Outlook 2018: IE and Southern California So Cal Economic Summit Corona Chamber of Commerce March 29, 2018

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1 Outlook 2018: IE and Southern California 2018 So Cal Economic Summit Corona Chamber of Commerce March 29, 2018 Robert A. Kleinhenz, Ph.D. Economist/Exec Director of Research UCR Business Forecast

2 Outline U.S. Economy State Economy So Cal/Local Outlook Local Real Estate Conclusion/Looking Ahead

3 Heard in the Headlines Tax Cuts Stimulus to Economy? Long Run Impact? US Labor Market Slowing Sign of Recession? Can US Grow Faster? Housing Affordability Crisis/Housing Shortage?

4 U.S. Economy

5 Vital Signs of the US Economy GDP Growth Rate Labor Market Conditions Inflation Rate

GDP 2017: 2.3% --- 2018: 2.5 to 2.8% 4 3 2 1 0-1 -2-3 Gross Domestic Product YTY % Change 2.

6 GDP 2017: 2.3% : 2.5 to 2.8% Gross Domestic Product YTY % Change 2.3 Contributions to Change in GDP Sector Consumer Investment Net exports Government Total GDP % Chg * * Does not add up due to rounding

7 Consumer Spending: Flywheel of Economy Real Consumer Spending by Type (Y-o-Y Growth to January 2018) 8% 6% 4% 2% 0% -2% -4% -6% -8% Services Goods

8 Real Disposable Personal Income Growth YTY % Change 6% 4% 2% 0% -2% % 8

500 400 300 200 100 0 1990Q1 Real Average

9 Lower Saving Rate, Growing Wealth 7% 6% 5% 4% 3% 2% Consumer Savings Rate Q1 Real Average Wealth per Household (FOF, Thous.) 1993Q1 1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1 2014Q1 2017Q1 Home Equity Other Net Wealth 9

10 Credit Card Use Accelerating, but YTY % Change Outstanding Credit Card Balances 10% 5% 0% -5% -10% % -20% 10

11 No Debt Overhang 19% 18% 18% 17% 17% 16% 16% 15% 15% 14% Household Financial Obligation Ratio Household Debt to Income Ratio 11

12 Business Spending Up % 10% 5% 0% -5% -10% Fixed Investment Structures Equipment Intellectual Property

13 International Trade Deficit: Pros/Cons $ Millions (Yr.=2009) 3,010 2,510 2,010 1,510 1, Ex-Goods Ex-Svcs Im-All -395 Deficit:

14 Tax Cuts and Spending Increases Mean ,000-1,200-1,400-1,600 Much Larger Federal Budget Deficit

15 Macro-Economy at a Glance Sector CONSUMERS BUS. INVESTMENT GOVERNMENT NET TRADE Steady solid growth Outlook Acceleration, energy drag over Flat/Up Slightly Imports & Exports up, Imports larger NET Negative SUMMARY Domestic Spending Up

16 Full Employment, Slower Job Growth Unemployment Rate Yr-To-Yr % Change in Jobs 18% 16% 14% 12% 10% 8% 6% 4% 2% U-3 U

Plenty of Job Openings, Not Enough Workers 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% JOLT Job Openings Rate in % Sector Level (000s) Rates Dec-16 Dec-17 Dec-16 Dec-17 Total 5,539 5,811 3.7 3.

17 Plenty of Job Openings, Not Enough Workers 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% JOLT Job Openings Rate in % Sector Level (000s) Rates Dec-16 Dec-17 Dec-16 Dec-17 Total 5,539 5, Total private 5,065 5, Education & Health 1,158 1, TTU 1,014 1, Prof. and Bus. services Leisure and hospitality Government Manufacturing Financial activities Other Services Construction Information Mining

18 Labor Force Growth Constrains Potential GDP Growth Labor Force Growth LF Participation Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 67% 66% 65% 64% 63% 62% 61% 60%

19 Inflation Historically Low But Rising Kyser Center for Economic Research

20 Economic Policy

21 Fiscal Policy-Other Issues Immigration: reforms enable economic growth International Trade: consumers or producers? Infrastructure: $4.5 trillion needed Health Care: spending reform, not insurance reform

22 Need Changes to US Health Care 20% 15% 10% 5% 0% National Health Spending As a Share of GDP 2.1% / Decade 3.3% / Decade Per Capita Healthcare Spending 2015, PPP Adjusted USA $9,402 France $5,428 Norway $7,832 Canada $5,421 Switzerland $7,300 Belgium $5,340 Sweden $6,285 Australia $4,873 Netherlands $6,209 Finland $4,467 Germany $6,204 Japan $4,255 Austria $6,143 UK $3,717

