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

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1 CENTER FOR BUSINESS AND POLICY RESEARCH October 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 Web Pacific.edu/CBPR Stockton Sacramento San Luis Obispo Santa Barbara Santa Barbara Ventura Ventura Kern Los Angeles Orange San Bernardino Riverside Staff Dr. Jeffrey A. Michael, Director Dr. Thomas Pogue, Associate Director Neriah Howard, Student Researcher Dallas Phillips, Student Researcher Santa Barbara Los Angeles San Diego Imperial UNIVERSITY OF THE PACIFIC EBERHARDT SCHOOL OF BUSINESS

3 California & Metro October 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 October 2017 California Forecast Over the next 12 months, real gross state product is forecast to grow 2.9% and the risk of recession is low. The California unemployment rate is about 5% and is forecast to stabilize just below 5% for the next three years. The labor force and number employed are projected to grow at about a 1% annual rate through 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%. Payroll growth will decline further to 1% by 2020, which is to be expected for an economy near 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. Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery. Growth in this sector will slow to 22,000 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 drop below 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 about 0.5% job growth over the next several years as state and local governments grapple with rising pension costs. Construction activity continues to grow with about 35,000 new jobs anticipated in each of the next three years, about a 4% annual growth rate. Single family housing starts are picking up, growing from 50,000 units in 2016 to a projected 60,000 in 2017 and 78,000 by Multi-family production is projected to exceed 50,000 units in 2017, and reach 60,000 units by Despite this improvement, housing production will be insufficient to relieve the state s growing housing shortage. California s population growth rate has declined to 0.7% and is projected to remain below 1% due to lower birth rates, immigration, and housing costs. The state will add about 280,000 residents in each of the next few years, notably fewer than in the past. Center for Business and Policy Research 5

6 FORECAST SUMMARY California Outlook California s economic growth has slowed from the nation-leading levels of recent years, but continues to expand at a steady rate. We project real gross state product to sustain its expansion at a 2.5% to 3.0% rate and payrolls to grow at about 1.5% rate for the next two years. The Trump administration has not been as disruptive to the healthcare system or international economy as initially feared, both of which are positive developments for California. Thus far, the political environment has featured a lot of noise and cultural conflict, but little in the way of substantive policy actions with significant economic impacts. That could change in the months ahead with tax reform and budget negotiations topping the fall policy agenda in Washington, and the President is weighing whether to reappoint Janet Yellen as chair of the Federal Reserve when her term expires this winter. This is an area to watch because a monetary policy mistake as the Fed continues its path towards normalizing interest rates is a significant risk to the forecast. There is also uncertainty on tax policy. While it seems that large tax cuts would be easy to pass with Republicans controlling Congress and the White House, the President may find it as politically challenging as healthcare reform due to vested interests and concerns about the federal debt. Thus, we are not anticipating any change to monetary policy and only incremental changes to tax policy. While the data points to a calm economic outlook, the political environment remains unpredictable, particularly at the global level where the North Korea nuclear crisis threatens. In California, the unemployment rate is about 5% and is expected to remain at or slightly below this level over the next few years. Faster growth in California is constrained by the growing scarcity of skilled labor, and extreme housing costs that prevent faster growth to population and the work force. Housing affordability has become a crisis in California, and spurred the legislature to pass 15 housing related bills that the Governor signed in September. This package will provide a modest boost to housing construction in California, and our forecast of housing construction has increased by about 5,000 units per year on a statewide basis compared to our last forecast, in part because of this package. For example, we are now projecting 137,000 new housing units in 2020 compared to 132,000 in the May forecast. In 2017, we are expecting statewide housing starts to inch over 100,000 units for the first time since the Great Recession. This is still an Table 1. California Annual Forecast Summary Real Gross State Product (% change) Non-Farm Payroll Employment (% change) Unemployment Rate (%) Housing Starts (thousands) California & Metro Forecast October 2017

