THE UCLA ANDERSON FORECAST FOR THE NATION AND CALIFORNIA

Transcription

1 THE UCLA ANDERSON FORECAST FOR THE NATION AND CALIFORNIA April 2016 Report FORECASTS: st Quarter th Quarter 65 th Year

2 UCLA Anderson Forecast Director: Edward E. Leamer Professor of Global Economics and Management and Chauncey J. Medberry Chair in Management The UCLA Anderson Forecast Staff: Jerry Nickelsburg, Senior Economist, Adjunct Professor of Economics, UCLA Anderson School David Shulman, Senior Economist William Yu, Economist Patricia Nomura, Economic Research and Managing Editor Eydie Grossman, Director of Business Development George Lee, Publications and Marketing Manager The UCLA Anderson Forecast provides the following services: Membership in the California Seminar Membership in the Los Angeles and Regional Modeling Groups The UCLA Anderson Forecast for the Nation and California Quarterly Forecasting Conferences Special Studies California Seminar and Regional Modeling Groups members receive full annual forecast subscriptions, invitations to private quarterly meetings of the Seminar and the right to access the U.S., California and Regional Econometric models. For information regarding membership in the California Seminar and the Los Angeles and Regional Modeling Groups or to make reservations for future Forecast Conferences, please call (310) The UCLA Anderson Forecast Sponsorships: Are recognized at each conference event, audience includes business, professional and government decisions makers from all over California and the United States Receive prominent placement on conference materials, promotions for event on Forecast website, and Forecast publication Priority admission for two to all conference events Promotional table at the conference events. For information regarding sponsorship of the UCLA Anderson Forecast, please call (310) or visit This forecast was prepared based upon assumptions reflecting the Project s judgements as of the date it bears. Actual results could vary materially from the forecast. Neither the UCLA Anderson Forecast nor The Regents of the University of California shall be held responsible as a consequence of any such variance. Unless approved by the UCLA Anderson Forecast, the publication or distribution of this forecast and the preparation, publication or distribution of any excerpts from this forecast are prohibited. Published quarterly by the UCLA Anderson Forecast, a unit of UCLA Anderson School of Management. Copyright 2016 by the Regents of the University of California.

3 The Quarterly Forecast: Ideas, Innovation and the Los Angeles Economy Upcoming Events: Orange County Economic Outlook for 2015 April 28, 2016 Summer Conference June 8, 2016 UCLA Anderson Forecast/UC Hastings Joint Event September 16, 2016 Fall Quarterly Conference September 28, 2016 Winter Quarterly Conference December 2016 Spring Quarterly Conference March 2017

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5 THE UCLA ANDERSON FORECAST FOR THE NATION AND CALIFORNIA April 2016 Report Nation California Disturbances in the Force 11 David Shulman Charts 19 Recent Evidence Charts 23 Forecast Tables 33 Summary Tables 37 Detailed California and the Innovation Economy 49 Jerry Nickelsburg Venture Capital Investment and 55 Innovation Across the Country William Yu Charts 63 Recent Evidence Charts 68 Forecast Tables 75 Summary Tables 79 Detailed

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7 THE UCLA ANDERSON FORECAST FOR THE NATION APRIL 2016 REPORT Disturbances in the Force

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9 DISTRUBANCES IN THE FORCE Disturbances in the Force¹ David Shulman Senior Economist, UCLA Anderson Forecast April 2016 The January to February drop in stock prices, down 13% from early December, sent shivers through the economy engendering fears that a new recession was at hand. (See Figure 1) The markets were disturbed by fears of a far bigger slowdown in China, continued stagnation in Europe and Japan, a break in oil prices to $10 below the financial crisis levels of 2009 and that the European banking system was on the brink of a new crisis. (See Figure 2 which uses the share price of Deutsche Bank as an example) However, the markets soon calmed down and wiped out much of their earlier losses as strong data from the consumer side of the economy indicated that retail sales were solid and employment growth remained robust. Simply put, aside from modest declines in the industrial sector, there was no recession in the data. However, there are more disturbances on the horizon. In June, the United Kingdom will vote on whether or not it will stay in the European Union, commonly known as the Brexit referendum. Whether leaving the European Union is a wise move or not, the transition period will likely be occasioned by increased market volatility. In the U.S. there are two major presidential candidates who want to blow up the global trading system as we have known it since the end of World War II. Economists might not know all that much, but trade wars usually do not lead to prosperity, quite to the contrary. Figure 1 S&P 500, March 2015-March 2016 Sources: Standard & Poor's via BigCharts.com 1 With Apologies to "Star Wars." UCLA Anderson Forecast, April 2016 Nation 11

10 DISTURBANCES IN THE FORCE Figure 2 Deutsche Bank Stock Price, March 2006-March 2016 Sources: BigCharts.com Although we continue to believe the economy remains on track for moderate growth, we are not as ebullient as prior forecasts. The inventory correction we were looking for last quarter is taking longer than we expected and though the ramp up in single-family housing starts continues, it is tracing a shallower path than what we previously thought. (See Figure 3) For example, inventory accumulation added $78 billion to real GDP in the fourth quarter of 2015; this sector will only add $25 billion in this year s third quarter, a contraction of $53 billion. Thus, instead of looking for 3.3% growth in real GDP for 2016 on a fourth quarter- fourth quarter basis we are now calling for a more modest 2.7% growth rate. (See Figure 4) Despite the slower GDP growth rate, the economy remains on track to create 2.4 million jobs this year and 1.5 million jobs next year as the economy operates at full employment. (See Figure 5) Similarly, the unemployment rate which stood at 4.9% in February, is on track to decline to 4.6% by yearend. (See Figure 6) The rate of decline will be slower than in the past few years as for the first time the labor force participation rate is on the rise, a good thing. 12 Nation UCLA Anderson Forecast, April 2016

11 DISTRUBANCES IN THE FORCE Figure 3 Change in Real Inventory Figure 5 Payroll Employment (Billions of 2009$) $150 $100 $50 $0 $-50 $-100 $-150 $-200 (Millions) $ Sources: U.S. Department of Commerce and UCLA Anderson Forecast Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast Figure 4 Real GDP Growth Figure 6 Unemployment Rate (Percent Change, SAAR) 6% 4% 2% 0% -2% -4% (Percent) 10% 9% 8% 7% 6% -6% 5% -8% -10% % Sources: U.S. Department of Commerce and UCLA Anderson Forecast Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast UCLA Anderson Forecast, April 2016 Nation 13

12 DISTURBANCES IN THE FORCE Monetary Policy: From ZIRP to NIRP Figure 8 Federal Funds vs. 10-Year U.S. Treasury Bonds While the Federal Reserve left its zero interest rate policy (ZIRP) behind last December, the European and Japanese central banks have embarked on a negative interest rate policy (NIRP) with unknowable consequences. Apparently the $12.5 trillion of bond buying that the global central banks embarked upon since 2008 hasn t been enough to pull both Europe and Japan out of the quagmire they now find themselves in. In a negative rate regime instead of paying interest the borrower receives interest and lender pays interest. It is truly an Alice in Wonderland world. Reflective of the dour outlook, negative yields are common in many developed markets. (See Figure 7) (Rates) 6% 5% 4% 3% 2% 1% 0% -1% Fed Funds Yr. T-bonds 2018 Sources: Federal Reserve Board and UCLA Anderson Forecast Figure 7 Country United States France Germany Japan U.K. Government Bond Yields in Selected Countries, March 18, 2016 Sources: The Wall Street Journal 2-Year Yield The obvious problem with NIRP is that it will destroy the business models of life insurance companies and pension plans and has the potential to do the same for the banking system. We don t know how much lower negative interest rates can go and we don t know whether it would be legal for the Federal Reserve to undertake such a policy if it is deemed necessary. Meantime, the Fed appears to be ready and willing to raise interest rates this year. Consistent with the March Fed statement, we expect two or maybe three increases in the Fed Funds rate this year with the first one likely to be in June. (See Figure 8) Thereafter, we expect gradual increases with the Fed Funds Rate ending 2017 at about 2%. With much of the world in NIRP territory, policy rates will be constrained in the U.S. The same holds true for longerterm rates where we forecast the 10-Year Treasury to end 2016 at about 2.6% and end 2017 at about 3.6% compared to a mid-march rate of 1.9% Year Yield Nevertheless, the Fed will be under pressure to raise interest rates because it is about to get the inflation it has been praying for. Specifically, as of February, the year-overyear increase in core consumer prices was 2.3% and it is forecast to approach 3% by (See Figure 9) Similarly, with oil prices likely to have bottomed earlier this year, and with the tightening labor market finally working its way into employee compensation, headline consumer prices will be rising at a 3% clip by the end of (See Figures 10 and 11) We would note that as of mid-march the price of oil was tracking above our forecast and whether that trend continues could very well depend upon an OPEC/Russia meeting scheduled for April 17. Figure 9 Consumer Price Index vs. Core CPI (Percent Change Year Ago) 6% 4% 2% 0% -2% Headline 2014 Core Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast 14 Nation UCLA Anderson Forecast, April 2016

