The Economic Outlook Focus on So-Cal March 2015 Beacon Economics, - - PowerPoint PPT Presentation

• Analysis. Answers.
• Analysis. Answers

Beacon Economics, LLC

The Economic Outlook

Focus on So-Cal

March 2015

• Analysis. Answers.

2014: Santa came to town

• 2014 Ended Strong

– Solid acceleration in domestic demand growth rates – Labor markets turned a corner – Credit expanding on many levels – Commodity prices down down down – California one of the stronger economies in the nation

• Economic growth to continue to

accelerate through 2015

– Incomes about to start rising – Interest rates aren’t going anywhere – The stock market is not in a bubble – The housing market has a second wave

• f recovery

– Gas prices a net positive

2

• Analysis. Answers.

GDP 2014: Soft End

3

2014 II III IV 2012 2013 2014 GDP 4.6 5 2.6 2.3 2.2 2.4 Consumption 1.75 2.21 2.87 1.25 1.64 1.72 Durable goods 0.99 0.67 0.54 0.52 0.49 0.51 Nondurable goods 0.34 0.39 0.66 0.12 0.29 0.28 Services 0.42 1.15 1.67 0.61 0.86 0.93 Investment 2.87 1.18 1.2 1.33 0.76 0.95 Structures 0.35 0.14 0.08 0.32

• 0.01

0.22 Equipment 0.63 0.63

• 0.11

0.37 0.26 0.35 IP 0.21 0.34 0.27 0.15 0.13 0.18 Residential 0.27 0.1 0.13 0.33 0.33 0.05 Inventories 1.42

• 0.03

0.82 0.15 0.06 0.15 Net exports

• 0.34

0.78

• 1.02

0.04 0.22

• 0.22

Exports 1.43 0.61 0.37 0.44 0.41 0.41 Imports

• 1.77

0.16

• 1.39
• 0.4
• 0.19
• 0.64

Government 0.31 0.8

• 0.4
• 0.3
• 0.39
• 0.03

Federal

• 0.06

0.68

• 0.54
• 0.15
• 0.45
• 0.14

State and local 0.38 0.13 0.14

• 0.15

0.06 0.11

• Analysis. Answers.

Consumer Spending

4

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

Retail Sales y-o-y Growth to Dec

Total x Gasoline 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Real Consumer Spending: Smoothed Quarter Growth

• Analysis. Answers.

Employment

5

• 50

50 100 150 200 250 300 350 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14

Change in Payroll, Employment 3 mth ma, to Jan.

4000 6000 8000 10000 12000 14000 16000 18000 20000 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

Distressed Workers to January

• Analysis. Answers.

Weekly Earnings

6

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 780 790 800 810 820 830 840 850 860 870

Weekly Earnings to January, Nominal

Nominal Earnings Y-o-Y Growth

• Analysis. Answers.

Consumer Credit

7

5 10 15 20 25 30 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

Change in Consumer Credit ($billions) to Nov

$170B $216B $166B

8.00 10.00 12.00 14.00 16.00 18.00 20.00 1980Q1 1982Q4 1985Q3 1988Q2 1991Q1 1993Q4 1996Q3 1999Q2 2002Q1 2004Q4 2007Q3 2010Q2 2013Q1

Debt Cost Ratios: % DPI

DSR FOB

• Analysis. Answers.

