 5

6 FORECAST SUMMARY California Outlook The California economy continues to perform well despite an uncertain policy environment. Prior to the election, our forecast was that a surprise Trump election would stimulate the economy in 2017, but increase recession risk and reduce longrun economic performance. The turbulent start to the President Trump s term has resulted in few significant actions on economic policy and in comparison to our last forecast around the January inauguration, the risks of a trade war and large cuts to healthcare spending seem lower. While the administration has forwarded a budget proposal with large reductions in discretionary spending, it has yet to make a detailed tax proposal. We believe tax cuts are more likely to be passed by Congress this year with some immediate effects, but spending cuts will probably be delayed several years. The healthcare proposal passed by the House and supported by the President is an example of this as it would implement tax cuts immediately, but postpones the largest cuts to Medicaid spending until As a result, the Congressional Budget Office shows the proposal would increase federal deficits in initial years, before reducing deficits beyond 2020 when spending cuts would kick in. While our January forecast assumed large Medicaid cuts would hit California in 2018, we have now postponed that until 2020 which is one reason the medium-term forecast is slightly improved in this update. We expect other fiscal policies from the Trump administration to follow a similar pattern, immediate tax cuts with associated spending cuts scheduled for future years. Overall, our California forecast shows slower growth compared to recent years, a natural outcome this far into an economic expansion where labor availability and resource constraints are placing physical limits on the pace of growth in some regions of the state. Nevertheless, this May forecast sees somewhat faster growth than we had projected in January, especially for 2018, as the risks from healthcare reform and trade wars seemingly reduced through the next year or two. In 2018, California is likely to see a modest boost to employment and economic activity as its recreational cannabis market launches as well. Nonfarm payrolls are projected to grow 1.7% in 2017 and 1.4% in 2018, up from 1.6% and 1.0% in our January 2017 Table 1. California Annual Forecast Summary Real Gross State Product (% change) Non-Farm Payroll Employment (% change) Unemployment Rate (%) Housing Starts (thousands) California & Metro Forecast May 2017

7 FORECAST SUMMARY 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. forecast. The unemployment rate is projected to decline to 4.5% by the end of this year and stabilize at that level for 2018 and Perhaps the most significant change to this statewide forecast is a lower, level of population growth in California due to continued housing shortages, lower immigration resulting from Trump administration policies, and lower birth rates. While most recent years have seen California adding 350,000 residents per year, just under a 1% growth rate, our revised forecast shows California population growing by about 250,000 people per year in 2018 through 2020, only a 0.6% rate. This will translate into lower labor force growth which somewhat lowers the unemployment rate, but limits the overall growth potential for the state economy. This forecast for steady growth should not be interpreted as a projection that there will not be a recession in the next 3-4 years. In the near term, we do not see anything that seems likely to cause Center for Business and Policy Research 7

8 FORECAST SUMMARY a recession. However, it is true that historically we have seen recessions arrive at this point in expansion cycles and it is rare for unemployment rate to stay below 5% for several years. And things can change quickly in an uncertain global and political environment. Even in the absence of global conflict, there is a plausible domestic scenario where higher inflation and interest rates stifle investment and combine with fiscal contraction to create a U.S. downturn by Around this same time, California s minimum wage increases will be accelerating and its disruptive effects on the labor market will start to be more evident. Thus, we believe recession risks are increasing with each year, but the risk remains low enough that our baseline projection continues to call for slow and steady expansion through THE REGIONAL OUTLOOK The differences in economic outcomes between Northern California regions continue to grow even as these local economies become more integrated with one another in the Northern California Megaregion. Trends in labor force and population growth are an interesting and important way that this phenomenon can be seen. For several years, it has been apparent that skilled labor is increasingly concentrated in certain high-productivity urban areas like the San Francisco Bay Area. Table 4 shows the growth in the labor force and growth in population in each of the eight metro areas in our forecast between 2011 and While the above data above does not differentiate by skill level, it does show dramatically the increasing concentration of labor in general across the Megaregion. The fact that San Francisco s labor force has grown faster than its overall population is remarkable, especially considering that less than half the overall U.S. population, and only 63% of the working age population is in the labor force. While labor force participation of working age Table 4. Population and Labor Force Growth in Northern California Metro Areas Metro Area Population Growth (thousands) Labor Force Growth (thousands) San Francisco San Jose Oakland Sacramento Stockton Fresno Modesto Merced adults has bucked broader trends and held steady in the Bay Area, for labor force growth to exceed population growth, working age adults must be moving to the area and displacing non-labor force participants such as children and retirees from the region. Abundant high-wage opportunities make San Francisco attractive to many workers despite the cost of living, and average household incomes have increased enough to keep pace with rents as the average household has more workers than in the past. However, it is extremely difficult for anyone to cope with the high cost of living in the Bay Area if they are not simultaneously benefiting from the high-wage labor market. Households with fewer workers are leaving the Bay Area, and many of them move to lower-cost inland markets within the Megaregion. 8 California & Metro Forecast May 2017