7 FORECAST SUMMARY insufficient supply to stop the upward pressure on rents and home prices. The most notable parts of the housing package are a $4 billion bond, and a new fee on recording real estate documents that is estimated to generate about $250 million in annual funding for affordable housing. Most of these funds will go towards subsidizing the construction of rent and incomerestricted apartments, and will modestly increase the chance of low-income households moving off the long-waiting list for these units. This will provide relief for a few, but relief for most Californians will require actions to reduce the cost and opportunities to build new market rate housing. The legislative package includes some opportunities for streamlined approvals for some market-rate projects, but at a cost of requiring the projects to pay the state determined prevailing wage to workers. Thus, the package has done little to reduce the cost of producing market rate housing. The best approach to stimulate production of market rate housing is reforming the allocation of property and sales taxes, so that new housing would be less of a financial drain on local governments. New local tax structures could also help restrain the growth of impact fees that tend to be fixed fees per unit which reduce the viability of developing smaller and more affordable apartments and single-family homes. Legal cannabis will also give the California economy a modest boost in 2018, the first year where businesses can receive licenses to legally produce, process and sell recreational cannabis. Our center estimates that the legal cannabis industry will directly and indirectly support about 100,000 jobs in California once it is fully implemented. A surge in investment in the industry is already occurring, especially in new cultivation capacity, which will likely lead to lower prices and a difficult, competitive environment for cultivators. Local governments are still determining how to regulate and license cannabis enterprises, and their decisions will have a major influence on the structure and location of the cannabis industry as it develops. We have heard a lot of concern about cannabis speculation in farmland markets, and whether the industry will have major impacts on land and water resources for the state agriculture industry. While some farmers will undoubtedly want to enter and experiment with cannabis if their county allows it, we do not see the prospect for major land conversion. This is unlikely as it does not take much land or water to grow large quantities of cannabis. We project all of California s consumption could be supplied with less than 1,000 acres of outdoor cultivation and much production of legal cannabis will be in indoor facilities that offer controlled conditions, year round production and better security. Thus, the largest impact of cannabis on real estate markets is for industrial properties in locations in cities that allow cultivation and processing. THE REGIONAL OUTLOOK Bay Area growth has dropped sharply in 2017 as expected do to shortages of labor and housing that drive its high costs. While job growth is half the pace of recent years, we believe the Bay Area economy still has enough strength to generate 2% job growth in 2017 and 2018, a solid performance given its capacity constraints. Some new housing is being developed and we project the Bay Area will still grow its population by 50,000 in In earlier forecasts, we described how most of the region s new residents are in the workforce, drawn by the strong job market and high wages, while many of those leaving the region are not in the labor force. Thus, the Bay Area is able to maintain a very high labor force participation rate and combined with increased commuting from outlying areas, it has been able to sustain somewhat faster growth than its population and housing growth suggest. Nevertheless, these constraints increasingly constrict the region and we are not projecting any return to the growth seen in recent years. Central Valley metropolitan areas from Sacramento to Fresno are very fortunate that multiple efforts to repeal the Affordable Care Act have failed. This area has seen large social and economic benefits from the expansion of health care coverage and spending under the ACA, and repeal would be economically Center for Business and Policy Research 7

8 FORECAST SUMMARY damaging. This changing outlook for healthcare is one reason our growth forecast for Central Valley metro areas is slightly stronger than we predicted earlier in the year. All five Valley metros in our forecast are projected to have job growth that exceeds the state average in 2017 and The Stockton area has seen significant growth in recent years driven by its rapid growth as a logistics center for the Bay Area. Amazon just announced a 3 rd fulfillment center in the Stockton MSA and it continues to expand freight operations at the Stockton airport, but it is not the only company expanding its warehousing and transportation operations in the region. Unemployment in the Stockton MSA has declined to about 7.5%, compared to 16.5% only six years ago. Many areas of the Central Valley are also benefiting 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. The Sacramento economy saw a sharp drop in the pace of job growth in late 2016 and early Unlike some projections, we believe this is a temporary slump, not an early sign of a broader downturn. During this period, Sacramento saw the completion of some major construction projects like the Golden 1 center and I-80 expansion as well as a few large corporate layoffs at Aerojet and Verizon. However, job growth and building permits have picked up noticeably in recent months and we remain optimistic about the outlook for steady if unspectacular growth in the Sacramento area. The areas economic base in state government and healthcare provides a stable base but is unlikely to catalyze faster growth. 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. Thus, we expect a modest rebound of Sacramento job growth back above 2% 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. 8 California & Metro Forecast October 2017