Degrees Among 21-27 with Bachelor

8

Diploma’s Awarded PSYCHOLOGY 289,968 BUSINESS MANAGEMENT AND A 217,369 BIOLOGY 178,560 GENERAL BUSINESS 171,875 NURSING 170,595 COMMUNICATIONS 162,915 MARKETING AND MARKETING R 160,309 ACCOUNTING 146,322 ENGLISH LANGUAGE AND LITE 132,367 CRIMINAL JUSTICE AND FIRE 123,509 POLITICAL SCIENCE AND GOV 123,106 FINANCE 123,068 ELEMENTARY EDUCATION 116,591 GENERAL EDUCATION 111,969 ECONOMICS 101,525 PHYSICAL FITNESS PARKS RE 100,639 HISTORY 96,637 SOCIOLOGY 88,220 COMMERCIAL ART AND GRAPHI 84,843 COMPUTER SCIENCE 82,940 MECHANICAL ENGINEERING 67,953 FINE ARTS 56,589 ELECTRICAL ENGINEERING 53,805 LIBERAL ARTS 52,043 JOURNALISM 51,500 Annual Income PETROLEUM ENGINEERING 55,103 COMPUTER ENGINEERING 50,542 CHEMICAL ENGINEERING 48,668 COMPUTER SCIENCE 46,060 AEROSPACE ENGINEERING 44,651 INDUSTRIAL AND MANUFACTUR 43,898 INDUSTRIAL AND ORGANIZATI 43,804 MECHANICAL ENGINEERING 43,495 ELECTRICAL ENGINEERING 42,238 MATHEMATICS AND COMPUTER 41,640 PHARMACY PHARMACEUTICAL S 40,933 OPERATIONS LOGISTICS AND 40,840 FINANCE 40,236 GENERAL ENGINEERING 40,179 MISCELLANEOUS ENGINEERING 39,965 ACTUARIAL SCIENCE 39,773 ARCHITECTURAL ENGINEERING 39,522 BIOMEDICAL ENGINEERING 39,098 COMPUTER ADMINISTRATION M 38,760 BUSINESS ECONOMICS 38,484 CONSTRUCTION SERVICES 38,176 FOOD SCIENCE 38,057 CIVIL ENGINEERING 37,940 NURSING 37,915 MISCELLANEOUS ENGINEERING 37,594

15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% Mar-06 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13

Student Loan Debt as share consumer credit

• Analysis. Answers.

Industry Outlook

9

0.0 1.0 2.0 3.0 4.0 5.0 6.0 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

Y-o-Y Growth in Overall Industrial Production to Dec

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

Y-o-Y Growth in Manufacturing Industrial Production to Dec

• Analysis. Answers.

Industry Outlook

10

45 47 49 51 53 55 57 59 61 63 65 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

ISM Diffustion Indexes 3 Month MA, to Jan

Manufacturing Non-Manufacturing 5 10 15 20 25 30 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15

Philly Fed CAPEX Outlook (Diffusion Index to Jan Smoothed)

• Analysis. Answers.

Trade

11

• 80000
• 70000
• 60000
• 50000
• 40000
• 30000
• 20000
• 10000

2003-01-01 2003-12-01 2004-11-01 2005-10-01 2006-09-01 2007-08-01 2008-07-01 2009-06-01 2010-05-01 2011-04-01 2012-03-01 2013-02-01 2014-01-01 2014-12-01

Nominal Trade Deficit to December ($M SA)

90 95 100 105 110 115 2012-01-03 2012-04-03 2012-07-03 2012-10-03 2013-01-03 2013-04-03 2013-07-03 2013-10-03 2014-01-03 2014-04-03 2014-07-03 2014-10-03 2015-01-03

Daily Broad Index

• Analysis. Answers.

Global Situation

12

4,000,000 4,500,000 5,000,000 5,500,000 6,000,000 6,500,000 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14

EU Bank Balances

• Analysis. Answers.

Greece Again?

13

0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2008 2009 2010 2011 2012 2013 2014 2015

10-Year Government Bond Yields

Percent Italy: Feb 06 @ 1.6% Greece: Feb 06 @ 9.7% Spain: Feb 06 @ 1.5% Portugal: Feb 06 @ 2.2% Germany: Feb 06 @ 0.3%

• Analysis. Answers.

China

14

0% 5% 10% 15% 20% 25%

Chinese IP Index Y-o-Y Percent Change, 3MA

Dec @ 7.6% (Bloomberg) -- Managing the yuan is turning into a different game for China’s policy makers these days. After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy. A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is at its strongest-ever level compared with the market price.

35 40 45 50 55 60 35 40 45 50 55 60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China Manufacturing PMI

Seasonally Adjusted Chinese Manufacturing PMI: Jan @ 49.8

• Analysis. Answers.

