LAEDC ECONOMIC FORECAST: CALIFORNIA AND LOS ANGELES 2019-2020 SOMJITA MITRA, PH.D. DIRECTOR, INSTITUTE FOR APPLIED ECONOMICS LOS ANGELES COUNTY ECONOMIC DEVELOPMENT CORPORATION
I NEVER THINK OF THE FUTURE IT COMES SOON ENOUGH --Albert Einstein
How Important is California? Contribution to US GDP California 14.4% All Other States 48.8% Texas 8.6% New York 8.2% Bureau of Economic Analysis, 2018 New Jersey 3.1% Ohio 3.3% Illinois 4.2% Pennsylvania 3.9%
California Indicators GDP Growth Unemployment 3.4% 4.2% 2.9% 3.9%
Looking Ahead To 2020 GSP Growth Unemployment Personal Income Growth 3.0% 3.4% 2.8% GDP: 2.4% 3.1% 2.5%
New Governor Priorities Housing Natural Disasters
So Things Look Good?
Unemployment Rates by County Los Angeles Labor Force: 5.2M Los Angeles Employment: 4.9M Unemployment Rate: 4.6%
Let s Talk About Wages
Wages by County
Wage Growth Lagging Behind -Declining Unions -Competition Restraints -Lagging Minimum Wage -Globalization -Automation -Anemic Productivity -Outsourcing -Contract Work -Gig Work Source: New York Times
Wages Don t Go Far Per Capita Income Nominal and $2017 30,000 $30,453 $30,890 $29,176 $32,413 $32,413 $25,724 20,000 $20,683 $16,149 Nominal Real 10,000 Source: ACS 2017 1-year estimates; BLS 1990 2000 2010 2017
Wage Growth Not Equal Source: Pew Research Center
Consumer Price Index
Los Angeles
Looking Ahead To 2020 GCP Growth Unemployment Personal Income Growth 2.7% 4.3% 2.1%
Jobs Forecast By Industry Mfg -6,600 Govt -1,400 Other Svcs Trans,Trade,Util 400 400 2019f 2020f Fin Svcs 2,100 Info 5,700 Const, Natural Res, and Min 9,600 Prof and Bus Svcs Leisure & Hospitality Education & Health 24,800 47,000 39,600
What Are The Jobs?
Top 10 Occupations Total Jobs 2019-2020 Annual Wage Combined Food Preparation and Serving Workers, Including Fast Food 8,360 Cashiers 7,840 Personal Care Aides 18,040 LIVING WAGE Stock Clerks and Order Fillers 4,000 Waiters and Waitresses 7,640 Retail Salespersons 8,160 Laborers and Freight, Stock, and Material Movers, Hand 5,240 Office Clerks, General 4,240 Registered Nurses 4,560 General and Operations Managers 4,120 $24,934 $26,425 $28,585 $29,869 $29,950 $30,406 $30,950 $31,278 $35,447 $97,130 $141,661
Educational and Experience Requirements Doctoral or Professional, 2.4% Master s, 1.7% None, 38.8% Bachelor's, 20.5% Associates, 1.9% High School, 28.1% Some College, 1.4% Post Secondary Non Degree 5.2% Source: Estimates by LAEDC
So What Does This Mean?
We re Working But -A Record 7 Million Americans Are 90 Days Behind on Their Auto Loan Payments -A Growing Number of Americans Have More Credit- Card Debt than Savings -The Government Shutdown Spotlights a Bigger Issue: 78% of US Workers Live Paycheck to Paycheck
So What Does This Mean?
Home Affordability Median Home Price Minimum Qualifying Income Housing Affordability Index California Single-Family Home $564,270 $122,340 28 Bay Area $910,000 $197,290 22 Los Angeles Metro Area $510,000 $110,570 30 Inland Empire $360,000 $78,050 40 U.S. $257,600 $55,850 54 Source: California Association of Realtors
Households by Income Households by Income Los Angeles County 2017 Less than $10,000 $10,000-$14,999 $15,000-$24,999 $25,000-$34,999 $35,000-$49,999 $50,000-$75,000 $75,000-$99,999 $100,000-$149,999 $150,000-$199,999 $200,000 or more 5.0% 5.9% 7.4% 8.1% 8.9% 9.1% Total Households: 3.3 million HHI < $40,000: 31.8% HHI > $40,000: 68.2% 11.6% 12.1% 15.3% 16.7% Source: 2017 ACS 1-yr estimates
Homeownership Rates California vs. U.S. 9.5% gap in 2017 75% CA US 70% Peak: 69.0% 65% 64.5% 63.9% 60% 55% 50% 53.7% Peak: 60.2% 54.4% 45% Source: California Association of Realtors
Housing Permits Annual Housing Permits (2000 Baseline) 180 160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 California Southern California Los Angeles County
We re Not Building Enough Housing Permits in Los Angeles County, Thousands Multi-Family Units Single-Family Units 15.2 13.7 16.3 12.9 14.3 18.2 15.3 16.5 12.6 11.8 11.9 10.1 7.5 10.2 3.5 8.0 8.0 3.5 5.0 2 2 2 3.6 4 4.4 4.5 4.7 5.6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Existing Sellers Not Moving 14 12 10 8 6 4 2 0 Years Owned Home Before Selling 11.5 Source: California Association of Realtors
FRM Hit 5 Percent Oct 18: 5.00% SERIES: Average 30 Yr. Fixed Mortgage Rates SOURCE: Mortgage News Daily Source: California Association of Realtors
Fed Raised Rates 8 Times Since 2015 5 5 January 2012 October 2018 4.63 4.71 4 3.94 4.01 4 3 3 2 2 1 FRM ARM Fed Raise Rate the 1 st time 2.00 2.25 1 0 SERIES: Average 30 Yr. Fixed Mortgage Rates SOURCE: Mortgage News Daily Source: California Association of Realtors
