Christopher Thornberg Founding Partner, Beacon Economics€¦ · 25/10/2013 · San Diego 8.4 3.7 Napa 8.1 3.3 San Francisco 7.2 3.2 San Luis Obispo 7.3 3.0 Visalia MSA 9.5 2.8 Fresno

Analysis. Answers. pg

Analysis. Answers

Beacon Economics, LLC!

The US Economic Outlook Focus on California

October 2013

Christopher Thornberg Founding Partner, Beacon Economics


Bernanke was right! things are improving.

2

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GDP: Picking up after a bad couple quarters

3

-2

-1

0

1

2

3

4

5

6

2011

I II III

IV

2012

I II III

IV

2013

I II

Gross domestic product

2012 2013 2013 Avg I II III est

Gross domestic product 1.95 1.10 2.50 2.10 Final Private Demand 2.66 1.03 2.10

Personal consumption 1.39 1.54 1.21 1.24 Durable goods 0.56 0.43 0.45 0.30 Nondurable goods 0.25 0.43 0.28 0.50 Services 0.58 0.69 0.48 0.44 Private domestic investment 0.49 0.71 1.48 1.21 Structures 0.24 -0.80 0.40 0.39 Equipment 0.25 0.09 0.16 0.15 Intellectual property products 0.11 0.14 -0.04 0.21 Residential 0.38 0.34 0.37 0.31 Change in private inventories -0.49 0.93 0.59 0.13 Net exports 0.30 -0.28 0.00 -0.39 Exports 0.32 -0.18 1.11 1.35 Imports -0.02 -0.10 -1.11 -1.73 Government consumption -0.22 -0.82 -0.18 0.05 Federal -0.18 -0.68 -0.12 0.01 State and local -0.04 -0.14 -0.06 0.04


Consumer Update

4

100

105

110

115

120

125

Jan-

09

Aug

-09

Mar

-10

Oct

-10

May

-11

Dec

-11

Jul-1

2 Fe

b-13

S

ep-1

3

Retail Sales

Retail Sales x Auto Gas

ICSC Index

8000 9000

10000 11000 12000 13000 14000 15000 16000 17000

Jan-

10

Aug

-10

Mar

-11

Oct

-11

May

-12

Dec

-12

Jul-1

3

Auto Sales

Auto Sales Gr Retail x

Auto Gas Gr ICSC Retail Gr Q1 15252 2.2% 294077 1.0% 118 2.2% Q2 15471 1.4% 296575 0.8% 119 0.7% Q3 15657 1.2% 299055 0.8% 120 0.9%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

2100 2200 2300 2400 2500 2600 2700 2800 2900

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Personal Taxes Paid, % Income


Employment and Income

5

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%

0

50

100

150

200

250

300

350

Jan-

11

Jun-

11

Nov

-11

Apr

-12

Sep

-12

Feb-

13

Jul-1

3

Payroll Jobs

Change y-o-y %

0%

1%

2%

3%

4%

5%

6%

7%

Jul-1

0

Dec

-10

May

-11

Oct

-11

Mar

-12

Aug

-12

Jan-

13

Jun-

13

Y-o-Y Growth in Real Personal Income

Wages and Salaries

Total Total

3000

4000

5000

6000

7000

8000

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

Not in Labor Force, but want a job (August

readings)

Part Time Employment

13-Aug Change Total 141947 2029 Full Time 115227 1815 PT Economic 7785 -125 PT Non-Econ 18935 339


Q2 Flow of Funds

6

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

1997

Q1

1998

Q2

1999

Q3

2000

Q4

2002

Q1

2003

Q2

2004

Q3

2005

Q4

2007

Q1

2008

Q2

2009

Q3

2010

Q4

2012

Q1

2013

Q2

Real Household Wealth

Home Equity Other Net Wealth

10

15

20

25

30

35

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

Financial Obligation Ratio: % of Disposable Income

Homeowners Renters


US Production

7

46 48 50 52 54 56 58 60 62 64

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

ISM Surveys

Manufacturing

Non-Manufacturing

180000

190000

200000

210000

220000

230000

240000

Jan-

11

Jun-

11

Nov

-11

Apr

-12

Sep

-12

Feb-

13

Jul-1

3

Advance Orders and Shipments (Durables)

Shipments

Orders: Smoothed

92

93

94

95

96

97

98

99

100

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

US Production to August

Total Manufacturing


Great Earnings

8

800

900

1000

1100

1200

1300

1400

Jan-

09

Jun-

09

Nov

-09

Apr

-10

Sep

-10

Feb-

11

Jul-1

1 D

ec-1

1 M

ay-1

2 O

ct-1

2 M

ar-1

3

Proprietors Income

400

600

800

1000

1200

1400

1600

1800

2007

I III

2008

I III

2009

I III

2010

I III

2011

I III

2012

I III

2013

I

Corporate Profits after tax, IVA and CCAdj


Bubble? Nah!

