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Analysis.Answers.
Analysis. Answers
Beacon Economics, LLC!
The Economic Outlook Focus on the Southbay
January 2016
Analysis.Answers.
TheWrongQuestion
2
Analysis.Answers.
TheRightAnswer• USEconomyPickingupSteam
– 2015:Be?erthanitlooked– Labormarketshaveturnedacorner– Forgetthemarketturmoil:wearenotina
bubble– HousingsGllchuggingalong– Creditexpandingonmanylevels– Commoditypricesaredown– Californialeadingthecharge
• Headwinds?Sure…– StateandLocalBudgetssGllstressed– Globaleconomy—parGcularlyAsia– BadFinancialRegulaGons– Frothymarketscouldbecomeanissue– GrowingInequality/PoliGcalGridlock– Localhousingissues
3
Analysis.Answers.
2015:Betterthatitlooks
4
2015 Beacon
2013 2014 2015 I II III IVGDP 2.45 2.53 2.09 0.60 3.90 2.10 1.76FinalDemand 1.64 3.11 2.75 1.65 3.70 2.91 2.98Personalconsump@on 1.56 2.16 1.98 1.19 2.42 2.05 2.26Durablegoods 0.34 0.53 0.48 0.14 0.57 0.47 0.74Nondurablegoods 0.41 0.36 0.41 0.10 0.62 0.58 0.33Services 0.82 1.27 1.09 0.94 1.23 1.00 1.20Grossinvestment 1.15 0.80 0.77 1.39 0.85 -0.05 0.89Structures 0.18 0.14 -0.10 -0.22 0.18 -0.21 -0.14Equipment 0.23 0.30 0.24 0.14 0.03 0.55 0.24IPP 0.13 0.25 0.20 0.29 0.33 -0.03 0.21ResidenGal 0.11 0.16 0.30 0.32 0.30 0.24 0.32Changeinventories 0.52 -0.05 0.01 0.87 0.02 -0.59 -0.25Netexports 0.29 -0.53 -0.73 -1.92 0.18 -0.22 -0.96Exports 0.68 0.32 -0.05 -0.81 0.64 0.11 -0.13Imports -0.39 -0.85 -0.69 -1.12 -0.46 -0.33 -0.83Government -0.55 0.07 0.31 -0.01 0.46 0.29 0.49Federal -0.53 -0.05 0.08 0.08 0.00 0.01 0.21Stateandlocal -0.02 0.12 0.24 -0.09 0.46 0.29 0.28
Analysis.Answers.
ConsumerSpending
5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-1
4
Dec-14
May-15
Oct-15
RealConsumerSpendingGrowth
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
RealConsumerSpendingbyType
Goods Services
Analysis.Answers.
ConsumerSpending
6
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
HouseholdSavingsRate%ofDPI
6000
8000
10000
12000
14000
16000
18000
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
AutoandLightTruckUnitSalesSAAR
Analysis.Answers.
LaborMarkets
7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jan-05
Dec-05
Nov-06
Oct-07
Sep-08
Aug-09
Jul-1
0Jun-11
May-12
Apr-13
Mar-14
Feb-15
UnemploymentRate(s)
Headline U-6
0
50
100
150
200
250
300
350
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
Jul-1
3De
c-13
May-14
Oct-14
Mar-15
Aug-15
ChangeinPayrolls(3MonthMA)
Analysis.Answers.
ConsumerCredit
8
0
5
10
15
20
25
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
ChangeConsumerCredit($Bil,3MonthMA)
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
06:Q1
06:Q4
07:Q3
08:Q2
09:Q1
09:Q4
10:Q3
11:Q2
12:Q1
12:Q4
13:Q3
14:Q2
15:Q1
OutstandingConsumerDebt$Trillions
Analysis.Answers.
ConsumerCredit
9
9
10
11
12
13
14
15
16
17
18
19
1980Q1
1982Q2
1984Q3
1986Q4
1989Q1
1991Q2
1993Q3
1995Q4
1998Q1
2000Q2
2002Q3
2004Q4
2007Q1
2009Q2
2011Q3
2013Q4
DebtServicingasShareDPI
FOB DSR
500
550
600
650
700
750
800
99:Q2
01:Q2
03:Q2
05:Q2
07:Q2
09:Q2
11:Q2
13:Q2
15:Q2
CreditScoreatOrigina@on
Median 25thpercenGle 10thpercenGle
Analysis.Answers.