Gas Prices: Still Falling

• ~20,000 barrels

per day in consumption

– Gasoline: 45% – Jet Fuel: 20% – Other: 35%

• Annual US

spending on refined products down $1,000b to $700b with consumption increase

15

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Real Price Gasoline (per gallon to Jan 15)

• Analysis. Answers.

Marginal Cost Ceiling

16

$20 $40 $60 $80 $100 $120 5 10 15 20 25 30 35 Estimated peak cumulative production, mm barrels per day Source: Goldman Sachs, "400 projects to change the world" , JPMAM. 2014.

Shale oil era has reduced estimated future marginal costs

Breakeven cost for new projects, USD per barrel

2014 2013 2012 2011 2010 2009 2014 with cost deflation impact

JPMorgan

• 10%
• 5%

0% 5% 10% 15% 20% Saudi Arabia Russia Canada Mexico UK Brazil USA Turkey Switzerland Australia Italy France China Germany Netherlands Spain Japan Indonesia India Korea Source: UN Comtrade, TD Economics. 2013 data. (Exports -Imports) as a % of GDP

CHARt 3: Net OIL eXpOSURe dIFFeRS CONSIdeRABLY ACROSS 20 LARGeSt eCONOMIeS

42.5%

• Analysis. Answers.

Housing

• Inventories

at 5 months

• Median

price grew 1.7% (up 6.0% y-o-y)

17

3,500 3,700 3,900 4,100 4,300 4,500 4,700 4,900 5,100 5,300 5,500 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

Home Sales, SAAR to Dec

• Analysis. Answers.

New Construction

18

200 400 600 800 1000 1200 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Housing Permits 2004 to 2014

Single Multi 200 400 600 800 1000 1200 1400 1600 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14

New SF Home Sales SAAR 2004 to 2014

• Analysis. Answers.

Better Signs…

19

680 690 700 710 720 730 740 750 760 770 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13

Fannie Mae Average FICO

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 1995Q1 1996Q3 1998Q1 1999Q3 2001Q1 2002Q3 2004Q1 2005Q3 2007Q1 2008Q3 2010Q1 2011Q3 2013Q1

Home Equity

• Analysis. Answers.

Home Prices

Case Shiller Nov. Release

20

• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14

Core Logic Y-o-Y Changes

12-13 13-14 Diff CO-Denver 8.9% 7.5%

• 1.4%

TX-Dallas 10.0% 7.7%

• 2.3%

OH-Cleveland 4.8% 0.6%

• 4.2%

NY-New York 6.0% 1.5%

• 4.5%

NC-Charlotte 8.2% 3.3%

• 4.9%

MA-Boston 9.8% 4.0%

• 5.8%

OR-Portland 12.5% 6.6%

• 5.9%

DC-Washington 7.9% 1.9%

• 6.0%

National-US 10.9% 4.7%

• 6.2%

WA-Seattle 12.5% 6.1%

• 6.4%

FL-Miami 16.6% 8.6%

• 8.0%

FL-Tampa 15.8% 6.8%

• 9.0%

MN-Minneapolis 10.6% 1.5%

• 9.1%

IL-Chicago 11.2% 2.0%

• 9.2%

GA-Atlanta 18.5% 4.9%

• 13.6%

CA-San Diego 18.6% 4.9%

• 13.7%

CA-San Francisco 23.3% 8.9%

• 14.4%

MI-Detroit 17.3% 2.6%

• 14.7%

AZ-Phoenix 16.8% 2.0%

• 14.8%

CA-Los Angeles 21.7% 5.2%

• 16.5%

NV-Las Vegas 27.3% 7.7%

• 19.6%

• Analysis. Answers.

Foreclosures and Ownership

21

61.0% 62.0% 63.0% 64.0% 65.0% 66.0% 67.0% 68.0% 69.0% 70.0% Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14

United States Homeownership 2004 to 2014

• Ownership down?
• No: Bad Data

Owners

• 353

Renters 2037 New Buyers 1600 Foreclosures 1100

8,600,000 8,800,000 9,000,000 9,200,000 9,400,000 9,600,000 9,800,000 10,000,000 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14

Reis Apt. Occupancies

• Analysis. Answers.