13 DISTRUBANCES IN THE FORCE Figure 10 Oil Prices, West Texas Intermediate Figure 12 Real Consumption Expenditures (Dollars/Barrel) $140 $120 $100 $80 $60 $40 $ Sources: Commodity Research Bureau and UCLA Anderson Forecast (Percent Change, SAAR) 6% 4% 2% 0% -2% -4% -6% Sources: U.S. Department of Commerce and UCLA Anderson Forecast Figure 11 Employee Compensation Figure 13 Savings Rate (Total Compensation, %CHYA) 6% (Percent) 10% 5% 4% 8% 3% 2% 6% 1% 4% 0% -1% % Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast Sources: U.S. Department of Commerce and UCLA Anderson Forecast The U.S. Consumer is in Good Shape Despite issues concerning the distribution of income and debt burdens, the U.S. consumer remains in good shape overall. Consumption will continue to be on a 3% growth path throughout 2016 and it will be accompanied by a saving rate in excess of 5%. (See Figures 12 and 13) Where previously we thought that much of the consumer benefits flowing from lower gasoline prices would be spent, a goodly portion of it was saved. That being said, the lower gasoline prices seem to have found their way into generating near record automobile sales. Housing starts continue to improve, albeit at a slower pace than we previously thought. After reaching million units in 2015, we forecast starts to increase to 1.24 million units and 1.43 million units in 2016 and 2017, respectively. (See Figure 14) Our prior forecast for 2016 was for 1.4 million units, but the forecast for 2017 is much the same as before. Homebuilders did not ramp up single-family production as fast as we thought and they concentrated their activity on the higher end of the market. There is now anecdotal evidence that the builders are shifting their emphasis towards starter homes where there is real pent-up demand coming from increased household formation, modest income growth and rising rents. Our prior forecast for multi-family starts of in excess of 400,000 units a year remains on track. UCLA Anderson Forecast, April 2016 Nation 15

14 DISTURBANCES IN THE FORCE Figure 14 Housing Starts Figure 16 Real Gross Private Domestic Investment in Mines and Wells (Thousands of Units, SAAR) 2500 (Billions 2009$) $ $ $ $ $ Sources: Bureau of the Census and w Anderson Forecast 2018 $ Sources: U.S. Department of Commerce and UCLA Anderson Forecast Capital Spending Growth Remains Tepid With the industrial economy in a shallow recession and oil exploration capital spending dropping below the nadir of 2009, we should be thankful for the modest increases in capital spending we are witnessing. Specifically, we forecast that equipment capital spending will increase at a 4-5% pace over the next few years, not great, but certainly not a recession. (See Figure 15) On the other hand, investment spending on structures is in the midst of a two-year decline triggered by the collapse in oil exploration spending. (See Figure 16) Specifically, real investment in mines and wells will have declined by 60% from $137 billion in the fourth quarter of 2014 to a forecast $56 billion in the first quarter of Most people don t realize that construction in the oil exploration and production sector was far larger than the entire commercial construction sector, no more. On the other hand, commercial construction is gaining strength. Improved fundamentals for office and industrial construction are driving spending in this sector that is being fueled by an abundance of capital seeking modest yields in a low-yield world. (See Figure 17) In contrast, spending on retail structures is now being driven by negative fundamen- Figure 15 Real Gross Private Investment in Equipment Figure 17 Real Private Gross Domestic Investment in Commercial Buildings (Percent Change, SAAR) 40% 20% 0% -20% -40% (Billions 2009$) $180 $160 $140 $120 $100 $80 $60-60% $ Sources: U.S. Department of Commerce and UCLA Anderson Forecast Sources: U.S. Department of Commerce and UCLA Anderson Forecast 16 Nation UCLA Anderson Forecast, April 2016

15 DISTRUBANCES IN THE FORCE tals brought about by e-commerce. Major malls are seeking to remain relevant by making huge investments in renovation on the order of $500-$800 million per mall at the high end. Exports Remain a Real Risk With a strong dollar and weak economic growth in Europe, Japan, Canada, China, Brazil and the Middle East, the U.S. export sector remains under pressure. We are still forecasting minimal growth this year, but the real risk is that we can very easily have a decline. (See Figure 18) If you want to tell a story about a U.S. recession it would have to begin in this sector, but even with a modest decline it would not be enough to put the U.S. into a recession. on how this year s election turns out. (See Figure 19) The increase this year is due to the temporary lifting of the sequester that has been in place since Similarly, the much larger state and local sector has been growing since 2014, but it will once again face the twin pressures of higher pension and Medicaid outlays as the decade ends. Figure 19 (Percent Change) 4% 2% Real Government (Federal, State & Local) Purchases Figure 18 Real Exports 0% (Percent Change) 15% -2% 10% 5% -4% % Sources: U.S. Department of Commerce and UCLA Anderson Forecast -5% -10% Sources: U.S. Department of Commerce and UCLA Anderson Forecast Government: A Modest Positive After several years of decline, federal purchases are once again on the rise. Whether federal spending continues to rise over the intermediate term will largely be dependent Conclusion We don t see a recession this year or next and we do envision inflation rising above the Fed s 2% target. As a result, we are forecasting slow and steady increases in the Federal Funds rate over the next few years. And although we have continued growth in 2018, a forecast that far out is a conjecture. Growth will be driven by increases in consumer spending and housing along with the end of the inventory correction we are now going through. The risks we envision largely come from outside of the U.S. domestic economy where disturbances in Europe and Asia along with domestic politics have the potential to cast a pall over the economy. UCLA Anderson Forecast, April 2016 Nation 17

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17 THE UCLA ANDERSON FORECAST FOR THE NATION APRIL 2016 REPORT Charts

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19 CHARTS RECENT EVIDENCE (Percent) Interest Rates 3-Mo. T-Bills vs. Long Gov't Bond Yields Jan to Feb Month Long Gov'ts Composite Indexes of Economic Indicators Jan to Feb (Index 2004=100) Leading Coincident (Percent) Rate of Unemployment Jan to Feb U.S.and Japanese Stock Markets Jan to Feb (Index Jan.'90 = 1.00) U.S. Japan UCLA Anderson Forecast, April 2016 Nation 21

20 CHARTS RECENT EVIDENCE (Mil. Units) 14 Cars 12 Trucks Automobile Sales Jan to Feb (Mil. Units) Housing Starts Jan to Feb (Bil. $) Retail Sales Jan to Feb ($/Barrel) Crude Oil Price West Texas Intermediate Jan to Feb Nation UCLA Anderson Forecast, April 2016

21 CHARTS FORECAST Real Disposable Income and Consumption (4-Qtr. % Ch.) (3-Yr. % Ch.) Consumer Expenditures on Medical Services: Quantity % + Price % = Expenditure % Consumption Disposable Income Quantity Price (4-Qtr. % Ch.) Real Export and Import Growth (5-Yr. % Ch.) 6 5 Real GDP Growth Developed World vs. U.S Exports Imports U.S. Developed World UCLA Anderson Forecast, April 2016 Nation 23

22 CHARTS FORECAST (4-Qtr. % Ch.) 6 Real GDP Growth (Bil $) Actual Real GDP Vs. Potential Real GDP Actual Real GDP Potential Real GDP (Percent) Defense Spending As A Share of GDP (% Ch. 12-Qtr. Mov. Avg.) 8 Real Purchases of Goods and Services by the Federal Government Nation UCLA Anderson Forecast, April 2016

23 CHARTS FORECAST (% of Real GDP) Change in Real Business Inventories (3-yr. Moving Average) (3-yr. % Ch.) Real Investment-Equipment & Software Info. Processing Equip. vs. Other Equip Total Less Info. Equip. Information Processing Equip. (Percent) Nonres. Fixed Investment Share of Real GDP Vs. Equip. & Software Share of Bus. Fixed Invest Nonres. Fixed Investment Share Equip. & Software Share/Nonres.Fixed 2015 (Percent) (3-Yr. % Ch.) 20 Real Investment in Nonresidential Structures Total vs. Commercial Bldgs Total Commercial Bldgs. UCLA Anderson Forecast, April 2016 Nation 25

24 CHARTS FORECAST Nonresidential Fixed Investment Share of Real GDP Vs. Capital Stock Growth (Invest. Share %) 15 (4-Qtr. % Ch.) Nonres. Fixed Investment Share Capital Stock Growth 8 Real Investment in Residential Structures Vs. New Housing Starts (Bil $) (Mil. Units) Real Investment (Left) Housing Starts (Rt.) (10-Yr. % Ch.) Real Hourly Wage Compensation Vs. Productivity in Nonfarm Sector (Percent of GDP) Real Wage Productivity Federal Surplus or Deficit 26 Nation UCLA Anderson Forecast, April 2016

25 CHARTS FORECAST Consumer Price Index Inflation Real Refiner's Cost of Crude Oil (Percent of GDP) 6 (2009$/barrel) (Indexed: 2005 = 1.00) 1.4 Real and Nominal Exchange Rate Industrial Countries Trade Weighted Average Nominal Exchange Rate Real Exchange Rate Treasury Yields Vs. CPI Inflation (Percent) Inflation 30-Year Bonds 90-Day Bills 2018 UCLA Anderson Forecast, April 2016 Nation 27

26 CHARTS FORECAST Unemployment and Capacity Utilization Mfg. Federal Transfers to Persons Postwar Business Cycles (Percent of GDP) (%) (100% - Capacity Util.) Unemployment Rate Capacity Util. Mfg. Rate (Percent of GDP) Federal Transfers to Persons For Health Insurance (Mil. Units) U.S. Housing Starts Vs. Mortgage Rate (Percent) Housing Starts Mortgage Rate 28 Nation UCLA Anderson Forecast, April 2016

27 CHARTS FORECAST (Mil. Units) U.S. Retail Sales of Automobiles and Light Trucks Federal Net Interest Payments on National Debt (Percent of National Income) Automobiles Light Trucks UCLA Anderson Forecast, April 2016 Nation 29

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29 THE UCLA ANDERSON FORECAST FOR THE NATION APRIL 2016 REPORT Tables

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31 FORECAST TABLES - SUMMARY Table 1. Summary of the UCLA Anderson Forecast for the Nation Monetary Aggregates and GDP (% Ch.) Money Supply (M1) Money Supply (M2) GDP Price Index Real GDP Interest Rates (%) on: Federal Funds day Treasury Bills year Treasury Bonds year Treasury Bonds Moody s Corporate Aaa Bonds yr Bond Less Inflation Federal Fiscal Policy Defense Purchases (% Ch.) Current $ Constant $ Other Expenditures (% Ch.) Transfers to Persons Grants to S&L Gov t Billions of Current Dollars, Unified Budget Basis, Fiscal Year Receipts Outlays Surplus or Deficit (-) As Shares of GDP (%), NIPA Basis Revenues Expenditures Defense Purchases Transfers to Persons Surplus or Deficit (-) Details of Real GDP (% Ch.) Real GDP Final Sales Consumption Nonres. Fixed Investment Equipment Intellectual Property Structures Residential Construction Exports Imports Federal Purchases State & Local Purchases Billions of 2009 Dollars Real GDP Final Sales Inventory Change UCLA Anderson Forecast, April 2016 Nation 33

