Outlook 2018 Southwest Regional Economic Forecast Conference June 14, 2018 Robert A. Kleinhenz, Ph.D. Economist/Exec Director of Research UCR Business Forecast
Outline • U.S. Economy • California • So Cal/Local Outlook • Local Real Estate • Conclusion/Looking Ahead
U.S. Economy
GDP~ 2017: 2.3% --- 2018: 2.5 to 2.8% Gross Domestic Product Contributions to Change in GDP YTY % Change 4 Sector 2015 2016 2017 2.8 3 2 Consumer 2.5 1.9 1.9 1 Investment 0.9 -0.3 0.5 0 Net exports -0.7 -0.2 -0.2 -1 Government 0.2 0.1 0.0 -2 Total GDP % Chg. 2.9 1.5 2.3* -3 * Does not add up due to rounding Beacon Economics 4
Consumer Spending: Flywheel of Economy Real Consumer Spending by Type (Y-o-Y Growth to January 2018) 8% 6% 4% 2% 0% -2% -4% -6% -8% Services Goods
Real Disposable Personal Income Growth -4% -2% 0% 2% 4% 6% 2008.1 2009.1 2010.1 2011.1 YTY % Change 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1
…Lower Saving Rate, Growing Wealth… Consumer Savings Rate Real Average Wealth per Household (FOF, Thous.) 7% 700 600 6% 500 400 5% 300 200 4% 100 0 3% 1990Q1 1993Q1 1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1 2014Q1 2017Q1 2% Home Equity Other Net Wealth
Credit Card Use Accelerating, but… YTY % Change Outstanding Credit Card Balances 10% 5% 0% 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 -5% -10% -15% -20%
No Debt Overhang Fin Obligations as % of Disposable Household Debt to Income Ratio Personal Income 1.4 19.000000 1.3 18.000000 1.2 17.000000 16.000000 1.1 15.000000 1 14.000000 0.9 13.000000 12.000000 0.8 11.000000 0.7 10.000000 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 0.6 Fin Obligations as % of Disposable Personal Income
Business Spending Up 2014 2015 2016 2017 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Fixed Structures Equipment Intellectual Investment Property
International Trade Deficit: Pros/Cons $ Millions (Yr.=2009) Ex-Goods Ex-Svcs Im-All 3,010 2,510 Deficit: -620 2,010 -713 -395 1,510 1,010 510 10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Tax Cuts and Spending Increases Mean … Much Larger Federal Budget Deficit 400 200 0 -200 -400 -600 -800 -1,000 -1,200 -1,400 -1,600 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
Macro-Economy at a Glance Sector Outlook CONSUMERS Steady solid growth BUS. INVESTMENT Acceleration, energy drag over Flat/Up Slightly GOVERNMENT Imports & Exports up, Imports larger … NET TRADE Slight NET Negative Domestic Spending Up SUMMARY
Full Employment, Slower Job Growth Unemployment Rate Yr-To-Yr % Change in Jobs 2.5 18% 16% 2.1 14% 1.9 2.0 12% 1.7 10% 1.5 8% 1.5 6% 4% 2% 1.0 0.5 U-6 Headline Rate, U-3 2014 2015 2016 2017
Plenty of Job Openings, Not Enough Workers JOLT Job Openings Rate in % Level (000s) Rates 4.5% Sector 17-Apr 18-Apr 17-Apr 18-Apr 4.0% Total 6,108 6,698 4 4.3 Tot Priv 5,564 6,117 4.3 4.6 3.5% Educ Health 1,151 1,256 2.5 2.9 Prof Bus Svc 1,021 1,255 4.8 5.7 3.0% Leis Hosp 846 939 5 5.5 2.5% Retail 600 735 3.6 4.4 Govt 544 581 2.4 2.5 2.0% Mfg 373 451 2.9 3.4 Trans Util 208 304 3.5 5 1.5% 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 LF Participation Rate Labor Force Growth 0.0% 67% 0.0% 66% 0.0% 65% 0.0% 64% 0.0% 63% 0.0% 0.0% 62% 0.0% 61% 0.0% 60%