Bank Lending Fed Data

22

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 1/4/12 1/4/13 1/4/14 1/4/15

Y-o-Y Growth Outstanding Loans and Leases through January

Other 20.7% C&I 13.1% Commercial RE 6.9% Other Consumer 5.4% Credit Cards 4.2% Closed-Res 1.6% Heloc

• 3.0%

• Analysis. Answers.

Money Supply

23

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 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

Y-o-Y growth Net Monetary Base (M2 still at 6%)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2009-12-01 2010-03-01 2010-06-01 2010-09-01 2010-12-01 2011-03-01 2011-06-01 2011-09-01 2011-12-01 2012-03-01 2012-06-01 2012-09-01 2012-12-01 2013-03-01 2013-06-01 2013-09-01 2013-12-01 2014-03-01 2014-06-01 2014-09-01 2014-12-01

Consumer Price Index (Y-o-Y Change)

CPI Core CPI

• Analysis. Answers.

Money Supply

24

Net money is monetary base – Excess reserves

• 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 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

Bank Excess Reserves

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2010-01-01 2010-07-01 2011-01-01 2011-07-01 2012-01-01 2012-07-01 2013-01-01 2013-07-01 2014-01-01 2014-07-01 2015-01-01

Y-o-Y growth Net Monetary Base

• Analysis. Answers.

Where are rates heading?

25

1 2 3 4 5 6 7 8 9 10 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14

10 Yr Bond Rate

1 2 3 4 5 6 7 Jan-92 Dec-93 Nov-95 Oct-97 Sep-99 Aug-01 Jul-03 Jun-05 May-07 Apr-09 Mar-11 Feb-13

Fed Funds Rates

• Analysis. Answers.

California fact versus fiction

26

California Hype:

• High taxes, Over regulated
• People/business fleeing

Reality

• Business Climate is not that important
• State still outperforming
• Certain industries more vulnerable than
• thers, but others doing great
• Real enemy: CEQA, dumb taxes

“Looking back a few years (2009 / 2010) everyone was saying that CA would fail like Greece or Detroit, but things look different now. What has happened to turn things around?”

• Analysis. Answers.

Regional: Who’s Hot and Not

• Analysis. Answers.

Regional: Who’s Hot and Not

North Dakota 21.8 4.8% Texas 441.2 3.9% Utah 44 3.4% Florida 229.9 3.0% Oregon 50.8 3.0% Delaware 13.2 3.0% Washington 82.7 2.8% North Carolina 106.4 2.6% Arizona 66.7 2.6% South Carolina 48.9 2.6% Georgia 96.2 2.4% Colorado 54.4 2.3% Nevada 27.1 2.3% California 344.1 2.2% Kentucky 38.7 2.1% Oklahoma 33.5 2.0% Indiana 56 1.9%

96 98 100 102 104 106 108 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13

Payroll Emp Index

US CA

Maine 6.9 1.1% Michigan 39.3 1.0% Iowa 15.7 1.0% New York 83.8 0.9% West Virginia 7.2 0.9% New Hampshire 5.1 0.8% Wyoming 2.4 0.8% South Dakota 3 0.7% Pennsylvania 33.2 0.6% Illinois 32.4 0.6% Nebraska 6.2 0.6% Maryland 12.1 0.5% Kansas 7.5 0.5% Virginia 15.6 0.4% New Jersey 11.5 0.3% Mississippi

• 1.3
• 0.1%

Alaska

• 1.2
• 0.4%

• Analysis. Answers.

Job Estimates

29

0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

CA Y-o-Y Growth by Benchmark year

2012 BM 2013 BM 2014 BM

?

2 4 6 8 10 12 14 Jan-04 Dec-04 Nov-05 Oct-06 Sep-07 Aug-08 Jul-09 Jun-10 May-11 Apr-12 Mar-13 Feb-14

Unemployment Rate

US CA

• Analysis. Answers.

