Reec 15 10-16 kleinhenz economic report

Robert A. Kleinhenz, Ph.D.Chief Economist, Kyser Center for Economic Research, LAEDC

2016 Southern California Economic Forecast & Industry Outlook

Real Estate Educator’s ConferenceOctober 16, 2015

10/15/2015

U.S. Economy

California Economy

Southern California Economy & Industries

Forecast/Conclusion

Kyser Center for Economic Research

Outline


SCIENTIFIC METHOD

“You can observe a lot by watching”


STOCK MARKET

“The future ain’t what it used to be”


FORECASTING

“It’s déjà vu all over again!”


RECESSIONS

“It ain’t over till it’s over”


Yogi Berra (1925-1915)

Ph.D. Economics (Honorary)

U.S. Economy


10/15/2015

GDP Low Trajectory But Accelerating

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f

2.7

1.8

-0.3

-2.8

2.5

1.62.2

1.5

2.4 2.42.8

Sources: Bureau of Economic Analysis, forecasts by LAEDC

Annual % Change


GDP 15Q2: +3.9%

10/15/2015

Key Sectors of Macroeconomy Consumer Sector

Business Sector

Government

International Trade

Other Macro Indicators:

Labor Market

Inflation


2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-2

-1

0

1

2

3

4

Incomes Up, Drive Consumer Spending

Source: Bureau of Economic Analysis

Annual % Change Consumer Expenditures


Sources: Bureau of Economic Analysis, forecasts by LAEDC10/15/2015


U.S. Total New Vehicle SalesMillions of Vehicles

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

2

4

6

8

10

12

14

16

18

20 18.2

200820092011201320142015

Source: BEA10/15/2015

Equipment Transportation Equipment

Intellectual Property

Structures

-2%

0%

2%

4%

6%

8%

10%

12%

9.8%

2.0%

5.8% 5.5%

2014 2015 2016


Annual Percentage Change

Business Investment Spending

Source: IHS, LAEDC

Source: CBOKyser Center for Economic Research

Federal Budget Receipts and Outlays as % of GDP

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015f

2016f

2017f

2018f

2019f

2020f

10

12

14

16

18

20

22

24

26

Receipts Outlays

10/15/2015

World Euro Area Japan Latin/South America

Developing Asia

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%2014 2015 2016f

Source: IMF World Economic Outlook, July 2015Kyser Center for Economic Research

Global Economic OutlookGDP, constant prices (percent change)

Annual percent growth

10/15/2015

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

Jan-1

2

Jan-1

40%

2%

4%

6%

8%

10%

12%

14% U.S.: 5.1%

U.S. In Full Employment Range

Source: US BLS, CA EDD

Unemployment Rate


10/15/2015

Source: US Bureau of Labor StatisticsKyser Center for Economic Research

U.S. Nonfarm Job GrowthJa

n-08

Apr

-08

Jul-0

8O

ct-0

8Ja

n-09

Apr

-09

Jul-0

9O

ct-0

9Ja

n-10

Apr

-10

Jul-1

0O

ct-1

0Ja

n-11

Apr

-11

Jul-1

1O

ct-1

1Ja

n-12

Apr

-12

Jul-1

2O

ct-1

2Ja

n-13

Apr

-13

Jul-1

3O

ct-1

3Ja

n-14

Apr

-14

Jul-1

4O

ct-1

4Ja

n-15

Apr

-15

Jul-1

5

-800

-600

-400

-200

0

200

400

600MTM Job Changes Moving average (MTM Job Changes)

MTM changes in thousands, Seasonally Adjusted

10/15/2015

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

U.S. Adding Jobs At Steady Pace

Source: US BLS, CA EDDKyser Center for Economic Research

YTY % change in nonfarm jobs, seasonally adjusted

10/15/2015

U.S. Consumer Inflation

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f-1.0

0.0

1.0

2.0

3.0

4.0

5.0Year-Year % Change in CPI-U

Source: Bureau of Labor Statistics; forecasts by LAEDCKyser Center for Economic Research