9 FORECAST SUMMARY 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. in 2018, before settling down to a 1.5% pace in 2019 and 2020, a level that slightly exceeds the statewide average. Westlands Water District Board Votes Against the Delta Tunnels Defying political pressure and their staff recommendation to kick the can down the road with a conditional/partial approval, the farmers who sit on the board of the Westlands Water District demonstrated much needed leadership in voting 7-1 against participating (and funding their share) of the $17 billion Delta tunnel proposal (aka California Waterfix). For over 6 years, this Center has analyzed the economics of the Delta tunnels and explained why it is terrible for the Central Valley economy and California as a whole. The cost of the water that would be supplied by the Delta is far beyond what could be supported by agriculture, and the need to generate cash for bond payments estimated at $1-2 billion per year would force substantial transfers of water from agriculture to higher-paying urban areas in southern California. Paying for the tunnels would result in far more water leaving Central Valley agriculture than has been lost to the Delta Smelt and endangered species protection. Add in the cost to Delta farming and the proposal is a clear loser to the region s agriculture industry. The large urban water districts, most notably Metropolitan Water District and the Santa Clara Valley Water District are still set to vote this month on funding a share of the project. Even if they vote yes, the funding commitments they are approving would cover less than half of the project. So where does it go from here? Some think that Westlands is just negotiating for a better deal and will ultimately come back into the project, but that seems unlikely because it would take billions of dollars, not millions, to close the gap for these farmers. Thus, there are three likely possibilities. First, the state could do the right thing and abandon the project, so that the $17 billion in water infrastructure investment can be redirected to more sustainable and cost-effective local projects that diversify the state s water supply. That seems unlikely while Governor Brown is in office since he has been a strong advocate of a Delta bypass like the tunnels since his first term as Governor in the 1970s. The second option is for the Governor and other tunnel supporters to lobby for subsidies from the state and federal governments. For the project to be financially viable, we estimate the subsidy would need to be at least $7 billion, an unjustifiable and unlikely sum that would also invite a new legal challenge to the project. We expect the Governor and other tunnel supporters to explore this option, but it seems unlikely to generate political support given other budget challenges and a decade of vows that only water users would pay for the tunnels. The third and most likely option is that the plan will be revised into a smaller project, most likely with one instead Center for Business and Policy Research 9

10 FORECAST SUMMARY of two tunnels, which mostly serves urban agencies that are part of the State Water Project. This option also faces daunting challenges, as a redesigned project may require the state to restart some regulatory processes from scratch and the economic benefits to water agencies from a smaller project could shrink faster than the price tag. Can the Northern California Megaregion Compete for Amazon HQ2? Last month, Amazon took the unusual step of issuing a public request for proposals for a second headquarters location. It is a massive project that the company states will bring 50,000 high-paying jobs and 8 million square feet of new investment to the winning city. Hundreds of cities have announced that they will be submitting proposals for a rare project that has the scale to alter the economic trajectory of a region. Speculating about where Amazon will land has been widespread in the business press, and the most frequently predicted cities are Denver, Austin, Boston, Atlanta, and Washington D.C. Most commentators have written off California, primarily due to its high cost, regulatory climate, and its historical reluctance to offer big incentive packages to corporations. Why did Amazon go to the unusual step of creating such an open and public competition? Surely, they must have a short list of cities that meet their requirements. Some think it is just a publicity stunt to enhance Amazon s brand as an economic development prize, possibly to stimulate even greater local incentive offers for its growing network of less exciting facilities such as fulfillment centers. Perhaps their preferred locations are in states and cities that are historically unlikely to offer large public incentives, and the open competition is a way of generating public pressure for these areas to get more aggressively in the incentive game. This latter theory would suggest that California does have a chance. Indeed, Amazon has some very good reasons to look at the Golden State. The Bay Area has the largest concentration of tech industry talent that Amazon needs. California is a global destination that has proven it can attract top tech talent from around the world. Finally, a location in the same time zone as the Seattle headquarters would facilitate collaboration and travel between the two headquarters. We conservatively estimate that Amazon HQ2 as described in the RFP would support 120,000 on-going jobs statewide, and over $6 billion in state general fund tax revenue during the first 20 years of developing the new locations. While California is unlikely and shouldn t match the massive tax abatement incentives that will undoubtedly be offered by some locations, state and city leaders should definitely put their best case forward, most likely with a package of tailored infrastructure and workforce development programs. Are there locations in the Northern California megaregion that can compete? Most people believe that the Bay Area is simply too costly and congested, and lacks well-located sites that could accommodate the growth Amazon seeks. Sacramento is more affordable, meets the size and infrastructure requirements and has several interesting locations that could accommodate the growth. But can a government dominated city with a small corporate presence convince Amazon that it is business-friendly and has the workforce and culture Amazon seeks? Sacramento can offer Amazon an opportunity to grow into a region s dominant corporate presence where it shapes the region s future, and a location that is attractive for some Bay Area workers seeking a more affordable family-friendly environment. Some have speculated that Amazon could end up splitting the new headquarters between two sites, a scenario which could create interesting possibilities for the Megaregion. While the competition is fierce and it remains a long-shot, we believe a good case can be made for a Northern California location for Amazon HQ2 and encourage the state and regions to come together and put forward a competitive proposal. 10 California & Metro Forecast October 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 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

