The Economic Outlook : Focus on the IE December 2018 Christopher Thornberg, Ph.D. Director, UCR School of Business Center for Economic Forecasting and Development Founding Partner, Beacon Economics LLC UCR Center for Economic Forecasting and Development ucreconomicforecast.org
A look back NBER says U.S. recession began December 2007 Mon Dec 1, 12:20 pm ET WASHINGTON (Reuters) The U.S. economy slipped into recession in December 2007, the National Bureau of Economic Research's business cycle dating committee announced on Monday.
Its Not That Bad It isn t the when, it s the why that matters Meet the Trump economy, same as the old economy Economy on a steady growth path since 2014-2015 global commodity bust Labor markets, business investment, wages, exports, energy, all on sustainable paths Interest rates, inflation still contained 2018: fiscal stimulus after-burner pushing growth to 3% plus Still a low chance of recession in next 24 months` California / Los Angeles: Still out in front WSJ Next Recession Poll 2018 2019 2020 2021 2022 2023 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 3
It s Not That Good Brakes and Imbalances Labor shortages impacting employers Local Housing Shortages Recent market volatility / rising long term rates Aggressive Fed, flattening yield curves Sharp growth in government deficits Global trade / security worries Politics going in the wrong direction Little effort to deal with underinvestment in infrastructure, rising wealth and income inequality, healthcare cost inflation, pension and entitlement issues, etc etc etc The great disconnect between economic realities and political discourse 4
GDP: Q3 3.5%, Q4 tracking 2.5% 4 3 2 1 0-1 -2-3 -4 2005Q1 2006Q1 2007Q1 Real GDP Growth (yoy) 2016 2017 Q2 Q3 GDP 1.88 2.48 4.20 3.50 Final Demand Consumption 1.87 1.83 2.57 2.69 Goods 0.75 0.96 1.16 1.20 Services 1.11 0.87 1.42 1.49 Fixed investment 0.39 0.95 1.10-0.04 Structures 0.07 0.08 0.43-0.26 Equipment -0.08 0.54 0.27 0.03 Intellectual prop 0.24 0.18 0.45 0.35 Residential 0.16 0.15-0.05-0.16 Change inventories -0.20-0.11-1.17 2.07 Net exports -0.34-0.23 1.22-1.78 Exports 0.09 0.56 1.12-0.45 Imports -0.43-0.79 0.10-1.34 Government 0.16 0.03 0.43 0.56 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 Federal 0.02 0.09 0.24 0.21 State and local 0.15-0.06 0.20 0.35
Consumers Leading the Charge 5.0 Real Consumer Spending- YoY Gr 10.0% Personal Savings Rate (Share DPI) 4.0 9.0% 3.0 8.0% 2.0 1.0 0.0-1.0-2.0-3.0 Jan-00 Feb-01 Mar-02 Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09 Nov-10 Dec-11 Jan-13 Feb-14 Mar-15 Apr-16 May-17 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 6
Consumer Debt Loads 14.0 Financial Obligations Ratio 16.00 Consumer Credit: Serious Delinquencies 13.0 14.00 12.0 11.0 10.0 9.0 8.0 7.0 1980-01-01 1982-05-01 1984-09-01 1987-01-01 1989-05-01 1991-09-01 1994-01-01 1996-05-01 1998-09-01 2001-01-01 2003-05-01 2005-09-01 2008-01-01 2010-05-01 2012-09-01 2015-01-01 2017-05-01 12.00 10.00 8.00 6.00 4.00 2.00 0.00 03:Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 15:Q4 16:Q3 17:Q2 18:Q1 MORTGAGE HELOC AUTO CC 7