StudentLoanCrisis?
10
Mil. Share 2009 Coh. 2014Q4 # Debt Del. Rate. <$5k 9.03 2.0% 33.5% $5k and $10k 7.79 4.8% 28.5% $10k and $25k 12.35 18.3% 23.5% $25k and $50k 8.00 24.5% 20.7% $50k and $100k 4.36 25.6% 20.6% $75k and $100k 1.24 9.2% 20.6% $100k+ 1.82 24.9% 17.6%
Total 44.58 Avg $27,000 Median $17,000
BreakingItDownbyBorrower
0
2
4
6
8
10
12
14
16
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
ShareLoans90DaysLatebyType
MORTGAGE HELOC
AUTO CC
STUDENTLOAN
Analysis.Answers.
DegreesAmong21-27withBachelor
11
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 FINANCE 123,068
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
Analysis.Answers.
Production
12
4648505254565860626466
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
ISMIndexestoNovember
Manufacturing Other
95
97
99
101
103
105
107
109
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
Jul-1
3
Dec-13
May-14
Oct-14
Mar-15
Aug-15
IndustrialProduc@ontoNovember
Total Manufacturing
Analysis.Answers.
ProductionBreakdown
13
-10.0% -5.0% 0.0% 5.0% 10.0%
PrimarymetalMiningApparelElectric
MachineryFabrmetal
PaperTotalindexAerospace
WoodproductComputerTexGles
ChemicalFood
PrinGngPlasGcs
FurniturePetroleum
NonmetallicElectricaleq
Motorvehicles
Y-o-YGrowthbySector
30
50
70
90
110
130
150
Jan-08
Sep-08
May-09
Jan-10
Sep-10
May-11
Jan-12
Sep-12
May-13
Jan-14
Sep-14
May-15
IndustrialIndexesOilandGas
OilGasExtracGon OilGasDrilling
Analysis.Answers.
OilActivity
14
3000
4000
5000
6000
7000
8000
9000
10000
Jan-05
Feb-06
Mar-07
Apr-08
May-09
Jun-10
Jul-1
1Au
g-12
Sep-13
Oct-14
OilProduc@onPerDay(000sBarrels)
4
which drove down marginal costs SUPPLY
$20
$40
$60
$80
$100
$120
0 5 10 15 20 25 30 35Estimated peak cumulative production, mm barrels per day
Source: Goldman Sachs, "400 projects to change the world", JPMAM. 2014.
Shale oil era has reduced estimated future marginal costsBreakeven cost for new projects, USD per barrel
201420132012
201120102009
2014 with cost deflation impact
Analysis.Answers.
ExternalEnvironment
15
0.9
0.92
0.94
0.96
0.98
1
1.02
-55000
-50000
-45000
-40000
-35000
-30000
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
TradeFlowstoOctober
NominalDeficit PriceExports/Imports
GoodsTrade Balance BalanceYTD14 YTD15 Ch
Canada -28.8 -12.1 16.7Netherlands 18.6 19.8 1.2India -21 -20.1 0.9Belgium 11.7 12.2 0.5Japan -55.8 -56.3 -0.5Taiwan -11.9 -12.4 -0.5Germany -60.8 -61.5 -0.7France -12.8 -13.9 -1.1UK 0.1 -1.7 -1.8Italy -20.5 -22.9 -2.4Korea,South -20.1 -23.9 -3.8Mexico -44.4 -48.6 -4.2Brazil 11 3.9 -7.1China -284.4 -306.5 -22.1
Analysis.Answers.
Europe
16
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Dec-94
De
c-96
De
c-98
De
c-00
De
c-02
De
c-04
De
c-06
De
c-08
De
c-10
EUIndustrialProduc@onGrowth
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
EUUnemploymentRatetoOctober
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
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
Y-o-YGrowthBankLoanstoOct(Non-GovorMFI)
Analysis.Answers.