Higher Rates Hurt Q2-2018 Median Price $596,730 20% Down-payment $3,200 $2,800 $2,400 $2,000 MONTHLY MORTGAGE $2,862 $3,017 $2,711 $2,563 $2,419 $2,013 $2,144$2,279 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $141,936 $148,145 $124,203 $129,958$135,871 $107,956 $113,196$118,614 $1,600 $80,000 $1,200 $60,000 $800 $400 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE $40,000 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS Source: California Association of Realtors
Can You Ever Afford To Buy? Source: Zillow
If People Can t Buy-- They Rent Median income earners in LA need to spend 47 percent of income on rental housing Average rent is $33,400/year Source: Zillow
Lower Income Earners Suffer Even More Source: Zillow
Majority Renter State by 2025 70% California Homeownership Rate 60% 57.1% 59.7% 56.1% 50% 40% 30% 47.3% 44.2% 41.0% 2000 2005 2010 2015 2020 2025 2030 2035 2040 Fast Slow Avearge SERIES: Homeownership Rate SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection Source: California Realtor Association
Majority Renter Cities 80% 76.0% 2017 California Renter Rate by City 70% 60% 50% 50.7% 40% 30% 20% 10% 0% Source: California Realtor Association
Housing Issues Homeownership Largest Source of Wealth for Middle- Class Business Location Decisions Affected Quality of Life Issues People Moving Out of Los Angeles and even out of California Constraint on Economic Growth
THE only function of economic forecasting is to make astrology look respectable, --John Kenneth Galbraith
What Can Affect Our Forecast?
The 2018 to 2019 Partial Shutdown Lasted from December 22 nd, 2018 to January 25, 2019 (35 days) 800,000 government employees (including our fellow Californians) went without pay The Congressional Budget Office estimates 0.1 loss to real GDP in Q4 2018 and 0.2 loss to real GDP in Q1 2019; though much of the loss will be recovered in following quarters, $3 billion will be permanently lost Departments affected: Agriculture, Commerce, Interior, Transportation, State, Justice, Homeland Security, Treasury, Housing and Urban Development (HUD) Over $65 billion in federal spending in LA County last year, providing for 48,000 direct jobs REMI impact resiliency study takes into account forgone output in 2018 and 2019
Estimated Impacts of the 2018-19 Shutdown Impacts, millions ($ 2009) 100 50 0-50 -100-150 -200-250 -300-350 -400-450 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Year Estimated Losses: GDP: $333 million Output: $529 million Income: $252 million Gross Domestic Product Output Personal Income
The 2019 LAUSD/United Teachers Strike Lasted from January 14 th to January 22 nd, 2019 (8 days) United Teachers LA estimated 30,000 of their members went on strike, though LAPD estimated an average of 21,000 strikers per day At its lowest point, recorded attendance was at only 15 percent of recorded total enrollment for K through 12 grades LAUSD estimates over $125 million in costs to the district; costs likely higher due to costs to families requiring childcare and making other arrangements for children not attending schools during the strike The LAEDC estimated impacts based on estimated forgone output from the public local education sector
Estimated Impacts of LAUSD/UTLA Teachers Strike Impacts, millions ($ 2009) 20 10 0-10 -20-30 -40-50 -60-70 -80-90 Estimated Losses: GDP: $48.6 million Output: $75.9 million Income: $38.0 million 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Year Gross Domestic Product Output Personal Income
The Woolsey Fire in Los Angeles County Burned almost 97,000 acres from November 8 th to 21st, 2018 An estimated 1,643 structures destroyed with another 364 structures damaged across both Los Angeles and Ventura counties Estimated between $4 and $6 billion in total losses, accounting for fire and smoke damage, demand surge for certain goods and services, and debris removal 1 of 7 fires greater than 50,000 acres in 2018 The LAEDC s estimates are based upon residential structure losses as a proportion of total capital stock and estimated foregone county output.
Economic Impacts of the Woolsey Fire 5.0 Impacts, millions ($ 2009) 0.0-5.0-10.0-15.0-20.0 Estimated Losses: GDP: $12.0 billion Output: $19.8 billion Income: $6.0 billion -25.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Year Gross Domestic Product Output Personal Income
Conclusion Economic growth will continue Jobs being added Unemployment will continue to fall Personal income will rise Caution! Critical housing shortage Economic prosperity not benefitting all Extreme weather/climate issues Political gridlock
FULL REPORT AVAILABLE ONLINE TODAY! LAEDC.org LOS ANGELES COUNTY ECONOMIC DEVELOPMENT CORPORATION
Thank You! SOMJITA.MITRA@LAEDC.ORG (213) 236-4881