Sonoma County State of The County Conference The U.S. and California A Bifurcated Recovery Jerry Nickelsburg Senior Economist and Lecturer UCLA Anderson Forecast January 13, 2012 1
The U.S. Economy Main Themes Why Such Slow Growth? What Can Government Do? The Big Forecast Risk: Europe 2
The Deleveraging Consumer Total Consumer Revolving Credit Outstanding Source: Federal Reserve Bank of St. Louis 3
Exports Are Helping Real Exports, 2000 2013F (Percent Change, Annual Data) 15% 10% 5% 0% -5% -10% -15% 2001 2003 2005 2007 2009 2011 2013 Sources: U.S. Department of Commerce and UCLA Anderson Forecast 4
Autos Are Wearing Out Automobile Sales, 2005Q1 2013Q4 (Millions, SAAR) 18 16 14 12 10 8 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bureau of Economic Analysis and UCLA Anderson Forecast 5
Housing: The Recovery That Never Was Housing Starts, 2005Q1-2013Q4F (Thousands, SAAR) 2500 2000 1500 1000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: U.S. Department of Commerce and UCLA Anderson Forecast 6
State & Local Government Retrenching Real State & Local Government Expenditures, 2005-2013F (Percent Change, Annual Data) 2% 1% 0% -1% -2% -3% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: U.S. Department of Commerce and UCLA Anderson Forecast 7
No Double-Dip, but Slow Growth Real GDP Growth, 2005Q1-2013Q4 (Percent Change, SAAR) 6% 4% 2% 0% -2% -4% -6% -8% -10% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: U.S. Department of Commerce and UCLA Anderson Forecast 8
Fiscal Consolidation in an Era of Unsustainable Deficits Federal Surplus/Deficit, FY 2000 FY2021F (Annual Data, Billions $) $500 $0 $-500 $-1000 $-1500 $-2000 2001 2005 2009 2013 2017 2021 Sources: Office of Management and Budget and UCLA Anderson Forecast 9
Zero Rates Through 2012 Federal Funds vs. 10-Year Treasury Yields, 2005Q1 FY2013Q4F (Rates) 6% 5% 4% 3% 2% 1% 0% -1% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fed Funds 10-Yr. T-bonds Sources: Federal Reserve Board and UCLA Anderson Forecast 10
The Policy Problem Permanent Displacements 2 million construction jobs 2.5 million manufacturing jobs 800 thousand retail jobs = 5.3 Million Jobs 11
Employment Fails to Recover by 2013 Payroll Employment, 2005Q1-2013Q4F (Millions, SAAR) 138 136 134 132 130 128 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Bureau of Labor Statistics and UCLA Anderson Forecast 12
Unemployment Hangs High (Rate) 10% 9% 8% 7% 6% 5% 4% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Bureau of Labor Statistics and UCLA Anderson Forecast 13
Stall Speed? Seven Stalls Without a Recession a unique approach. critical answers. Accurate. 16 Stall Speed: Really? 4-Quarter Average GDP Growth Recessions Shaded: Peak+1 to Trough 12 8 4 S S S S S S S 0-4 -8 1950 1960 1970 1980 1990 2000 2010 S = Episodes of Weak Growth In the Middle of Expansions 14
What about the recession precursors? Housing Starts Weekly Hours in Manufacturing The Yield Curve 15
The Housing Market Does July 2011 Look Like a Peak? Housing Starts Around Cycle Peak High and Falling Signals a Recession, Not Low and Flat 3000 2500 Thousands of Units 2000 1500 1000 Apr-60 Dec-69 Nov-73 Jan-80 Jul-81 Jul-90 Mar-01 Dec-07 Jul-11 500 0-24 -22-20 -18-16 -14-12 -10-8 -6-4 -2 Peak 2 4 6 8 10 12 14 16 18 20 22 24 Months Before and After Peak 16