9

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1995

.02

1996

.04

1997

.06

1998

.08

1999

.1

2000

.12

2002

.02

2003

.04

2004

.06

2005

.08

2006

.1

2007

.12

2009

.02

2010

.04

2011

.06

2012

.08

Implied Equity Premium Over Treasuries

800 900

1000 1100 1200 1300 1400 1500 1600 1700 1800

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

S&P Stock Price Index


Business Investments

10

150

170

190

210

230

250

270

290

310

330

2002

I IV

III

II 20

05I

IV

III II

2008

I IV

III

II 20

11I

IV

III II

Real Tech Investments: US $bil

Information processing equipment

Software

Research and development

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1987

Q4

1989

Q4

1991

Q4

1993

Q4

1995

Q4

1997

Q4

1999

Q4

2001

Q4

2003

Q4

2005

Q4

2007

Q4

2009

Q4

2011

Q4

Capex Ratio


Housing Markets

11

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

5,000

Jan-

12

Mar

-12

May

-12

Jul-1

2 S

ep-1

2 N

ov-1

2 Ja

n-13

M

ar-1

3 M

ay-1

3 Ju

l-13

Sep

-13

Home Sales

SF Sales SAAR Months Inventory

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

150,000

160,000

170,000

180,000

190,000

200,000

210,000

Jan-

12

Mar

-12

May

-12

Jul-1

2 S

ep-1

2 N

ov-1

2 Ja

n-13

M

ar-1

3 M

ay-1

3 Ju

l-13

Sep

-13

Home Prices

Median Price Y-o-Y Gr Core Logic


Interest Rates and Affordability

12

0 1 2 3 4 5 6 7 8 9

Jan-

00

Feb-

01

Mar

-02

Apr

-03

May

-04

Jun-

05

Jul-0

6 A

ug-0

7 S

ep-0

8 O

ct-0

9 N

ov-1

0 D

ec-1

1 Ja

n-13

Annual Interest Rates

10 Year Treasury

Conventional Mortgage

AAA Corporate

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Jan-

87

Nov

-88

Sep

-90

Jul-9

2 M

ay-9

4 M

ar-9

6 Ja

n-98

N

ov-9

9 S

ep-0

1 Ju

l-03

May

-05

Mar

-07

Jan-

09

Nov

-10

Sep

-12

Estimate Monthly Payments as Share Median income with Tax

Adjustment


Residential: Regional Take

13

Y-o-Y NY-New York 3.4% DC-Washington 5.9% MA-Boston 6.2% IL-Chicago 7.6% TX-Dallas 8.5% MN-Minneapolis 9.4% CO-Denver 9.7% OR-Portland 12.2% WA-Seattle 12.4% FL-Tampa 12.5% FL-Miami 13.7% MI-Detroit 16.8% GA-Atlanta 18.4% AZ-Phoenix 18.9% CA-San Diego 20.4% CA-Los Angeles 20.8% CA-San Francisco 24.8% NV-Las Vegas 27.5%

0

100000

200000

300000

400000

500000

600000

Jan-

02

Jul-0

3 Ja

n-05

Ju

l-06

Jan-

08

Jul-0

9 Ja

n-11

Ju

l-12

State Median Prices

California

Case Shiller: Aug-Aug

0

10000

20000

30000

40000

50000

60000

70000

80000

Q1-

94

Q1-

96

Q1-

98

Q1-

00

Q1-

02

Q1-

04

Q1-

06

Q1-

08

Q1-

10

Q1-

12

Foreclosures

California


Where are those jobs?

14

1 Idaho 2.98% 2 Texas 2.79% 3 Colorado 2.71% 4 North Dakota 2.62% 5 Mississippi 2.52% 6 Utah 2.25% 7 Montana 2.00% 8 Washington 2.00% 9 Nevada 1.96% 10 Arizona 1.96% 11 New Jersey 1.92% 12 Georgia 1.90% 13 California 1.76% 14 Florida 1.72% 15 South Carolina 1.70% 16 Minnesota 1.69% 17 Missouri 1.69% 18 Oregon 1.67%

Change in Payroll Jobs

94

96

98

100

102

104

106

108

Jan-

03

May

-04

Sep

-05

Jan-

07

May

-08

Sep

-09

Jan-

11

May

-12

Inde

x =

100

in J

an-0

3

Payroll Employment

United States California

96

98

100

102

104

106

108

Jan-

03

May

-04

Sep

-05

Jan-

07

May

-08

Sep

-09

Jan-

11

May

-12

Inde

x =

100

in J

an-0

3

Household Employment



Unemployment

15

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Jan-

12

State Unemployment UnEm Ch 06-13 Orange County 10.1 5.4 Solano 13.6 5.3 Los Angeles 10.0 5.0 Inland Empire 12.6 4.6 East Bay 11.5 4.2 Bakersfield 8.9 4.0 San Diego 8.4 3.7 Napa 8.1 3.3 San Francisco 7.2 3.2 San Luis Obispo 7.3 3.0 Visalia MSA 9.5 2.8 Fresno 7.1 2.8 Sacramento 5.9 2.5 Monterey 6.4 2.5 Ventura MSA 6.4 2.5 Sonoma 6.5 2.4 Santa Barbara 6.6 2.1 San Jose 5.3 1.4