Nonfarm Employment Growth

30

California Employment Growth by Metro, Year over Year Region Dec-13 Dec-14 Change (000s) Change (%) San Jose 982.5 1,021.5 39.0 4.0 San Francisco (MD) 1,088.0 1,128.8 40.8 3.8 San Diego 1,320.5 1,364.6 44.1 3.3 Oakland (MD) 1,043.2 1,068.0 24.8 2.4 Other Bay Area 379.1 388.0 8.9 2.3 Orange County (MD) 1,469.5 1,502.7 33.2 2.3 Other Southern California 341.0 347.7 6.7 2.0 Inland Empire 1,244.7 1,268.4 23.7 1.9 North Central Valley 1,253.0 1,276.7 23.7 1.9 South Central Valley 716.4 729.6 13.2 1.8 Central Coast 396.0 403.1 7.1 1.8 Los Angeles (MD) 4,146.8 4,216.6 69.8 1.7 Bakersfield 253.3 257.3 4.0 1.6 San Luis Obispo 107.1 108.6 1.5 1.4 California 15,323.6 15,643.9 320.3 2.1 Source: California EDD

• Analysis. Answers.

Labor Markets

31

2 4 6 8 10 12 14

Unemployment Rate

Los Angeles California 3700 3900 4100 4300 4500 4700 4900 5100 5300 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Household Employment So-Cal

LA County Balance Region

• Analysis. Answers.

Employment by Industry

32 Los Angeles County Employment Growth by Major Industry, Year over Year Industry Dec-13 Dec-14 Change (000s) Change (%) Management 58.7 61.9 3.2 5.4 Construction 121.3 126.4 5.1 4.2 Admin Support 262.3 273.1 10.8 4.1 Education/Health 723.4 749.2 25.8 3.6 Information 198.8 204.8 5.9 3.0 Transport,Warehouse 158.7 162.8 4.1 2.6 Leisure and Hospitality 441.8 453.2 11.4 2.6 Real Estate 74.9 76.8 1.9 2.5 NR/Mining 4.7 4.8 0.1 2.2 Total Private 3,597.4 3,671.1 73.7 2.0 Prof Sci and Tech 280.5 285.6 5.2 1.9 Retail Trade 409.9 416.8 6.9 1.7 Other Services 146.9 147.6 0.7 0.5 Wholesale Trade 218.7 218.4

• 0.3
• 0.1

Finance and Insurance 135.2 134.8

• 0.4
• 0.3

Government 549.4 545.5

• 3.9
• 0.7

Manufacturing 361.5 354.8

• 6.7
• 1.8

Total Nonfarm 4,146.8 4,216.6 69.8 1.7 Source: California EDD

22,000 24,000 26,000 28,000 30,000 32,000 34,000 36,000 38,000 40,000 Q1-06 Q3-06 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 Los Angeles ($ Millions, SA)

Taxable Sales

Los Angeles

• Analysis. Answers.

Key Sectors

33

Sep-02 Sep-13 Sep-14 Civilian Employment 4,472.9 4,518.2 4,652.2 Civilian Unemployment 311.2 478.8 391.7 Fabricated Metal Product Manu 52.8 43.6 43.7 Electronic Instrument Manu 39.7 24.3 23.2 Aerospace Product & Parts Manu 43.9 39.7 38.4 Furniture Mfg 20.5 9.1 9.0 Food Manufacturing 45.2 38.8 36.7 Apparel Manufacturing 72.4 46.7 41.6 Plastics & Rubber Products Manu 21.8 13.5 13.1 Motion Picture & Sound Recording 113.3 126.6 133.6 Computer Systems Design 26.3 28.6 27.6 Management, Scientific Consulting 24.9 52.2 59.5 Scientific Research & Development 16.0 16.6 17.1 Accommodation 37.6 43.1 44.7 Local Government Education 258.3 207.0 205.1

95 100 105 110 115 120 125 2004 2006 2008 2010 2012 2014

Index: Establishments

LA CA Balance

• Analysis. Answers.

