Analysis. Answers The Economic Outlook Focus on the Southbay January 2016 Beacon Economics, LLC � Analysis. Answers.
The Wrong Question Analysis. Answers. 2
The Right Answer • US Economy Picking up Steam – 2015: Be?er than it looked – Labor markets have turned a corner – Forget the market turmoil: we are not in a bubble – Housing sGll chugging along – Credit expanding on many levels – Commodity prices are down – California leading the charge • Headwinds? Sure… – State and Local Budgets sGll stressed – Global economy—parGcularly Asia – Bad Financial RegulaGons – Frothy markets could become an issue – Growing Inequality / PoliGcal Gridlock – Local housing issues Analysis. Answers. 3
2015: Better that it looks 2015 Beacon 2013 2014 2015 I II III IV 2.09 1.76 GDP 2.45 2.53 0.60 3.90 2.10 2.75 2.98 Final Demand 1.64 3.11 1.65 3.70 2.91 1.98 2.26 Personal consump@on 1.56 2.16 1.19 2.42 2.05 0.48 0.74 Durable goods 0.34 0.53 0.14 0.57 0.47 0.41 0.33 Nondurable goods 0.41 0.36 0.10 0.62 0.58 1.09 1.20 Services 0.82 1.27 0.94 1.23 1.00 0.77 0.89 Gross investment 1.15 0.80 1.39 0.85 -0.05 -0.10 -0.14 Structures 0.18 0.14 -0.22 0.18 -0.21 0.24 0.24 Equipment 0.23 0.30 0.14 0.03 0.55 0.20 0.21 IPP 0.13 0.25 0.29 0.33 -0.03 0.30 0.32 ResidenGal 0.11 0.16 0.32 0.30 0.24 0.01 -0.25 Change inventories 0.52 -0.05 0.87 0.02 -0.59 -0.73 -0.96 Net exports 0.29 -0.53 -1.92 0.18 -0.22 -0.05 -0.13 Exports 0.68 0.32 -0.81 0.64 0.11 -0.69 -0.83 Imports -0.39 -0.85 -1.12 -0.46 -0.33 0.31 0.49 Government -0.55 0.07 -0.01 0.46 0.29 0.08 0.21 Federal -0.53 -0.05 0.08 0.00 0.01 Analysis. Answers. 4 0.24 0.28 State and local -0.02 0.12 -0.09 0.46 0.29
Consumer Spending Real Consumer Spending Real Consumer Spending by Type Growth 5.0% 4.0% 4.5% 4.0% 3.5% 3.5% 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.0% 0.5% Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 0.0% Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Goods Services Analysis. Answers. 5
Consumer Spending Auto and Light Truck Unit Sales SAAR Household Savings Rate % of DPI 6.0% 18000 5.5% 16000 14000 5.0% 12000 4.5% 10000 4.0% 8000 3.5% 6000 Aug-13 Aug-14 Feb-15 May-15 Aug-15 Feb-13 May-13 Nov-13 Feb-14 May-14 Nov-14 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Analysis. Answers. 6
Labor Markets Change in Payrolls (3 Month MA) Unemployment Rate(s) 18.0 350 16.0 300 14.0 250 12.0 10.0 200 8.0 150 6.0 100 4.0 2.0 50 0.0 Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11 May-12 Apr-13 Mar-14 Feb-15 0 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Headline U-6 Analysis. Answers. 7
Consumer Credit Change Consumer Credit ($Bil, 3 Outstanding Consumer Debt Month MA) $Trillions 25 13.0 12.5 20 12.0 11.5 15 11.0 10 10.5 10.0 5 9.5 0 9.0 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 Analysis. Answers. 8
Consumer Credit Debt Servicing as Share DPI Credit Score at Origina@on 19 800 18 750 17 16 700 15 14 650 13 12 600 11 550 10 9 1980Q1 1982Q2 1984Q3 1986Q4 1989Q1 1991Q2 1993Q3 1995Q4 1998Q1 2000Q2 2002Q3 2004Q4 2007Q1 2009Q2 2011Q3 2013Q4 500 99:Q2 01:Q2 03:Q2 05:Q2 07:Q2 09:Q2 11:Q2 13:Q2 15:Q2 FOB DSR Median 25th percenGle 10th percenGle Analysis. Answers. 9
Student Loan Crisis? Breaking It Down by Borrower Share Loans 90 Days Late by Type 16 Mil. Share 2009 Coh. 14 # Debt Del. Rate. 2014Q4 12 9.03 2.0% 33.5% <$5k 10 7.79 4.8% 28.5% $5k and $10k 8 12.35 18.3% 23.5% $10k and $25k 6 8.00 24.5% 20.7% $25k and $50k 4 4.36 25.6% 20.6% $50k and $100k 2 1.24 9.2% 20.6% $75k and $100k 0 1.82 24.9% 17.6% $100k+ 03:Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 44.58 Total MORTGAGE HELOC $27,000 AUTO CC Avg STUDENT LOAN $17,000 Median Analysis. Answers. 10