Housing Markets: Slight Slowing 7500.0 7000.0 6500.0 Home Sales 12.0 10.0 Months Supply of Homes 6000.0 5500.0 5000.0 8.0 6.0 4500.0 4.0 4000.0 3500.0 2.0 3000.0 Jan-99 May-00 Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 May-12 Sep-13 Jan-15 May-16 Sep-17 0.0 Jan-99 Mar-00 May-01 Jul-02 Sep-03 Nov-04 Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Jan-13 Mar-14 May-15 Jul-16 Sep-17 8
20 191 768-0 19-011-2 2080-086 1916-01 82-0 -0 4 6 19-01-28 2084-0 6 1916-01 86-07-0 6 19-01-28 208-0 8 6 1916--01 90 10-0 -6 129-01 28 0912-06 19 7--001 94 1--0 26 129-01 8 091-0 67 6 19-014 98-02 6 20-01 8 0107-0 6 20-071 02-028 220-0 6 010 174-06 20-100106 -208 220-0 6 0108 18--0 06 20 011-2 2010-086 2018 01 12-0 -0 6 20-041-2 2014-086 2018-01 16-07-0 6 20-01-28 18-0 -0 6 106 Rising Rates? Mortgage MortgageRates Rates(30 (30Year YearFixed) Fixed) 5.00 20.00 4.80 18.00 4.60 16.00 4.40 14.00 4.20 12.00 4.00 10.00 3.80 8.00 3.60 6.00 3.40 4.00 3.20 2.00 3.00 0.00 9
Affordability vs Credit Availability 70.0% 65.0% US Housing Buy In Ratio 800 Mortgage Origination by Credit Score 60.0% 750 55.0% 700 50.0% 45.0% 40.0% 35.0% 30.0% Jan-93 Nov-94 Sep-96 Jul-98 May-00 Mar-02 Jan-04 Nov-05 Sep-07 Jul-09 May-11 Mar-13 Jan-15 Nov-16 650 600 550 500 99:Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2 11:Q2 12:Q2 13:Q2 14:Q2 15:Q2 16:Q2 17:Q2 Median 25th percentile 10th percentile 10
Pace of Construction 2000 Housing Starts 3.5 Housing Starts per New Household 1800 1600 3 1400 2.5 1200 1000 2 800 600 400 1.5 1 200 0 Jan-90 Apr-91 Jul-92 Oct-93 Jan-95 Apr-96 Jul-97 Oct-98 Jan-00 Apr-01 Jul-02 Oct-03 Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11 Jul-12 Oct-13 Jan-15 Apr-16 Jul-17 SF MF 0.5 0 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 11
Labor Markets 3500 Net Change Payroll Jobs 2.5 Y-o-Y Growth Non Farm Payrolls 3000 2.0 2500 1.5 2000 1.0 1500 0.5 1000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 0.0 2010-01-01 2010-06-01 2010-11-01 2011-04-01 2011-09-01 2012-02-01 2012-07-01 2012-12-01 2013-05-01 2013-10-01 2014-03-01 2014-08-01 2015-01-01 2015-06-01 2015-11-01 2016-04-01 2016-09-01 2017-02-01 2017-07-01 2017-12-01 2018-05-01 12
Why Slowing Job Growth? 4.5 4 3.5 3 2.5 2 1.5 1 US Job Openings Rate Dec-00 Jan-02 Feb-03 Mar-04 Apr-05 May-06 Jun-07 Jul-08 Aug-09 Sep-10 Oct-11 Nov-12 Dec-13 Jan-15 Feb-16 Mar-17 Apr-18 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Unemployment Rates Jan-94 Jul-95 Jan-97 Jul-98 Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 U6 U3 13
Workforce Growth 3.0 US Labor Force Growth (Smoothed) 68.0 US Participation Rate 2.5 67.0 2.0 66.0 1.5 65.0 1.0 64.0 0.5 63.0 0.0 62.0-0.5 61.0-1.0 Jan-80 Feb-82 Mar-84 Apr-86 May-88 Jun-90 Jul-92 Aug-94 Sep-96 Oct-98 Nov-00 Dec-02 Jan-05 Feb-07 Mar-09 Apr-11 May-13 Jun-15 Jul-17 60.0 Jan-86 Nov-87 Sep-89 Jul-91 May-93 Mar-95 Jan-97 Nov-98 Sep-00 Jul-02 May-04 Mar-06 Jan-08 Nov-09 Sep-11 Jul-13 May-15 Mar-17 14
