Analysis. Answers The Economic Outlook Focus on So-Cal March 2015 Beacon Economics, LLC 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 of recovery – Gas prices a net positive Analysis. Answers. 2
GDP 2014: Soft End 2014 II III IV 2012 2013 2014 GDP 4.6 5 2.6 2.3 2.2 2.4 1.75 2.21 2.87 1.25 1.64 1.72 Consumption 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 2.87 1.18 1.2 1.33 0.76 0.95 Investment 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. 3
Consumer Spending Real Consumer Spending: Retail Sales y-o-y Growth to Dec Smoothed Quarter Growth 6.0% 5.0% 4.5% 5.0% 4.0% 4.0% 3.5% 3.0% 3.0% 2.5% 2.0% 2.0% 1.5% 1.0% 1.0% 0.0% 0.5% May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 0.0% Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Total x Gasoline Analysis. Answers. 4
Employment Change in Payroll, Employment Distressed Workers to January 3 mth ma, to Jan. 20000 350 18000 300 16000 250 14000 200 12000 150 10000 100 8000 50 6000 0 4000 -50 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Analysis. Answers. 5
Weekly Earnings Weekly Earnings to January, Nominal 870 3.0% 860 2.5% 850 840 2.0% 830 1.5% 820 810 1.0% 800 0.5% 790 780 0.0% Nominal Earnings Y-o-Y Growth Analysis. Answers. 6
10 15 20 25 30 0 5 Jan-12 $166B Mar-12 Change in Consumer Credit May-12 Jul-12 ($billions) to Nov Sep-12 Nov-12 Jan-13 Analysis. Answers. $170B Mar-13 May-13 Jul-13 Consumer Credit Sep-13 Nov-13 Jan-14 $216B Mar-14 May-14 Jul-14 Sep-14 Nov-14 10.00 12.00 14.00 16.00 18.00 20.00 8.00 1980Q1 Debt Cost Ratios: % DPI 1982Q4 1985Q3 1988Q2 DSR 1991Q1 1993Q4 1996Q3 FOB 1999Q2 2002Q1 2004Q4 2007Q3 2010Q2 7 2013Q1
Degrees Among 21-27 with Bachelor Annual Income Diploma’s Awarded Student Loan Debt as PETROLEUM ENGINEERING 55,103 PSYCHOLOGY 289,968 COMPUTER ENGINEERING 50,542 BUSINESS MANAGEMENT AND A 217,369 share consumer credit CHEMICAL ENGINEERING 48,668 BIOLOGY 178,560 COMPUTER SCIENCE 46,060 45.0% GENERAL BUSINESS 171,875 AEROSPACE ENGINEERING 44,651 NURSING 170,595 INDUSTRIAL AND MANUFACTUR 43,898 COMMUNICATIONS 162,915 40.0% INDUSTRIAL AND ORGANIZATI 43,804 MARKETING AND MARKETING R 160,309 MECHANICAL ENGINEERING 43,495 ACCOUNTING 146,322 ENGLISH LANGUAGE AND LITE 132,367 ELECTRICAL ENGINEERING 42,238 35.0% MATHEMATICS AND COMPUTER 41,640 CRIMINAL JUSTICE AND FIRE 123,509 PHARMACY PHARMACEUTICAL S 40,933 POLITICAL SCIENCE AND GOV 123,106 OPERATIONS LOGISTICS AND 40,840 FINANCE 123,068 30.0% ELEMENTARY EDUCATION 116,591 FINANCE 40,236 GENERAL EDUCATION 111,969 GENERAL ENGINEERING 40,179 ECONOMICS 101,525 MISCELLANEOUS ENGINEERING 39,965 25.0% PHYSICAL FITNESS PARKS RE 100,639 ACTUARIAL SCIENCE 39,773 HISTORY 96,637 ARCHITECTURAL ENGINEERING 39,522 20.0% SOCIOLOGY 88,220 BIOMEDICAL ENGINEERING 39,098 COMMERCIAL ART AND GRAPHI 84,843 COMPUTER ADMINISTRATION M 38,760 COMPUTER SCIENCE 82,940 BUSINESS ECONOMICS 38,484 15.0% MECHANICAL ENGINEERING 67,953 CONSTRUCTION SERVICES 38,176 Mar-06 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13 FINE ARTS 56,589 FOOD SCIENCE 38,057 ELECTRICAL ENGINEERING 53,805 CIVIL ENGINEERING 37,940 LIBERAL ARTS 52,043 NURSING 37,915 JOURNALISM 51,500 MISCELLANEOUS ENGINEERING 37,594 Analysis. Answers. 8
Industry Outlook Y-o-Y Growth in Overall Industrial Y-o-Y Growth in Manufacturing Production to Dec Industrial Production to Dec 6.0 7.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Sep-11 Sep-12 Sep-13 Sep-14 Sep-11 Sep-12 Sep-13 Sep-14 Jan-11 May-11 Jan-12 May-12 Jan-13 May-13 Jan-14 May-14 Jan-11 May-11 Jan-12 May-12 Jan-13 May-13 Jan-14 May-14 Analysis. Answers. 9