32 FORECAST TABLES - SUMMARY Table 2. Summary of the UCLA Anderson Forecast for the Nation Industrial Production and Resource Utilization Industrial Prod. (% Ch.) Capacity Util. Manuf. (%) Real Bus. Investment as % of Real GDP Nonfarm Employment (mil.) Unemployment Rate (%) Inflation (% Ch.) Consumer Price Index Total less Food & Energy Consumption Chain Index GDP Chain Index Producers Price Index Factors Related to Inflation (% Ch.) Nonfarm Business Sector Wage Compensation Productivity Unit Labor Costs Farm Price Index Crude Oil Price ($/bbl) New Home Price ($1000) Income, Consumption and Saving (% Ch.) Disposable Income Real Disposable Income Real Consumption Savings Rate (%) Housing and Automobiles--millions of units Housing Starts Auto & Light Truck Sales Corporate Profits Billions of Dollars Before Taxes After Taxes Percent Change Before Taxes After Taxes International Trade Factors Nominal U.S. Dollar--% change Industrial Countries Developing Countries Exports Imports Net Exports (bil. $) Real U.S. Dollar--% change Industrial Countries Developing Countries Exports Imports Net Exports (bil. 09$) Nation UCLA Anderson Forecast, April 2016

33 FORECAST TABLES - QUARTERLY SUMMARY Table 3. Quarterly Summary of the UCLA National Anderson Forecast for the Nation 2016:1 2016:2 2016:3 2016:4 2017:1 2017:2 2017:3 2017:4 2018:1 2018:2 2018:3 Monetary Aggregates and GDP (% Ch.) Money Supply (M1) Money Supply (M2) GDP Price Index Real GDP Interest Rates (%) on: Federal Funds day Treasury Bills year Treasury Bonds year Treasury Bonds Moody s Corporate Aaa Bonds yr Bond Less Inflation Federal Fiscal Policy Defense Purchases (% Ch.) Current $ Constant $ Other Expenditures (% Ch.) Transfers to Persons Grants to S&L Gov t Billions of Current Dollars, Unified Budget Basis, NSA Receipts Outlays Surplus or Deficit (-) As Shares of GDP (%), NIPA Basis Revenues Expenditures Defense Purchases Transfers to Persons Surplus or Deficit (-) Details of Real GDP (% Ch.) Real GDP Final Sales Consumption Nonres. Fixed Investment Equipment Intellectual Property Structures Residential Construction Exports Imports Federal Purchases State & Local Purchases Billions of 2009 Dollars Real GDP Final Sales Inventory Change UCLA Anderson Forecast, April 2016 Nation 35

34 FORECAST TABLES - QUARTERLY SUMMARY Table 4. Quarterly Summary of The UCLA National Anderson Forecast for the Nation 2016:1 2016:2 2016:3 2016:4 2017:1 2017:2 2017:3 2017:4 2018:1 2018:2 2018:3 Industrial Production and Resource Utilization Production--% change Capacity Util. Manuf. (%) Real Bus. Investment as % of Real GDP Nonfarm Employment (mil.) Unemployment Rate (%) Inflation--% change Consumer Price Index Total less Food & Energy Consumption Deflator GDP Deflator Producers Price Index Factors Related to Inflation--%change Nonfarm Business Sector Wage Compensation Productivity Unit Labor Costs Farm Price Index Crude Oil Price ($/bbl) New Home Price ($1000) Income, Consumption and Saving--%change Disposable Income Real Disposable Income Real Consumption Savings Rate (%) Housing and Automobiles--millions of units Housing Starts Auto and Light Truck Sales Corporate Profits Billions of Dollars Before Taxes After Taxes Percent Change Before Taxes After Taxes International Trade Nominal U.S. Dollar--% change Industrial Countries Developing Countries Exports--% change Imports--% change Net Exports (bil. $) Real U.S. Dollar--% change Industrial Countries Developing Countries Exports--% change Imports--% change Net Exports (bil. 09$) Nation UCLA Anderson Forecast, April 2016

35 FORECAST TABLES - DETAILED Table 5. Part A. Gross Domestic Product Billions of Current Dollars Gross Domestic Product Personal Consumption Expenditures Durable Goods Autos and Parts Nondurable Goods Services Gross Private Domestic Investment Residential Nonres. Structures Equipment Intellectual Property Change In Inv Net Exports Exports Imports Government Purchases Federal Defense Other State and Local Billions of 2009 Dollars Gross Domestic Product Personal Consumption Expenditures Durable Goods Autos & Parts Nondurable Goods Services Gross Private Domestic Investment Residential Nonres. Structures Equipment Intellectual Property Change In Inv Net Exports Exports Imports Government Purchases Federal Defense Other State and Local UCLA Anderson Forecast, April 2016 Nation 37

36 FORECAST TABLES - DETAILED Table 5. Part B. Gross Domestic Product Annual Rates of Change of Current Dollar GDP Components (%) Gross Domestic Product Personal Consumption Expenditures Durable Goods Autos and Parts Nondurable Goods Services Gross Private Domestic Investment Residential Nonres. Structures Equipment Intellectual Property Exports Imports Government Purchases Federal Defense Other State and Local Annual Rates of Change of Constant Dollar GDP Components (%) Gross Domestic Product Personal Consumption Expenditures Durable Goods Autos & Parts Nondurable Goods Services Gross Private Domestic Investment Residential Nonres. Structures Equipment Intellectual Property Exports Imports Government Purchases Federal Defense Other State and Local Nation UCLA Anderson Forecast, April 2016

37 FORECAST TABLES - DETAILED Table 6. Employment Employment (Millions) Total Nonagricultural Natural Res. & Mining Construction Manufacturing Trans. Warehous. Util Trade Financial Activities Information Professional & Busi Education & Health Leisure & Hospitality Other Services Government Federal State & Local Population and Labor Force (Millions) Population aged Labor Force Unemployment (%) Table 7. Personal Income and Its Disposition Billions of Current Dollars Personal Income Wages & Salaries Other Labor Income Nonfarm Income Farm Income Rental Income Dividends Interest Income Transfer Payments Personal Contributions For Social Insurance Personal Tax and Nontax Payments Disposable Income Consumption Interest Transfers To Foreigners Personal Saving Personal Saving Rate(%) UCLA Anderson Forecast, April 2016 Nation 39

38 FORECAST TABLES - DETAILED Table 8. Personal Consumption Expenditures By Major Types Billions of Current Dollars Personal Consumption Durable Goods Autos and Parts Nondurable Goods Services Billions of 2009 Dollars Personal Consumption Durable Goods Autos and Parts Nondurable Goods Services Annual Rates of Real Growth Personal Consumption Durable Goods Autos and Parts Furniture Other Durables Nondurable Goods Food and Beverages Gasoline and Oil Fuel Clothing and Shoes Other Nondurables Services Housing Transportation Serv Health Care Recreational Service Food Svcs. Accom Financial Services Other Services Table 9. Residential Construction and Housing Starts Housing Starts (Millions of Units) Housing Starts Single-family Multi-family Residential Construction Expenditures (Billions of Dollars) Current Dollars Dollars % Change Related Concepts Treas. Bill Rate Conventional 30-year Mortgage Rate Median Sales Price of New Homes (Thous $) Real Disp. Income % Change Nation UCLA Anderson Forecast, April 2016

39 FORECAST TABLES - DETAILED Table 10. Nonresidential Fixed Investment and Inventories Billions of Current Dollars Nonres. Fixed Investment Equipment Intellectual Property Nonresidential Structures Buildings Commercial Industrial Other Buildings Utilities Mining Exploration Other Billions of 2009 Dollars Nonres. Fixed Investment Equipment Intellectual Property Nonresidential Structures Buildings Commercial Industrial Other Buildings Utilities Mining Exploration Other Percent Change in Real Nonresidential Fixed Investment Nonres. Fixed Investment Equipment Intellectual Property Nonresidential Structures Buildings Commercial Industrial Other Buildings Utilities Mining Exploration Other Related Concepts Annual Growth-Price Deflator For: Producers Dur. Equip Structures Moody s AAA Rate(%) Capacity Utilization in Manufacturing(%) Final Sales(Bil $) Change in Business Inventories Current Dollars Dollars UCLA Anderson Forecast, April 2016 Nation 41

40 FORECAST TABLES - DETAILED Table 11. Federal Government Receipts and Expenditures Billions of Current Dollars Unified Budget Basis, Fiscal Year Receipts Outlays Surplus or Deficit (-) ****** ****** ****** National Income & Products Accounts Basis, Calendar Year Current Receipts Current Tax Receipts Personal Current Taxes Taxes - Corporate Income Taxes - Production/Imports Contributions for Soc. Ins Income Receipts on Assets Current Transfer Receipts Surplus of Gov t. Enterprises Current Expenditures Consumption Expenditures Defense Nondefense Transfer Payments Government Social Benefits To the Rest of the World Grants-in-Aid To S&L Governments To the Rest of the World Interest Payments Subsidies Surplus or Deficit (-) ****** ****** ****** Table 12. State and Local Government Receipts and Expenditures Billions of Current Dollars Receipts As Share of GDP Personal Tax and Nontax Receipts Corporate Profits Indirect Business Tax and Nontax Accruals Contributions For Social Insurance Federal Grants-In-Aid Expenditures As Share of GDP Purchases Transfer Payments Interest Received Net Subsidies Dividends Received Net Wage Accruals Surplus Or Deficit Nation UCLA Anderson Forecast, April 2016