2016 Population by Age (Millions) 25.0 3.0% 20.0 2.5% 15.0 2.0% 10.0 5.0 - Jan-75 Oct-77 Jul-80 Apr-83 Jan-86 Oct-88 Jul-91 Apr-94 Jan-97 Oct-99 Jul-02 Apr-05 Jan-08 Oct-10 Jul-13 Apr-16 Under 5 years 5 to 9 years 10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years 60 to 64 years 65 to 69 years 70 to 74 years 75 to 79 years 80 to 84 years 85 years and over The Boomer Bust US Population 25-54 Y-o-Y Gr 1.5% 1.0% 0.5% 0.0% -0.5% 15
The Cure for Secular Stagnation 16
Tax Reform vs Fiscal Stimulus 35% 30% 25% 20% 15% 10% 5% 0% US Corporate Taxes as % Profit 1980I II III IV 1989I II III IV 1998I II III IV 2007I II III IV 2016I Federal State & Local 400 200 0-200 -400-600 -800-1000 -1200-1400 -1600-1800 Net Surplus Federal Go 1995Q1 1996Q3 1998Q1 1999Q3 2001Q1 2002Q3 2004Q1 2005Q3 2007Q1 2008Q3 2010Q1 2011Q3 2013Q1 2014Q3 2016Q1 2017Q3 17
The Debt Crisis to Come 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 New Estimates: Debt and Deficit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Deficit Net Debt % GDP 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 $400 $200 $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200 -$1,400 -$1,600 CBO:Past and Projected Federal Budget Gap 2026 2024 2022 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 2017 Projection 2018 Projection 18
Trade Trends 0-10000 -20000-30000 -40000-50000 -60000-70000 Trade Deficit Jan-93 Aug-94 Mar-96 Oct-97 May-99 Dec-00 Jul-02 Feb-04 Sep-05 Apr-07 Nov-08 Jun-10 Jan-12 Aug-13 Mar-15 Oct-16 12.0 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0 Share of GDP Jan-75 Jan-78 Jan-81 Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17 Net National Savings Net Exports Linear (Net National Savings) Linear (Net Exports ) 19
The China Syndrome Value US Exports to China as % of GDP: 0.75% Value China Exports to US as % of GDP: 4.0% Demands reduce its trade surplus with the U.S. by $200 billion over two years would not challenge U.S. actions taken in intellectual property disputes stop subsidizing high-tech sectors identified in its Made in China 2025 plan cut tariffs on all products in non-critical sectors to levels at or below U.S. duties demanded that China not target U.S. farmers and agricultural products demanded that China not retaliate against U.S. restrictions on Chinese investments ease a process for approving U.S. investments 20
The Yuan response 7.20 7.00 6.80 6.60 6.40 6.20 6.00 5.80 5.60 5.40 Yuan / Dollar Exchange Rate 2013-10-28 2014-01-28 2014-04-28 2014-07-28 2014-10-28 2015-01-28 2015-04-28 2015-07-28 2015-10-28 2016-01-28 2016-04-28 2016-07-28 2016-10-28 2017-01-28 2017-04-28 2017-07-28 2017-10-28 2018-01-28 2018-04-28 2018-07-28 Country Exports Imports Total, 829.8 1233.9 China 64.0 7.7% 249.7 20.2% Canada 151.9 18.3% 160.0 13.0% Mexico 131.3 15.8% 169.3 13.7% Japan 35.7 4.3% 70.3 5.7% Germany 29.4 3.5% 62.3 5.0% United Kingdom 33.9 4.1% 29.3 2.4% Korea, South 27.1 3.3% 35.4 2.9% France 18.1 2.2% 25.7 2.1% India 15.5 1.9% 26.8 2.2% Italy 11.9 1.4% 26.8 2.2% Taiwan 13.6 1.6% 21.6 1.8% Netherlands 24.2 2.9% 10.7 0.9%