9 FORECAST SUMMARY This may, in part, explain the pattern seen in some of the inland markets where there has been very low labor force growth compared to population growth. The Bay Area is the greatest source of migrants to the Central Valley, and while many of them are commuting back for jobs, it appears that most of the migrants are family members that are out of the workforce. Of the five Central Valley areas, Stockton had the highest labor force growth relative to population growth, which is probably not surprising since it is the closest to the Bay Area and has the most long-distance commuters. Nevertheless, labor force growth in Stockton was only 22% of population growth and collectively all five Central Valley areas added only 45,000 workers, less than 19% of the total population growth of 233,000. In contrast, even when including the East Bay, the Bay Area added 291,000 to its workforce, 75% of its total population growth of 389,000. In summary, disparities in wages and housing costs are changing the distribution of labor across the Northern California Megaregion. The Bay Area has been able to sustain strong job growth for a little longer than we originally forecast, because it has been able to grow its high-skilled labor force even in the face of severe housing constraints that limited overall population growth. Eventually, these limits will start to bite and we are seeing that now as Bay Area job growth has fallen to about half its pace of a few years ago with the largest slowdown in San Jose. Nevertheless, we still expect San Francisco payrolls to grow over 2% for the next two years despite unemployment below 3% and population growth below 1% due to the previously discussed labor force trends and continued growth in commuting. Job growth in the San Jose and Oakland areas is projected to be somewhat slower at around 1.5% annually for the next few years, still an impressive rate considering unemployment is around 3% and population growth is slowing. Newly revised data has improved the Stockton outlook compared to our January forecast, but we still see job growth in the region decelerating to less than 2% this year for the first time since The Stockton area s unemployment rate is poised to fall below 7% in 2018 and remain near its historic low. As discussed earlier, some of this decline is due to slow labor force growth and commuting but most of the recovery is due to the strong rebound in the local labor market. The logistics sector and fast-growing southern cities like Tracy and Manteca continue to lead the Stockton metropolitan area s growth, but Stockton has a great opportunity under its dynamic new mayor to improve the City s image and economy five years after the bankruptcy declaration of Modesto, Merced and Fresno will all benefit from large state infrastructure investments. In Modesto, this includes hundreds of millions to expand the Altamont Commuter Express rail service to Modesto and eventually Merced. UC-Merced expansion is expected to generate up to $1 billion in investment over several years, and high-speed rail will likely spend over $1 billion in the Fresno area over a similar period. These are the most agriculturally oriented areas in our forecast, but these projects will help expand economic opportunities for local populations that primarily live in growing cities. Investments in these urban economies is important as the agricultural sector is facing a number of future challenges as prices come down from record highs and labor and water become less abundant and more costly over time. Unemployment in all three of these metro areas is likely to be in single-digits in 2017 and through the rest of the forecast period, a historically strong performance for these areas with chronically high unemployment but still double the statewide average. These economies, along with Stockton and Sacramento, will also be among those most affected by the large policy changes on the horizon including healthcare, immigration, minimum wage and trade. These policies will generate a range of positive and negative effects that increase uncertainty in the forecast. What is Center for Business and Policy Research 9