Regional Growth


Real GSP Growth

17

GDP Growth by State (2012) (%)

Rank State Growth - USA 2.46 1 N Dakota 13.38 2 Texas 4.82 3 Oregon 3.95 4 Washington 3.63 5 Minnesota 3.55 6 California 3.47 7 Utah 3.42 8 Indiana 3.30 9 Tennessee 3.28

10 W Virginia 3.27 11 N Carolina 2.68 12 S Carolina 2.68 13 Arizona 2.60 14 Florida 2.43 15 Maryland 2.43 26 Illinois 1.91

100 110 120 130 140 150 160 170 180 190 200

1997

19

99

2001

20

03

2005

20

07

2009

20

11

Index 1997 = 100


Share Growth Cont All industry total 3.5%

Manufacturing 11.6% 8.0% 0.895% Information 8.3% 8.3% 0.656% Retail trade 6.6% 5.5% 0.360% Real estate 16.1% 2.1% 0.349% Finance insurance 5.6% 6.2% 0.342% Wholesale trade 5.4% 4.8% 0.255% Professional, science 9.3% 1.8% 0.172% Construction 2.9% 6.0% 0.172% Administrative 3.2% 5.4% 0.169% Accommodation 2.7% 4.8% 0.128% Mining 1.0% 10.2% 0.099% Utilities 1.5% 6.0% 0.086% Transportation 2.4% 1.8% 0.044% Health care 6.2% 0.5% 0.032% Education 0.9% 2.4% 0.021% Arts, entertainment 1.4% 1.5% 0.020% Other services 2.2% 0.3% 0.007% Management 1.2% 0.2% 0.003% Agriculture 1.2% -4.7% -0.063% Government 10.3% -1.0% -0.106%

Structure California Economy


Where / what are those jobs?

18

Aug-13 California 14671.8 1.5%

Napa 65.6 4.0% San Jose 936.2 2.9% San Luis Obispo 105.3 2.8% Santa Barbara 173.2 2.4% Solano 122.2 2.3% Orange County 1434.7 2.2% San Francisco 1024.7 2.1% Ventura MSA 284.6 1.8% Fresno 287.1 1.7% Bakersfield 247 1.7% Los Angeles 3947.1 1.7% Visalia MSA 110.1 1.4% Monterey 123.3 1.1% San Diego 1278.4 1.1% Sonoma 174.8 0.9% East Bay 990.8 0.8% Inland Empire 1162.7 0.6% Sacramento 827.6 0.2%

Aug-13 Total Nonfarm 14671.8 1.5% 223.9 Construction 616.5 5.0% 29.1 Natural Resources 29.3 -3.3% -1 Durable Manu 782.1 -0.1% -1.1 Non-Durable Manu 471.2 0.0% -0.1 Wholesale Trade 700.4 3.1% 21.2 Retail Trade 1566.3 0.2% 2.8 Logistics 499.6 2.3% 11.4 Information 432.3 -0.4% -1.8 Finance 533.5 1.5% 7.9 Real Estate 259.6 2.6% 6.7 Prof Sci Tech 1141.9 2.0% 22.5 Management 207.8 3.1% 6.2 Admin Support 961.2 3.0% 27.8 Education 352.3 2.9% 10 Health Care 1574.7 1.7% 26.4 Accommodation 1406.1 4.0% 54.7 Arts Entertainment 271 4.4% 11.5 Other Services 510.4 0.5% 2.7 Federal Gov 243.4 -2.1% -5.2 State Gov 478.4 0.0% 0.2 Local Gov 1634.2 -0.5% -7.4


Spending

100

110

120

130

140

150

160

Q1-

06

Q4-

06

Q3-

07

Q2-

08

Q1-

09

Q4-

09

Q3-

10

Q2-

11

Q1-

12

Q4-

12

Taxable Sales Q2-13 Y-o-Y Gr Los Angeles 35514153.2 5.7% Orange County 14373082.4 5.1% Riverside 7495948 7.5% San Diego 12371533.1 4.4% Alameda 6771873.1 7.4% Santa Clara 9383569.1 5.3% San Bernardino 7692308.6 5.4% Sacramento 4969777.1 4.3% Fresno 3146743.2 6.7% Placer 1932337.7 10.4% Sonoma 1989531.3 9.1% San Luis Obispo 1295664.9 11.7% San Francisco 4127592.1 3.6% Solano 1628350.5 7.1% Yolo 958991.6 11.8% San Mateo 3569110.6 2.9%


Center of R&D World

20

-

1

2

3

4

5

6

7

8

9

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

U.S

. $, Q

uart

erly

B

illio

ns

Venture Capital Funding !"#$%&'()*+,-.))/000%1)

232)456"78)

93&6:) ;+<==>?@) ,+-?@A)

B3CD6'8) ;-<0E>?=) ,-0?=A)

FG3&8H5"3:37() ;.>E?I) J>?.A)

!9)B8'KGH8%) ;+@@?0) .I?@A)

L8#G6)6"#)M"&?) ;+I+?>) ,.@?EA)