2800 2100 2750 1800 2700 2650 1500 2600 1200 2550 2500 900 20-01 11-04 20-01 12-04 20-01 13-04 20-01 14-04 20-01 15-04 20-01 16-04 20-01 17-04 20-01 18-04 -0 104 11% Annual Return 10 3000 3000 2950 2700 2900 2400 2850 20 20 201 180-0 20-011-0 2018-024 1-0 20 1-02-0 1 1 2 20 8-0 -04 1 20 2-03-0 18 1-2 20-0 04 2013 4-0 18-01 2 20-05-04 2014-0 18-0 2 1 20-06-04 201-0 158-2 -001 220 7--004 011 68-2 -001 20 8--004 2 178-0 220 19-0 42 011 88-100 1--0 024 The Markets S&P S&P500 500 Market Selloffs Current Expansion -1.00% -3.00% -5.00% -7.00% -9.00% -11.00% -13.00% -15.00%
The Bond Trigger? 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 10 Year Rates 2008-11-07 2009-11-07 2010-11-07 2011-11-07 2012-11-07 2013-11-07 2014-11-07 2015-11-07 2016-11-07 2017-11-07 Why? Surge in Federal Borrowing Surge in Economic Growth Chinese bond dumping Inflation
Inflation Risks? 3.5 Core PCE Inflation 14.0 Unemployment and Inflation 3.0 12.0 2.5 2.0 1.5 1.0 0.5 0.0 1993-01-01 1994-09-01 1996-05-01 1998-01-01 1999-09-01 2001-05-01 2003-01-01 2004-09-01 2006-05-01 2008-01-01 2009-09-01 2011-05-01 2013-01-01 2014-09-01 2016-05-01 2018-01-01 10.0 8.0 6.0 4.0 2.0 0.0 Jan-57 Oct-60 Jul-64 Apr-68 Jan-72 Oct-75 Jul-79 Apr-83 Jan-87 Oct-90 Jul-94 Apr-98 Jan-02 Oct-05 Jul-09 Apr-13 24
Inflation Drivers 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 M2 Growth (Y-o-Y) 15.0 13.0 11.0 9.0 7.0 5.0 3.0 1.0-1.0-3.0-5.0 Growth Outstanding Commercial Bank Loans 1981-11-02 1984-11-02 1987-11-02 1990-11-02 1993-11-02 1996-11-02 1999-11-02 2002-11-02 2005-11-02 2008-11-02 2011-11-02 2014-11-02 2017-11-02 1982-01-06 1985-01-06 1988-01-06 1991-01-06 1994-01-06 1997-01-06 2000-01-06 2003-01-06 2006-01-06 2009-01-06 2012-01-06 2015-01-06 2018-01-06 25
Federal Reserve Policy: Normalization? 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Interest Rates 1982-01-01 1984-03-01 1986-05-01 1988-07-01 1990-09-01 1992-11-01 1995-01-01 1997-03-01 1999-05-01 2001-07-01 2003-09-01 2005-11-01 2008-01-01 2010-03-01 2012-05-01 2014-07-01 2016-09-01 10 Year FFR 5 4 3 2 1 0-1 10 Yr 3 Mnth Spread 1986-01-01 1988-01-01 1990-01-01 1992-01-01 1994-01-01 1996-01-01 1998-01-01 2000-01-01 2002-01-01 2004-01-01 2006-01-01 2008-01-01 2010-01-01 2012-01-01 2014-01-01 2016-01-01 2018-01-01 26
Another Bubble? 50.00 Shiller P/E Ratio 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Jan-86 Oct-86 Jul-87 Apr-88 Jan-89 Oct-89 Jul-90 Apr-91 Jan-92 Oct-92 Jul-93 Apr-94 Jan-95 Oct-95 Jul-96 Apr-97 Jan-98 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16 Jul-17 27
Population Shifts 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% Net Migration (% of Pop) by region 2011 2012 2013 2014 2015 2016 Northeast Region Midwest Region South Region West Region Net Migration by State 14-16 Florida 1.51% Ohio -0.05% Nevada 1.27% Penn -0.06% Colorado 1.10% Wisconsin -0.08% Oregon 1.08% Michigan -0.08% South Carolina 1.04% New Jersey -0.14% Washington 0.99% Vermont -0.19% Arizona 0.96% W Virginia -0.26% Texas 0.90% New York -0.27% North Dakota 0.79% Mississippi -0.28% Idaho 0.77% Kansas -0.30% Delaware 0.66% Connecticut -0.32% North Carolina 0.66% Wyoming -0.35% Montana 0.60% New Mexico -0.47% Georgia 0.54% Illinois -0.58% Tennessee 0.53% Alaska -0.73% 29