13 CALIFORNIA TABLES Table 2. Quarterly Summary 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

15 CALIFORNIA TABLES Table 3. Employment Quarterly 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 October 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 18,000 California Total Nonfarm Employment (Thousands) 17,500 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 October 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 2,900 California Education and Health Services Employment (Thousands) 2,700 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 October 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 2.0% in 2017 and 1.7% in 2018, less than growth rates of previous years. The expected leading sectors for employment growth in 2017 are the Construction & Mining (7.5%); State & Local Government (3.3%); and Education & Health Services (2.8%) sectors. Employment is expected to increase in all sectors except for the Manufacturing (-1.2%) and Professional & Business Services (-0.1%) sectors. The average annual wage is expected to be $51,548 in 2017, an increase of 1.3% from the previous year. By 2021, the average annual wage is expected to be $58,777. SHORT TERM OUTLOOK The Fresno MSA population is expected to reach 999,296 in 2018 and will grow approximately 1% each year, reaching 1,029,806 in In 2018, an increase of 1.0% is expected in the labor force. The 2017 unemployment rate is expected to be 9.1% but is forecasted to decrease to 8.8% by Housing starts are expected to reach 3,598 by 2021, a notable increase since The majority of housing starts have been and are expected to continue to be single-family starts Fresno Housing Starts 380 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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

25 METRO SUMMARY - FRESNO Quarterly Outlook for Fresno October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 25

26 METRO SUMMARY - FRESNO Annual Outlook for Fresno October 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 October 2017

27 METRO SUMMARY - FRESNO Merced MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 2.4% in 2017 and 3.2% in The expected leading sectors for employment growth in 2017 are in Information (3.9%); and Leisure & Hospitality (3.8%) sectors. Declines are forecasted in 2017 for the Federal Government (-0.3%) and State & Local Government sectors (-0.1%). In 2017, the average annual wage is expected to be $52,087, an increase of 2.3% from the previous year. By 2021, the average annual wage is forecasted to be $59,302. The Merced MSA population is expected to reach approximately 271,667 in 2017 and will grow steadily by 1.2% each year, reaching 1.3% in The labor force is expected to decrease by 0.5% in 2017 but will grow to 0.9% by The unemployment rate for the Merced MSA is forecasted to be 10% in 2017 but then will decrease to 8.4% by Approximately 431 housing starts are expected in 2017, a decrease from 718 in Housing starts are expected to reach 1,087 by 2021, mostly composed of single-family starts Merced Housing Starts 75 Merced Payroll Employment (Thousands) % 18% 16% 14% 12% 10% 8% 6% 4% 2% Merced Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

