3/ 3/26/ 26/20 20 The 2020 Economic Review and Outlook for Mark Schniepp Director Mar March 25, 2020 2020 The U.S. and California 1 Agenda What we know to date about 1) --- COVID 19 What’s happening to the U.S. 2) and California economies How long is the economic 3) damage: the outlook for 2020 --- given what we know as of 3-25-20 Risks for the Santa Clarita Valley 4) 2 1
3/ 3/26/ 26/20 20 Daily New Worldwide COVID-19 Cases total new cases per day January 22, 2020 -- March 25, 2020 44,000 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4,000 0 1/22 1/29 2/5 2/12 2/19 2/26 3/4 3/11 3/18 3/25 3 COVID 19 Cases cases February 14, 2020 -- March 25, 2020 75,000 Italy 60,000 45,000 30,000 U.S. South Korea 15,000 0 2/14 2/19 2/24 2/29 3/5 3/10 3/15 3/20 3/25 4 2
3/26/ 3/ 26/20 20 Daily New COVID-19 Cases / South Korea total new cases per day February 14, 2020 -- March 25, 2020 900 800 700 600 500 400 300 200 100 0 2/14 2/18 2/22 2/26 3/1 3/5 3/9 3/13 3/17 3/21 3/25 5 Immediate Status of COVID-19 • We remain in a panic state • The COVID-19 case growth rate in the U.S. continues to rise, exceeding the Italian growth rate of new cases • Escalating in Europe: Spain and Germany • Fastest case growth rate is in New York state • Abating in South Korea and Singapore • No new internal cases in China, last 5 days . . . . 6 3
3/ 3/26/ 26/20 20 For orbes, March 19, 2020 7 Status of COVID-19 • In China, their economy is ramping up, first slowly but now more quickly • More than 90% of all victims have recovered • The supply chains are being restored – Over 95 percent of enterprises back in operation • Apple has re-opened all 42 of it’s stores in mainland China • Starbucks re-opened in Wuhan and will have 90 percent of stores open by next week 8 4
3/ 3/26/ 26/20 20 What you should know about the U.S. Economy q Pre-virus, there was not much negative economic news affecting the 2020 forecast q The stock market recorded record highs q The unemployment rate was at 3.5 % q The economy was poised to only slow a little this year: to 2.0% (from 2.3% in 2019) q Uncertainty from the U.S. China trade war was a dissipating cloud over the economy . . . q Especially after Phase I was signed on 1-15-20 9 Unemployment Rate / US percent June 1965 -- February 2020 11 50 year low 10 9 8 7 6 5 4 3 Jun-65 Apr-72 Feb-79 Dec-85 Oct-92 Aug-99 Jun-06 Apr-13 Feb-20 10 5
3/ 3/26/ 26/20 20 Housing Starts / U.S. millions of units, SAAR February 2008 -- February 2020 1.7 1.6 Highest level since 2006 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16 Feb-18 Feb-20 11 Index of Leading Indicators / U.S. index 2010 = 100 February 2015 0 -- February 2020 113 breakout to the 110 upside in 107 January - February 104 101 98 95 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 12 6
3/ 3/26/ 26/20 20 But everything turned on a dime • The economy faces an unprecedented shock, all within a 3 week period: q COVID 19 hit the Securities Market like a shock wave ! Now, it’s the economy . . . . q Investors are spooked by the uncertainty of containment and unknown extent of economic damage q The Fed first did an emergency 50 BP FFR cut q Then another emergency cut to zero percent to ease credit demands during the crisis 13 Dow Jones Industrial Average index the last 125 days . . . . . to March 25, 2020 30,000 28,500 27,000 25,500 24,000 19 day 19 y peri riod: 22,500 33 percent decline ! 33 21,000 19,500 18,000 9/25/19 10/30/19 12/5/19 1/13/20 2/19/20 3/25/20 14 7
3/ 3/26/ 26/20 20 Supply and Demand Issues 15 Supply and Demand Impacts q We started with a supply issue q Shipping containers filled with products for American businesses not coming from China q Travel bans limiting tourists into the U.S. q Then the forced closures of businesses q That evolved into a demand shock q The stock market collapse affects household wealth; Consumers aren’t spending due to q The wealth effect q Losing their jobs, and q just plain uncertainty about the future 16 8
3/ 3/26/ 26/20 20 Supply and Demand Impacts q Tourists aren’t spending because q they’re not here, and q everything is closed anyway q Heavily impacted sectors include: q Airlines, hotels, restaurants, retail stores . . . . q All spectator entertainment venues q Truck drivers and warehouse workers q And now: bars, gyms, personal care 17 What Impacts we can see to date q A rapid 30 percent decline in the Stock Market q Lack of travel and visitor spending q Planes less than half full, or not flying at all . . . q Tumbleweeds blowing through hotel lobbies . . . q The great Coronavirus shutdown of public events (more on this to come . . . .) q Fed cuts rates to near 0 percent q Flight to safety sends long term interest rates to historical lows 18 9