41 FORECAST TABLES - DETAILED Table 13. U.S. Exports and Imports of Goods and Services Billions of Current Dollars Net Exports-Goods & Serv Current Account Balance Merchandise Balance Exports-Goods & Services Merchandise Food, Feeds & Beverages Industrial Supplies Motor Vehicles & Parts Capital Goods, Ex. MVP Computer Equipment Other Consumer Goods, Ex. MVP Other Services Imports-Goods & Services Merchandise Foods, Feeds & Beverage Petroleum & Products Indus Supplies Ex. Petr Motor Vehicles & Parts Capital Goods, Ex. MVP Computer Equipment Other Consumer Goods, Ex. MVP Other Services Billions of 2009 Dollars Net Exports-Goods & Serv Exports-Goods & Services Imports-Goods & Services Exports and Imports -- % Change Current Dollars Exports Imports Constant Dollars Exports Imports Production Indicators - % Change U.S. Industrial Production Real GDP -- Industrial Countries Real GDP -- Developing Countries Price Indicators Price Deflators (% Ch) Exports Imports Crude Oil Prices ($/barrel) Real U.S. Dollar Ex. Rate-Indust. Countries %Change Ex. Rate-Dev. Countries %Change UCLA Anderson Forecast, April 2016 Nation 43

42 FORECAST TABLES - DETAILED Table 14. Price Indexes for GDP and Other Inflation Indicators (Percent Change) Implicit Price Deflators GDP Consumption Durables Motor Vehicles Furniture Other Durables Nondurables Food Clothing & Shoes Gasoline Fuel Motor Vehicle Fuel Services Housing Utilities Electricity Natural Gas Water & Sanit Health Care Transportation Recreation Food & Accomm Financial & Insur Other Services Investment Deflators: Nonresidential Structures Equipment Intellectual Prop Residential Government Purchases Federal State & Local Exports Imports Other Inflation Related Indicators Consumer Price Index All Urban Producers Price Index Nonfarm Sector Indicators Wage Compensation Productivity Unit Labor Costs Crude Oil Prices (dollars/barrel) West Texas Intermediate Nation UCLA Anderson Forecast, April 2016

43 FORECAST TABLES - DETAILED Table 15. Producers Price Indexes Annual Percent Change All Commodities Industrial Commodities Textiles & Apparel Fuels Chemicals Rubber & Plastics Lumber & Wood Pulp & Paper Metals & Products Equipment Trans. Equipment Farm Processed Foods & Feeds By Stage of Processing Crude Materials Intermediate Materials Finished Goods Consumers Producers Table 16. Money, Interest Rates and Corporate Profits Billions of Dollars Money Supply (M1) Money Supply (M2) Percent Change Money Supply (M1) Money Supply (M2) Interest Rates (Percent) Short-term Rates 3-Month Treas. Bills Prime Bank Loans U.S. Government Bond Yields 5 Year Maturity Year Maturity Year Maturity State and Local Governments Bond Yields Domestic Municipal Bonds Corporate Bond Yields Moodys AAA Corp. Bonds Conventional Mortgage Rate Corporate Profits (Billions of Dollars) Profits Before Taxes Inventory Valuation Adj Profits After Taxes UCLA Anderson Forecast, April 2016 Nation 45

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45 THE UCLA ANDERSON FORECAST FOR CALIFORNIA APRIL 2016 REPORT California and the Innovation Economy Venture Capital Investment and Innovation Across the Country

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47 CALIFORNIA AND THE INNOVATION ECONOMY California and the Innovation Economy Jerry Nickelsburg Senior Economist, UCLA Anderson Forecast Adjunct Professor of Economics, UCLA Anderson School April 2016 In March, the State Employment Development Department (EDD) released the benchmark revision for non-farm payroll employment statistics. This is a once-a-year event that updates the estimates of payroll employment using the latest employer information. The updated statistics show a 2015 payroll employment growth rate of 3.1%. Were this rate of growth to continue into the indefinite future every man, woman, child, cat and dog in California would be employed. It is for this reason that we have had a sharply reduced growth in employment in the State for our 2016 to 2018 forecasts. Reduced employment growth does not necessarily mean reduced income growth as increased productivity can generate more income with the same number of workers. In this California report, we explore State GDP growth by looking at innovation and technology as potential drivers of GDP growth. To accomplish this, we examine 2012 to 2014 GDP growth rates for all 50 states and look for determinates of growth that will inform the forecast. The bottom line is that if the U.S. continues to grow through 2018 as we are forecasting it will, then California s GDP ought to grow faster than the U.S. The recovery from the recession has been described as a non-recovery, a bifurcated recovery and an innovation or information recovery. 1 Within California, we were the first to describe this as a bifurcated recovery with the coastal regions gaining traction while the inland regions stagnated, or in some cases contracted. 2 The difference between the two rested solely on the type of work that was performed in the eastern vs. western parts of California prior to the 2008 crash. In the eastern part the State was predominately driven by construction, traditional manufacturing, government and agriculture. In the western part, the economy was predominately one based on services, particularly technology-laden services. This is true as well for the nation. A map of economic growth by state created by the U.S. Bureau of Economic Analysis shows a pattern of growth not explained by the presence of Republican or Democratic Party policies, not by the business-friendly environment or lack thereof, but by the presence of a vibrant tech oriented sector(s) or by the presence of extractive energy resources. 3 Granting that tech 1 Barry Ritholtz. Are you not feeling the economic recovery? This could be why. Washington Post, May 15, fc8d70fe-f8e0-11e b4732caefe81_story.html Craig S. Hakkio, Economic Policy For The Information Economy, A Summary of The Bank s 2001 Symposium, Federal Reserve Bank of Kansas City Economic Review, Fourth Quarter The discussion in this article presages the slow recovery of Jerry Nickelsburg, California: A Bifurcated Economy UCLA Anderson Forecast, June The maps for previous years beginning in 2010 have roughly the same pattern of successful states and less successful states. The 2015 map ought to show a different pattern for energy intensive states. UCLA Anderson Forecast, April 2016 California 49

48 CALIFORNIA AND THE INNOVATION ECONOMY Chart 1 Sources: U.S. Bureau of Economic Analysis leads the way in this economy the question then arises, does tech just happen or are the determinants of success in tech/ information/innovation that may be influenced by policy? In this essay we examine this question by looking across the U.S. at indicators that provide insight as to why California, with its reputation as the worst place to do business in the U.S., does very well in that regard. 4 How Innovation Affects Economic Growth In the macroeconomic literature on economic growth, the model proposed by Solow stands out as the kernel of much of the research that follows. 5 In this model, admittedly an abstraction, there is one good economic activity. The amount of that good is generated through a combination of labor and capital in a process determined by technology. Growth occurs through the growth of any of the three components: labor, capital, and technology. In previous California reports, we have argued that the rate of growth in California is constrained by growth in the population and we argued that population growth rates are somewhat muted by the deterrence of California s high cost of living. 6 That would leave the accumulation of capital and the improvement in productivity through innovation as explanations for California s more rapid growth. Technology changes through innovation. The more innovation, the more efficient is the process of generating economic activity. For example, when Tesla took over the GM/Toyota factory in Fremont they used modern technology to automate the production line. The robots that are now used for tasks such as seat installation, speeds the process of automobile assembly. The workers using the robots are now more productive and thus the workers productivity has gone up. To be sure, there are fewer workers and they may not be the same people as before, but the individuals doing the work are producing more per hour than their predecessors. 4 California s growth rate for the first two quarters of 2015, the latest data available, slows to average due in large part to the labor dispute at West Coast ports. 5 Robert M. Solow A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics 70 (1). Oxford University Press: Jerry Nickelsburg. Will California s Expansion Stall As It Zeros in On Full Employment? UCLA Anderson Forecast, December Jerry Nickelsburg. Will California s Housing Ever Be Affordable? UCLA Anderson Forecast. September California UCLA Anderson Forecast, April 2016

49 CALIFORNIA AND THE INNOVATION ECONOMY Empirically, there is a bit of disentangling that is required as new technologies require investment in new capital and some of the improvement in labor productivity is due to the increase in capital and some to the innovation that gave rise to the more efficient capital. For our purposes here, we are interested in two aspects of this process. First, are there factors associated with innovation that historically have generated the increase in investment which has engendered California s more rapid economic growth? Second, does economic growth typically occur more rapidly close to where innovation happens, and does the process of geographical diffusion spread the love to the rest of the U.S. quite rapidly? Measuring the impact of innovation on Economic Growth Measuring innovation is not a straightforward task. How does one add innovations in social media with innovations in aerospace and with innovations in computer processors? To get at this problem researchers have used proxies for innovation. Patents, research and development expenditure, scientific and engineering employment, investment in new ventures, and university impacts are but a few of the variables that describe either the result of innovating or the conditions that give rise to innovation. 7 For the purposes of this essay we focus on three factors that might influence the differential rates of growth between 2012 and 2015 in states across the U.S. These are measures of university impacts, research and development in technology related sectors, and patents issued. The first two are inputs to the development of innovation while the third, patents, is an output. To distinguish between them, we estimated the predicted number of patents based on university impacts and R&D spending and took that which was not predicted as an indicator of other factors driving innovations. There are a number of ways to measure university impacts. The one with the best explanatory power relative to differential state GDP growth was a ratio of the number of PhD degrees in science and technology issued to the total number of degrees in science and technology (BS, MS and PhD) issued. 8 The explanation for the power of this statistic is that a larger number of PhD s relative to the total indicates a larger presence of research institutions and by implication more innovation. The following three charts show the partial correlation between R&D, PhD Degrees/Total Degrees, and the number of patents per capita not explained by the first two variables. The patents can be negative if R&D and Degrees predict more patents would be issued than actually were. There are two things to notice in these charts. The first is that there are some outliers. In particular, Texas and North Dakota, two states that have benefited from the energy boom, are at the top of each chart. A more complete analysis will take into account this factor. Second, only the degrees variable has much explanatory power. We estimated a multiple regression equation, one that takes account of all of these factors at the same time. The equation explains 69% of the variation in GDP growth rates across states. The two most important variables were the value of petroleum production as a percent of GDP and PhDs in science and technology as a percent of total degrees awarded in science and technology. The latter variable is an indicator of the intensity of research universities in a state. Since research institutions spin off innovations and patents and attract R&D grants, it is not surprising that they stand out as the most important variable in explaining the innovation/ technology portion of state growth in the current economy. Estimated Equation: Average Change in State GDP = x (PhD s / Total Degrees) x (PhD s / Total Degrees) 2 (1.96) (2.62) (2.40) x (Petroleum Ouput / GDP) x (R&D / GDP) (9.31) (0.54) + 0 x (Unpredicted Patents) (0.19) 7 Pierre Perrolle and Francisco Moris, Advancing Measures of Innovation: Knowledge Flows, Business Metrics and Measurement Strategies, National Science Foundation, June 6, Mark Rogers. The definition and measurement of innovation. Parkville, VIC: Melbourne Institute of Applied Economic and Social Research, The data maybe found at: UCLA Anderson Forecast, April 2016 California 51