10/15/2015

Key Sectors of Macroeconomy Consumer Sector

Business Sector

Government

International Trade

Other Macro Indicators:

Labor Market

Inflation


10/15/2015

Forecast Source: LAEDCKyser Center for Economic Research

FORECAST: U.S. Slow But Steady

2012 2013 2014 2015f 2016fReal GDP - Annual %

Chg. 2.2% 1.5% 2.4% 2.4% 2.8%

Nonfarm Jobs - Annual % Chg. 1.7% 1.7% 1.9% 2.1% 1.8%

Unemployment Rate 8.1% 7.4% 6.2% 5.4% 5.0%

Consumer Prices - Annual % Chg. 2.1% 1.5% 1.6% 0.2% 1.6%

10/15/2015

Kyser Center for Economic ResearchKyser Center for Economic Research

U.S. Forecast: What to Watch

10/15/2015


Real Household Income Trending Down


1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

40

45

50

55

6057.8 57.4

53.7

Median HH Income in Thousands of 2014 Dollars

Source: Census Bureau

10/15/2015

2007 2008 2009 2010 2011 2012 2013 2014 2015-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Annual % Change in Hourly Wage Annual Inflation Rate

Source: Bureau of Labor Statistics

First Significant Wage Gains vs. Inflation


10/15/2015


Source: BLS10/15/2015


Key Interest RatesJa

n-00

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

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Fed Funds Fixed Rate Mort 10-Year T-Bond

Source: Federal Reserve10/15/2015

Crude Oil Prices 2007-Present

Source: US Energy Information AdministrationKyser Center for Economic Research

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15A

pr-1

5Ju

l-15

0

25

50

75

100

125

150

West TX Intermediate

Dollars/barrel

10/15/2015


California Economy

10/15/2015

Source: US Bureau of Economic Analysis, IHS, forecasts by LAEDCKyser Center for Economic Research

California Growth Outpacing U.S.

2012 2013 2014 2015f 2016f-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

US GDP CA GSPAnnual % Change

10/15/2015

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

Jan-1

2

Jan-1

40%

2%

4%

6%

8%

10%

12%

14% U.S.: 5.1% CA : 6.1%

CA Unemployment Rate Falling Quickly


Unemployment Rate

10/15/2015

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%

CA Adding Jobs Faster Than U.S.


YTY % change in nonfarm jobs, seasonally adjusted

10/15/2015

Source: CA EDD, Labor Market Information DivisionKyser Center for Economic Research

Job Trends by California Metro Area

BakersfieldVentura

ModestoLA

OaklandSacramento

Stockton MSASan Diego

Riverside-San BernardinoOrange County

Fresno MSASan Francisco

San Jose

0% 1% 2% 3% 4% 5% 6%

0.3%0.9%

1.5%1.7%

2.0%2.6%2.6%

3.1%3.1%

3.5%3.6%

4.6%5.4%

Annual percent change in nonfarm jobs, seasonally adjusted

CALIFORNIA – Aug 2015: +470,000 +3.0% YTY

10/15/2015


California Economic Forecast

2012 2013 2014 2015f 2016f

Nonfarm Jobs - annual % chg. 2.4% 3.2% 3.0% 2.9% 2.1%


Personal Income - annual % chg. 7.1% 2.8% 4.7% 4.9% 4.9%

Total Taxable Sales - % chg. 7.3% 5.1% 6.1% 4.5% 6.4%

Housing Permits - thousands of units

57.5 82.3 85.8 104.6 132.3

10/15/2015

Southern California Economy


10/15/2015


Local Unemployment Rates

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%LA - 7.0% OC - 4.5% IE - 6.8%Aug 2015

10/15/2015

Job Trends by Industry – Los Angeles

Manufacturing Administrative & Support & Waste Services

Educational Services Financial Activities

Information Retail Trade Government

Professional, Scientific & Technical Services Transportation, Warehousing & Utilities