IE Employment

34

1,050 1,100 1,150 1,200 1,250 1,300

Total Nonfarm Employment

Inland Empire

2 4 6 8 10 12 14 16

Unemployment Rate

Inland Empire California

• Analysis. Answers.

IE Job Recovery

35

Industry Feb-10 Dec-14 Change (000s) Change (%) Health Care 137.9 172.6 34.7 25.2 Leisure and Hospitality 121.5 141.9 20.4 16.8 Transport,Warehouse,Util. 65.7 85.9 20.2 30.8 Admin Support 77.0 93.5 16.5 21.4 Retail Trade 155.3 167.9 12.7 8.2 Wholesale Trade 48.6 59.0 10.4 21.3 Construction 60.9 69.4 8.5 14.0 Prof Sci and Tech 35.0 40.6 5.7 16.2 Manufacturing 85.2 88.8 3.6 4.3 Educational Services 15.5 17.4 2.0 12.7 Financial Activities 41.1 42.1 1.0 2.4 Management 8.5 8.9 0.4 5.1 Other Services 38.0 38.4 0.4 1.1 Farm 14.5 14.8 0.2 1.6 NR/Mining 1.0 1.2 0.2 20.0 Information 14.3 11.8

• 2.4
• 17.0

Government 235.4 228.9

• 6.6
• 2.8

Total Private 905.4 1,039.5 134.2 14.8 Total Nonfarm 1,140.8 1,268.4 127.6 11.2

• Analysis. Answers.

Tourism

36

200,000 250,000 300,000 350,000 400,000 450,000 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13

• Int. Arrivals

China 36,782 Taiwan 3,493 Europe 11,038 Japan 2,750 India 4,265 S Korea 1,833 Brazil 4,051 Colombia 1,511 62 64 66 68 70 72 74 76 78

Hotel Occupancy Rates

Los Angeles County Orange County

• Analysis. Answers.

California Exports

37

8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12 Apr-13 Nov-13 Jun-14 Export Value ($ Millions, SA)

Total Exports

• 20

40 60 80 100 120 Export Value ($ Billion)

California Regional Exports

Southern California Bay Area Balance of State

• Analysis. Answers.

Goods Trade Movement

38

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Q1-90 Q1-95 Q1-00 Q1-05 Q1-10

Jobs at Ports in Los Angeles Co.

Port and Harbor Operations & Water Transportation 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Jan-95 Jan-00 Jan-05 Jan-10

Monthly TEU's Handled at Twin Ports

Los Angeles Long Beach

• Analysis. Answers.

Ag and the Drought

39

2000000 4000000 6000000 8000000 10000000 12000000 14000000 16000000 18000000 1986Q1 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1

Agricultural Income to 2013

320,000 340,000 360,000 380,000 400,000 420,000 440,000 Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11 Sep-12 Jul-13

State Farm Employment

• Analysis. Answers.
• 1

2 3 4 5 6 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Millions of Acre-Feet

MWD Storage Capacity

The Role of Reservoirs

• Analysis. Answers.

Residential Real Estate

41

100,000 200,000 300,000 400,000 500,000 600,000 700,000 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14

Existing SFR Median Prices

Los Angeles California

County/MSA 2014 Year over Year (%) Median Prices Santa Barbara 462,507 13.8 San Francisco MD 982,868 11.5 South Bay 809,572 11.1 Inland Empire 272,290 9.1 Monterey 423,365 8.0 Los Angeles 478,651 6.6 San Diego 481,548 5.6 Orange County 652,564 3.9 San Luis Obispo 449,822

• 0.8

Existing Home Sales San Francisco MD 11,194

• 7.3

San Luis Obispo 2,912

• 7.6

South Bay 12,856

• 8.7

San Diego 24,347

• 10.2

Inland Empire 50,330

• 10.8

Los Angeles 52,953

• 11.0

Santa Barbara 2,770

• 11.1

Orange County 20,491

• 11.4

Monterey 2,617

• 14.3

Source: DataQuick

• Analysis. Answers.