50 CALIFORNIA AND THE INNOVATION ECONOMY Chart 2 GDP Change vs Degrees (GDP Ave , Degrees 2009) 10% 8% 6% 4% 2% CA 0% -2% Sources: Bureau of Eocnomic Research, National Science Foundation, UCLA Anderson Forecast Chart 3 12% GDP Change vs Unpredicted Patents ( ) 10% 8% 6% 4% 2% CA 0% -2% Sources: Bureau of Economic Research, National Science Foundation, UCLA Anderson Forecast 52 California UCLA Anderson Forecast, April 2016

51 CALIFORNIA AND THE INNOVATION ECONOMY Chart 4 GDP Change vs R&D/GDP (2012) 12% 10% 8% 6% 4% 2% CA 0% -2% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Sources: Bureau od Economic Research, National Science Foundation, UCLA Anderosn Forecast The numbers in parentheses are t-statistics corresponding to the coefficient estimate immediately above. The larger the t-statistic the more important the variable is in explaining changes in GDP. The two variables with coefficient t-statistics less than 1, (R&D / GDP) and (Unpredicted Patents) had an insignificant impact on differentials in GDP growth rates. Implications for the Forecast While innovation is not the entire story of the economic recovery, it is certainly an important part of it. The very rapid growth in Silicon Valley and San Francisco attests to this fact. The results presented here suggest that in the near term, the critical mass developed with California s research institutions will continue to provide the state with a disproportionate amount of innovation and therefore a faster growth in GDP than the average for the U.S. The fly in the ointment stems from the fact that innovation in productivity improvements is not like assembling aircraft. It comes in fits and starts and is inherently unpredictable. Nevertheless, we expect California s GDP growth rate to exceed that of the U.S. through our forecast period. With U.S. growth coming in slower than we originally expected for 2016, the California forecast has been revised downward slightly. The current forecast is for continued steady gains in employment through What this means is a steady decrease in the unemployment rate in California over the next two years. We expect California s unemployment rate to be insignificantly different from the U.S. rate at 5.0% by the end of the forecast period. Our estimate for the 2016 total employment growth is 1.9%, and for 2017 and 2018 the forecast is for 1.6% and 1.0%. Payrolls will grow more at about the same rate over the forecast horizon. Real personal income growth is estimated to be 3.6% in 2016 and forecast to be 3.2% and 3.0% in 2017 and 2018, respectively. UCLA Anderson Forecast, April 2016 California 53

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53 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Venture Capital Investment and Innovation Across the Country William Yu Economist, UCLA Anderson Forecast April 2016 Over the past two quarters, we have seen roaring venture capital investment 1 on startups beginning to cool down due to the bruised stock markets. Some have been worrying about an upcoming repeat of the 2000 Internet bubble bust. Nobel Laureate Robert Shiller published his Irrational Exuberance right before the Dotcom Crash, and then he published the 2nd edition before the housing bubble burst in Will his 3rd edition, published in 2015, predict another market bloodshed? We suggest that asset price adjustments are always possible and happening from time to time. However, to see a catastrophic burst like the previous two, there needs to be an egregious bubble formed prior to it. We are not seeing that yet. Figure 1 presents the nominal (blue dashed line) and real values (red solid line) of venture capital investment in the U.S. since We do see a significant drop of investment in 2015Q4 with a 32% decline from 2015Q3 and a 28% decline from 2014Q4. However, if we compare the venture capital investment in 2015 in real terms with that in 2000, there is no comparison. Venture capital investments experienced a much larger boom-and-bust cycle back then: In 2001, quarterly investments crashed from $40 billion to $10 billion--a 75% plummet. Figure 2 shows the NASDAQ index. As with venture capital (VC), the high-tech stock market has seen a steadier increase in the past several years, compared to a sharp upswing in the late 1990s. Therefore, it is less likely to see a 75% crash of the NASDAQ as happened in 2000/2001. Unsurprisingly, we see co-movement of VC investment and NASDAQ, as the latter reveals the market value for nontrading high-tech startups. Note that we are not suggesting that the current stock prices or startups values are reasonable nor they will continue to rise. In fact, as shown in Figure 3, the S&P stock market fundamental index: cyclical adjusted price-earning (CAPE) ratio 2, developed by Robert Shiller, is around The CAPE ratio which is higher than the historical average of 16.6, demonstrates that current stock prices are expensive and that stock prices might be trading beyond their comfortable fundamental zone. One of the attributes would be the extremely accommodating monetary policies and low interest rates around the globe. 1 In addition to venture capital, there are other funding sources for highly risky startups, such as sovereign wealth funds, pension funds, private equity, and mutal funds. 2 The CAPE ratio is calculated as follows: the real stock market prices (adjusted by CPI inflation) divided by the average earnings over the past 10 years. UCLA Anderson Forecast, April 2016 California 55

54 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Figure 1 Quarterly Venture Capital Investment, from 1995 to 2015 $ 40 Billions $ 35 $ 30 Nominal VC Investment Real VC Investment $ 25 $ 20 $ 15 $ 10 $ 5 $ Source:PwC/National Venture Capital Association MoneyTree Report Figure 2 NASDAQ Index 6,000 5,000 4,000 3,000 2,000 1, Source: Yahoo Finance 56 California UCLA Anderson Forecast, April 2016

55 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Figure 3 Cyclical Adjusted Price Earnings (CAPE) Ratio, 1881 to Source: Robert Shiller Online Data, And this is why we could see the recent stock market decline as a journey to discover its fundamental value. Nevertheless, as seen in Figure 3, we are only suggesting here that 2015/2016 doesn t look like 1999/2000 or Therefore, the fear of an upcoming catastrophic market meltdown could be lessened. Venture Capital Investment by Sector Figure 4 displays venture capital investment by sector since It is obvious to see that the software industry has attracted much more capital over the past two years in comparison with other sectors: in 2015, the software industry received $23.6 billion, followed by biotechnology s $7.4 billion, media & entertainment s $4.7 billion, IT services 3.9 billion, industrial & energy s $3.2 billion, medical devices & equipment s $2.7 billion, and financial services $3 billion. The surge of VC investment in the software industry in 2014/2015 does compare to the surge in That said, if we expect some startups to fail (as they always do), they will mostly come from the software sector because of its colossal fad. While some unicorn startups will turn into the next Airbnb or Uber, most are likely to discover that they will never be able to fly. UCLA Anderson Forecast, April 2016 California 57

56 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Figure 4 Quarterly Venture Capital Investment by Main Sector, from 1995 to 2015 $ 8 ($Billion) $ 7 $ 6 $ 5 $ 4 Software Biotechnology Media & Entertainment IT Services Industrial & Energy Medical Devices & Equipment Financial Services $ 3 $ 2 $ 1 $ Source: PwC/National Venture Capital Association MoneyTree Report Figure 5 Quarterly Venture Capital Investment by Main Region, from 1995 to 2015 $ 10 ($Billion) $ 9 $ 8 $ 7 $ 6 Silicon Valley NY Metro New England LA/OC DC Texas San Diego $ 5 $ 4 $ 3 $ 2 $ 1 $ Source: PwC/National Venture Capital Association MoneyTree Report 58 California UCLA Anderson Forecast, April 2016

57 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Venture Capital Investment by Region Figure 5 displays venture capital investment in the U.S. by region. Silicon Valley (including San Francisco) has the highest VC investment with $7.1 billion in 2015 followed by New York Metro s $1.8 billion, New England s $1.5 billion, L.A. metro s $1.3 billion, D.C. metro s $0.4 billion, and Texas $0.3 billion. It is evident that most VC investment (63%) occurred in the Bay Area. Its 2015Q1 peak level ($9 billion only comes $1 billion short of the 2000Q2 level. Innovation Across the Nation and the World Are these venture capital investments in the high-tech world really fostering innovation? In other words, does the pace of innovation justify the increased investment? Here we take a look at innovation trends based on the number of utility patents granted by the U.S. Patent and Trademark Office. Figure 6 shows the number of U.S. patents granted, by year, to U.S. and foreign entities. The blue line is for domestic patents granted since After a decline in the 1970s, the patent numbers have steadily increased since the early 1980s. There was a leap in the 1990s from 60,000 to 80,000, and another in 2010, eventually reaching 145,000 in Note that the number of patents is not equivalent to the level of innovation and productivity. The CBO report 3 suggests that the recent proliferation of low-quality patents and the surging frequency and cost of infringement litigation might contribute to the rise of patent number in recent years. That said, we need to recognize the limitation in measurement of innovation by the number of patents granted. Interestingly, patents granted to foreign inventors have grown at a higher rate, while starting at a much lower base in the 1960s. Since 2008, foreign patents have surpassed domestic patents, reaching 156,000 in Figure 7 displays the eight countries with the most patents granted by the U.S. Patent Office. Japan is in the lead, with the highest number of patents since the mid-1970s when it surpassed Germany. Japan s patent number reached 54,000 in 2014, which is way ahead of Germany s second place 16,500. The list continues with the U.K. at 16,500, France at 11,000, South Korea at 7,200, Taiwan at 7,000, Canada at 6,700, and Switzerland at 6,500. Figure 6 Utility Patents Granted by the U.S. Patent and Trademark Office to U.S. and Foreign Entities 160 (Thousands) 140 U.S. Origin Foreign Origin Source: U.S. Patent and Trademark Office 3 Federal Policies and Innovation, November 17, UCLA Anderson Forecast, April 2016 California 59

