Outlook 2018 Southwest Regional Economic Forecast Conference June - - PowerPoint PPT Presentation

Outlook 2018

Robert A. Kleinhenz, Ph.D. Economist/Exec Director of Research UCR Business Forecast

Southwest Regional Economic Forecast Conference

June 14, 2018

Outline

• U.S. Economy
• California
• So Cal/Local Outlook
• Local Real Estate
• Conclusion/Looking Ahead

U.S. Economy

Beacon Economics

GDP~ 2017: 2.3% --- 2018: 2.5 to 2.8%

2.8

• 3
• 2
• 1

1 2 3 4

Gross Domestic Product YTY % Change Contributions to Change in GDP

Sector 2015 2016 2017 Consumer 2.5 1.9 1.9 Investment 0.9

• 0.3

0.5 Net exports

• 0.7
• 0.2
• 0.2

Government 0.2 0.1 0.0 Total GDP % Chg. 2.9 1.5 2.3*

* Does not add up due to rounding 4

Consumer Spending: Flywheel of Economy

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8%

Real Consumer Spending by Type (Y-o-Y Growth to January 2018)

Services Goods

Real Disposable Personal Income Growth

• 4%
• 2%

0% 2% 4% 6% 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 YTY % Change

…Lower Saving Rate, Growing Wealth…

100 200 300 400 500 600 700 1990Q1 1993Q1 1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1 2014Q1 2017Q1

Real Average Wealth per Household (FOF, Thous.)

Home Equity Other Net Wealth 2% 3% 4% 5% 6% 7%

Consumer Savings Rate

Credit Card Use Accelerating, but…

• 20%
• 15%
• 10%
• 5%

0% 5% 10% 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 YTY % Change Outstanding Credit Card Balances

No Debt Overhang

0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4

Household Debt to Income Ratio

10.000000 11.000000 12.000000 13.000000 14.000000 15.000000 16.000000 17.000000 18.000000 19.000000 2000.1 2001.1 2002.1 2003.1 2004.1 2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1

Fin Obligations as % of Disposable Personal Income

Fin Obligations as % of Disposable Personal Income

Business Spending Up

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% Fixed Investment Structures Equipment Intellectual Property 2014 2015 2016 2017

International Trade Deficit: Pros/Cons

10 510 1,010 1,510 2,010 2,510 3,010 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Ex-Goods Ex-Svcs Im-All

Deficit: -620

• 395
• 713

$ Millions (Yr.=2009)

Tax Cuts and Spending Increases Mean…

• 1,600
• 1,400
• 1,200
• 1,000
• 800
• 600
• 400
• 200

200 400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Much Larger Federal Budget Deficit

Macro-Economy at a Glance

Sector Outlook CONSUMERS Steady solid growth

• BUS. INVESTMENT

Acceleration, energy drag over GOVERNMENT Flat/Up Slightly NET TRADE Imports & Exports up, Imports larger… Slight NET Negative SUMMARY Domestic Spending Up

Full Employment, Slower Job Growth

1.9 2.1 1.7 1.5 0.5 1.0 1.5 2.0 2.5 2014 2015 2016 2017 Yr-To-Yr % Change in Jobs 2% 4% 6% 8% 10% 12% 14% 16% 18%

Unemployment Rate

U-6 Headline Rate, U-3

Plenty of Job Openings, Not Enough Workers

1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

JOLT Job Openings Rate in %

Sector Level (000s) Rates 17-Apr 18-Apr 17-Apr 18-Apr Total 6,108 6,698 4 4.3 Tot Priv 5,564 6,117 4.3 4.6 Educ Health 1,151 1,256 2.5 2.9 Prof Bus Svc 1,021 1,255 4.8 5.7 Leis Hosp 846 939 5 5.5 Retail 600 735 3.6 4.4 Govt 544 581 2.4 2.5 Mfg 373 451 2.9 3.4 Trans Util 208 304 3.5 5 Fin Activities 411 294 4.7 3.3 Construction 233 232 3.3 3.1 Wholesale 225 210 3.7 3.4 Info 113 178 3.9 6