Bubble? No…

42

0.0 10.0 20.0 30.0 40.0 50.0 60.0

Total Housing Costs (% of Med. HH. Income)

California Housing Affordability

2 4 6 8 10 12 14 16 18

Jan-99 Dec-99 Nov-00 Oct-01 Sep-02 Aug-03 Jul-04 Jun-05 May-06 Apr-07 Mar-08 Feb-09 Jan-10 Dec-10 Nov-11 Oct-12 Sep-13 Aug-14

Months of Supply

Housing Inventory

Los Angeles Orange County San Diego

• Analysis. Answers.

Apartment Rental Market

43

1 2 3 4 5 6 7 8 9

Q1-90 Q2-91 Q3-92 Q4-93 Q1-95 Q2-96 Q3-97 Q4-98 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13

Percent

Apartment Vacancies

Inland Empire Los Angeles Orange County San Diego 1 2 3 4 5 6 7 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Q1-90 Q3-91 Q1-93 Q3-94 Q1-96 Q3-97 Q1-99 Q3-00 Q1-02 Q3-03 Q1-05 Q3-06 Q1-08 Q3-09 Q1-11 Q3-12 Q1-14

Vacancy (%) Rent

Los Angeles County Apartment Market

Rent Vacancy Rate

• Analysis. Answers.

Supply Demand Imbalances

44

2013 Vacancy State Owner Renter Both Florida 2.5% 9.2% 4.9% Texas 1.6% 7.9% 4.0% Illinois 1.8% 6.2% 3.3% New York 1.6% 4.2% 2.8% California 1.3% 4.2% 2.6% MSA Miami 2.1% 7.4% 4.2% Dallas 1.4% 7.2% 3.7% Inland Empire 1.9% 6.5% 3.7% Chicago 1.9% 5.6% 3.2% New York 1.6% 4.3% 2.9% San Diego 1.4% 4.1% 2.7% Washington, DC 1.0% 5.1% 2.5% Los Angeles 1.0% 3.7% 2.4% San Francisco 0.9% 3.0% 1.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

State Housing / Population Imbalance

Share Population Share Residential Permits

• Analysis. Answers.

In the Long Term?

45

1 Alaska 36.4% 2 Wyoming 22.2% 3 New York 18.7% 4 Delaware 18.1% 5 North Dakota 17.8% 6 West Virginia 17.0% 7 New Mexico 16.5% 8 South Carolina 16.4% 9 Vermont 16.2% 10 Hawaii 15.9% 11 California 15.7% 12 Mississippi 15.6% 13 Wisconsin 15.6% United States Total 14.7%

2011 Taxes Fees Paid as share PI

Under $25,000

• 192,061

$25,000 to $50,000

• 58,600

$50,000 to $99,999 18,955 Over $100,000 2,619 Total

• 229,087

Total Domestic Net Migration by Income 08-13

Texas Under $25,000

• 40070

$25,000 to $50,000

• 23741

$50,000 to $99,999

• 3433

Over $100,000 599

• Analysis. Answers.

Rising Housing Costs

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Jan-94 Mar-96 May-98 Jul-00 Sep-02 Nov-04 Jan-07 Mar-09 May-11 Jul-13

Median Home Prices

CA Sf Cnt US $500 $700 $900 $1,100 $1,300 $1,500 $1,700 $1,900 $2,100 $2,300 $2,500 1994Q1 1995Q3 1997Q1 1998Q3 2000Q1 2001Q3 2003Q1 2004Q3 2006Q1 2007Q3 2009Q1 2010Q3 2012Q1 2013Q3

Ask Rents for Apartments

San Francisco Los Angeles United States

• Analysis. Answers.

Actually Prices Reflect Incomes

47

Share Housing Costs over 35% of Income: 2013 ACS MSA Mortgage Holders Miami 38% Inland Empire 33% Los Angeles 36% San Diego 33% New York 35% Chicago 28% San Francisco 30% Washington, DC 21% Dallas 20% County San Francisco 33%

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 2000 2005 2010 2015

Number of Households by Income: 6 County Region

Up to $75k 75k to 150K $150K +

• Analysis. Answers.