Degrees Among 21-27 with Bachelor Annual Income PETROLEUM ENGINEERING 55,103 COMPUTER ENGINEERING 50,542 CHEMICAL ENGINEERING 48,668 COMPUTER SCIENCE 46,060 AEROSPACE ENGINEERING 44,651 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 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 Analysis. Answers. 11 FINANCE 123,068
Production Industrial Produc@on to November ISM Indexes to November 109 66 64 107 62 105 60 58 103 56 101 54 99 52 50 97 48 95 46 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Total Manufacturing Manufacturing Other Analysis. Answers. 12
Production Breakdown Y-o-Y Growth by Sector Industrial Indexes Oil and Gas 150 Motor vehicles Electrical eq Nonmetallic 130 Petroleum Furniture PlasGcs 110 PrinGng Food 90 Chemical TexGles Computer 70 Wood product Aerospace Total index 50 Paper Fabr metal Machinery 30 Electric Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Apparel Mining Primary metal Oil Gas ExtracGon Oil Gas Drilling -10.0% -5.0% 0.0% 5.0% 10.0% Analysis. Answers. 13
Oil Activity Oil Produc@on Per Day (000s Shale oil era has reduced estimated future marginal costs Barrels) Breakeven cost for new projects, USD per barrel $120 10000 2009 2010 2011 2013 2014 2012 9000 $100 8000 $80 7000 2014 with cost $60 deflation impact 6000 $40 5000 4000 $20 0 5 10 15 20 25 30 35 3000 Estimated peak cumulative production, mm barrels per day Jan-05 Feb-06 Mar-07 Apr-08 May-09 Jun-10 Jul-11 Aug-12 Sep-13 Oct-14 Source: Goldman Sachs, "400 projects to change the world" , JPMAM. 2014. Analysis. Answers. 14
External Environment Trade Flows to October Goods Trade Balance Balance -30000 1.02 YTD 14 YTD 15 Ch Canada -28.8 -12.1 16.7 1 Netherlands 18.6 19.8 1.2 -35000 India -21 -20.1 0.9 0.98 Belgium 11.7 12.2 0.5 -40000 Japan -55.8 -56.3 -0.5 0.96 Taiwan -11.9 -12.4 -0.5 -45000 Germany -60.8 -61.5 -0.7 0.94 France -12.8 -13.9 -1.1 -50000 0.92 UK 0.1 -1.7 -1.8 Italy -20.5 -22.9 -2.4 -55000 0.9 Korea, South -20.1 -23.9 -3.8 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Mexico -44.4 -48.6 -4.2 Brazil 11 3.9 -7.1 Nominal Deficit Price Exports / Imports China -284.4 -306.5 -22.1 Analysis. Answers. 15
Europe EU Industrial Produc@on EU Unemployment Rate Y-o-Y Growth Bank Loans to Growth to October Oct (Non-Gov or MFI) 10.0% 13.0 14.0% 12.0% 8.0% 12.0 10.0% 6.0% 11.0 8.0% 4.0% 6.0% 10.0 2.0% 4.0% 9.0 0.0% 2.0% 8.0 0.0% -2.0% -2.0% 7.0 -4.0% -4.0% -6.0% 6.0 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 -6.0% Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Analysis. Answers. 16
� � China Figures China IP Growth Y-o-Y 12 Chinese Trade Year-over-Year Percent Change, 3-Month Moving Average 80% 80% 10 � 60% 60% 8 40% 40% 6 � 20% 20% 4 � 0% 0% 2 -20% -20% Exports: Sep @ -5.9% 0 Imports: Sep @ -14.1% -40% -40% Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Oct-14 Feb-15 Jun-15 Jun-14 2000 2002 2004 2006 2008 2010 2012 2014 Inside Analysis. Answers. 17
Housing Markets Exis@ng Home Sales to Oct Median Price Growth (Y-o-Y 7500 20.0% 7000 15.0% 6500 10.0% 6000 5.0% 5500 5000 0.0% 4500 -5.0% 4000 -10.0% 3500 -15.0% 3000 2500 -20.0% Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11 May-12 Apr-13 Mar-14 Feb-15 Analysis. Answers. 18
Case-Shiller Regional Price Trends 13-14 14-15 Diff 13-14 14-15 Diff OR-Portland 6.2% 11.0% 4.8% AZ-Phoenix 2.2% 5.7% 3.5% CA-San Francisco 9.5% 10.9% 1.5% Composite-20 4.4% 5.6% 1.1% CO-Denver 7.1% 10.9% 3.7% MI-Detroit 3.6% 5.3% 1.6% TX-Dallas 7.7% 9.3% 1.6% MA-Boston 4.3% 5.2% 0.9% WA-Sea?le 6.2% 8.8% 2.6% Na@onal-US 4.6% 5.2% 0.5% FL-Miami 9.5% 8.0% -1.5% NC-Charlo?e 2.7% 4.7% 2.0% FL-Tampa 6.1% 6.4% 0.3% MN-Minneapolis 2.1% 4.0% 2.0% CA-San Diego 4.7% 6.3% 1.6% NY-New York 1.8% 3.1% 1.3% CA-Los Angeles 4.9% 6.1% 1.3% OH-Cleveland 0.8% 2.2% 1.5% GA-Atlanta 4.4% 6.1% 1.6% DC-Washington 2.0% 1.7% -0.3% NV-Las Vegas 7.8% 5.8% -2.1% IL-Chicago 1.8% 1.4% -0.4% Analysis. Answers. 19
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