Source: Business Insider/Census Bureau 30
California fact versus fiction 31
Booms and Busts 10.0% Growth in Real Output 14.0 US Unemployment 8.0% 12.0 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 United States California 10.0 8.0 6.0 4.0 2.0 0.0 1/1/88 2/1/90 3/1/92 4/1/94 5/1/96 6/1/98 7/1/00 8/1/02 9/1/04 10/1/06 11/1/08 12/1/10 1/1/13 2/1/15 3/1/17 CA US
State Economic Performance Real Output Q1 2018 1 Year 5 Year Washington 4.3% 3.7% California 3.5% 3.7% Utah 3.7% 3.4% Colorado 4.5% 3.4% Oregon 3.4% 2.9% Florida 2.3% 2.8% Texas 4.2% 2.8% Idaho 3.2% 2.8% Georgia 2.5% 2.8% Nevada 4.0% 2.7% Employment Rk State # Ann Gr Share US 1 Nevada 211.2 3.4% 1.7% 2 Utah 218.3 3.2% 1.7% 3 Florida 1238.2 3.1% 9.8% 4 Oregon 252.1 2.9% 2.0% 5 Idaho 92.1 2.8% 0.7% 6 Colorado 328.7 2.7% 2.6% 7 Washington 413.1 2.7% 3.3% 8 California 2051 2.6% 16.3% 9 Georgia 537.9 2.6% 4.3% 10 South Carolina 237.6 2.4% 1.9% Source: U.S. Bureau of Labor Statistics, U.S Bureau of Economic Analysis 33
Myth Busting California's economy recently grew to become the world's fifth-largest economy if it were its own country. Sounds like great news, but that wealth mostly benefits the very rich in the tech sector. "Almost all the income growth and highend job growth took place in Silicon Valley, Joel Kotkin, professor of Urban Studies at Chapman University May 18, 2018 Share New FT Employees 2013-2016 25-50K 50-75K 75K-100K 100K+ State 318,146 179,115 177,425 484,322 Bay 4.4% 9.1% 24.1% 39.4% So Cal 43.1% 27.7% 29.5% 39.4% S Cen Val 19.6% 19.9% 8.8% 7.1% N Cen Val 16.1% 11.8% 12.1% 10.1% Cen Cst 5.3% 6.0% 5.1% 2.2% Other 11.4% 25.5% 20.3% 1.8% 34
Top City Growth: West Household Employment by Metro Chg, 2010 to 2016 Metro 2016 % Absolute Los Angeles-Long Beach-Anaheim 6,316,214 11.0 625,998 Dallas-Fort Worth-Arlington 3,542,411 16.7 508,100 Houston-The Woodlands 3,115,118 14.3 390,199 San Francisco-Oakland 2,447,183 17.1 356,613 Phoenix-Mesa-Scottsdale 2,135,994 14.0 262,366 Riverside-San Bernardino 1,870,456 16.1 259,420 Seattle-Tacoma-Bellevue 1,935,115 13.4 229,383 Austin-Round Rock 1,074,307 24.1 208,713 Denver-Aurora-Lakewood 1,492,974 14.9 193,291 San Jose-Sunnyvale-Santa Clara 1,015,579 19.0 161,799 145 140 135 130 125 120 115 110 105 100 Real Metro Product Indexes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 So Cal US Balance 35
Employment 1700 Total Nonfarm Employment 16 Unemployment Rate Employment (Thousands) 1600 1500 1400 1300 1200 1100 1000 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Inland Empire Orange County San Diego Source: California EDD 36 Unemployment Rate (%) 14 12 10 8 6 4 2 0 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Inland Empire Orange County San Diego