58 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Figure 7 Utility Patents Granted by the U.S. Patent and Trademark Office by Eight Highest Foreign Countries 60 (Thousands) Japan Germany U.K. 30 France South Korea Taiwan Canada Switzerland Source: U.S. Patents and Trademark Office Patents Technology Class Figure 8 illustrates the top 15 technology classes for utility patents granted in the U.S. for 2010 and 2014, respectively. The top technology classes include drugs, communications, data processing, and medical-related patents. It is interesting to see the growth in information security patents from 2010 to 2014, a time of rising threats of cyber breach and attacks. It is also worth noting that 13th, 14th, and 15th place are now image analysis, computer graphics processing and selective visual display systems, and vehicles, navigation, and relative location. The latter two have seen dramatic growth over the past five years, which explains their recent popularity and the attention and businesses are giving to virtual reality and driverless cars. Top Innovative Companies Besides rising startups, much of the innovation and inventions are created from established high-tech companies. With their deep pockets, they can either conduct in-house R&D and/or purchase those startups with the innovative technology. Figure 9 shows the top 20 U.S. companies that patents were granted in The number one company is IBM at 5,500 patents, followed by Microsoft s 2,500, Qualcomm s 2,300, Google s 2,200, Apple s 1,800, and then GE, AT&T, GM, HP, Intel, Broadcom, Micron, Boeing, Cisco, and Amazon, respectively. All of these companies are famous high-technology companies and are leaders in their fields. Although volume of patents can exhibit a companies innovative competitiveness, such as in Google, Apple, and Microsoft, it is not clear that the sheer volume of patents for IBM, GM, and HP has translated into their market and profit prowess. 60 California UCLA Anderson Forecast, April 2016

59 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Figure 8 U.S. Utility Patents by Technology Class, 2010 and 2014 Drug, Bio-Affecting and Body Treating Compositions Multiplex Communications Multicomputer Data Transferring (Electrical Computers and Digital Processing Systems) Data Processing: Financial, Business Practice, Management, or Cost/ Price Determination Telecommunications Data Processing: Database and File Management or Data Structures Surgery Active Solid-State Devices (e.g., Transistors, Solid-State Diodes) Surgery (instruments) Information Security Semiconductor Device Manufacturing: Process Chemistry: Molecular Biology and Microbiology Image Analysis Computer Graphics Processing and Selective Visual Display Systems Data Process: Vehicles, Navigation, and Relative Location Source: U.S. Patent and Trademark Office Figure 9 U.S. Utility Patents Granted for Top 20 Organizations, IBM Microsoft Qualcomm Google Apple GE AT&T GM HP Intel Broadcom Micron Boeing Cisco Amazon Ford Xerox Texas Instruments Verizon Covidien Source: U.S. Patent and Trademark Office UCLA Anderson Forecast, April 2016 California 61

60 VENTURE CAPITAL INVESTMENT AND INNOVATION ACROSS THE COUNTRY Top Innovative Universities Besides startups and high-tech companies, research universities are also a center of technological progress and innovation. Figure 10 shows the top 30 U.S. universities that were given patents in The number one institution is the University of California system, followed by MIT, Stanford, the University of Wisconsin, the University of Texas, Caltech, the University of Michigan, the University of Illinois, USC, and Georgia Tech. Of these prominent universities, three are located in the Los Angeles area: UCLA, Caltech, and USC. Conclusions The takeaways of the report are as follow: Overall, venture capital investment has risen in 2014 and The recent decline of VC investment seems to correlate with stock market dynamics. The repeat of a Dotcom bubble-like burst is less likely because of the absence of a comparable bubble. The VC investment in the software industry appear more like a bubble than other sectors, which could present more risks to investors and some regions. If we measure innovation by the number of patents, we can see healthy growth in innovation in recent years, which could partly be correlated to surging VC investments. The pace of foreign countries getting patents granted by the U.S. office is also robust, dominated by Japan, Germany, and the U.K. Figure 10 U.S. Utility Patents Granted for Top 30 Research Universities, 2012 UC MIT Standford U of Wisconsin U of Texas Caltech U of Michigan U of Illinois USC Georgia Tech U of South Florida U of Utah Johns Hopkins U U of Pennsylvania Columbia U U of Central Florida U of Florida Northwestern U U of Washington U of Maryland U of Massachusetts Harvard Mayo NYU SUNY U of Pittsburgh Purdue Duke U of North Carolina U of Minnesota Source: U.S. Patent and Trademark Office 62 California UCLA Anderson Forecast, April 2016

61 THE UCLA ANDERSON FORECAST FOR CALIFORNIA APRIL 2016 REPORT Charts

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63 CHARTS RECENT EVIDENCE California Employment (6-mo. moving avg.) Jan to Feb (Thous.) (Percent) Wage & Salary Emp. (Left) HH Survey Emp. (Right) California Unemployment Rate Jan to Feb (Bil. $) Taxable Sales in California 2001:1Q to 2014:3Q Indexes of Consumer Attitudes--Pacific Area Jan to Feb Indexed 1985 = Consumer Confidence Present Expectations Source: Conference Board UCLA Anderson Forecast, April 2016 California 65

64 CHARTS RECENT EVIDENCE (Mil.) California New Car Registrations Jan to Jan (3-mo. moving avg.) (Thous. $) California Existing-Home Prices 1987:Q1 to 2015Q Source: California Association of Realtors 15 (Thous.) California Existing-Home Sales Jan to Jan (Thous.) New One-Family Houses Sold Western Region Jan to Jan (3-mo. moving average) Source: California Association of Realtors California UCLA Anderson Forecast, April 2016

65 CHARTS RECENT EVIDENCE (Thous.) New Residential Units Through California Building Permits Jan to Jan (Mil. $) Building Permit Valuations Total Nonresidential Jan to Jan mo. moving avg Single-Unit Multi-Unit (Thous.) California Construction Employment Jan to Feb California Employment by Sector Jan to Feb (Thous.) (Thous.) Goods Producing (Left) Services (Right) UCLA Anderson Forecast, April 2016 California 67

66 CHARTS FORECAST (% Change Year Ago) Real Personal Income California versus U.S California U.S. Nonfarm Employment California versus U.S. (% Change Year Ago) California U.S (Percent) Rates of Unemployment California versus U.S California U.S. (3-Yr. % Ch.) California Employment versus Real Personal Income Nonfarm Emp. Real Personal Income 68 California UCLA Anderson Forecast, April 2016

67 CHARTS FORECAST Real California Taxable Sales (% Change Year Ago) California Consumer Price Inflation (4-Qtr Percent Change) California U.S. (Percent) California Share of U.S. Employment and Population Emp Population (Thous) California Nonfarm Employment History & Forecast Vs. 2.3% Trend from 2007:4 2.9 Million Jobs Below Trend by Year History & Forecast 2.3% Trend Line UCLA Anderson Forecast, April 2016 California 69

68 CHARTS FORECAST Growth in Population (4-Qtr Percent Change) California Net Natural Increase and Net Inmigration (Thous.) Immigration Natural Increase Population of California vs. U.S. (Ca. Mil.; U.S. 10 Mil.) California U.S. (Percent) Gross Labor Force Participation Rate Labor Force/Total Population California U.S California UCLA Anderson Forecast, April 2016

69 CHARTS FORECAST U.S. Median Price of Single-Family Homes (Thous. $) (Thous. Units) New Residential Units Through California Building Permits Single-Unit 1988 Multi-Unit (Bil $) 40 Real Value of Nonresidential Construction in California (Thous.) 1000 California Employment in Construction UCLA Anderson Forecast, April 2016 California 71

70 CHARTS FORECAST (Thous.) California Employment in Education and Health Services (Thous.) California Employment in Manufacturing (Thous.) 600 California Employment in Information (Thous.) 2500 California Employment in Trade California UCLA Anderson Forecast, April 2016

71 CHARTS FORECAST (Thous.) 950 California Employment in Financial Activities (Thous.) 2300 California Employment in State and Local Government (Thous.) California Employment in Professional & Business Services (Thous.) California Employment in Federal Government UCLA Anderson Forecast, April 2016 California 73

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73 THE UCLA ANDERSON FORECAST FOR CALIFORNIA APRIL 2016 REPORT Tables

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75 FORECAST TABLES - SUMMARY Table 1. Summary of the UCLA Forecast for California Personal Income, Taxable Sales, and Price Inflation (%Change) Personal Income (Bil.$) Calif. (% Ch) U.S.(% Ch) Pers. Income (Bil. 2009$) Calif. (% Ch) U.S. (% Ch) Taxable Sales (Bil.$) (% Ch) (Bil. 2009$) (% Ch) Consumer Prices (% Ch) Employment and Labor Force (Household Survey, % Change) Employment Labor Force Unemployment Rate (%) U.S Total Nonfarm Nonfarm Employment (Payroll Survey, % Change) Calif U.S Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehousing & Util Trade Information Financial Activities Professional Busi. Serv Edu. & Health Serv Leisure & Hospitality Other Services Federal Gov t State & Local Gov t Nonfarm Employment (Payroll Survey, Thous.) Total Nonfarm Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehousing & Util Trade Information Financial Activities Professional Busi. Serv Edu. & Health Serv Leisure & Hospitality Other Services Federal Gov t State & Local Gov t Population and Migration Net Inmigration(Thous) Population (Thous) (% Ch) Construction Activity Residential Building Permits (Thous. Un.) Nonres.Permits (Mil. 09$) UCLA Anderson Forecast, April 2016 California 77