23 Monetary Policy Rock-bottom federal funds rate Adjusting to labor market, inflation, GDP Market rates less tied to FFR than in the past Yield curve dynamics FFR increases push up short end Balance sheet activities push up long end Liquidity keep long end market rates low

24 Financial Markets Fed Funds Rate 10 Year Yield 30 Year Mort 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

25 Yield Curve US Treasury Securities 4.0 3/22/17 9/22/17 3/22/ Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr

The Recent Panic 3.50 3.00 2.50 2.00 1.50 1.00 0.

26 The Recent Panic Year Bond Rates S&P Index Jan15 2Jan16 2Jan17 2Jan18 3Jul17 3Aug17 3Sep17 3Oct17 3Nov17 3Dec17 3Jan18 3Feb18 26

27 State Economy

28 CA & US at Full Employment Unemployment Rate, Seasonally Adjusted 16% 14% 12% 10% 8% 6% 4% 2% 0% CA: 4.3% US: 4.1% 4.3% Lowest on Record (1976+)

29 CA Among Fastest Growing States

The Big Slowdown 4% 3% 2% State and National Job Growth Location 2017 14-15 15-16 16-17 Los Angeles MD 4,441,600 2.2% 2.6% 1.

1% 1% 0% California United States Oakland MD 1,164,300 3.3% 3.3% 2.4% San Francisco MD 1,117,900 4.9% 4.0% 2.

30 The Big Slowdown 4% 3% 2% State and National Job Growth Location Los Angeles MD 4,441, % 2.6% 1.3% Orange County 1,619, % 2.6% 2.2% Inland Empire 1,454, % 3.6% 3.8% San Diego MSA 1,454, % 2.7% 2.1% 1% 0% California United States Oakland MD 1,164, % 3.3% 2.4% San Francisco MD 1,117, % 4.0% 2.4% San Jose MSA 1,099, % 3.1% 2.6% Sacramento MSA 970, % 3.4% 2.2% Fresno MSA 345, % 3.5% 2.8% Ventura County 304, % 1.3% 1.3%

31 Metro Areas Vary in % Job Gains Stockton MSA RV-SB Fresno MSA San Jose MSA Sacramento MSA Kern County Oakland MSA Sonoma County Orange County San Diego County San Francisco MD Ventura County LA County Year to Year % Chg. (Feb-18) 0% 1% 2% 3% 4%

32 Largest Absolute Gains in So Cal MSA Feb-18 YTY Change Jobs (Seasonally Adjusted) LA County 61,000 RV-SB 49,600 San Jose MSA 31,100 Orange County 30,300 San Diego County 27,200 Oakland MSA 25,300 Sacramento MSA 25,100 San Francisco MD 19,900 Fresno MSA 10,600 Stockton-Lodi MSA 8,500 Kern County 5,600

33 Gross Product Q3-17: YTY % Changes -- CA (2.3%)

34 California Taxable Sales (+4.9% in 2017) Millions $180 $160 $140 $120 $100 $80 $60 $40 $20 $0

35 So Cal/Local Economy

36 Labor Market Tightening Headline Numbers Good Seasonally Adjusted Feb 2017 Feb 2018 CAUnemployment Rate 5.1% 4.3% IE Unemployment Rate 5.6% 4.5% Not Seasonally Adjusted Jan 2018 Corona City Unemployment Rate n.a. 3.6% 36

37 Unemployment Rate Unemployment Rates Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 (%, SA) California Inland Empire Los Angeles Orange County

38 RV-SB Among Fastest Growing MSAs YOU ARE HERE

39 Inland Empire Job Changes by Industry Construction Transport/Warehouse Educational Services Admin Support Wholesale Trade Total Nonfarm Health Care Other Services Finance and Insurance Government Retail Trade Real Estate Prof Sci and Tech Leisure and Hospitality Manufacturing Information Management NR/Mining YTY % Change (Feb-18) -12%-10%-8%-6%-4%-2% 0% 2% 4% 6% 8% 10% 12% 14%

40 Key Industries LOCAL SERVING largest number of jobs Health Services Retail Trade Leisure & Hospitality-Food & Beverage Government, Including Education EXPORT-ORIENTED sources of new growth Goods Movement: Trans/Warehouse, Whsl Trade Manufacturing: IT, Aerospace, Bio, Metals Mfg Prof, Scientific & Tech/Info Tech; Biosciences Education and Knowledge Creation Tourism & Entertainment-Hotels, Arts, Recreation Agriculture