Manufacturing Does August 2011 Look Like a Peak? Weekly Hours in Manufacturing - 3 Month Moving Average High and Falling Signals a Recession, Not High and Rising 42 Weekly Hours 41.5 41 40.5 40 39.5 39 38.5 40 Nov-48 Jul-53 Aug-57 Apr-60 Dec-69 Nov-73 Jan-80 Jul-81 Jul-90 Mar-01 Dec-07 Aug-11 AVG 38-24 -21-18 -15-12 -9-6 -3 Peak 3 6 9 12 15 18 21 24 Months Before and After Cycle Peak 27 30 33 36 39 42 45 17
U.S. Forecast Slow/No Growth But, we will likely avoid a contraction. Gradual growth to return in mid- 12 Downside risk: Europe Collapse in Consumer Demand 18
The Two Californias 19
Main Themes Employment a restart of the recovery? Trade Data & The Two Californias Housing The Big Shift Forecast 20
Job Formation a unique approach. critical answers. Accurate. Thousands 100 50 Change in Private Non-Farm Payroll Employment (000 jobs, SA) -1,247K 0-50 -100 236K 80K -150 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 21
CA Geography of Growth The Recovery Year 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% Real GDP (Metro Area) Growth 2010 22
CA Geography of Employment The Pause 3.0% Employment Gain March to August 2011 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Bay Area Inland Empire Sac. Delta OC, SD, VC U.S. Los Angeles SJ Valley Mid Coast Santa Rosa 23
CA Geography of Employment A Restart 7.0% Employment Gain August to November 2011 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% SJ Valley Inland Empire Mid Coast Sac. Delta OC, SD, VC U.S. Los Angeles Bay Area Santa Rosa 24
20000 California Net Job Gain/Loss June to October 2011 15000 10000 5000 0-5000 -10000-15000 -20000 25
Export growth shows a hint of life Thousands 900 800 700 600 500 400 300 200 100 California Seaport Traffic (000 TEU's, SA) 0 2006 2007 2008 2009 2010 2011 Import By Sea Exports By Sea 26
International High Value & Time Sensitive Goods 80000 70000 60000 50000 40000 30000 20000 10000 California International Air Cargo (Tons Loaded) 0 2006 2007 2008 2009 2010 2011 Outbound Inbound 27
International Arrivals Continue to Grow Thousands 800 700 600 International Passenger Arrivals (S.A. Monthly) 500 400 LAX SFO 300 200 100-2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 28
Housing Stress Everywhere But More in Inland California Foreclosures per 1,000 homes, Nov. 2011 9 8 7 6 5 4 3 2 1 0 San Francisco San Mateo Santa Clara Alameda Orange County Yolo San Diego Los Angeles Sonoma Ventura El Dorado Tulare Merced Contra Costa Fresno Placer Sacramento Kern Stanislaus Solano Riverside San Joaquin San Bernardino 29
Construction Has Shifted To Multi-Family 9000 New Building Permits California (SA, 3 Mo. Average) 8000 7000 6000 5000 4000 3000 2000 1000 0 2007 2008 2009 2010 2011 Single Family Permits Multi-Family Permits 30
Recovery Inland Remains Distant 100% Percent of Pre-Recession Peak Non-Farm Employment 98% 96% 94% 92% 90% 88% Inland Empire Stanislaus Fresno San Joaquin Solano Sacramento East Bay Sonoma 86% 2008 2009 2010 2011 31
Coastal Recovery Slow But Steady 100% 98% Percent of Pre-Recession Peak Non-Farm Employment 96% 94% 92% 90% SF SV Orange County San Diego Los Angeles 88% 86% 2008 2009 2010 2011 Source: California Employment Development Department 32
Income & Unemployment Forecast P. INC. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 UNEMP. 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Real Personal Income % Change Unemployment Rate 2011 2012 2013 Payroll Employment 1.4% 1.2% 2.0% Unemployment 11.9% 11.6% 10.5% Personal Income 3.9% 2.6% 2.1% 33