76 FORECAST TABLES - SUMMARY Table 2. Quarterly Summary of the UCLA Forecast for California 2016:1 2016:2 2016:3 2016:4 2017:1 2017:2 2017:3 2017:4 2018:1 2018:2 2018:3 2018:4 Personal Income, Taxable Sales, and Price Inflation (%Change) Personal Income (Bil.$) Calif.(% Ch) U.S. (% Ch) Pers. Income (Bil. 2009$) Calif.(% Ch) U.S. (% Ch) Taxable Sales (Bil. $) (% Ch) (Bil. 2009$) (%Ch) Consumer Prices (% Ch) Employment and Labor Force (Household Survey, % Change) Employment Labor Force Unemployment Rate (%) U.S Total Nonfarm Nonfarm Employment (Payroll Survey, % Change) Calif U.S Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehousing & Util Trade Information Financial Activities Professional Busi. Serv Edu. & Health Serv Leisure & Hospitality Other Services Federal Gov t State and Local Gov t Nonfarm Employment (Payroll Survey, Thous.) Total Nonfarm Construction Manufacturing Nondurable Goods Durable Goods Trans. Warehousing & Util Trade Information Financial Activities Professional Busi. Serv Edu. & Health Serv Leisure & Hospitality Other Services Federal Gov t State and Local Gov t Population and Migration Net Inmigration(Thous) Population (Thous) (% Ch) Construction Activity Residential Building Permits (Thous. Units) Nonres.Permits (Mil. 09$) California UCLA Anderson Forecast, April 2016

77 FORECAST TABLES - DETAILED Table 3. Personal Income, Taxable Sales, Construction and Population in California Aggregates (Bil $) Personal Income Disposable Income (Bil 2009$) Personal Income Disposable Income (Nominal %Ch) Personal Income Disposable Income (Real %Ch) Personal Income Disposable Income Components of Personal Income (Bil $) Personal Income Wages & Salaries Other Labor Income Farm Other Income Transfer Payments Social Insurance Taxable Sales Nominal Level (Bil $) %Ch Real Level (Bil. 2009$) %Ch New Automobile Sales (Mil Un.) New Registrations U.S. Sales Construction Activity Residential Building Permits (Thous.) Total Single-Family Multi-family Nonresidential Permit Valuation Nominal (Mil. $) %Ch Real (Mil. 2009$) %Ch Population (Thous.) Net Inmigration Net Natural Increase Population UCLA Anderson Forecast, April 2016 California 79

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79 REGIONAL MODELING GROUP The Los Angeles Department of Water and Power (DWP), established at the beginning of the century is the largest municipally-owned utility in the nation. It exists under and by virtue of the Charter of the City of Los Angeles enacted in With a work force in excess of 9,000, the DWP provides water and electricity to some 3.5 million residents and businesses in a 464-square-mile area. DWP s operations are financed solely by the sale of water and electric services. Capital funds are raised through the sale of bonds. No tax support is received. A five-member Board of Water and Power Commissioners establishes policy for the DWP. The Board members are appointed by the Mayor and confirmed by the City Council for five-year terms. UCLA Anderson Forecast, April 2016 Regional Modeling Group 81

80 REGIONAL MODELING GROUP The Los Angeles County Metropolitan Transportation Authority (Metro) is unique among the nation s transportation agencies. It serves as transportation planner and coordinator, designer, builder and operator for one of the country s largest, most populous counties. More than 9 million people one-third of California s residents live, work, and play within its 1,433-square-mile service area. Besides operating over 2,000 coaches in the Metro Bus fleet, Metro also designed, built and now operates over 73 miles of Metro Rail service. The Metro Rail system currently consists of 62 stations and several more are in the planning and/or design stage. In addition to operating its own services Metro funds 16 municipal bus operators and funds a wide array of transportation projects including bikeways and pedestrian facilities, local road and highway improvements, goods movement, and the popular Freeway Patrol and Call Boxes. Recognizing that no one form of transit can solve urban congestion problems, Metro s multimodal approach uses a variety of transportation alternatives to meet the needs of the highly diverse population in the region. Metro s Mission is to insure the continuous improvement of an efficient and effective transportation system for Los Angeles County. In support of this mission, our team members provide expertise and leadership based on their distinct roles: operating transit system elements for which the agency has delivery responsibility, planning the countywide transportation system in cooperation with other agencies, managing the construction and engineering of transportation system components and delivering timely support services to the Metro organization. Metro was created in the state legislature by Assembly Bill 152 in May This bill merged the Los Angeles County Transportation Commission (LACTC) and the Southern California Rapid Transit District (RTD) to become the Los Angeles County Metropolitan Transportation Authority. The merger became effective on April 1, Metro is governed by a 13-member Board of Directors comprised of: the five Los Angeles County Supervisors, the Mayor of Los Angeles, three Los Angeles mayor-appointed members, four city council members representing the other 87 cities in Los Angeles County and one non-voting member is appointed by the Governor of California. 82 Regional Modeling Group UCLA Anderson Forecast, April 2016

81 SEMINAR MEMBERS The nonpartisan Legislative Analyst's Office (LAO) has been providing fiscal and policy advice to the California Legislature for more than 65 years. It is particularly well known for its fiscal and programmatic expertise and nonpartisan analyses relating to the state budget, including making recommendations for operating programs in the most effective and cost-efficient manner possible. Its responsibilities also include making economic and demographic forecasts for California, and fiscal forecasts for state government revenues and expenditures. It also prepares fiscal analyses for all propositions that appear on the California statewide ballot, including bond measures. For more information about the LAO, please visit our website at or call us at The Legislature and Governor created the California Research Bureau (CRB) within the California State Library in the 1991 Budget Act. The bureau provides objective, nonpartisan, timely, and confidential research to the Governor s Office, members of both houses of the Legislature, and other state constitutional officers. The Bureau provides these clients with research, policy assistance through written reports and other documents, consultations, seminars, and other training and assistance in preparing legislative proposals. The Bureau has five branches: Environmental and Natural Resources; Education and Human Services; Economics; General Law and Government; and Information Services. It maintains a small office at the State Capitol in Room 5210 to make reference services conveniently available. UCLA Anderson Forecast, April 2016 Seminar Members 83

82 SEMINAR MEMBERS City of Hermosa Beach The Los Angeles Magazine has named Hermosa an "outstanding coastal town" praising many of our businesses and shops. From traditional Surf and Turf to more exotic cuisines, from Comedy to Jazz, Hermosa Beach has many fine dining and entertainment places from which to choose. Our hotel and lodging facilities offer breath taking ocean views and all the comforts of home which are surrounded by a Mecca of restaurants, upscale shops and tourist delights. Come to Hermosa Beach, relax and enjoy the warmth of our hospitality. The State of California s Department of Finance is responsible for submitting to the State s fiscal year budget to the Governor in January of each year. The Department is part of the State s Executive Branch and part of the Governor s Administration. The Director of Finance is appointed by the Governor and is his chief fiscal advisor. The Director sits as a member of the Governor s cabinet and senior staff. Principal functions include: Establish appropriate fiscal policies to carry out the Administration s Programs. Prepare, enact and administer the State s Annual Financial Plan. Analyze legislation which has a fiscal impact. Develop and maintain the California State Accounting and Reporting System (CALSTARS). Monitor/audit expenditures by State departments to ensure compliance with approved standards and policies. Develop economic forecasts and revenue estimates. Develop population and enrollment estimates and projections. Review expenditures on data processing activities of departments. In addition, the Department of Finance interacts with the Legislature through various reporting requirements, by presenting and defending the Governor s Budget and in the legislature. The Department interacts with other State departments on a daily basis on terms of administering the budget, reviewing fiscal proposals, establishing accounting systems, auditing department expenditures and communicating the Governor s fiscal policy to departments. 84 Seminar Members UCLA Anderson Forecast, April 2016

83 SEMINAR MEMBERS Health Net, Inc. is among the nation s largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company s health plans and government contracts subsidiaries provide health benefits to approximately 6.7 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net s behavioral health subsidiary, MHN, provides mental health benefits to approximately 7.0 million individuals in all 50 states. The company s subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs. The Employment Development Department s Labor Market Information Division (LMID) regularly collects, analyzes, and publishes information about California s labor market, which has approximately 1,068,000 employers covered by Unemployment Insurance and a civilian labor force of approximately 16.6 million. In addition to employment and unemployment data, LMID provides economic development and planning information; industry and occupational characteristics, trends, and wage information; and social and demographic information. Most of these data are available for the state and counties. Some data are available for other geographic regions a well. In addition to basic labor market information, the LMID provides technical assistance, training seminars for data users, and standard and customized reports for state and sub-state geographic areas. Labor market information is available electronically and in print. For more information, visit our website at or call UCLA Anderson Forecast, April 2016 Seminar Members 85