ChinaFigures
17
0
2
4
6
8
10
12
Oct-12
Feb-13
Jun-13
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
ChinaIPGrowthY-o-Y
October 16, 2015
Economics Group
Weekly Economic & Financial Commentary
U.S. Review
Softer Economic Data Increases Questions for the Fed
x Retail sales rose a disappointing 0.1 percent in September while August’s sales figures were revised downward. Excluding automobiles, sales fell 0.3 percent for the month suggesting that consumer spending likely ended the third quarter on a softer note.
x Consumer and producer prices continued to show month-over-month declines while core consumer prices showed some signs of stabilizing in September as manufacturing activity continued to decelerate.
Global Review
Still Much Ado About China
x The eyes of the world turned to China again this week as trade data showed a sharper-than-expected slowdown in imports in September, while the decline in exports was a bit more modest. Loan data, however, were more encouraging.
x Industrial production in the Eurozone contracted slightly in August, but growth remained positive on a year-ago basis.
x The U.K. labor force survey for September showed an unexpected drop in the unemployment rate and some further acceleration in wages.
Inside U.S. Review 2 U.S. Outlook 3 Global Review 4 Global Outlook 5 Point of View 6 Topic of the Week 7 Market Data 8
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, IHS Global Insight and Wells Fargo Securities, LLC
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
07 08 09 10 11 12 13 14 15
U.S. Retail Sales Month-over-Month and Year-over-Year Percent Change
Retail Sales: Sep @ 0.1% (Right Axis)
Year-over-Year Percent Change: Sep @ 2.4% (Left Axis)
-40%
-20%
0%
20%
40%
60%
80%
-40%
-20%
0%
20%
40%
60%
80%
2000 2002 2004 2006 2008 2010 2012 2014
Chinese TradeYear-over-Year Percent Change, 3-Month Moving Average
Exports: Sep @ -5.9%Imports: Sep @ -14.1%
Wells Fargo U.S. Economic Forecast
2013 2014 2015 2016 20171Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product 1 0.6 3.9 1.0 2.8 2.6 2.6 2.6 2.5 1.5 2.4 2.4 2.5 2.4Personal Consumption 1.8 3.6 3.6 3.0 2.5 2.6 2.5 2.3 1.7 2.7 3.2 2.8 2.4
Inflation Indicators 2
PCE Deflator 0.2 0.3 0.3 0.8 1.6 1.6 1.7 1.9 1.4 1.4 0.4 1.7 2.0Consumer Price Index -0.1 0.0 0.1 0.5 1.7 1.5 1.7 2.1 1.5 1.6 0.1 1.8 2.2
Industrial Production 1 -0.3 -2.4 1.9 1.2 2.7 2.5 3.0 3.5 1.9 3.7 1.5 2.1 3.3
Corporate Profits Before Taxes 2 4.6 0.6 5.9 6.6 6.2 6.9 5.4 6.1 2.0 1.7 4.4 6.1 5.5
Trade Weighted Dollar Index 3 92.1 89.9 92.3 91.8 92.8 94.0 95.3 96.5 75.9 78.5 91.5 94.6 98.1Unemployment Rate 5.6 5.4 5.2 5.0 4.9 4.8 4.7 4.6 7.4 6.2 5.3 4.7 4.5
Housing Starts 4 0.98 1.16 1.17 1.22 1.24 1.24 1.25 1.26 0.92 1.00 1.14 1.25 1.35
Quarter-End Interest Rates 5
Federal Funds Target Rate 0.25 0.25 0.25 0.50 0.50 0.75 1.00 1.25 0.25 0.25 0.31 0.88 1.81Conventional Mortgage Rate 3.77 3.98 3.89 3.92 3.94 3.99 4.11 4.25 3.98 4.17 3.89 4.07 4.4510 Year Note 1.94 2.35 2.06 2.08 2.10 2.15 2.25 2.37 2.35 2.54 2.11 2.22 2.52
Forecast as of: October 16, 20151 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency Index, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages
ForecastActualActual Forecast2015 2016
Analysis.Answers.
HousingMarkets
18
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
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
Exis@ngHomeSalestoOct
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Jan-05
Dec-05
Nov-06
Oct-07
Sep-08
Aug-09
Jul-1
0Jun-11
May-12
Apr-13
Mar-14
Feb-15
MedianPriceGrowth(Y-o-Y
Analysis.Answers.
Case-ShillerRegionalPriceTrends
19
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-SanFrancisco 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-SanDiego 4.7% 6.3% 1.6% NY-NewYork 1.8% 3.1% 1.3%
CA-LosAngeles 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-LasVegas 7.8% 5.8% -2.1% IL-Chicago 1.8% 1.4% -0.4%
Analysis.Answers.