Labor Force Growth Constrains Potential GDP Growth

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Labor Force Growth

60% 61% 62% 63% 64% 65% 66% 67%

LF Participation Rate

Beacon Economics

• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Inflation Historically Low But Rising

17

Economic/Fiscal Policy-Other Issues

• Tax Cuts/Budget Hikes: larger deficit
• Immigration: reforms enable economic growth
• International Trade: consumers or producers?
• Infrastructure: $4.5 trillion needed
• Health Care: spending reform, not insurance reform

Monetary Policy

• Rock-bottom federal funds rate 2008-2016
• 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

Financial Markets

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Fed Funds Rate 10 Year Yield 30 Year Mort

State Economy

0% 2% 4% 6% 8% 10% 12% 14% 16% Unemployment Rate, Seasonally Adjusted CA: 4.2% US: 3.9%

CA & US at Full Employment

CA @ Lowest on Record (1976+)

CA Among Fastest Growing States

Cove r

The Big Slowdown

Location 2017 14-15 15-16 16-17 Los Angeles MD 4,441,600 2.2% 2.6% 1.3% Orange County 1,619,000 3.2% 2.6% 2.2% Inland Empire 1,454,700 4.9% 3.6% 3.8% San Diego MSA 1,454,200 2.9% 2.7% 2.1% Oakland MD 1,164,300 3.3% 3.3% 2.4% San Francisco MD 1,117,900 4.9% 4.0% 2.4% San Jose MSA 1,099,200 3.8% 3.1% 2.6% Sacramento MSA 970,200 3.2% 3.4% 2.2% Fresno MSA 345,100 3.7% 3.5% 2.8% Ventura County 304,300 0.9% 1.3% 1.3% 0% 1% 2% 3% 4%

State and National Job Growth

California United States

Gross Product Q4-17: YTY % Changes -- CA (3.4%)

California Taxable Sales (+4.9% in 2017)

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 Millions

Riverside County/IE Region

Metro Areas Vary in % Job Gains…

0% 1% 2% 3% 4% Bakersfield MSA Ventura County LA County Sonoma County SF MD Orange County San Diego County Oakland MSA Sacramento MSA Fresno MSA RV-SB MSA Stockton MSA San Jose MSA Year to Year % Chg. (Apr-18)

…Largest Absolute Gains in So Cal

MSA Apr-18 YTY Change Jobs (Seasonally Adjusted) LA County 59,100 RV-SB 45,100 San Jose MSA 38,700 San Diego County 31,700 Orange County 28,800 Oakland MSA 26,500 Sacramento MSA 23,500 San Francisco MD 19,100 Fresno MSA 9,200 Stockton-Lodi MSA 7,800 Ventura County 3,800

RV-SB Among Fastest Growing MSAs

YOU ARE HERE

Unemployment Rates (Seas. Adjusted)

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 (% , SA)

Unemployment Rates

California Inland Empire Los Angeles Orange County

Riverside County NSA April 17 5.0% April 18 3.8%

Beacon Economics

Riverside County Employment

Source: QCEW 32

Industry Q3-17 (000’s) 1-Yr. Chg

Total Nonfarm 707.7 3.4% Trade, Transportation, and Utilities 163.9 4.2% Education and Health Services 161.2 5.1% Leisure and Hospitality 100.5 2.5% Prof, Sci, and Tech 65.8 1.0% Construction 64.4 7.1% Manufacturing 42.8 1.6% Financial Activities 21.7 2.0% Other Services 19.7 4.0% NR/Mining 11.7 3.9% Information 6.4

• 0.7%

Beacon Economics

Riverside County Establishments

Source: QCEW 33

Industry Q3-17 (000’s) 1-Yr. Chg (000s)

Total Nonfarm 63.9 3.9 Education and Health Services 29.0 3.4 Trade, Transportation, and Utilities 8.0 0.2 Prof, Sci, and Tech 5.9 0.2 Construction 4.4 0.2 Leisure and Hospitality 4.2 0.2 Financial Activities 3.6 0.2 Other Services 3.0 0.0 Manufacturing 1.6 0.0 NR/Mining 0.5 0.0 Information 0.4 0.0

