The U.S. and California Is The Recovery Here at Last? Jerry Nickelsburg Senior Economist UCLA Anderson Forecast State of the County January 20, 2010
SEPTEMBER 2008
In September 2008 Financial Markets Stopped Functioning 700 600 Baa Spread Over 10 Year Treasuries (daily, basis points) Billions of Dollars 1400 1200 1000 Commercial Paper Outstanding 500 800 400 600 300 400 200 200 100 2005 2006 2007 2008 2009 0 2005 2006 2007 2008 2009 Non-Financial Financial ABS
And Consumers Stopped Spending 2.0% Real Retail Sales and Food Service Less Autos YoY % Change 2008, 2009 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% Jan. Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Leading to a collapse of consumption and investment Unemployment Rises Sharply 6.1% in September 08 to 10.2% in October 09 1200 1000 800 600 400 200 0-200 -400-600 -800 U.S. Payroll Employment Monthly Changes, S.A., 000 Jobs Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 19681971197419771980198319861989199219951998200120042007
WHAT DOES THE END OF A RECESSION LOOK LIKE?
Payroll Job Losses Do Not End Before The Recession 1% Cumulative Recession Payroll Job Loss six months surrounding troughs (%) % change from peak employment 0% -1% -2% -3% -4% -5% -6% -6-5 -4-3 -2-1 0 1 2 3 4 5 6 Nov. 1970 March 1975 July 1980 Nov. 1982 March 1991 Nov. 2001 Nov. 2009
The Stock Market Bottoms Out 5-6 Months Before the End S&P 500 % of Pre-Recession Peak six months surrounding troughs 140% % of peak 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% -6-5 -4-3 -2-1 0 1 2 3 4 5 6 Nov. 1970 March 1975 July 1980 Nov. 1982 March 1991 Nov. 2001 Dec. 2009
The Recession Ends 2-3 Months After Peak Initial Claims for Unemployment Claims Peaked in March Monthly Average Initial Claims S.A. / Monthly S.A. Labor Force 0.007 0.006 0.005 0.004 0.003 0.002 0.001 0 1967 1968 1970 1972 1974 1975 1977 1979 1981 1982 1984 1986 1988 1989 1991 1993 1995 1996 1998 2000 2002 2003 2005 2007 2009
The Recession Ends Soon After the Trough in Manufacturing Activity ISM Manufacturing Index Hit 50 in August
The Recession Ends Several Months After the Trough of Building Permits Building Permits Established a New Low in April
THE FORECAST
Savings Rate Gradually Rises Saving Rate, 2000 2011F, Quarterly Data (Rate) 5.0% 4.0% 3.0% 2.0% 1.0% 00 01 02 03 04 05 06 07 08 09 10 11 Sources: Dept. of Commerce and UCLA Anderson Forecast
Consumption Growth Modest Real Consumption Growth, 2000-2011F (Annual Data, Percent Change) 6% 5% 4% 3% 2% 1% 0% -1% 00 01 02 03 04 05 06 07 08 09 10 11 Sources: Dept. of Commerce and UCLA Anderson Forecast
Housing Starts Rebound off Lows Housing Starts, 2000-2011F (Annual Data, Millions of Units) 2.5 2.0 1.5 1.0 0.5 0.0 00 01 02 03 04 05 06 07 08 09 10 11 Sources: Dept. of the Census, UCLA Anderson Forecast
Exports to Outpace Imports Growth in Real Imports and Exports, 2000:Q1 2011:Q4F (SAAR, Percent) 20% 10% 0% -10% -20% -30% -40% 00 01 02 03 04 05 Imports 06 07 08 Exports 09 10 11 Sources: Dept. of Commerce, UCLA Anderson Forecast
Closer Look at the Forecast Growth in Real Imports and Exports, 2010:Q1 2011:Q4 (SAAR, Percent) 10% 9% 8% 7% 6% 5% 4% I 2010 II III IV I 2011 Imports II Exports III IV Sources: Department of Commerce, UCLA Anderson Forecast
Sluggish GDP Growth Real GDP Growth, 2000Q:1 2011:Q4F (SAAR, Percent) 10% 5% 0% -5% -10% 00 01 02 03 04 05 06 07 08 09 10 11 Sources: U.S. Dept. of Commerce, UCLA Anderson Forecast
Unemployment Hangs Way too High Unemployment Rate, 2000:Q1 2011Q4F (Percent) 11% 10% 9% 8% 7% 6% 5% 4% 3% 00 01 02 03 04 05 06 07 08 09 10 11 Sources: Bureau of Labor Statistics, UCLA Anderson Forecast
Zero Interest Rate Policy to End in Late 2010 Fed Funds Vs. 10-Year U.S. Treasury Bonds, 2000:Q1 2011:Q4F (Rates) 7% 6% 5% 4% 3% 2% 1% 0% -1% 00 01 02 03 04 05 06 07 08 09 10 11 Fed. Funds 10-Yr T-Bond Sources: Federal Reserve Board, UCLA Anderson Forecast