AffordabilityvsAccess
20
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
Affordability
0
50
100
150
200
250
300
350
400
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
Origina@ons(Bil)byCreditScoretoQ3
<620 620-659 660-719 720-779 780+
Analysis.Answers.
Construction
21
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
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
HousingStarts
SingleFamily 5UnitsPlus
0
200
400
600
800
1000
1200
1400
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
NewHomeSalestoOct
Analysis.Answers.
ImprovedOutlook
22
0
500
1000
1500
2000
2500
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
May-10
May-11
May-12
May-13
May-14
May-15
ChangeinHouseholds(2yearSmoothed)
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
Q1-97
Q2-98
Q3-99
Q4-00
Q1-02
Q2-03
Q3-04
Q4-05
Q1-07
Q2-08
Q3-09
Q4-10
Q1-12
Q2-13
Q3-14
YearRoundVacantas%ofHousingStocktoQ3(CensusHVS)
Analysis.Answers.
FHAStats
23
FHA SF Purchase Mortgage Endorsements, First-Time Home Buyers
15,000
25,000
35,000
45,000
55,000
65,000
75,000
85,000
95,000
Oct-07
Feb-08
Jun-08
Oct-08
Feb-09
Jun-09
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Jun-13
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
Analysis.Answers.
Whatinningisit?
24
ThereisnoBubble…(atleastnotyet)Why?1. Assetpricesarebeing
drivenbyfundamentals,notspeculaGon
2. Theglobalsavingsglutisdrivinginterestrates,notFedpolicy
3. Leverageisnotafactor4. Therealeconomyisin
balance1600
1700
1800
1900
2000
2100
2200
29Oct2013
22De
c2013
14Feb2
014
9Apr2014
2Jun
2014
26Jul2014
18Sep2
014
11Nov2014
4Jan2015
27Feb2
015
22Ap
r2015
15Jun2
015
8Aug2015
1Oct2015
24Nov2015
S&P500Index
Analysis.Answers.
ProRitsandPrices
25
0
500
1000
1500
2000
2500
1996I II III
IV
2001I II III
IV
2006I II III
IV
2011I II III
IV
CorporateandProprietorsProfits(Real)
Corporate Proprietors
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1985I
1987I
1989I
1991I
1993I
1995I
1997I
1999I
2001I
2003I
2005I
2007I
2009I
2011I
2013I
2015I
ProfitsasShareGrossNa@onalIncometoQ3
Gross NetofTaxes
Analysis.Answers.
EquityFundamentals
26
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
ForwardLookingP/ERa@o
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
EquityEarningsSpread
Analysis.Answers.
WhataboutTech?
27
TechP/Es
0
1000
2000
3000
4000
5000
6000
Q1-96
Q2-97
Q3-98
Q4-99
Q1-01
Q2-02
Q3-03
Q4-04
Q1-06
Q2-07
Q3-08
Q4-09
Q1-11
Q2-12
Q3-13
Q4-14
Analysis.Answers.
CommercialRealEstate
28
5
6
7
8
9
10
11
Q3-05
Q3-06
Q3-07
Q3-08
Q3-09
Q3-10
Q3-11
Q3-12
Q3-13
Q3-14
Na@onalCapRates(REIS)
Apartment Office Retail
012345678
Q3-05
Q3-06
Q3-07
Q3-08
Q3-09
Q3-10
Q3-11
Q3-12
Q3-13
Q3-14
CapRateSpreads(REIS–10Yr)
Apartment Office Retail
Analysis.Answers.
RiskFactors
29
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
1985Q1
1986Q2
1987Q3
1988Q4
1990Q1
1991Q2
1992Q3
1993Q4
1995Q1
1996Q2
1997Q3
1998Q4
2000Q1
2001Q2
2002Q3
2003Q4
2005Q1
2006Q2
2007Q3
2008Q4
2010Q1
2011Q2
2012Q3
2013Q4
2015Q1
DebtOutstandingas%GDPtoQ3
Household Business Finance Foreign
Analysis.Answers.
WhenHowFast
30
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
PCEInfla@on(Y-o-Y)toOct
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan-70
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Jan-10
Jan-15
M2Growth(3Year)
Analysis.Answers.