Wholesale Trade Leisure & Hospitality

Health Care & Social Assistance Construction

-4% -2% 0% 2% 4% 6% 8%

-1.3%-0.8%-0.7%

0.3%0.8%

1.2%1.4%

2.3%2.8%

3.5%3.5%3.7%

5.0%

YTY % change in nonfarm employment by industry, not seasonally adjusted

Source: CA EDD, Labor Market Information Division

Aug 2015: +76,300 jobs, +1.8% YTY; u-rate: 7.0%


10/15/2015


Job Trends by IndustryOrange County

Information Finance & Insurance

Government Retail Trade

Administrative & Support & Waste Services Wholesale Trade

Real Estate & Rental & Leasing Durable Goods

Nondurable Goods Leisure & Hospitality

Health Care & Social Assistance Professional, Scientific & Technical Services

Transportation & Warehousing Construction

Educational Services

-4% 0% 4% 8% 12%

-0.8%0.4%

0.8%1.1%1.3%

1.8%2.1%

3.0%3.6%

4.3%4.3%4.6%

6.5%8.9%

10.5%

YTY percent change in nonfarm employment by industry

Aug 2015 YTY: +48,500, +3.2%; u-rate: 4.5%

10/15/2015


Job Trends by IndustryRiverside – San Bernardino

InformationRetail Trade

Health Care & Social AssistanceGovernment

Durable GoodsConstruction

Finance & InsuranceReal Estate & Rental & Leasing

Nondurable GoodsLeisure & Hospitality

Transportation & WarehousingWholesale Trade

Educational ServicesProfessional, Scientific & Technical ServicesAdministrative & Support & Waste Services

0% 2% 4% 6% 8% 10% 12%

0.0%0.4%0.5%

2.2%3.8%3.9%4.1%4.3%

4.9%5.1%

5.6%6.4%6.6%

9.3%10.4%

Aug 2015 YTY: +44,500, +3.5%; u-rate: 6.8%


10/15/2015


Job Trends by IndustryVentura County

Manufacturing Leisure & Hospitality

Educational & Health Services Financial Activities

Construction Wholesale Trade

Government Retail Trade

Administrative & Support & Waste Services Information

Transportation, Warehousing & Utilities Professional, Scientific & Technical Services

-6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14%

-3.2%-2.8%

-1.2%0.5%0.7%

1.5%1.7%1.8%

3.4%3.6%

4.8%12.6%

Aug 2015 Total: +2,500, +0.9%; u-rate: 5.8%


10/15/2015

Major Industries in Southern California

TRADED INDUSTRIES(Generate New Income)

• International Trade• Entertainment• Business Services• Aerospace• Fashion & Apparel• Tourism• Knowledge Creation

LOCAL INDUSTRIES(Circulate Income)

• Retail Sales• Leisure & Hospitality• Health Care/Social Assistance• Personal Services• Nonprofit Sector


10/15/2015

2006

2007

2008

2009

2010

2011

2012

2013

2014

'14Y

TD

'15Y

TD

15.8 15.714.3

11.8

14.1 14 14.1 14.6 15.2

9.986614110.09463175

Millions of TEUs

Container Throughput San Pedro Bay Ports

Sources: Ports of Los Angeles and Long Beach; forecast by LAEDCKyser Center for Economic Research

Aug 2015 YTD: +1.1%

Year-to- Date

10/15/2015

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

50

100

150

200

250

300Los Angeles Orange Inland Empire Ventura


Southern California Transportation and Warehousing Employment

Thousands Aug. 2015 YTY: +4.1% YTD: +5.1%

10/15/2015

Motion Picture & Sound Recording Employment in Los Angeles County

Sources: CA EDD. LMID

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

0

20

40

60

80

100

120

140Thousands


YTD: +0.7%

10/15/2015


SoCal Manufacturing Employment20

05

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000Durable Goods Nondurable Goods

Aug. 2015 YTD % Chg.