L8#?)N8KGH8%)6"#)MO$GP?) ;-E@?=) ,>@?IA)

!"#$%&'G6:)M"8'7() ;-E>?J) ,=>?0A)

43"%$Q8')R'3#$H&%)6"#)B'K%?) ;--+?J) +=I?0A)

S8&D3'TG"7)6"#)MO$GP?) ;@>?>) -00?=A)

B8QGH3"#$H&3'%) ;EJ?.) ,I.?+A)

98:8H3QQ$"GH6U3"%) ;>>?0) ,I.?.A)

V8&6G:G"7)6"#)NG%&?) ;>.?E) ,>@?+A)

W86:&5H6'8)B8'KGH8%) ;-@?0) -EI?-A)

43QP%?)6"#)R8'GP58'6:%) ;-.?E) ,.+?.A)

XG"6"HG6:)B8'KGH8%) ;J?+) ,@=?EA)

Y&58') ;E?I) ,J?-A)

F$%G"8%%)R'3#$H&%)6"#)B'K%?) ;0?-) Z)

M:8H&'3"GH%)!"%&'?) ;0?0) ,-00?0A)


Hotels: Busy

21

50

55

60

65

70

75

80

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Hotel Occupancy Rates

California

Los Angeles-Long Beach, CA

50 55 60 65 70 75 80 85 90

Jan-

05

Feb-

06

Mar

-07

Apr

-08

May

-09

Jun-

10

Jul-1

1 A

ug-1

2

Hotel Occupancy Rate %

San Francisco/San Mateo, CA

San Jose-Santa Cruz, CA

0

1000000

2000000

3000000

4000000

5000000

6000000

Jan-

07

Sep

-07

May

-08

Jan-

09

Sep

-09

May

-10

Jan-

11

Sep

-11

May

-12

Jan-

13

Airport Traffic

LAX SFO

Oakland San Diego


Revenues Up: Prop. 30 & Economy

22

State Government Revenues - $000s (Comparison to Actuals)

Fiscal 2011-12

Fiscal 2012-13

Change (%)

Fiscal 2013-14 YTD

YTD Change (%)

Pers. Inc. Tax 50,699,022 67,314,600 32.8 12,680,261 11.6

Corporate Tax 8,051,423 7,620,406 -5.4 1,095,781 1.5

Sales/Use Tax 19,438,408 20,073,343 3.3 5,349,742 17.3

Other 5,285,031 5,070,023 -4.1 1,058,436 1.5

Total 83,473,884 100,078,372 19.9 20,184,220 11.9


Even Beating Expectations

23

State Government Revenues - $000s (Comparison to DOF Budget)

2012-13 Budget

2012-13 Actuals Diff. (%)

2013-14 Actuals

Difference from

Budget (%)

Pers. Inc. Tax 66,073,435 67,314,600 1.9 12,680,261 1.0

Corporate Tax 7,224,338 7,620,406 5.5 1,095,781 -3.8

Sales/Use Tax 19,985,405 20,073,343 0.4 5,349,742 2.1

Other 4,796,667 5,070,023 5.7 1,058,436 -9.1

Total 98,079,845 100,078,372 2.0 20,184,220 0.5


PIT Up as Incomes Rise

24

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

$ M

illio

ns

Personal Income Taxes

0

1

2

3

4

5

6

7

8

9

10

Perc

ent

Income Growth

California United States


CORP Lags Despite Better Profits

25

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

$ M

illio

ns

Corporate Taxes

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

500

1,000

1,500

2,000

2,500

Adj

. Clo

se P

rice

($)

$ B

illio

ns

U.S. Corporate Profits and Equity Market


Judicial Funding Increases

Expenditure Item)2012-13 Enacted)

2013-14 Enacted)

Change (%))

Judicial Branch ) 3,929,728) 3,975,565) 1.2)Commission on Judicial Performance ) 4,133) 4,198) 1.6)Judges' Retirement System Contributions ) 424,907) 459,768) 8.2)

o  :"2@$+','&.+).1)KL)@&88&.+)M$+$#,8)B"+C)1.#J)• !"7#$@$)D."#')• D."#'().1):77$,8)• N,*$,()D.#7"()H$(."#-$)D$+'$#)

o KOP)@&88&.+)M$+$#,8)B"+C)• 3.)("77.#')'#&,8)-."#'()•  G+-<)-4,+2$()'.)7#.@.'$)$1Q&-&$+-&$(),+C)#$C"-$)6.#I8.,C)1.#)'#&,8)-."#'()

26

4.9%

Judicial Branch Other Expenses


What about Prop 30?