Employment and Wages Industry Oct-2018 Employment Year over Year % Growth 48000 Annual Average Wages, Inland Empire Total Nonfarm 1509.3 2.7% Admin Support 107.2 7.8% Professional/Business 156.0 5.7% Hospitality 173.3 4.0% Government 262.4 3.8% Logistics 128.3 3.6% Wholesale Trade 66.3 2.8% Other Services 47.1 2.5% Manufacturing 101.0 2.5% Education/Health 232.3 1.0% Retail Trade 185.3 0.7% Construction 100.2 0.6% Information 11.3 0.2% Financial Activities 44.8 0.1% Wage ($) 46000 44000 42000 40000 38000 36000 34000 32000 30000 Q1-03 Q4-03 Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q2-11 Q1-12 Q4-12 Q3-13 Q2-14 Q1-15 Q4-15 Q3-16 Q2-17 Q1-18 Source: California EDD, QCEW 37
Nonresidential Real Estate Value of Permits (Thousands, $) 1400000 1200000 1000000 800000 600000 400000 200000 0 *Through the third quarter of 2018 Commercial Permits 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* Property Cost of Rent Q3-2018 YoY % Growth Vacancy Rate Q3-2018 YoY Change Office $22.8 2.1% 16.8% -0.5 p.p Retail $23.0 1.7% 9.4% 0.0 p.p Warehouse/ Distribution $5.5 4.5% 8.4% 1.7 p.p Source: CIRB, Reis 38
Sales Tax 210 Sales Tax, Inland Empire Category Q2-2018 Sales Tax Year Over Year % Growth Sales Tax Value ($, Millions) 190 170 150 130 110 90 Q2-09 Q4-09 Q2-10 Q4-10 Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13 Q2-14 Q4-14 Q2-15 Q4-15 Q2-16 Q4-16 Q2-17 Q4-17 Q2-18 Total 192,175,944 2.5% Fuel & Service Stations 18,588,059 10.8% Food & Drugs 9,131,522 6.8% Building & Construction 19,382,276 5.4% Restaurants & Hotels 20,367,260 0.9% Autos & Transportation 32,556,029 0.5% General Consumer Goods 38,497,107 0.4% Business & Industry 31,340,752-3.3% Source: HDL 39
Inland Empire Revenues and Expenditures County Revenues County Expenditures 4.5 5 4 4.5 3.5 4 Billions of $ 3 2.5 Billions of $ 3.5 3 2.5 2 1.5 2003 2004 2005 2006 San Bernardino 2007 2008 2009 2010 2011 2012 Riverside 2013 2014 2015 2016 2017 2 1.5 2003 2004 2005 2006 San Bernardino 2007 2008 2009 2010 2011 2012 Riverside 2013 2014 2015 2016 2017 Source: CA State Controller s Office 40
The Big Slowdown Year over Year Growth (%) 4 3.5 3 2.5 2 1.5 1 0.5 0 YOY Growth Payrolls Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 CA Growth US Growth Location Emp Sep-18 Growth (Sep 17-18) Growth (Sep 16-17) Growth (Sep 15-16) Stockton 243.8 3.0% 3.7% 3.3% Inland Empire 1,510.5 3.5% 3.6% 3.3% Fresno 356.5 3.6% 1.9% 3.2% San Jose 1,141.9 2.8% 2.3% 3.7% San Diego 1,483.6 2.6% 1.6% 2.0% San Francisco 2,329.9 3.5% 1.8% 1.9% Oakland (MD) 1,188.9 3.4% 1.8% 1.9% Bakersfield 263-1.2% 1.8% 1.7% Sacramento 985.1 3.3% 2.2% 1.0% Ventura 309 1.2% 1.7% 0.9% Source: EDD 41
California Net Migration % of Population 1.5 1.3 1.1 0.9 0.7 0.5 0.3 0.1-0.1-0.3 Net Migration as a % of Pop Region Q2-2018 Price Growth San Francisco MD $1,460,017 15.3% Alameda $872,573 13.5% Sacramento MSA $389,543 9.0% Los Angeles $623,836 8.6% San Bernardino $309,653 7.2% Monterey $581,612 6.7% Riverside $374,570 5.9% San Diego $607,074 5.8% -0.5 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Orange $774,706 5.3% Source: DOF, EDD 42
