Construction, Structural Change and the California Economy

December 2011 © 2011 UCLA Anderson Forecast. All rights Reserved. 1

a unique approach. critical answers. Accurate.

Construction, Structural Change and the California

Economy Jerry Nickelsburg

Senior Economist UCLA Anderson Forecast

Assembly Committee on Housing andCommunity Development Hearing

December 5, 2011

December 2011 2© 2011 UCLA Anderson Forecast. All rights Reserved.


Main Themes

• Trade and Employment Data—An Uneven and weak recovery indicated

• Housing demand shifts to the coast • The foreclosure issue • Implications for construction employment



Export growth shows a hint of life

0

100

200

300

400

500

600

700

800

900

2006 2007 2008 2009 2010 2011

Thou

sand

s California Seaport Traffic

(000 TEU's, SA)

Import By Sea Exports By Sea

Sources: Ports of Long Beach, Los Angeles, and Oakland, UCLA Anderson Forecast



International Air Cargo

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011

Thou

sand

s

Outbound Inbound

California International Air Cargo (Tons Loaded)

Sources: SFO and LAX Airports, UCLA Anderson Forecast


a unique approach. critical a

International Tourism growing

nswers. Accurate.

‐

100

200

300

400

500

600

700

800

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Thou

sand

s

LAX

SFO

International Passenger Arrivals (S.A. Monthly)

Sources: SFO and LAX Airports, UCLA Anderson Forecast



Diesel Truck Traffic Ceridian-UCLA Pulse of Commerce Index, 1999 to 2011

Workday and Seasonally Adj., 2007=100

110

100

90

80

70

60

50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

USA California

Sources: Ceridian, UCLA Anderson Forecast



‐150

‐100

‐50

0

50

100

Jan‐08 Jul‐08 Jan‐09 Jul‐09 Jan‐10 Jul‐10 Jan‐11 Jul‐11

Thou

sand

s Change in Private Non‐Farm Payroll Employment

(000 jobs, SA)

Job Formation

-1,247K

236K 84K

Source: California Employment Development Department

Real GDP (Metro Area) Growth 2010 7%

12% 6%

5%

4%

3%

2%

1%

0%

-1%

-2%

-3%


Sources: U.S. Bureau of Economic Analysis

© 2011 UCLA Anderson Forecast. All rights Reserved. 8

CA Geography of Growth

December 2011



CA Geography of Employment

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Bay Area OC, SD, VC U.S. Inland Empire Los Angeles SJ Valley

Employment Gain/Loss March to Aug. 2011

Source: California Employment Development Department, U.S. Bureau of Labor Statistics



CA Geography of Employment (cont.) Employment Gain July to Oct. 2011

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0% SJ Valley Inland Bay Area Mid Sac. Delta OC, SD, Los U.S.

Empire Coast VC Angeles

Source: California Employment Development Department, U.S. Bureau of Labor Statistics



Recovery Inland Remains Distant Percent of Pre-Recession Peak

Non-Farm Employment100%

98%

96%

94%

92%

90%

88%

86% 2008 2009 2010 2011

Inland Empire Stanislaus Fresno San Joaquin Solano Sacramento East Bay




Coastal Recovery Slow But Steady

Percent of Pre-Recession Peak Non-Farm Employment

100%

98%

96%

94%

92%

90%

88%

86% 2008 2009 2010 2011

SF SV Orange County San Diego Los Angeles




California New Residential Permits (SA, No. of Units)

25000

20000

15000

10000

5000

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Statewide Construction Remains Minimal

Source: CIRB, UCLA Anderson Forecast



But Aggregate Building Masks An Important Shift To Multi-Family Construction

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2007 2008 2009 2010 2011

New Building Permits – California (SA, 3 Mo. Average)

Single Family Permits Multi-Family Permits

Source: CIRB, UCLA Anderson Forecast



The Demographics Behind Housing Demand

0

500

1,000

1,500

2,000

2,500

3,000

Tho

usan

ds

California 2010 Census

Source: U.S. Department of Census



Foreclosures per 1,000 homes September 2011

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

San

Fran

cisc

o loY

oSa

nta

Cla

raO

rang

e C

ount

ySa

n M

ateo

San

Die

goam

eda

Ven

tura

Los

Ang

eles

acer

Tul

are

sta

ntra

Co

El D

orad

oFr

esno

Co

San

Ber

nard

ino

Sacr

amen

to rnK

e

Pl

Stan

isla

usve

rsid

eR

i Mer

ced

Sola

no

Al

San

Joaq

uin

Supply is Ample Where Demand is Weakest

Source: Realty Trac



Where are the Construction Workers? 2007 Construction as a % of

Non-Farm Payrolls10%

9%

8%

7%

6% Inland Empire

Sac. Delta5% SJ Valley

4% Bay Area

3% Coastal So. Cal 2%

1%

0%

Source: California Employment Development Board



Sources: U.S. Census Bureau, Orange County Register, California EDD

Construction employment levels previously supported by immigration and demand for single family homes

Shift to multi-family & slowdown of immigration implies permanent displacement of inland construction workers



Inland California: How long to recovery? A Historical Analysis

0 2 4 6 8

10 12 14 16 18

0.0 2.0 4.0 6.0 8.0 10.0YE

AR

S TO

RE

CO

VE

RY

STRUCTURAL CHANGE RECOVERY TIME

(REGIONAL JOB LOSS AND RECOVERY)

RECOVERY SCORE

Source: UCLA Anderson Forecast



Summary

•

•

• •

•

California is growing, but growth is skewed towards coastal cities Inland is California’s big residential construction market and there is slack demand and ample supply Inland is forecast to recover no sooner than 2017 Faster job creation and more job opportunities Inlandis the quickest way to move California’s “dead in the water” Inland residential construction sector. Quicker approvals of multi-family projects will speed recovery of residential construction in coastal cities.

Documents

Construction, Structural Change and the California Economy