!"#$%&'%())*%#+),$%-.)/%012%o  :)*,8,+-$C)*"C2$'A)6&'4)@.+$0)1.#)$C"-,'&.+)!"3%-.)/%01%456789:%+)$";.%<;%o  F$-,"($)6$),#$),)4&24)',E)(','$J)R$),#$+S')o  F$-,"($)#&-4)7$.78$)6&88)@./$)."').1)(','$J)34$0)6."8C)4,/$),8#$,C0)!"3%-.)/%01%4567%+)$";.%<;%o  F$-,"($)&')@,I$()"()@.#$)#$8&,+').+),)"+#$8&,*8$)(."#-$).1)&+-.@$J)

!"#78"()&+);)0$,#(T)U4)+.V))o  R$)+$$C)#$,8)#$1.#@J)1,&#$#)',E$().+)*#.,C$#)*,($()o  F$-,"($)6$)/.'$C)&')&+)6&'4."'),+0)'#"$)$E7$+C&'"#$)#$1.#@(J)34$))

7$+(&.+)(0('$@)&()*#.I$+),+C)C$(7$#,'$80)+$$C()Q&E&+2)


In the Long Term?

28

0

0.2

0.4

0.6

0.8

1

1.2

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

Perc

ent

Population Growth

United States Califonria

-) [:6%T6) .=?>A)+) \(3QG"7) ++?+A).) S8D)23'T) -@?IA)>) N8:6D6'8) -@?-A)E) S3'&5)N6T3&6) -I?@A)=) \8%&)]G'7G"G6) -I?0A)I) S8D)L8^GH3) -=?EA)@) B3$&5)46'3:G"6) -=?>A)J) ]8'Q3"&) -=?+A)-0) W6D6GG) -E?JA)!!" #$%&'()*&$" !+,-."-+) LG%%G%%GPPG) -E?=A)-.) \G%H3"%G") -E?=A)->) !3D6) -E?EA)-E) L6G"8) -E?>A)-=) LG""8%3&6) -E?>A)-I) V53#8)!%:6"#) -E?.A)

_"G&8#)B&6&8%)93&6:) ->?IA)

2011 Taxes Fees Paid as share PI

!"H3Q8)A)LG7'6U3")

_"#8');-0<000) ,0?E.)

;-0<000)&3);-J<JJJ) ,-?@=)

;+0<000)&3);+J<JJJ) ,-?=+)

;.0<000)&3);.J<JJJ) ,-?-0)

;>0<000)&3);>J<JJJ) ,-?0J)

;E0<000)&3);I><JJJ) 0?>-)

;IE<000)&3);JJ<JJJ) 0?->)

;-00<000)&3);->J<JJJ) 0?--)

;-E0<000)&3);-JJ<JJJ) ,0?>+)

;+00<000)&3);+E0<000) +?=J)

YK8');+E0<000) ,0?0I)

07-12 Net Domestic Migration by Income


Growth Patterns

29

2010! 2060 Est! State Total ! 37,309 ! 52,694 !

So Cal ! 21,176 ! 28,087 ! South CV ! 3,365 ! 6,758 ! Bay Area ! 7,493 ! 10,024 ! North CV ! 2,744 ! 4,373 ! No Cal ! 1,158 ! 1,701 ! Central Coast ! 1,373 ! 1,751 !

Diff! State Total ! 15,384 !

So Cal ! 6,911 ! 44.9%! South CV ! 3,393 ! 22.1%! Bay Area ! 2,531 ! 16.5%! North CV ! 1,629 ! 10.6%! No Cal ! 543 ! 3.5%! Central Coast ! 378 ! 2.5%!

2012 Ch 11-12 NI NIM NDM

California 37,826,160 255,853 269,379 96,463 (109,989)

Los Angeles 9,911,665 50,829 74,712 31,403 (55,286)

San Diego 3,147,220 21,899 24,402 9,496 (11,999)

Orange 3,071,933 24,813 20,970 8,805 (4,962)

Riverside 2,244,399 23,897 16,797 3,433 3,667

San Bernardino 2,065,016 11,668 18,495 3,320 (10,147)

Santa Clara 1,828,597 21,716 14,525 8,640 (1,449)

Alameda 1,540,790 14,570 9,970 5,992 (1,392)

Sacramento 1,439,874 8,990 9,772 2,916 (3,698)

Contra Costa 1,069,803 8,428 5,226 2,337 865

Fresno 946,823 7,545 9,931 1,258 (3,644)

Kern 855,522 6,683 9,028 1,101 (3,446)

Ventura 834,109 3,894 5,554 1,389 (3,049)

San Francisco 820,349 7,226 3,194 4,265 (233)

San Mateo 736,362 8,382 4,377 2,315 1,690


The Disappointing Recovery

Beacon Economics

65%

66%

67%

68%

69%

70%

71%

72%

Q1-

98

Q4-

99

Q3-

01

Q2-

03

Q1-

05

Q4-

06

Q3-

08

Q2-

10

Consumer Spending as % GDP

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

1969

I 19

74I

1979

I 19

84I

1989

I 19

94I

1999

I 20

04I

2009

I

Taxes as share income

11000

11500

12000

12500

13000

13500

14000

14500

15000

15500

2000

I 20

01II

2002

III

2003

IV

2005

I 20

06II

2007

III

2008

IV

2010

I 20

11II

2012

III

US GDP

Hypothetical Actual


What’s wrong with the economy?