LimitedSpacetoTurn
31
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
InterestRates
FFR 10YrTreasury
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Jan-85
Jan-88
Jan-91
Jan-94
Jan-97
Jan-00
Jan-03
Jan-06
Jan-09
Jan-12
Jan-15
Spread
Analysis.Answers.
CaliforniafactversusRiction
32
California Hype:!§ High taxes, Over regulated"§ People/business fleeing"
Reality!§ Business Climate is not that important"§ State still outperforming"§ Certain industries more vulnerable than
others, but others doing great"§ Real enemy: CEQA, dumb taxes"
“Lookingbackafewyears(2009/2010)everyonewassayingthatCAwouldfaillikeGreeceorDetroit,butthingslook
differentnow.Whathashappenedtoturnthingsaround?”
Analysis.Answers.
RegionalEmploymentGrowth
33
100
105
110
115
120
125
130
135
Jan-95
Oct-96
Jul-9
8Ap
r-00
Jan-02
Oct-03
Jul-0
5Ap
r-07
Jan-09
Oct-10
Jul-1
2Ap
r-14
IndexPayrollEmployment
California BalanceUS
3YrGrowth:Total Gr A/DUtah 3.3% 1.1%Nevada 3.1% 0.4%California 3.0% 0.1%Florida 3.0% 0.5%Colorado 3.0% -0.3%Idaho 2.9% 0.4%Texas 2.8% -0.4%Washington 2.8% 1.0%Oregon 2.7% 0.8%NorthDakota 2.5% -2.1%Georgia 2.5% 0.1%SouthCarolina 2.4% 0.4%Delaware 2.2% -0.2%NorthCarolina 2.2% 0.3%Michigan 2.2% 0.1%Arizona 2.0% 0.1%Tennessee 1.9% 0.4%
Analysis.Answers.
EmploymentGrowth
34
CaliforniaEmploymentGrowthbyMetro
Region Nov-15 Change(000s)
YoYChange(%)
SanJose 1,074.6 51.9 5.1SanFrancisco(MD) 1,069.7 41.7 4.1SanLuisObispo 115.7 4.2 3.8InlandEmpire 1,349.0 45.4 3.5SanDiego 1,404.0 37.3 2.7
OrangeCounty 1,553.7 38.3 2.5
LosAngeles(MD) 4,342.6 72.0 1.7Oakland(MD) 1,096.1 17.8 1.7Bakersfield 261.9 0.6 0.2California 16,258.0 417.1 2.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Jan-04
May-05
Sep-06
Jan-08
May-09
Sep-10
Jan-12
May-13
Sep-14
Percen
t(SA
)
UnemploymentRate
InlandEmpire OrangeCounty
LosAngeles
Analysis.Answers.
L.A.CountyIndustries
35
Industry Nov-15 Chg.(%)TotalNonfarm 4,342.6 1.7ConstrucGon 129.8 4.9LeisureandHospitality 492.6 4.1EducaGon/Health 781.4 3.0ProfSciandTech 292.8 2.7RealEstate 78.5 2.6AdminSupport 271.1 2.6WholesaleTrade 232.7 2.5OtherServices 157.7 2.4Management 61.4 2.0StateGovernment 87.2 1.1RetailTrade 422.3 0.8Transport,Warehouse,UGl. 165.7 0.4Farm 5.3 0.3FinanceandInsurance 131.2 -1.8Manufacturing 357.9 -2.1InformaGon 190.3 -3.8NR/Mining 4.3 -8.5
Industry Chg.(000s) Cont.(%)TotalNonfarm 72.0 1.70EducaGon/Health 22.8 0.53LeisureandHospitality 19.5 0.46ProfSciandTech 7.6 0.18AdminSupport 6.8 0.16ConstrucGon 6.1 0.14WholesaleTrade 5.6 0.13OtherServices 3.6 0.09RetailTrade 3.5 0.08RealEstate 2.0 0.05Management 1.2 0.03StateGovernment 1.0 0.02Transport,Warehouse,UGl. 0.7 0.02Farm 0.0 0.00NR/Mining -0.4 -0.01FinanceandInsurance -2.4 -0.06InformaGon -7.4 -0.17Manufacturing -7.7 -0.18
FastestGrowing LargestContributors
Analysis.Answers.