Inflation Historically Low But Rising 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Kyser Center for Economic Research Beacon Economics 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 Fed Funds Rate 10 Year Yield 30 Year Mort 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
State Economy
CA & US at Full Employment Unemployment Rate, Seasonally Adjusted CA: 4.2% US: 3.9% 16% CA @ Lowest on Record (1976+) 14% 12% 10% 8% 6% 4% 2% 0%
CA Among Fastest Growing States Cove r
The Big Slowdown State and National Job Growth Location 2017 14-15 15-16 16-17 4% Los Angeles MD 4,441,600 2.2% 2.6% 1.3% Orange County 1,619,000 3.2% 2.6% 2.2% 3% Inland Empire 1,454,700 4.9% 3.6% 3.8% 2% San Diego MSA 1,454,200 2.9% 2.7% 2.1% Oakland MD 1,164,300 3.3% 3.3% 2.4% 1% San Francisco MD 1,117,900 4.9% 4.0% 2.4% 0% 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% California United States Ventura County 304,300 0.9% 1.3% 1.3%
Gross Product Q4-17: YTY % Changes -- CA (3.4%)
California Taxable Sales (+4.9% in 2017) $180 Millions $160 $140 $120 $100 $80 $60 $40 $20 $0
Riverside County/IE Region
Metro Areas Vary in % Job Gains… Year to Year % Chg. (Apr-18) San Jose MSA Stockton MSA RV-SB MSA Fresno MSA Sacramento MSA Oakland MSA San Diego County Orange County SF MD Sonoma County LA County Ventura County Bakersfield MSA 0% 1% 2% 3% 4%
…Largest Absolute Gains in So Cal Apr-18 YTY Change Jobs MSA (Seasonally Adjusted) 59,100 LA County 45,100 RV-SB 38,700 San Jose MSA 31,700 San Diego County 28,800 Orange County 26,500 Oakland MSA 23,500 Sacramento MSA 19,100 San Francisco MD 9,200 Fresno MSA 7,800 Stockton-Lodi MSA 3,800 Ventura County
RV-SB Among Fastest Growing MSAs YOU ARE HERE
Unemployment Rates (Seas. Adjusted) Riverside County NSA Unemployment Rates April 17 5.0% 16.0 April 18 3.8% 14.0 12.0 10.0 (% , SA) 8.0 6.0 4.0 2.0 0.0 California Inland Empire Los Angeles Orange County
Riverside County Employment 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 32 Source: QCEW
Riverside County Establishments Q3-17 1-Yr. Chg Industry (000’s) (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 Beacon Economics 33 Source: QCEW
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 $75,687 7.7%
HH Income Median Household Income 2016 3-Yr Chg 70 Total: 715,040 3.1% 65 Thousands ($’s) Less than 25k 20.2% -1.8% 60 55 25-50k 22.1% -1.9% 50 50-75k 17.7% -1.1% 45 40 75-125k 21.9% 0.8% 2005 2007 2009 2011 2013 2015 125-200+ 18.2% 3.9% Riverside San Bernardino California Beacon Economics 36 Source: ACS
Q1-07 = 100 100 120 140 Taxable Sales (Seasonally Adjusted) 20 40 60 80 0 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Riv County (2017Q4: +5.3% YTY) 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
Local Real Estate/ Construction
So Cal Residential Markets YTY % YTY % County Q1-17 Q1-18 Change Change Price Sales -4.2% Los Angeles $567,600 $615,100 8.4% Orange $729,400 $774,800 6.2% -5.1% Riverside $344,600 $379,600 10.2% 1.3% -5.9% San Bernardino $284,800 $304,900 7.1% San Diego $556,000 $597,300 7.4% -4.3% Source: DQ/CoreLogic Ventura $592,300 $623,700 5.3% 5.6% Beacon Economics
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