10 FORECAST SUMMARY certain is that these region s economies will undergo significant structural change over the next decade. The Sacramento economy is in an interesting situation. Job growth has fallen to a pace of less than 2% after two strong years fueled by large construction projects and some significant job loss events such as the closure of a 1,000 employee Verizon call center and Aerojet winding down its remaining manufacturing. In both cases, long-time Sacramento employers are consolidating employment in other lower-cost states that have raised questions about the region s and California s competitiveness. On the positive side, Amazon is adding over 1,000 jobs in a massive new fulfillment Center near the airport and the Sacramento area keeps showing up in various residential real estate rankings as one of the nation s hottest markets, especially when it comes to interest from out-of-area buyers. There is energy from the new downtown arena and a number of successful infill developments near downtown, yet Sacramento is still struggling to develop a strong private-sector economy beyond its government and healthcare base. A traditional top-down economic forecast that compares a region s industry composition to a macro growth outlook by industry generates a weak forecast for Sacramento.. This is because a state government and healthcare economy is not a good growth engine in a state with slowing population growth and fiscal challenges combined with a healthcare sector threatened by policy changes. Despite these challenges, Sacramento has tremendous potential to broaden and expand its economic base as it boasts the highest-quality of life attributes (education, environment, health, etc.) of more affordable inland regions in California and is attracting significant relocation interest from families in the high-skill Bay Area. While there is great potential for Sacramento to develop into one of California s fastest growing economies, there is not enough current evidence of business investment or migration of skilled labor to support a forecast beyond 1.5% employment growth in 2018 and 2019, a level that slightly exceeds the statewide average. 10 California & Metro Forecast May 2017

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 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 May 2017

13 CALIFORNIA TABLES Table 2. Quarterly Summary 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 May 2017

15 CALIFORNIA TABLES Table 3. Employment Quarterly 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 May 2017

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 17,500 California Total Non-Farm Employment (Thousands) 17,000 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000,100 California Construction Employment (Thouands), ,700 California Manufacturing Employment (Thousands) 1,600 1,500 1,400 1,300 1,200 1,100 1, California & Metro Forecast May 2017

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 2,700 California Education and Health Services Employment (Thousands) 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 May 2017

21 CALIFORNIA CHARTS 2,400 California State and Local Government Employment (Thousands) 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 1.9% in 2017 and 1.4% in Annual growth rates/percent changes for total nonfarm employment between 2017 and 2020 are expected to be smaller than figures from previous years. The expected leading sectors for employment growth in 2017 are the Construction & Mining (6.1%); Financial Activities (3.1%); and State & Local Government (3.1%) sectors. Employment is expected to increase in all sectors with the exception of the Information (-2.1%), Federal Government (-1.7%), and Leisure & Hospitality (-1.6%) sectors. SHORT TERM OUTLOOK The average annual wage is expected to be $51,894 in 2017, an increase of 1.9% from the previous year. By 2020, the average annual wage is expected to be $57,784. The Fresno MSA population is expected to reach 998,779 in 2018 and will grow approximately 1% each year, reaching 1,018,134 in In 2018, an increase of 1.1% is expected in the labor force. The 2017 unemployment rate is expected to be 8.8% but it is forecast to decrease to 8.1% by Housing starts are expected to reach 3,424 by 2020, a notable increase since The majority of housing starts have been and are expected to continue to be single-family starts Fresno Housing Starts 360 Fresno Payroll Employment (Thousands) % 18% 16% 14% 12% 10% 8% 6% 4% 2% Fresno Unemployment Rates (percent) Fresno Employment Mix Relative to California, 2015 (California = 100) Con. Mfg. TTU Info. Fin. Bus. EHS Leis. OTS Gov. 0% Center for Business and Policy Research 23