3/ 3/26/ 26/20 20 What Impacts we can see to date q Initial runs on Costco, Target and all grocery stores for toilet paper, canned goods, produce, fresh meat, bread, rice . . . . q Continued empty grocery store shelves q Empty stores, empty downtowns, no traffic q Longer delivery times from Amazon q Oil prices have tumbled ! q Oil company stock prices down 50 percent, right along with airline stock values 19 West Texas Intermediate Crude Oil Price dollars March 2002 -- March 20, 2020 per barrel 130 18 year low 115 100 85 70 55 40 25 10 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 20 10 10
3/ 3/26/ 26/20 20 The Great COVID 19 Shutdown q NBA season suspended q March Madness cancelled q All California schools closed - next 3 weeks q All high school sporting events suspended q UC System in-person classes cancelled q Disneyland theme parks closed, CA and Florida q New York Broadway shows closed q Major League Baseball season delayed 21 The Great COVID 19 Shutdown q 2020 Summer Olympics postponed to 2021 q Music festivals like Coachella postponed q Other entertainment events cancelled q Conventions cancelled q Conferences cancelled or postponed q Travel from Asia, Europe into US, banned q All Bars, restaurants, wineries, breweries . . . . q Shelter-in-place enacted in ½ of U.S. so far . . . 22 11 11
3/ 3/26/ 26/20 20 Jobs most at risk q Food services and drinking places q Most of the retail trade sector q Amusement and recreation q Spectator sports, sporting goods q Motor vehicle parts dealers q Accommodation and Hospitality q Health and personal care stores q Air, water, and ground transportation q Trucking q Business and administrative support services 23 Observed Layoffs to date q At airlines, airports, hotels, restaurants and bars, . . . . at all public meeting places q All staff at all sports venues, their suppliers, food concessions, fitness centers, salons q Layoffs of trucking and warehousing workers due to less imported products from China and fewer deliveries to restaurants, hotels, and bars q Because of all the closures, there is less to transport, store, and deliver q Idled workers from shelter-in-place mandates 24 12 12
3/ 3/26/ 26/20 20 Initial Claims for Unemployment Insurance thousands California of claims Weekly: March 21, 2005 - March 21, 2020 250 Last week ending last Friday 200 Great recession 150 100 50 0 Mar-05 Sep-07 Mar-10 Sep-12 Mar-15 Sep-17 Mar-20 25 Initial Claims for Unemployment Insurance U.S. thousands of claims Weekly: March 2015 - March 21 , 2020 700 Last week ending last Friday 600 More than triple, 500 the previous week 400 300 200 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 26 13 13
3/ 3/26/ 26/20 20 Consumer Sentiment / University of Michigan index 1985=100 March 2011 -- March 2020 104 98 92 This reading will 86 80 collapse and 74 confirm a bearish 68 62 sentiment . . . 56 50 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 27 Observed Impacts we are seeing q Sharp and sustained declines in consumer spending are occurring now due to staying at home, being out of work, and/or the wealth effect q most travel and all recreation, amusement q In-store retail goods/services, x food, medicine q à automobiles, and larger durable goods q A recession occurs if these effects on demand are severe or prolonged q Severity rises with the length of the shut down period deemed necessary for containment 28 14 14
3/ 3/26/ 26/20 20 What Californians Google index October 20, 2020 -- March 20, 2020 100 80 “ Recession ” 60 40 20 0 10/20/19 11/8/19 11/27/19 12/16/19 1/4/20 1/23/20 2/11/20 3/1/20 3/20/20 29 Further Impacts we WILL see q Interruptions of durable good supplies --- iphones, other electronics, farm equipment q Construction delays from interrupted supplies of building materials from China q Small and mid-size business bankruptcies q Continued “shortages” at grocery stores q Oil and gas facility shutdowns all over the country and more layoffs . . . .. -- of oil and gas extraction workers and support crews 30 15 15
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