Industry Outlook ISM Diffustion Indexes 3 Month Philly Fed CAPEX Outlook MA, to Jan (Diffusion Index to Jan Smoothed) 65 30 63 25 61 59 20 57 55 15 53 51 10 49 47 5 45 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 0 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 Manufacturing Non-Manufacturing Analysis. Answers. 10
-80000 -70000 -60000 -50000 -40000 -30000 -20000 -10000 0 Nominal Trade Deficit to December ($M 2003-01-01 2003-12-01 2004-11-01 2005-10-01 Analysis. Answers. 2006-09-01 2007-08-01 SA) 2008-07-01 2009-06-01 2010-05-01 2011-04-01 2012-03-01 Trade 2013-02-01 2014-01-01 2014-12-01 100 105 110 115 90 95 2012-01-03 2012-04-03 2012-07-03 2012-10-03 Daily Broad Index 2013-01-03 2013-04-03 2013-07-03 2013-10-03 2014-01-03 2014-04-03 2014-07-03 2014-10-03 11 2015-01-03
Global Situation EU Bank Balances 6,500,000 6,000,000 5,500,000 5,000,000 4,500,000 4,000,000 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Analysis. Answers. 12
Greece Again? 10-Year Government Bond Yields Percent 40% 40% Italy: Feb 06 @ 1.6% Greece: Feb 06 @ 9.7% 35% 35% Spain: Feb 06 @ 1.5% Portugal: Feb 06 @ 2.2% 30% 30% Germany: Feb 06 @ 0.3% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% 2008 2009 2010 2011 2012 2013 2014 2015 Analysis. Answers. 13
China Chinese IP Index China Manufacturing PMI Seasonally Adjusted Y-o-Y Percent Change, 3MA 60 60 Dec @ 7.6% 55 55 25% 20% 50 50 15% 45 45 10% 5% 40 40 0% Chinese Manufacturing PMI: Jan @ 49.8 35 35 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (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. Analysis. Answers. 14
Gas Prices: Still Falling • ~20,000 barrels Real Price Gasoline (per gallon to Jan 15) per day in 5 consumption 4.5 – Gasoline: 45% 4 – Jet Fuel: 20% 3.5 – Other: 35% • Annual US 3 spending on 2.5 refined 2 products down 1.5 $1,000b to 1 $700b with 0.5 consumption 0 increase Analysis. Answers. 15
Marginal Cost Ceiling Shale oil era has reduced estimated future marginal costs CHARt 3: Net OIL eXpOSURe dIFFeRS CONSIdeRABLY Breakeven cost for new projects, USD per barrel ACROSS 20 LARGeSt eCONOMIeS $120 (Exports -Imports) as a % of GDP 2009 2010 2011 2013 2014 2012 42.5% 20% $100 15% 10% $80 5% 2014 with cost $60 0% deflation impact -5% $40 -10% Saudi Arabia Russia Canada Mexico UK Brazil USA Turkey Switzerland Australia Italy France China Germany Netherlands Spain Japan Indonesia India Korea $20 0 5 10 15 20 25 30 35 Estimated peak cumulative production, mm barrels per day Source: UN Comtrade, TD Economics. 2013 data. Source: Goldman Sachs, "400 projects to change the world" , JPMAM. 2014. JPMorgan Analysis. Answers. 16
Housing • Inventories Home Sales, SAAR to Dec at 5 months 5,500 5,300 • Median 5,100 4,900 price grew 4,700 4,500 1.7% (up 4,300 4,100 6.0% y-o-y) 3,900 3,700 3,500 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Analysis. Answers. 17
New Construction Housing Permits New SF Home Sales SAAR 2004 to 2014 2004 to 2014 1200 1600 1400 1000 1200 800 1000 600 800 400 600 200 400 200 0 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 0 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Single Multi Analysis. Answers. 18
680 690 700 710 720 730 740 750 760 770 Q1-00 Q2-01 Fannie Mae Average FICO Q3-02 Q4-03 Q1-05 Analysis. Answers. Q2-06 Q3-07 Q4-08 Better Signs… Q1-10 Q2-11 Q3-12 Q4-13 $10 $12 $14 $16 $18 $0 $2 $4 $6 $8 1995Q1 1996Q3 1998Q1 1999Q3 Home Equity 2001Q1 2002Q3 2004Q1 2005Q3 2007Q1 2008Q3 2010Q1 2011Q3 19 2013Q1
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