24 METRO SUMMARY - FRESNO Quarterly Outlook for Fresno May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Single-Family Multifamily California & Metro Forecast May 2017

25 METRO SUMMARY - FRESNO Quarterly Outlook for Fresno May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Single-Family Multifamily Center for Business and Policy Research 25

26 METRO SUMMARY - FRESNO Annual Outlook for Fresno May 2017 Forecast 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 May 2017

27 METRO SUMMARY - FRESNO Merced MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 0.4% in 2017 and 1.9% in The expected leading sectors for employment growth in 2017 are in the Construction (11.3%); Information (9.5%); and Leisure & Hospitality (4.1%) sectors. Declines are forecasted in 2017 for the Professional & Business (-4.3%) and State & Local Government sectors (-3.4%). In 2017, the average annual wage is expected to be $53,124, an increase of 4% from the previous year. By 2020, the average annual wage is forecasted to be $58,895. The Merced MSA population is expected to reach approximately 271,270 in 2017 and will grow approximately 0.9%-1% each year, reaching 279,323 in The labor force is expected to decrease by 0.9% in 2017 but will grow between 2018 and The unemployment rate for the Merced MSA is forecasted to be 9.8% in 2017 and then decline to 8.6% by Approximately 507 housing starts are expected in 2017, an increase from 179 in Housing starts are expected to reach 1,071 by 2020, mostly composed of single-family starts Merced Housing Starts 70 Merced Payroll Employment (Thousands) % 18% 16% 14% 12% 10% 8% 6% 4% 2% Merced Unemployment Rates (percent) Merced Employment Mix Relative to California, 2015 (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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Rat Single-Family Multifamily California & Metro Forecast May 2017

29 METRO SUMMARY - MERCED Quarterly Outlook for Merced May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Rat Single-Family Multifamily Center for Business and Policy Research 29

30 METRO SUMMARY - MERCED Annual Outlook for Merced May 2017 Forecast 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 May 2017

31 Modesto MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 2.1% between 2016 and 2017 and 1.2% in The leading sectors for employment growth in 2017 are the Professional & Business Services (6.3%); Construction & Mining (6%); and Education & Health Services (2.7%) sectors. Meanwhile, declines are expected in the Information (-2.9%), Federal Government (-1.4%), and in the Manufacturing (-0.8%) sectors. Average annual wage is forecasted to be $54,566 in 2017 and may grow approximately 4% each year through Average annual wage is expected to be $61,573 by The population in the Modesto MSA is expected to reach 548,013 in 2017 and may grow 1.1% each year reaching 566,295 in Modesto s labor force is expected to grow approximately 0.2% in 2017 and approximately 1.1% in 2018 and Unemployment is estimated to decline to 7.7% in 2017 from 8.5% in 2016 and decline to 7.5% Modesto Housing Starts 190 Modesto Payroll Employment (Thousands) Modesto Unemployment Rates (percent) Modesto Employment Mix Relative to California, 2015 (California = 100) 19% % % % % 80 9% % 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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Single-Family Multifamily California & Metro Forecast May 2017

33 METRO SUMMARY - MODESTO Quarterly Outlook for Modesto May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Single-Family Multifamily Center for Business and Policy Research 33

34 METRO SUMMARY - MODESTO Annual Outlook for Modesto May 2017 Forecast 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 May 2017