31

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1998

I 19

99IV

20

01III

20

03II

2005

I 20

06IV

20

08III

20

10II

2012

I

Net Trade % GDP

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1999

I IV

III

II 20

06I

IV

III II

2013

I

Construction as % of GDP: Real

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

20.5%

21.0%

21.5%

22.0%

2005

I 20

06I

2007

I 20

08I

2009

I 20

10I

2011

I 20

12I

2013

I

Government Direct Spending % GDP


Trade

32

-60000

-50000

-40000

-30000

-20000

-10000

0

100000

120000

140000

160000

180000

200000

220000

240000

260000

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Nominal Trade to July

Exports Imports Balance

75

80

85

90

95

100

105

110

115

Jan-

99

May

-00

Sep

-01

Jan-

03

May

-04

Sep

-05

Jan-

07

May

-08

Sep

-09

Jan-

11

May

-12

$US Broad Index Real


The World? Turning a corner.. We hope.

33

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

GDP Growth (SA)

United Kingdom United States Euro area

0

2

4

6

8

10

12

14

16

Jan-

11

Mar

-11

May

-11

Jul-1

1 S

ep-1

1 N

ov-1

1 Ja

n-12

M

ar-1

2 M

ay-1

2 Ju

l-12

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

China Industry Value Added: Y-o-Y Growth


Tech Industry: A Global Tick Up?

34

$14.1 Bil.

$26.2 Bil. $25.9 Bil.

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

18,000,000,000

20,000,000,000

22,000,000,000

24,000,000,000

26,000,000,000

28,000,000,000

U.S

.$

Global Semiconductor Sales


California Exports

60000

80000

100000

120000

140000

160000

180000

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

est

State Produced Exports 2013 est TOTAL 159583 -1.4% Electric Machinery Etc 28333 1.1% Industrial Computers 20473 -22.0% Optic Photo Etc Medic 17620 -0.4% Nat Etc Pearls Stones 8410 26.1% Aircraft 9738 16.4% Edible Fruit & Nut 10010 9.0% Vehicles 6043 -16.8% Mineral Fuel Oil 5333 -16.2% Pharmaceutical 5185 17.7% Plastics 4299 -0.3% Iron And Steel 2625 -13.2% Chemical Products 2691 14.5% Dairy Prods 1640 12.3% Miscellaneous Edible 1787 10.9% Beverages Spirits 1842 8.2% Articles Of Iron Or Steel 1646 9.0% Aluminum 1567 -3.0% Edible Vegetables 1401 4.7% Organic Chemicals 1462 47.8% Arms And Ammunition 1447 292.5%


SF Housing Construction

200

300

400

500

600

700

800

900

Jan-

08

Jul-0

8 Ja

n-09

Ju

l-09

Jan-

10

Jul-1

0 Ja

n-11

Ju

l-11

Jan-

12

Jul-1

2 Ja

n-13

Ju

l-13

Single Family Starts / Permits

Permits Starts

100

110

120

130

140

150

160

170

180

300 320 340 360 380 400 420 440 460 480

Jan-

12

Mar

-12

May

-12

Jul-1

2 S

ep-1

2 N

ov-1

2 Ja

n-13

M

ar-1

3 M

ay-1

3 Ju

l-13

New Home Sales

New Sales SAAR New For Sales


Why? Ownership Rates Still Falling

37

50000

55000

60000

65000

70000

75000

80000

60% 61% 62% 63% 64% 65% 66% 67% 68% 69% 70%

Q1-

85

Q1-

88

Q1-

91

Q1-

94

Q1-

97

Q1-

00

Q1-

03

Q1-

06

Q1-

09

Q1-

12

Ownership HVS

Share OO Owner Occupied

Year Total

Multi-Family Owner

s

Multi-Family Renters

Single-Family Owner

s

Single-Family Renters

Owner %

2000 103,149 5,503 22,524 64,878 10,244 68.2

2001 104,884 5,897 22,548 66,167 10,271 68.7

2002 107,729 5,638 22,480 68,765 10,846 69.1

2003 109,751 6,106 23,027 69,817 10,801 69.2

2004 110,597 6,182 22,677 70,924 10,814 69.7

2005 111,971 6,528 22,470 72,020 10,953 70.2

2006 112,966 6,478 22,784 71,860 11,844 69.3

2007 114,459 6,927 23,257 72,371 11,904 69.3

2008 115,250 7,065 23,584 72,294 12,306 68.9

2009 115,647 6,846 23,842 72,007 12,953 68.2

2010 115,922 6,996 23,795 71,814 13,317 68.0

2011 117,095 7,093 24,483 71,508 14,012 67.1

2012 119,472 7,279 25,634 71,934 14,625 66.3

Housing Tenure: March CPS


Apartment / Multi Family

38

0

100

200

300

400

500

600

Jan-

08

Jun-

08

Nov

-08

Apr

-09

Sep

-09

Feb-

10

Jul-1

0 D

ec-1

0 M

ay-1

1 O

ct-1

1 M

ar-1

2 A

ug-1

2 Ja

n-13

Ju

n-13

Multi-Family Permits and Starts

Permits Starts

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How many units do we need?