29 METRO SUMMARY - MERCED Quarterly Outlook for Merced October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 29

30 METRO SUMMARY - MERCED Annual Outlook for Merced October 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 October 2017

31 Modesto MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 2.8% between 2016 and 2017 and 2.1% in The leading sectors for employment growth in 2017 are the Educational & Health Services (4.3%) and Leisure & Hospitality (4%) sectors. The Information sector is expected to decline by 2.4% in Average annual wage is forecasted to be $53,532 in 2017 and will grow approximately 4.1% by Average annual wage is expected to increase to $62,192 by The population in the Modesto MSA is expected to reach 548,089 in 2017 and will grow 1.1% each year reaching 572,150 in Modesto s labor force is expected to grow approximately 1.2% in 2017 and approximately 1.4% in Unemployment is estimated to decline to 7.8% in 2017 from 8.5% in 2016 but will remain steady until reaching 7.9% in Modesto Housing Starts 190 Modesto Payroll Employment (Thousands) Modesto Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

33 METRO SUMMARY - MODESTO Quarterly Outlook for Modesto October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 33

34 METRO SUMMARY - MODESTO Annual Outlook for Modesto October 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 October 2017

35 Oakland MSA SHORT TERM OUTLOOK Annual nonfarm employment in the Oakland MSA is expected to increase 2.1% in 2017 and 1.9% in Leading sectors for employment growth in 2017 are the Construction & Mining (5.2%); Education & Health Services (3.4%); and Financial Activities (2.7%) sectors. Meanwhile, decline is expected in the Federal Government sector (-0.6%). For 2017, the average annual wage is expected to be $74,914, up from $73,184 in Average annual wages are expected to grow by approximately 4.2% in The Oakland MSA population is expected grow to 2,813,822 in 2017, a growth of 1.0% in 2017; the population is expected to reach approximately 2,924,993 by Unemployment in Oakland is expected to decrease to 3.9% in 2017 from 4.3% in By 2021, the unemployment rate is forecasted to be 3.5%. The labor force is expected to grow 1.2% between 2017 and Housing starts will reach 10,536 in 2017 and 12,162 in Unlike past housing starts, multifamily starts are expected to outnumber single-family starts between 2017 and 2021, with the exception of ,000 12,000 10,000 8,000 6,000 4,000 2,000 Oakland Housing Starts Oakland Payroll Employment (Thousands) % 10% 8% 6% 4% 2% Oakland Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

37 METRO SUMMARY - OAKLAND Quarterly Outlook for Oakland October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 37

38 METRO SUMMARY - OAKLAND Annual Outlook for Oakland October 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 October 2017

39 Sacramento MSA SHORT TERM OUTLOOK Total nonfarm employment in the Sacramento MSA is expected to increase 1.8% in 2017 and 2.4% in The leading sectors for employment growth in 2017 are the Education & Health Services (4.1%); Leisure & Hospitality (3.9%); and Professional & Business Services (1.8%) sectors. Declines are forecasted for the Information (-3.5%) and Manufacturing (-2.5%) sectors. The average annual wage for 2017 is predicted to be $62,447, an increase of 0.6% from the previous year. By 2021, the average annual wage is forecasted to be $72,481. The population of the Sacramento MSA is expected to be 2,330,359 in 2017, an increase of 1.3% from The labor force is expected to grow by 0.4% in The unemployment rate is expected to be 4.9% in 2017, down from 5.2% in 2016; unemployment is forecasted to be 4.6% in Approximately 8,912 housing starts are expected in 2017, growing to 14,370 in 2021; most of which are single family starts Sacramento Housing Starts 1050 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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 (Annual Rate) Single-Family Multifamily California & Metro Forecast October 2017

41 METRO SUMMARY - SACRAMENTO Quarterly Outlook for Sacramento October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 (Annual Rate) Single-Family Multifamily Center for Business and Policy Research 41

42 METRO SUMMARY - SACRAMENTO Annual Outlook for Sacramento October 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 October 2017