35 Oakland MSA SHORT TERM OUTLOOK Annual nonfarm employment in the Oakland MSA is expected to increase 1.5% in 2017 and 1.6% in Leading sectors for employment growth in 2017 are the Information, Financial Activities, and Construction sectors with 7.6%, 6.2%, and 5.4% growth, respectively. Meanwhile, declines are expected in the Federal Government (-1.7%), Manufacturing (-0.9%), and Trade, Transportation, & Utilities (-0.6%) sectors. For 2017, the average annual wage is expected to be $76,845, up from $73,483 in Average annual wages are expected to grow approximately 4% through The Oakland MSA population is expected grow to 2,819,695 in 2017, a growth of 1.1% in 2017; the population is expected to reach approximately 2,906,358 by Unemployment in Oakland is expected to decrease to 3.7% in 2017, down from 4.3% in By 2020, the unemployment rate is forecasted to be 3.3%. The labor force is expected to grow 0.4% between 2016 and Housing starts will reach 9,085 in 2017 and 10,082 in Unlike past housing starts, multifamily starts are expected to outnumber single-family starts between 2017 and ,000 Oakland Housing Starts 1200 Oakland Payroll Employment (Thousands) , , , , , % 10% 8% 6% 4% 2% Oakland Unemployment Rates (percent) Oakland Employment Mix Relative to California, 2015 (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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Single-Family Multifamily California & Metro Forecast May 2017

37 METRO SUMMARY - OAKLAND Quarterly Outlook for Oakland May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Single-Family Multifamily Center for Business and Policy Research 37

38 METRO SUMMARY - OAKLAND Annual Outlook for Oakland May 2017 Forecast 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 May 2017

39 Sacramento MSA SHORT TERM OUTLOOK Total nonfarm employment in the Sacramento MSA is expected to increase 1.1% in 2017 and 1.5% in The leading sectors for employment growth in 2017 are the Education & Health Services (3.7%); Leisure & Hospitality (3.1%); and Professional & Business Services (1.9%) sectors. Declines are forecasted for the Information (-6.2%), Other Services (-3.3%), Construction & Mining, and Manufacturing (-1.7%) sectors. The average annual wage for 2017 is predicted to be $63,450, an increase of 2.1% from the previous year. By 2020, the average annual wage is forecasted to be $71,593. The population of the Sacramento MSA is expected to be 2,327,275 in 2017, an increase of 1.2% from The labor force is expected to decline by 0.2% in The unemployment rate is expected to be 4.7% in 2017, down from 5.2% in 2016; unemployment is forecasted to be 4.6% in Approximately 9,615 housing starts are expected in 2017, growing to 13,999 in 2020; most of the housing starts in the area are single-family starts Sacramento Housing Starts 1000 Sacramento Payroll Employment (Thousands) % 12% 10% 8% 6% 4% Sacramento Unemployment Rate (percent) Sacramento Employment Mix Relative to California, 2015 (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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 May 2017

41 METRO SUMMARY - SACRAMENTO Quarterly Outlook for Sacramento May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Center for Business and Policy Research 41

42 METRO SUMMARY - SACRAMENTO Annual Outlook for Sacramento May 2017 Forecast 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 May 2017

43 San Francisco MSA SHORT TERM OUTLOOK Annual nonfarm employment is expected to grow 2.1% in 2017 and 2.2% in The expected leading sectors for employment growth in 2017 are the Information (5.8%), Financial Activities (3.9%), and Education & Health Services (3.1%) sectors. Meanwhile, declines are expected in the Federal Government (-1.7%) and State & Local Government (-0.4%) sectors. The average annual wage is expected to be $117,457 in 2017, an increase of 5.8% from The average annual wage is predicted to be $134,521 in The San Francisco MSA population is expected to reach 1,650,700 in 2017, an increase of 0.7% from the previous year. The labor force is expected to grow 0.7% in 2017 as well as 1.4% in The unemployment rate is expected to decline to 2.7% in 2017 from 3.2% in 2016 and is expected to stay at approximately 2.5% through Housing starts are expected to have declining rates from the previous year beginning in 2017 through San Francisco Housing Starts 1200 San Francisco Payroll Employment (Thousands) % 11% 9% 7% 5% 3% San Francisco Unemployment Rates (percent) San Francisco Employment Mix Relative to California, 2015 (California = 100) 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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 May 2017

45 METRO SUMMARY - SAN FRANCISCO Quarterly Outlook for San Francisco May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 May 2017 Forecast 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 May 2017