84 SEMINAR MEMBERS The energy industry is changing rapidly and dramatically. As global competition transforms the way companies do business, energy issues are no longer simply local, or even national. At the same time, its clear that the importance of providing reliable local service has never been more important. Celebrating its 150th anniversary in 2014, the Irvine Company is one of America s most respected and diversified real estate companies. The Company is renowned for its investment properties across coastal California and its stewardship and master planning of The Irvine Ranch in Orange County, California. Our heritage at Southern California Edison is based on reliability. For more than 100 years we have provided high-quality, reliable electric service to more than 4.2 million business and residential customers over a 50,000 square mile service area in coastal, central, and southern California. Of course, recent changes in the California s electric industry have affected us as well. In 1997, as part of the restructuring of the electric industry in our state, SCE sold its 12 fossil fuel generating stations and overhauled nearly every aspect of its business to prepare for the changing environment. While we still own and operate hydro and nuclear power facilities that serve our area, our main role is that of power transmission and distribution. The power needed for our customers is largely purchased from the California Power Exchange and provided by SCE to our customers without a price markup. At SCE we want you to know that even in times of change, we retain our proven commitment to service, reliability, innovation, and the community. The Irvine Company s property portfolio exceeds 105 million square feet and includes 500 office buildings, 41 retail centers, 130 apartment communities, five marinas, three hotels, and three golf courses, primarily in Orange County, with one-third of the Company s investment properties in Los Angeles, San Diego, Silicon Valley and Chicago. As master planner of the historic Irvine Ranch, the Irvine Company plans and brings to life balanced, sustainable communities with a full range of housing, job and retail centers, schools, recreation and permanently preserved open spaces. Nearly 60% of the 93,000-acre Irvine Ranch or 55,000 acres has been preserved in perpetuity as parklands and open space. Donald Bren is Chairman of the Irvine Company. He has been deeply involved in California real estate as a master planner, master builder and long-term investor for more than 50 years. He oversees a Board of Directors that includes some of the nation s most accomplished and respected business leaders and former public officials. 86 Seminar Members UCLA Anderson Forecast, April 2016

85 UCLA Anderson Forecast, April 2016 Sponsors-87

86 MEMBERS Corporate 6 California Energy Commission Corporate 4 ADP City National Bank - Coscia City of Los Angeles HomeStreet Bank IS Associates MedPOINT Management, Inc. Southern California Association of Governments Corporate 3 Ameron International Citizens Business Bank City of El Segundo City of Santa Monica Hanmi Bank Kia Motors America, Inc. Los Angeles Police Federal Credit Union McMaster-Carr Supply Company Metropolitan Water District Mitsubishi Cement Corp. Pacific Western Bank Pepperdine University Pepperdine University RPA State Farm Insurance Co. The Newhall Land and Farming Company Unified Grocers, Inc. WCIRB Individual Member ALG Inc. Alliance Bernstein Austrian Trade Commission Bay Area Economics BBCN Bank Cal Recycle California Air Resources Board California Association Of Realtors California Department of Transportation California Public Utilities Commission California State Board of Equalization California State Polytechnic University, Pomona California State University, Sacramento California Steel Industries, Inc Cathay Bank Chartwell Capital Solutions Chicago Title Chu & Waters, LLP City of Carlsbad City of Garden Grove City Of Sacramento City of San Diego City of San Jose City of Santa Clara City of Torrance City of Torrance - Kenneth Flewellyn Community Bank Consulate General of Japan County of San Diego Desmond, Marcello & Amster East West Bank FDIC Granite Rock Company Harold Davidson & Associates Inc. Heritage Bank of Commerce HR and A Advisors, Inc. JETRO, Los Angeles KPMG Lehigh Southwest Cement Company Level 10 Construction Lloyd Management Corporation Los Angeles Public Library - Business Economics Dept Maynard Consulting Services Newland Real Estate Group Northern California Power Agency Orange County Executive Office - Budget Orange County Transportation Authority Preferred Employers Insurance Company RBC Capital Markets San Diego Gas & Electric Co. School Services of California Inc. SMUD Stanford University State of Hawaii - Department of Taxation Sully-Miller Contracting Co The Aerospace Corporation The Olson Company United Methodist F.C.U. University of California Library, Berkeley University of California San Diego University of Cincinnati University of Richmond USS-POSCO Industries Vulcan Materials Company Warland Investments Wells Fargo Securities York Universities Libraries 88 - Members UCLA Anderson Forecast, April 2016

87 SPEAKERS Edward E. Leamer Director Edward E. Leamer is the Chauncey J. Medberry Professor of Management, Professor of Economics and Professor of Statistics at UCLA. He received a B.A. degree in mathematics from Princeton University and a Ph.D. degree in economics and an M.A. degree in mathematics from the University of Michigan. After serving as Assistant and Associate Professor at Harvard University he joined the University of California at Los Angeles in 1975 as Professor of Economics and served as Chair from 1983 to In 1990 he moved to the Anderson Graduate School of Management and was appointed to the Chauncey J. Medberry Chair. Professor Leamer is a Fellow of the American Academy of Arts and Sciences, and a Fellow of the Econometric Society. He is a Research Associate of the National Bureau of Economic Research and a visiting scholar at the International Monetary Fund and the Board of Governors of the Federal Reserve System. Dr. Leamer has published over 100 articles and 4 books. This research has been supported by continuous grants for over 25 years from the National Science Foundation, the Sloan Foundation and the Russell Sage Foundation. His research papers in econometrics have been collected in Sturdy Econometrics, published in the Edward Elgar Series of Economists of the 20th Century. His research in international economics and econometric methodology has been discussed in a chapter written by Herman Leonard and Keith Maskus in New Horizons in Economic Thought: Appraisals of Leading Economists. Recent research interests of Professor Leamer include the North American Free Trade Agreement, the dismantling of the Swedish welfare state, the economic integration of Eastern Europe, Taiwan and the Mainland, and the impact of globalization on the U.S. economy. David Shulman Senior Economist David Shulman is currently managing member of his own LLC and engages in educational and charitable activities, including being a Distinguished Visiting Professor at Baruch College and a Visiting Professor at the University of Wisconsin. Dr. Shulman is currently a member of NAREIT s Real Estate Investment Advisory Council. He blogs at Shulmaven.blogspot.com. Shulman received a bachelor s degree from Baruch College in 1965, an MBA in 1966 from the Graduate School of Management at UCLA; and his Ph.D. in 1975 with a specialization in Finance. From 1986 to 1997, Dr. Shulman was employed by Salomon Brothers Inc. in various capacities. He was their director of real estate research from 1987 to 1991 and became Chief Equity Strategist from 1992 to As Chief Equity Strategist, he was responsible for developing the firms overall equity market view and maintaining their list of recommended stocks. Dr. Shulman was widely quoted in print and electronic media and he coined the terms Goldilocks Economy and New Paradigm Economy. In 1991, he was named a Managing Director; and in 1990, he won the First Annual Graaskamp Award for Excellence in real estate research from the Pension Real Estate Association. In March 2005, Dr. Shulman retired from Lehman Brothers, where he was Managing Director and head Real Estate Investment Trust Analyst. Before joining Lehman Brothers in 2000, he was a member and Senior Vice President at Ulysses Management LLC from , an Investment Manager of a private investment partnership and an offshore corporation, whose investment capital approximated $1 billion at the end of UCLA Anderson Forecast, April 2016 Speakers 89

88 SPEAKERS Jerry Nickelsburg Senior Economist Jerry Nickelsburg joined the UCLA Anderson Forecast in 2006 as an economist. At the Anderson Forecast he plays a key role in the economic modeling and forecasting of the Los Angeles, Southern California and California economies. He has conducted special studies into the future of manufacturing in Los Angeles, the distribution of income, the economic impact of the writer s strike, the aerospace industry, the undocumented construction and manufacturing labor force, the ports of Los Angeles and Long Beach and the garment industry, focusing on the development of new data and the application of economic theory and statistical methods to sectoral issues. He is a regular presenter at the Los Angeles Mayor s Economic Conference and has been cited in the national and local media including the Financial Times, New York Times, Los Angeles Times, Reuters, Variety, CNBC, NBC, PBS, and L.A. Business Journal. He received his Ph.D. in economics from the University of Minnesota in 1980 specializing in monetary economics and econometrics. He was formerly a professor of Economics at the University of Southern California and has held executive positions with McDonnell Douglas, Flight Safety International, and Flight Safety Boeing during a fifteen year span in the aviation business. From 2000 to 2006, he was the Managing Principal of Deep Blue Economics, a consulting firm he founded. He held a position with the Federal Reserve Board of Governors developing forecasting tools, and has advised banks, investors and financial institutions. He has been the recipient of the Korda Fellowship, USC Outstanding Teacher, India Chamber of Commerce Jubilee Lecturer and is a Fulbright Scholar. He has published over 40 articles on monetary economics, econometrics, aviation economics, and industrial organization. William Yu Economist William Yu joined the UCLA Anderson Forecast in 2011 as an economist. At Forecast he focuses on the economic modeling and forecasting of Los Angeles and other regional economies in California. He also conducts research and forecast on Asian emerging economies, especially China, and their impacts on the US economy. His research interests include a wide range of economic and financial issues, such as time series econometrics, stock, bond and commodity price dynamics, public health, human capital, higher education, and economic sustainability. He has published over a dozen research articles in Journal of Forecasting, International Journal of Forecasting, Journal of International Money and Finance, Journal of Health Care Finance, Journal of Education Finance, Economic Affairs, and Global Economic Review, etc. He has also served as a reviewer for various journals, such as Journal of Money, Credit, and Banking, Journal of Banking and Finance, Japan and the World Economy, and Energy Journal, etc. He received his bachelor s degree in finance from National Taiwan University in 1995 and was an analyst in Fubon Financial Holding in Taipei from 1997 to In 2006, he received his Ph.D. degree in economics from the University of Washington where he was also an economics instructor and won two distinguished teaching awards. In 2006, he worked for the Frank Russell Investment Group for Treasury and corporate yields modeling and forecasting. From 2006 to 2011, he served as an assistant and an associate professor of economics at Winona State University where he taught courses including international economics, forecasting methods, intermediate macroeconomics, introductory macroeconomics, money and banking, and Asian economies. 90 Speakers UCLA Anderson Forecast, April 2016