SBEmployment
36
City/CountyEmpbyRes,2014(000s)
UnempRate2014(%)
PVPeninsula 22.0 2.3RanchoPalosVerdes 18.0 4.7HermosaBeach 11.9 4.8Manha?anBeach 17.7 5.1ElSegundo 9.0 6.3RedondoBeach 37.5 6.9Torrance 71.4 8.1Lomita 10.8 9.1Lawndale 15.6 10.1Hawthorne 39.9 10.3Gardena 27.0 10.5Inglewood 48.9 14.6TotalSB 329 8.1
ShareofL.A.CountyEstablishmentsintheSouthBay
IndustryTotalEstab.
LargeEstab.
Total 8.6 9.6Transport/Warehouse 14.5 7.7Mgmt. 11.6 16.0AdminSupport 9.8 5.0FinanceandInsurance 9.4 5.5EducaGon 9.4 1.5RealEstate 9.2 7.7AccommodaGons 9.1 4.8HealthCare 9.1 7.4Pro.,Sci.,Tech. 9.0 14.9Manufacturing 8.9 18.0ConstrucGon 8.8 13.8
Analysis.Answers.
LocalIncome
37
AnnualHouseholdIncome
BA(%)
City/County 20142-Yr.Chg
(%) 2014RollingHills 218,600 2.2 71.8PalosVerdesEstates 171,300 12.7 75.7Manha?anBeach 142,100 5.7 74.2RollingHillsEstates 136,500 -11.4 68.3RanchoPalosVerdes 120,700 0.8 64.8HermosaBeach 105,000 4.3 71.1RedondoBeach 103,100 4.3 56.8ElSegundo 84,000 -2.7 45.0Torrance 78,300 2.9 45.3Lomita 57,200 -9.0 27.5CountyTotal 55,900 -0.7 29.9Lawndale 48,400 -0.7 15.8Gardena 47,900 -4.6 23.7Hawthorne 44,400 -1.2 19.1Inglewood 42,200 -5.2 17.4
40000
42000
44000
46000
48000
50000
52000
54000
56000
58000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
AverageAnnualPayLaCounty
Analysis.Answers.
SelectMajorEmployers
38
Industry Employer CityManufacturing AerospaceCorp ElSegundo
Honeywell TorranceTriumphAerostructures-Vought HawthorneSpaceExploraGonTechnologies HawthorneRobinsonHelicopter TorranceBoeing ElSegundoInternaGonalServicesInc Torrance
Prof.,Sci.,Tech HondaR&DAmericasInc TorranceQUADRIGAAmericas TorrancePictageInc Torrance
Wholesale FarmerBros TorranceCanonSoluGonsAmerica GardenaKonicaMinolta Gardena
ConstrucGon PardeeHomes ElSegundoWEO'NeilConstrucGonCo ElSegundo
Arts HollywoodParkCasino Inglewood
Analysis.Answers.
CaliforniaTourism
39
50.0
55.0
60.0
65.0
70.0
75.0
80.0
Jan-05
Jul-0
6Jan-08
Jul-0
9Jan-11
Jul-1
2Jan-14
HotelOccupancy
California UnitedStates
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Jan-07
Nov-07
Sep-08
Jul-0
9May-10
Mar-11
Jan-12
Nov-12
Sep-13
Jul-1
4
Passengers
LAX SFO
California International Arrivals
Country 2014 Annual Growth
(%)
China 736,286 23.4
Australia 664,091 6.2
Japan 490,852 4.5
U.K. 475,840 7.9
Mexico 431,471 4.7
France 329,176 25.5
South Korea 320,108 5.8
Germany 271,711 4.4
Taiwan 199,901 20.3
New Zealand 162,000 32.9
Analysis.Answers.
LocalSpending
40
0123456789
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Year-over-Ye
ar(%
,SA)
TaxableSalesGrowth
LosAngeles California
Category 2015YTD Chg.(%)
AutosandTransportaGon 182.8 9.2
BuildingandConstrucGon 72.6 7.2
BusinessandIndustry 148.3 2.1
FoodandDrugs 62.2 2.9
FuelandServiceStaGons 102.3 -18.9
GeneralConsumerGoods 253.9 3.4
RestaurantsandHotels 162.7 7.3
Total 1,113.7 2.7
Analysis.Answers.