47 San Jose MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 1.4% in 2017 and 1.7% in The leading sectors for employment growth in 2017 are in the Leisure & Hospitality (4.8%), Information (2.6%), and Professional & Business Services (1.9%), and State & Local Government (1.9%) sectors. In 2017, declines are expected in the Trade, Transportation, & Utilities (-0.8%); Construction & Mining (-0.7%); and Financial Activities (-0.7%) sectors. In 2017, the average annual wage is estimated to be $127,305, an increase of 3.9% from By 2020, the average annual wage may reach $146,798. The San Jose MSA population is expected to reach 1,996,468 in 2017, an increase of 0.6% from the previous year. The population will continue to grow 0.6% each year reaching 2,033,985 in The labor force is expected to decline -1.1% in The unemployment rate is forecasted to be 3.3% in 2017, down from 3.8% in 2016, and the unemployment rate is expected to reach 3.0% in Approximately 6,846 housing starts are expected in 2017, an increase from Most of the housing starts in recent and upcoming years are multifamily starts San Jose Housing Starts 1150 San Jose Payroll Employment (Thousands) % San Jose Unemployment Rates (percent) 250 San Jose Employment Mix Relative to California, 2015 (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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Single-Family Multifamily California & Metro Forecast May 2017

49 METRO SUMMARY - SAN JOSE Quarterly Outlook for San Jose May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Single-Family Multifamily Center for Business and Policy Research 49

50 METRO SUMMARY - SAN JOSE Annual Outlook for San Jose May 2017 Forecast 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 May 2017

51 Stockton MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 1.8% in 2017 and 1.5% in The expected leading sectors for employment growth in 2017 are in the Construction & Mining (8.4%); Trade, Transportation, and Utilities (2.5%); and Education & Health Services (1.5%) sectors. Meanwhile, declines are expected in the Information (-4.0%) and Federal Government (-1.8%) sectors. The average annual wage is expected to be $52,379 in 2017, an increase of 1.9% from the previous year. By 2020, the average annual wage is forecasted to be $58,751. The population in the Stockton MSA is forecast to increase 1.4% in 2017 to 745,210 and will increase each year reaching 773,858 in In 2017, there was negligible growth in the labor force; however, between 0.8%-0.9% growth is expected in the next few years. The unemployment rate is forecasted to be 7.3% in 2017, down from 8% in The unemployment rate is expected to be approximately 6.8% in Housing starts are also expected to increase over the next few years, reaching 3,121 in 2020, the majority being single-family starts Stockton Housing Starts 250 Stockton Payroll Employment (Thousands) % 16% 14% 12% 10% 8% 6% Stockton Unemployment Rates (percent) Stockton Employment Mix Relative to California, 2015 (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 May 2017 Forecast 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 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 Single-Family Multifamily California & Metro Forecast May 2017

53 METRO SUMMARY - STOCKTON Quarterly Outlook for Stockton May 2017 Forecast 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 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 Single-Family Multifamily Center for Business and Policy Research 53

54 METRO SUMMARY - STOCKTON Annual Outlook for Stockton May 2017 Forecast 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 May 2017

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, Center for Entrepreneurship, Institute for Family Business, and Westgate Center for Management Development. Dean David Dauwalder 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. 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 Director of the Center for Business and Policy Research and Associate Professor in the Eberhardt School of Business at the University of the Pacific. Jeff s areas of expertise include regional economic forecasting and environmental economics including work on the economic impacts of 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 local and national press coverage including the Wall Street Journal, New York Times Magazine, San Francisco Chronicle, Washington Post, NPR, and PBS. Prior to joining Pacific in 2008, Jeff was faculty at Towson University in Maryland where he served as Director of the Center for Applied Business and Economic Research, Associate Dean, and faculty. Jeff received his Ph.D. from North Carolina State University, M.S. from the University of Maine, and B.A. from Hamilton College (NY). UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

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