41 Structure of Riv Co Economy Industry Empl- Sep'17 Avg Wkly Wage Empl LQ Construction 65,062 $1, Transportation and warehousing 40,929 $ Retail trade 91,263 $ Accommodation and food services 78,020 $ Health care and social assistance 94,714 $ Administrative and waste services 44,669 $ Real estate and rental and leasing 9,762 $ Arts, entertainment, and recreation 10,356 $ Other services, except public administration 19,407 $ Wholesale trade 24,137 $1,

42 Industry Empl- Sep'17 Avg Wkly Wage Empl LQ Manufacturing 42,637 $ Utilities 1,240 $1, Educational services 6,255 $ Information 6,100 $1, Professional and technical services 19,045 $1, Finance and insurance 11,850 $1, Management of companies and enterprises 2,297 $1, Mining, quarrying, and oil and gas extraction 357 $1,

San Pedro Ports - Record Year in 2017 11.8 13.1 14.2 15.8 15.7 14.

43 San Pedro Ports - Record Year in Feb 18 Year-to-Date % Total: +12.6% Inbound: +32.2% Outbound: + 4.8%

and Manufacturing Output Rising 160 140 120 100 80 60 40

44 and Manufacturing Output Rising Value of Production (2009=100) IE US CA Source: U.S. BEA

Taxable Sales (Seasonally Adjusted) Q1-07 = 100 140 120 100 80 60 40 20 0 Riv County (2017Q4: +5.3% YTY) Corona City (2017Q4: +12.

45 Taxable Sales (Seasonally Adjusted) Q1-07 = Riv County (2017Q4: +5.3% YTY) Corona City (2017Q4: +12.2% YTY) Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Q1-17 Q3-17

46 Local Real Estate/ Construction

47 So Cal Residential Outlook Price Change Sales Change Jan-17 Dec-17 Jan-18 MTM YTY YTY Los Angeles $509,130 $577,920 $564, % 10.8% -6.8% Orange $740,000 $785,500 $780, % 5.4% -6.6% Riverside $357,500 $385,000 $397, % 11.1% -3.5% San Bernardino $245,440 $278,000 $277, % 12.9% 5.6% San Diego $550,000 $605,000 $590, % 7.3% -2.4% Ventura $587,250 $645,000 $660, % 12.5% 3.7%

48 Median Prices Existing Single-Family Homes Q4-16 Q4-17 YTY % Chg in Price YTY % Chg in Sales County of Riverside $337,202 $369, % -2.1% City of Corona $466,218 $511, % -2.5% City of Riverside $358,614 $403, % -7.8% City of San Bernardino $234,331 $255, % 8.1% City of Anaheim $550,403 $581, % -11.6%

49 Housing Affordability: % of HHs Affording Median Priced Home State/Region/County Q4-16 Q4-17 Los Angeles Orange County Riverside County San Bernardino County San Diego County Ventura California 31 29

50 Apartment Rents Rising $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 Metro Rents County Wages Rents Share Ventura $57,789 $1,700 35% Los Angeles $63,236 $1,830 35% Santa Barbara $52,911 $1,526 35% Orange $63,849 $1,827 34% Riverside $45,219 $1,293 34% San Bernardino $45,762 $1,293 34% Inland Empire Orange County MD Los Angeles MD San Diego San Diego $60,887 $1,696 33% San Luis Obispo $44,816 $1,147 31%

Single Family 2004 2005 2006 2007 2008 Multi Family 2009 2010 2011

51 Riverside County Residential Housing Construction 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Single Family Multi Family ALL: +6.2% SF: + 9.6% MF: %

52 Conclusion

53 Conclusion/Outlook US & CA growth steady, full-employment, job growth harder to achieve Leading industries: health care, construction, leisure and hospitality, trans/whsg Real Estate: Housing shortage not just affordable housing MORE SUPPLY needed NO Recession

54 900 University Ave. Riverside, CA T:

Outlook Southwest Regional Economic Forecast Conference June 14, 2018

Outlook Southwest Regional Economic Forecast Conference June 14, 2018 Outlook 2018 Southwest Regional Economic Forecast Conference June 14, 2018 Robert A. Kleinhenz, Ph.D. Economist/Exec Director of Research UCR Business Forecast Outline U.S. Economy California So Cal/Local