43 San Francisco MSA SHORT TERM OUTLOOK Annual nonfarm employment is expected to grow 2.3% in 2017 and The expected leading sectors for employment growth in 2017 are the Construction & Mining (8.5%), Other Services (3.9%), and Information (3.5%) sectors. Meanwhile, decline is expected in the Federal Government (-0.9%) sector. The average annual wage is expected to be $114,235 in 2017, an increase of 3.5% from The average annual wage is predicted to be $135,287 in The San Francisco MSA population is expected to reach 1,650,893 in 2017, an increase of 0.8% from the previous year. The labor force is expected to grow 0.8% in and 1.4% in The unemployment rate is expected to decline to 3.0% in 2017 from 3.1% in 2016 and is expected to fall to 2.6% in Housing starts are expected to have declining rates beginning in 2017 through 2020, but will increase slightly in 2021Most housing starts are multifamily starts San Francisco Housing Starts 1250 San Francisco Payroll Employment (Thousands) % 11% 9% 7% 5% 3% San Francisco Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

45 METRO SUMMARY - SAN FRANCISCO Quarterly Outlook for San Francisco October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 October 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 October 2017

47 San Jose MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 1.7% in 2017 and 1.9% in The leading sectors for employment growth in 2017 are in the Information (5.9%), Leisure & Hospitality (4.8%), Education & Health Services (3.5%), and Nonmanufacturing (1.9%). In 2017, declines are expected in the Trade, Transportation, & Utilities (-1.4%); Construction & Mining (-1.0%); and Financial Activities (-0.8%) sectors. In 2017, the average annual wage is estimated to be $124,496, an increase of 1.9% from By 2021, the average annual wage may reach $148,131. The San Jose MSA population is expected to reach 1,991,051 in 2017, an increase of 0.6% from the previous year. The population will continue to grow between 0.6% and 0.8% each year until reaching 2,051,195 in The labor force is expected to decline by 0.1% in The unemployment rate is forecasted to be 3.5% in 2017, down from 3.9% in 2016, and is expected to fall to 3.3% in Approximately 8,154 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 1200 San Jose Payroll Employment (Thousands) % San Jose Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

49 METRO SUMMARY - SAN JOSE Quarterly Outlook for San Jose October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 49

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

51 Stockton MSA SHORT TERM OUTLOOK Total annual nonfarm employment is expected to grow 1.8% in 2017 and 2.1% in The expected leading sectors for employment growth in 2017 are in the Construction & Mining (10.0%); Other Services (3.6%); and Financial Activities (3.0%) sectors. Meanwhile, decline is expected in the Information (-4.3%) sector. The average annual wage is expected to be $52,427 in 2017, an increase of 2.0% from the previous year. By 2021, the average annual wage is forecasted to be $60,638. The population in the Stockton MSA is forecasted to increase 1.4% in 2017 to 745,604 and will continue to increase, reaching 786,648 in The labor force declined slightly by 0.1% in 2017, but is expected to grow by 1.2% in The unemployment rate is forecasted to be 7.5% in 2017, down from 8.1% in The unemployment rate is expected to fall to 6.8% in Housing starts are expected to increase from 2017 through 2021, reaching 3,234 in The majority of housing starts are single family starts Stockton Housing Starts 250 Stockton Payroll Employment (Thousands) % 16% 14% 12% 10% 8% 6% Stockton Unemployment Rate (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 October 2017 Forecast 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 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 October 2017

53 METRO SUMMARY - STOCKTON Quarterly Outlook for Stockton October 2017 Forecast 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 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 53

54 METRO SUMMARY - STOCKTON Annual Outlook for Stockton October 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 October 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 Executive Director of the Center for Business and Policy Research and Professor of Public Policy at the University of the Pacific. Jeff s areas of expertise include regional economic forecasting, and environmental economics and policy and including work the economic impacts, costs and benefits of water and transportation infrastructure, 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 extensive coverage in the regional and national press. Prior to joining Pacific in 2008, Jeff was at Towson University in Maryland where he served as Director of the Center for Applied Business and Economic Research, Associate Dean of the Honors College, and Associate Professor in the School of Business and Economics. Jeff received his Ph.D. from North Carolina State University, M.S. from the University of Maine, and B.A. from Hamilton College. 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