New Housing Supply 45000 40000 35000 30000 25000 20000 15000 New Home Permits How Much Housing Needed? Housing Needed to maintain 2% State Job Growth Method 1 Total 722,022 Per Year 206,674 Current 111,185 Shortfall 100,489 10000 5000 0 Q1-95 Q1-96 Q1-97 Q1-98 Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 Method 2 Total 911,001 Per Year 263,667 Current 111,185 Shortfall 157,482 Single-family Multi-family Source: CIRB 43
The Commute Impact Res Emp Ch 12-17 Gr Out Cnty Sh Alameda 770234 76444 9.9% 36005 47.1% San Bernardino 890998 101571 11.4% 32113 31.6% Contra Costa 543260 60182 11.1% 29556 49.1% Riverside 1014984 150692 14.8% 28079 18.6% Santa Clara 971960 109719 11.3% 25227 23.0% Sacramento 689495 91152 13.2% 22646 24.8% San Mateo 409921 39283 9.6% 21653 55.1% San Joaquin 303851 45701 15.0% 19831 43.4% Solano 204776 24954 12.2% 14919 59.8% Stanislaus 230328 33644 14.6% 12592 37.4% Madera 57028 15310 26.8% 9532 62.3% Ventura 409760 23567 5.8% 7912 33.6% Placer 177146 21908 12.4% 7596 34.7%
Residential Real Estate Home Prices and Sales Apartment Rent and Vacancy 450 25 1400 9 Median Home Price ($, Thousands) 400 350 300 250 200 150 100 50 20 15 10 5 Home Sales (Thousands) Cost of Rent ($) 1300 1200 1100 1000 900 800 700 8 7 6 5 4 3 0 0 Q3-03 Q3-04 Q3-05 Q3-06 Q3-07 Q3-08 Q3-09 Q3-10 Q3-11 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Q3-17 Q3-18 2 1 Vacancy Rate (%) 600 0 Q3-03 Q3-04 Q3-05 Q3-06 Q3-07 Q3-08 Q3-09 Q3-10 Q3-11 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Q3-17 Q3-18 Prices Sales Cost of Rent Vacancy Rate Source: DataQuick, Reis 45
Residential Real Estate - Permits Number of Permits 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Single-family Permits Multi-family Permits 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Number of Permits 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2018* 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* *Through the third quarter of 2018 *Through the third quarter of 2018 Source: CIRB 46
The Upside of Labor Shortages Numbe r (Mil) Median Income Change 2016 13-16 Unemp Change 2016 13-16 Total 20.96 40,005 10.2% 5.5% -3.0% No High School 3.52 21,558 13.1% 8.2% -3.7% High School 4.26 30,231 10.9% 7.0% -4.0% 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Median Wage Growth West VS US Some College 6.14 36,985 3.1% 5.5% -3.4% Bachelor plus 7.03 60,121 9.4% 3.6% -1.6% -0.5-1.0 6/1/04 3/1/05 12/1/05 9/1/06 6/1/07 3/1/08 12/1/08 9/1/09 6/1/10 3/1/11 12/1/11 9/1/12 6/1/13 3/1/14 12/1/14 9/1/15 6/1/16 3/1/17 12/1/17 47
Don t Just Focus on Affordable Rentals 60 58 56 54 52 50 48 46 44 42 40 % Renters Spending >30% of Income on Housing 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Share Households > 30% Income Renter 2013 2016 Ch Fresno 54.8% 57.5% 2.7% Los Angeles 57.0% 55.4% -1.6% San Bernardino 54.7% 55.4% 0.7% Riverside 58.8% 54.8% -4.0% San Diego 53.7% 54.7% 1.0% Orange 55.5% 54.1% -1.4% Sacramento 52.9% 52.1% -0.9% Alameda 50.8% 47.2% -3.6% Santa Clara 47.2% 46.2% -1.1% San Francisco 42.8% 36.8% -6.0% 48