Rents as Well

48

Share Housing Costs over 35%

• f Income: 2013 ACS

MSA Renters Miami 55% Inland Empire 51% Los Angeles 50% San Diego 47% New York 45% Chicago 42% San Francisco 41% Washington, DC 38% Dallas 38% County San Francisco 36% 1 1.2 1.4 1.6 1.8 2 2.2 1994Q1 1995Q2 1996Q3 1997Q4 1999Q1 2000Q2 2001Q3 2002Q4 2004Q1 2005Q2 2006Q3 2007Q4 2009Q1 2010Q2 2011Q3 2012Q4 2014Q1

Ratio Asking Rents

SF / LA SF / US

• Analysis. Answers.

Construction Permits

49

Region Multi-Family Units Single- Family Units Total Res. Change (%) Central Coast 632 697 45.4 Non-Metros 284 920 37.4 Other So. Cal 585 396 34.2 San Jose 8,221 1,665 26.6 San Luis Obispo 233 734 24.5 Los Angeles (MD) 14,526 4,315 16.0 Inland Empire 3,207 6,663 8.6 Bakersfield 380 2,002 7.9 Oakland (MD) 2,596 2,524 5.4 Orange County 6,902 3,631 4.1

• N. Central Valley

968 5,724 0.4

• S. Central Valley

1,055 3,297

• 8.3

San Diego 4,329 2,254

• 22.1

San Francisco (MD) 4,396 456

• 28.1

Other So. Cal. 59 177

• 29.3

Other Bay Area 263 974

• 40.4

10000 20000 30000 40000 50000 60000 70000 80000 90000 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

So Cal Permits

SF MF

• Analysis. Answers.
• Nonres. Permitting by Type

50

Los Angeles County Nonresidential Building Permit Values by Type ($000s) Permit Type 2013 YTD 2014 YTD Change (%) New Commercial 1,109,721 1,512,136 36.3 Office 246,153 272,592 10.7 Retail 398,367 577,669 45.0 Hotel 145,409 88,454

• 39.2

Industrial 128,371 129,777 1.1 Other Nonres. 460,773 1,053,409 128.6 Nonres. Alts./Adds. 2,094,138 3,187,968 52.2 Total Nonres. 3,793,003 5,883,289 55.1

Office 5% Retail 11% Hotel 2% Industrial 2% Other Nonres. 20% Nonres. Alts./Adds . 60%

• Analysis. Answers.

California Office Properties

51

5 10 15 20 25 30 Q1-90 Q1-92 Q1-94 Q1-96 Q1-98 Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Percent

Office Vacancy Rates

Inland Empire Los Angeles Orange County San Diego 5 7 9 11 13 15 17 25 27 29 31 33 35 37 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 $/SF/Month

Los Angeles County Office Market

Vacancy Rent

• Analysis. Answers.

California Retail Properties

52

2 4 6 8 10 12 14 Q1-90 Q4-91 Q3-93 Q2-95 Q1-97 Q4-98 Q3-00 Q2-02 Q1-04 Q4-05 Q3-07 Q2-09 Q1-11 Q4-12 Q3-14 Percent

Retail Vacancy Rates

Inland Empire Los Angeles Orange County San Diego 1 2 3 4 5 6 7 25 26 27 28 29 30 31 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Vacancy (%) $/SF/Month

Los Angeles County Retail Market

Vacancy Rent

• Analysis. Answers.

So what does it mean?

Big Themes for the 2015

• Labor markets reaching full

recovery, incomes to rise

• Consumers will continue to spend
• n better income, easier credit
• Housing recovery to rebound again
• Commercial rebound will continue,

construction in hot spots

• Business spending to grow steadily
• Fed will move slow. long term rates

to drift up slowly—flatter yield curve ahead

• California still in the growth mix as

long as there is still slack to work with

53

Future issues remain

• Government investments

constrained

• Global economy still wobbly,

uncertainty in the developing world

• State short on housing / needs

CEQA reform

• State budget surplus in name only,

need revenue reform

• Long term issues: healthcare,

pensions, entitlements

• Growing inequality of income and

wealth

• Politics politics politics

• Analysis. Answers.

54

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