Durable: +0.8%Nondurable: +0.2%

10/15/2015

Manufacturing Trends


UP >1% NO/LITTLE CHANGE DOWN >1%

Furniture Fabricated Metal Prod Primary Metal Mfg

Chemicals Food Machinery

Plastics Apparel Electronic Products

Pharmaceuticals Petroleum Products Aerospace

Textiles

10/15/2015

Source: US Bureau of Economic Analysis; IHS EconomicsKyser Center for Economic Research

Value of Manufacturing Output – California

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0255075

100125150175200225250275 Durable Goods Nondurable Goods

Billions of Inflation Adjusted Dollars (2009 Base Year)

10/15/2015


Southern California Professional & Business Services Employment

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

200

400

600

800

1,000

1,200Los Angeles Orange Inland Empire Ventura

Thousands


Aug. 2015 YTY: +2.8% YTD: +3.4%

10/15/2015


Southern California Education & Health Care Employment


2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

200

400

600

800

1,000

1,200

1,400

1,600 Los Angeles OrangeInland Empire San DiegoVentura

ThousandsAug. 2015 YTY: +3.1% YTD: +3.6%

10/15/2015


Emerging Industries• Venture Capital: $3.1 B to LA/OC in 2015H1

– Software, IT Services– Medical Devices– Media & Entertainment– Industrial/Energy

10/15/2015


New Industry Cluster?

Culinary & Beverage Arts

Los Angeles County• 54 Craft Breweries•1,334 jobs•$66 million in direct economic impact

California•$6.5 billion impact, 2014• 18% increase over 2013

10/15/2015

Housing & Residential Construction


10/15/2015


Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Aug-06Sep-06Oct-06Nov-06Dec-06Jan-07Feb-07Mar-07Apr-07May-07Jun-07Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12Jan-13Feb-13Mar-13Apr-13May-13Jun-13Jul-13Aug-13Sep-13Oct-13Nov-13Dec-13Jan-14Feb-14Mar-14Apr-14May-14Jun-14Jul-14Aug-14Sep-14Oct-14Nov-14Dec-14Jan-15Feb-15Mar-15Apr-15May-15Jun-15Jul-150

100

200

300

400

500

600

700

$0

$100

$200

$300

$400

$500

$600

$700Home Sales (Left Axis) Median Home Price (Right Axis)

Home Sales & Median Price California

Existing, single-family homesSales, Thousands, SAAR Price, Thousands

Source: California Association of Realtors10/15/2015

Source: California Association of REALTORS Kyser Center for Economic Research

Median Prices Existing Single-Family Homes

County Aug-14 Aug-15YTY % Change

Los Angeles $469,000 $502,000 7.0%

Orange County $585,000 $610,000 4.3%

San Bernardino $240,000 $270,000 12.5%

Riverside County $299,000 $315,000 5.4%

Ventura $490,000 $500,000 2.0%

San Diego $445,000 $465,000 4.5%

California $481,240 $493,420 2.5%

10/15/2015

Source: California Association of Realtors Kyser Center for Economic Research

Unsold Inventory (Months)Existing Single Family Homes

County Aug.'14 Aug.'15Los Angeles 4.0 3.7

Orange 4.0 3.9

Riverside 4.8 4.3

San Bernardino 5.0 4.3

San Diego 4.5 3.5

Ventura 4.1 3.4

California 4.0 3.6

10/15/2015


Housing Drivers & Constraints

• Drivers:– Job and income growth– Net increases in wealth– Demographics– Expected increases in mortgage rates

• Constraints– Down payment sources– Rising mortgage rates– Strict underwriting requirements



Key Interest RatesJa

n-00

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

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Fed Funds Fixed Rate Mort 10-Year T-Bond