Population Estimates Population, Inland Empire Top 10 Most Populated Cities in the Inland Empire 5 4.5 City 2018 Pop 1-Year % Growth 5-Year % Growth Population (Millions) 4 3.5 3 2.5 2 1.5 1 0.5 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Riverside 325,860 0.8% 4.1% San Bernardino 221,130 0.5% 2.4% Fontana 212,000 0.9% 5.5% Moreno Valley 207,629 1.6% 4.6% Ontario 177,589 1.4% 6.0% Rancho Cucamonga 176,671 0.8% 3.7% Corona 168,574 1.1% 6.4% Victorville 123,701-0.2% 2.5% Murrieta 113,541 1.6% 6.8% Temecula 113,181 1.0% 7.4% 49
The Big Picture Positives: It will be a good year GDP Growth Outlook for 2018: 3% State revenues will look positive Labor markets to remain tight Rising wages to put pressure on profits Exports, business investment continue to pick up Inflation to remain constrained Interest Rates Still Low Debt Levels still safe California: Still a top performer Negatives: Problems Growing Labor shortages will be an issue Local housing supply tightening Fed will continue to tighten, yield curve flattening Markets behaving oddly Federal deficit widening sharply Political uncertainty to dominate headlines Critical Policy Issues Remain Undiscussed Miserabilism warping our sense or reality 50
The Great Disconnect What we are worried about The Number of Jobs Who pays for Healthcare Tax Levels Income Inequality Funded Govt. Liabilities Business Investment Inflation The Cost of CA Housing What we should be worried about The Number of Workers What are we paying for? Tax Structure Wealth Inequality Unfunded Govt. Liabilities A Lack of Public Investment Slowing Lending The Supply of CA Housing What we are worried about 51
What can the UCR Center do for you? Connect with us. To view again or download this presentation and for further information, go to: www.ucreconomicforecast.org Continue the conversation. Contact Dr. Chris Thornberg directly at chris.thornberg@ucr.edu or 951.827.2792 Let s discuss your goals and needs. Beacon has 6 Practice Areas covering a range of services and products. Our 6 Practice Areas Housing, Land Use, & Real Estate Advisory Sustainable Growth and Development Economic & Revenue Forecasting Economic, Fiscal and Social Impact Analysis Regional and Sub- Regional Analysis Litigation and Testimony 52
Portfolio Spotlight Regional and Sub- Regional Analysis The Center for Economic Forecasting & Development conducts analysis at an international, national, state, county, and city level -- and even down to the zip code, pending data availability. The UCR Cednter analyze data on Employment, Industry, Real Estate, and Consumption. Impact (Economic, Fiscal, Social) & EB5 Analysis The Center for Economic Forecasting & Development has evaluated the impact of entities like universities, music festivals, infrastructure projects, and real estate development projects. Sustainable Growth & Development The Center for Economic Forecasting & Development conducts industry and policy analysis on topics like green innovation, tech and workforce development, and industry sector strategies. The UCR Center has strong in-house expertise around housing policy and economic development support. Housing, Land Use, & Real Estate Advisory Economic & revenue forecasting Litigation and testimony 53
Chris@BeaconEcon.com www.beaconecon.com