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

Worker Incomes Rising

Riverside County Median Earnings (25+ Yrs)

2011 2016 % Change All Workers 25+ Yrs $32,397 $35,473 9.5% Less than high school $19,540 $21,867 11.9% High School diploma $27,472 $30,738 11.9% Some college $36,045 $36,244 0.6% BA $51,317 $52,002 1.3% Graduate degree $70,296 $75,687 7.7%

Beacon Economics

HH Income

Source: ACS

40 45 50 55 60 65 70 2005 2007 2009 2011 2013 2015 Thousands ($’s)

Median Household Income

Riverside San Bernardino California

2016 3-Yr Chg

Total: 715,040 3.1% Less than 25k 20.2%

• 1.8%

25-50k 22.1%

• 1.9%

50-75k 17.7%

• 1.1%

75-125k 21.9% 0.8% 125-200+ 18.2% 3.9%

36

Taxable Sales (Seasonally Adjusted)

20 40 60 80 100 120 140 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 Q1-07 = 100 Riv County (2017Q4: +5.3% YTY)

Local Real Estate/ Construction

Beacon Economics

So Cal Residential Markets

Source: DQ/CoreLogic

County Q1-17 Q1-18 YTY % Change Price YTY % Change Sales Los Angeles $567,600 $615,100 8.4%

• 4.2%

Orange $729,400 $774,800 6.2%

• 5.1%

Riverside $344,600 $379,600 10.2% 1.3% San Bernardino $284,800 $304,900 7.1%

• 5.9%

San Diego $556,000 $597,300 7.4%

• 4.3%

Ventura $592,300 $623,700 5.3% 5.6%

Housing Affordability: % of HHs Affording Median Priced Home

State/Region/County Q1-17 Q1-18 Los Angeles 29 28 Orange County 21 21 Riverside County 39 39 San Bernardino County 52 52 San Diego County 28 26 Ventura 28 31 California 32 31

Beacon Economics

Apartments

Source: REIS

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% $400 $600 $800 $1,000 $1,200 $1,400 Q1-03 Q3-04 Q1-06 Q3-07 Q1-09 Q3-10 Q1-12 Q3-13 Q1-15 Q3-16 Q1-18

Inland Empire Rent and Vacancy

Cost of Rent Vacancy Rate

Location Q1-18 YoY Change

Bakersfield $974 1.7% Inland Empire $1,319 3.0% Los Angeles (MD) $1,898 5.2% Orange County (MD) $1,885 3.8% San Diego $1,746 4.1% Ventura $1,728 2.7%

Riverside County Residential Housing Construction

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Single Family Multi Family

2017 Q1-18 ALL: + 6.2% + 7.5% SF: + 9.6% +13.9% MF:

• 12.8 %
• 33.8%

Beacon Economics

Population

Source: DOF

City 2017 3-Yr Chg

Riverside 326,792 2.8% Moreno 206,750 2.5% Corona 166,819 3.6% Murrieta 114,914 4.4% Temecula 111,024 4.9% Jurupa 101,315 4.9% Menifee 90,660 6.5% Indio 86,632 5.1% Hemet 82,417 2.8% Perris 75,739 5.2%

100 110 120 130 140 150 160 Q1-00 Q1-04 Q1-08 Q1-12 Q1-16 Indexed (Q1-00 = 100)

Population

Riverside San Bernardino California

43

Beacon Economics

Office Real Estate

Source: REIS

5% 10% 15% 20% 25% 30%

So Cal Office Vacancy Rates

Inland Empire Los Angeles Orange County $15 $20 $25 $30 $35 $40

So Cal Office Rents

Inland Empire Los Angeles Orange County

Beacon Economics

Industrial Real Estate

Source: REIS

5% 10% 15% 20% 25% 30%

So Cal Industrial Vacancy Rates

Inland Empire Los Angeles Orange County $15 $20 $25 $30 $35 $40

So Cal Industrial Rents

Inland Empire Los Angeles Orange County

Conclusion

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

48

communication@economicforecasting.org http://soba.ucr.edu 951-827-6329 900 University Ave. Riverside, CA 92521

Thank You!