What We Worry About Protectionism and Trade Wars Deficits, Inflation, and Fed Policy Government Intervention Geopolitical Risk
CALIFORNIA: EMPLOYMENT, TRADE, HOUSING, AND GOVERNMENT
But, Payroll Job Loss is Declining Thousands 40 20 0-20 -40-60 -80-100 -120-140 Monthly Change In Payroll Jobs (SA, 000)
Many sectors now adding jobs Change In Payroll Jobs (SA, 000) 20 Thousands 10 0-10 -20-30 -40-50 -60 QI QII QIII QIV Transp. Whse. & Util. Finance Information Wholesale Health Care & Soc. Svc Education Adm. & Sup. Svc Prof. & Tech. Svc
Many sectors now adding jobs Change In Payroll Jobs (SA, 000) 20 Thousands 10 0-10 -20-30 -40-50 -60 QI QII QIII QIV Retail Construction Durable Goods Hospitality Nondurable Goods
Public Sector cuts not yet sufficient Cumulative Employment Change State and Local Government Thousands 5 0-5 -10-15 -20-25 -30-35 FY '08 FY '09 State Government Local Government
Housing Markets: Home Prices 180 California FHFA Home Price Index (Adjusted For Inflation, 1976-2009) 160 140 120 100 80 60 40 20 0 AVERAGE REAL APPRECIATION 1976-2002 1976 1977 1979 1980 1982 1983 1985 1986 1988 1989 1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 Case Shiller and FHFA Purchase Only Confirm a Bottoming of Prices
Housing Markets: Inventories are low Inventory of Homes For Sale / Household (January 4, 2010) 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 San Jose Philadelphia San Francisco Los Angeles Orange County New York San Diego Boston Washington, DC Dallas Honolulu St. Louis Chicago Seattle Minneapolis Houston Kansas City Sacramento Baltimore San Antonio Denver Riverside Indianapolis Tucson Memphis Phoenix Austin Detroit Miami Cleveland Milwaukee Cincinnati Orlando Tampa Jacksonville Las Vegas Atlanta Portland
Housing Markets: Inventories are falling 0.025 Inventory of Homes For Sale Per Household 0.02 0.015 0.01 0.005 June August November January Los Angeles San Diego Orange County Inland Empire San Francisco San Jose Sacramento
Exports are showing a pulse Thousands 200 180 160 140 120 100 80 60 40 20 0 California Outbound Seaport Traffic (000 TEU's, Sept. '08 to Oct. '09 shaded, SA) Los Angeles Long Beach Oakland 2006 2007 2008 2009 40000 35000 30000 25000 20000 15000 10000 5000 0 California Outbound International Air Cargo (Tons Loaded, SA, Sept. '08 to Sept. '09 Shaded) SFO LAX 2006 2007 2008 2009 California Inbound Seaport Traffic (000 TEU's, Sept. '08 to Oct.'09 shaded, SA) imports remain flatlined Thousands 450 400 350 300 250 200 150 Los Angeles 100 Long Beach 50 Oakland 0 2006 2007 2008 2009
Recap of Employment Trends Private Sector: Most private sectors are no longer losing jobs Construction permits stabilized & poised for growth Manufacturing evidence of increased export demand & declining job loss Trade & Retail await recovery of consumer demand Public Sector More contraction still to come
Recession and Recovery Growth Rates CA vs. U.S. A Hybrid Recovery Real Personal Income Difference Between CA and U.S. % Change From Date of U.S. Peak 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -4-3 -2-1 0 1 2 3 4 5 6 7 8 months before and after U.S. peak 1949:Q4 1954:Q2 1958:Q2 1961:Q1 1970:Q4 1975:Q1 1980:Q3 1982:Q4 1991:Q1 2001:Q4 2009:Q1
2009-11: California Forecast 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Income & Unemployment Forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 Real Personal Income % Change Unemployment Rate 14.5% 12.5% 10.5% 8.5% 6.5% 4.5% 2.5% 0.5% -1.5% 2009 2010 2011 Real Personal Income: -2.7% 0.4% 2.8% Payroll Employment: -4.3% - 0.3% 1.5% Unemployment 11.7% 12.0% 10.8%
Sonoma County & The Recovery 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Distribution of Payroll Jobs in Sonoma County, 2010 Government, & Retail likely to contract in 10 Construction, Hospitality & Mfg. flat in 10 Health Care & Prof. & Bus Svc. Only source of near term growth
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