Source: Federal Reserve10/15/2015


Apartment Rents – Southern California05

Q1

05Q

3

06Q

1

06Q

3

07Q

1

07Q

3

08Q

1

08Q

3

09Q

1

09Q

3

10Q

1

10Q

3

11Q

1

11Q

3

12Q

1

12Q

3

13Q

1

13Q

3

14Q

1

14Q

3

15Q

1

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

LA OC RV SB VN

Source: CA Real Estate Research Council10/15/2015

Residential Building Permits Issued in Los Angeles County

Source: CIRB, California Home Building Foundation, forecast by LAEDCKyser Center for Economic Research

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15f 16f0

5

10

15

20

25

30

35

11.7 11.9 10.1 7.53.5 2.1 2.4 2.4 2.8 3.6 4.4 4.9 6.8

15.2 13.7 16.3

12.8

10.2

3.5 5.08.0 8.0

12.814.3

19.4

22.9

Multi-FamilySingle-Family

Permits issued, thousands

10/15/2015

Residential Building Permits Issued in Orange County


'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15f 16f0

2

4

6

8

10

12

14

16

4.4 4.1 3.72.2 1.3 1.4 1.6 1.9 2.8 3.8 3.6 3.9 5.0

4.93.1 4.6

4.9

1.9 0.8 1.52.9

4.0

6.2 7.08.8

10.2

Multi-FamilySingle-FamilyPermits issued, thousands

10/15/2015

Residential Building Permits Issued in the Inland Empire


'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15f '16f0

10

20

30

40

50

60

43.5 45.333.3

16.05.8 4.9 5.2 3.7 4.7 6.1 6.9 8.1 11.0

9.2 5.5

5.8

4.5

3.3 1.8 1.2 1.5 1.32.7 3.2 2.7 3.7

Multi-FamilySingle-Family

Permits issued, thousands

10/15/2015


Southern California Construction Employment

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

100

200

300

400

500

600Los Angeles Orange Inland Empire San Diego Ventura

150 thousand jobs

Thousands

Aug. 2015 YTY: +5.5% YTD: +6.0%

10/15/2015

2016 SouthernCaliforniaForecast


10/15/2015


Southern California Economic Forecast 2016

Los Angeles

Orange County

Inland Empire

Ventura County

San Diego

Nonfarm Jobs - annual % chg.

1.8% 2.7% 3.3% 1.5% 2.5%


Personal Income - annual % chg.

4.2% 5.0% 5.1% 4.5% 4.9%

Total Taxable Sales - annual % chg.

6.9% 6.9% 6.8% 4.8% 6.0%

Housing Permits - annual % chg.

22.2% 19.7% 36.1% 25.0% 22.9%

10/15/2015


Ran

k

Los Angeles Orange Inland Empire Ventura

1 Construction Construction Trans & Utilities Prof, Sci, Tech

2 Trans & Utilities Health Care Admin & Supp Construction

3 Admin & Supp Real Estate Prof, Sci, Tech Mgmt of Enterpr.

4 Prof, Sci, Tech Education Construction Trans & Utilities

5 Education Prof, Sci, Tech Wholesale Trade Real Estate

2016 Top Five Industries by Percentage Gains in Employment



LA County Nonfarm Employment

2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2.0

2.5

3.0

3.5

4.0

4.54.23 4.19

3.95 3.89 3.914.01

4.13 4.23 4.30


Millions of Nonfarm Jobs

10/15/2015


LA County Nonfarm Employment

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2.0

2.5

3.0

3.5

4.0

4.54.18

3.74

4.19

3.89

4.30


Millions of Nonfarm Jobs

12 Years440K Lost 300K Lost

10/15/2015


Conclusion

• Continued Economic Growth: US, CA, & So Cal

• Income Gains and Growth in Spending

• California Outpacing US

• Job Gains in Most Local Industries

• Real Estate/Construction Outlook Good

• Challenge: Long-Term Job Picture in LA

10/15/2015

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10/15/2015

2016 Southern California Economic Forecast & Industry Outlook

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10/15/2015