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

106

108

110

112

114

116

118

120

122

124

2004

03

2004

10

2005

05

2005

12

2006

07

2007

02

2007

09

2008

04

2008

11

2009

06

2010

01

2010

08

2011

03

2011

10

2012

05

2012

12

2013

07

Hou

seho

ld F

orm

atio

n (M

illio

ns)

Tota

l U.S

. Hou

seho

lds

(Mill

ions

)

U.S. Household Formation

U.S. Total Household Formation

2003 2013 2nd Qtr 2nd Qtr

All housing units 121,233 132,754 .Year-round vacant. 11,663 9.6% 13,701 10.3% ...For rent.. 3,646 3.0% 3,614 2.7% ...For sale only 1,256 1.0% 1,460 1.1% ...Rented or sold 1,000 0.8% 1,151 0.9% ...Held off market. 5,762 4.8% 7,476 5.6% ...Occ'l use. 2,060 1.7% 2,449 1.8% ...URE 935 0.8% 1,255 0.9% ...Other 2,766 2.3% 3,773 2.8%

Excess? 809.8

Excess Supply from HVS

Current Completions 770,000

Excess Supply 809,000

Current Pace HH Formation 1,500,000

Pent Up Demand (2012) 850,000


Construction

40

0

200000

400000

600000

800000

1000000

1200000

1400000 Ja

n-06

Ju

n-06

N

ov-0

6 A

pr-0

7 S

ep-0

7 Fe

b-08

Ju

l-08

Dec

-08

May

-09

Oct

-09

Mar

-10

Aug

-10

Jan-

11

Jun-

11

Nov

-11

Apr

-12

Sep

-12

Feb-

13

Construction Spending to June

Public Non-Residential Residential


Where Does the State Stack Up?

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0% CA Share Permits

L8&'3P3:G&6")['86) +0-.?!)P) A45(6)_?B?) ;-I=?=) --?.A)

/$*"0(123/4**56$%23/$*7$"#%$)$" 8-9+,9" :!,-."W3"3:$:$<)W!) ;=+E?@) -?EA);*$<2&=3/$*7$";*$3>)6&*2?"#;" 8@99,A" A:,B."/$*"C)$*D&1D(3E$F%$*G3C)2=(*7?"#;"" 8+H:,H" :A,@."S8D)23'T,\6("8,\5G&8)R:6G"%<)S2,S`) ;>.+?@) E?-A)/$*"I&2J(3#$)%1K$G3/$*"L$)D(1?"#;"" 8M!A,:" !M,-."S2a)S6%%6$,B$b3:T<)S2) ;.@E?>) .?0A)S8D)23'T,S3'&58'")S8D)`8'%8(,c3"7)!%:6"#) ;.=@?+) -?+A)F'G#78P3'&,B&6Qd3'#,S3'D6:T<)49) ;.=0?-) I?@A)\6%5G"7&3",[':G"7&3",[:8^6"#'G6) ;.>@?I) --?JA)N(1";*J2%213N(*J"O2$D<3/$*7$";*$?"#;"" 8:M+,+" AA,B."S2a)S8D6'T,_"G3"<)S`,R[) ;..>?>) +?=A)F3%&3",46Qe'G#78,*$G"H(<)L[,SW) ;..+?+) =?=A)B86f:8,96H3Q6,F8::8K$8<)\[) ;.-+?=) -I?@A)F6'"%&6e:8)93D"<)L[) ;.0I?J) E?=A)F$':G"7&3",B3$&5)F$':G"7&3"<)]9) ;+I@?>) -.?-A)S2a)M#G%3"<)S`) ;+=I?.) ,@?=A)N8"K8',[$'3'6<)4Y) ;+=-?+) -E?>A)


Housing Comparisons

42

United States California San Francisco Los Angels

‘08 ‘10 ‘12 ‘08 ‘10 ‘12 ‘08 ‘10 ‘12 ‘08 ‘10 ‘12

Ownership Share 66.6 65.4 63.9 57.0 55.6 54.0 56.9 54.4 53.0 51.2 49.8 48.4

Vacancy Rates 12.4 13.1 12.4 9.1 9.3 8.4 7.8 8.1 6.1 6.4 6.8 6.0

Percent of Units w/ 1+ Resident per Bedroom 3.2 3.4 3.3 7.9 8.6 8.2 4.9 5.6 5.5 11.2 12.1 11.2

Percent of Households who spend less than 25% of Income on Housing

Homeowners 62.4 62.6 66.1 54.1 55.0 57.0 55.0 55.5 58.0 53.3 53.1 54.9

Homeowners w/ mortgage 49.8 49.6 55.4 34.6 36.4 41.3 35.0 36.7 44.0 34.1 34.3 38.0

Renters 38.6 35.4 36.5 33.6 31.2 31.2 38.9 36.7 36.0 32.1 29.4 29.6


Income Comparisons

43

United States California San Francisco Los Angels

‘08 ‘10 ‘12 ‘08 ‘10 ‘12 ‘08 ‘10 ‘12 ‘08 ‘10 ‘12

Median Household Income ($thousands) 52.0 50.0 51.4 61.0 57.7 58.3 76.8 73.0 74.9 60.3 56.7 57.3

Per Capita Income ($thousands) 27.6 26.1 27.3 29.4 27.4 28.3 40.5 37.7 40.5 29.2 27.1 28.0

Poverty Rate (% of families) 38.6 35.4 36.5 33.6 31.2 31.2 38.9 36.7 36.0 32.1 29.4 29.6

Households w/ Income +$100,000 (%) 21.0 19.9 21.6 28.1 26.4 27.5 38.3 36.7 33.4 28.0 26.0 27.2


State Construction

44

0

2000

4000

6000

8000

10000

12000

14000

16000

Jan-

95

Jul-9

6 Ja

n-98

Ju

l-99

Jan-

01

Jul-0

2 Ja

n-04

Ju

l-05

Jan-

07

Jul-0

8 Ja

n-10

Ju

l-11

Jan-

13

Residential Unit Permits

Single Family Multi Family

0

200000

400000

600000

800000

1000000

1200000

1400000

Jan-

95

May

-96

Sep

-97

Jan-

99

May

-00

Sep

-01

Jan-

03

May

-04

Sep

-05

Jan-

07

May

-08

Sep

-09

Jan-

11

May

-12

Non-Residential Values

New Alterations


The big source of uncertainty!


The Deficit: Not an Issue

46

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2006

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2012

Q1

2013

Q1

Federal Debt Held by the Public and Federal Reserve

Change Y-o-Y Debt Held by Public

2200

2300

2400

2500

2600

2700

2800

2900

3000

3100

3200

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

Real Public Spending, Fed State and Local combined


The Shut Down, Debt Ceiling

o  G+C&#$-')?11$-'()•  H$('#&-'$C)?E7.#'()W)G@7.#'()

XY$('&-&C$(Z)•  3."#&(@)•  B&(4&+2)G+C"('#&$()•  !F:)[.,+()•  B$C$#,8)Y#.2#,@()XN$,C)!',#')W)

RGFZ)•  5+-$#',&+'0)?11$-'()

47

GDP Income 2013Q2

GDP 16661 Defense 776.3 4.7% 142.4 18.3% Fed Non-Defense 476.3 2.9% 300.7 63.1% State Local 1869.3 11.2%

How much loss of spending?

0 5 10 15 20 25

1976 1977 1977 1977 1978 1979 1981 1982 1982 1983 1984 1984 1986 1987 1990 1995 1996 2013

Days

Customs / TSA / Air Traffic still operating


Debt Ceiling Debate: Worse

•  :Y)@,+,2$@$+')•  GU5()•  D.@@$@.#,'&/$)D.&+)•  U'4$#),-'&.+T)•  U-')L\J):-'",8)4&'T))

48

What would Lew Do?

Last Downgrade: August 5, 2011

90

92

94

96

98

100

102

1000 1050 1100 1150 1200 1250 1300 1350 1400

14Jul11 14Aug11 14Sep11

S&P

$US Broad

0 0.5

1 1.5

2 2.5

3 3.5

14Jul11 14Aug11 14Sep11

10 Year Treasury

1 Year Treasury Federal Budget GDP Share

2012 Exp $3,892 $16,245 24.0% 2012 Rev $2,449 $16,245 15.1% Diff $1,443 $16,245 8.9%


Social Insurance: Unsustainable

49

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

1970

19

73

1976

19

79

1982

19

85

1988

19

91

1994

19

97

2000

20

03

2006

20

09

2012

Real Public Spending Per Retiree Source: Census, BEA

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Wor

king

Age

/ R

etire

men

t Age

US Support Ratio and Projections Source: Census

1970 2010 2050* Cost / Working Age Person $2,059 $8,795 $29,823 * Based on per capita growth half the rate from 1970 to 2010

Analysis. Answers. pg 50

Per capita expenditure (PPP int. $)

Per capita government expenditure (PPP int. $)

USA $8,608 Norway $4,859 Norway $5,674 Netherlands $4,388 Switzerland $5,564 USA $3,954 Netherlands $5,123 Denmark $3,886 Denmark $4,564 Switzerland $3,640 Canada $4,520 Austria $3,388 Austria $4,482 Germany $3,316 Germany $4,371 Canada $3,183 Belgium $4,119 Niue $3,136 France $4,085 France $3,135 Ireland $3,894 Sweden $3,132 Sweden $3,870 Belgium $3,128 Australia $3,692 United Kingdom $2,747 Finland $3,332 Ireland $2,742 United Kingdom $3,322 Iceland $2,623 Iceland $3,264 Japan $2,540 Japan $3,174 Australia $2,529

Obamacare? Not the issue!


State Pension Problems

51

Adjusted Net Pension Liabilities as % of Revenue Moody’s June 2013 report with updated methodologies


So what does it mean?

52

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Christopher Thornberg Founding Partner, Beacon Economics€¦ · 25/10/2013 · San Diego 8.4 3.7 Napa 8.1 3.3 San Francisco 7.2 3.2 San Luis Obispo 7.3 3.0 Visalia MSA 9.5 2.8 Fresno