VentureCapital
41
600
1,100
1,600
2,100
2,600
3,100
3,600
4,100
4,600
2008 2009 2010 2011 2012 2013 2014 2015 YTD L
os A
nge
les/
Ora
nge
Cou
nty
($ M
illi
ons)
Venture Capital Investment
Los Angeles/Orange County
IndustryLA&OC($M)
LA&OCStateShare(%)
Sovware 1,449.0 11.8IndustrialEnergy 1,113.3 57.5ConsumerProd.andServ. 381.8 13.1MediaandEntertainment 299.1 14.4MedicalDevicesandEquip. 252.8 28.5ITServices 181.7 11.2HealthcareServices 92.5 32.8Biotechnology 73.1 3.0
Analysis.Answers.
CommercialRealEstateMarkets
42
InlandEmpire OrangeCounty LosAngeles
Property Q3-15 YoYChange(%) Q3-15 YoY
Change(%) Q3-15 YoYChange(%)
CostofRent
Apt 1,168 4.0 1,724 3.3 1,587 4.3
Office 21.8 1.3 30.1 5.7 35.1 3.8Retail 21.5 2.3 32.3 2.2 31.2 3.3
VacancyRate
Apt 2.6 -0.4 2.8 0.2 3.2 0.0
Office 23.3 -0.3 16.6 -0.1 14.9 0.0Retail 9.3 -0.7 5.0 -0.2 6.0 -0.1
Analysis.Answers.
GoodsMovement
43
0200000400000600000800000
10000001200000140000016000001800000
Jan-95
May-97
Sep-99
Jan-02
May-04
Sep-06
Jan-09
May-11
Sep-13
MonthlyExportedTEU's
LosAngeles LongBeach
Commodity2015YTD($M)
Chg.(%)
Total 97,614 -2.3
ElectricMachinery 17,444 6.0IndustrialMachinery 14,128 2.5OpGcPhoto/Medic/SurgicalInstruments 9,612 -3.0AircravSpacecravAndPartsThereof 6,356 5.1EdibleFruit&Nuts 5,987 7.0
Vehicles 4,705-12.8
Pearls,Stones,Metals 4,626 -9.4
MineralFuelOil 3,505-27.9PharmaceuGcalProducts 2,886 -9.4PlasGcs 2,620 -2.2
Analysis.Answers.
CaliforniaExports
44
ShareGrowth2009-2015EstTOTALALLINDUSTRIESComputerAndElectronicProducts 19.8%AgriculturalProducts 12.6%Machinery,ExceptElectrical 10.6%TransportaGonEquipment 10.3%MiscellaneousManufactured 10.3%ElectricalEquipment 7.3%Chemicals 6.6%UsedOrSecond-HandMerchandise 5.7%FoodAndKindredProducts 4.9%PetroleumAndCoalProducts 4.7%PrimaryMetalManufacturing 2.7%FabricatedMetalProducts,Nesoi 1.8%BeveragesAndTobaccoProducts 1.6%PlasGcsAndRubberProducts 1.5%ApparelAndAccessories 1.3%
020406080
100120140160180200
Billion
s
CAExports
Analysis.Answers.
AgandtheDrought
45
330,000
340,000
350,000
360,000
370,000
380,000
390,000
400,000
410,000
420,000
430,000
Jan-01
Mar-02
May-03
Jul-0
4
Sep-05
Nov-06
Jan-08
Mar-09
May-10
Jul-1
1
Sep-12
Nov-13
Jan-15
CaliforniaFarmEmployment
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
$0
$5
$10
$15
$20
$25
$30
FarmEarnings
FarmEarnings ShareStateIncome
Analysis.Answers.
LookingCloser
46
InsurableCrops 2006 2014
6,664,689
6,055,791
ForageProducGon
1,060,000 930,000Almonds 580,000 860,000Wheat 530,000 585,000Grapes(Wine) 445,147 570,000Rice 526,000 495,000Corn 540,000 430,000Co?on 600,000 315,000Walnuts 215,000 290,000Tomatoes 306,465 288,000Citrus–8types 267,913 270,000
0
20
40
60
80
100
120
140
CAExportsofAlfalfa(MillionsKG)
Alfalfa Rice Nuts $0.27 $0.79 $7.07
$/Kg
Analysis.Answers. 47
HomesandWorkers
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Jan-94
Jun-96
Nov-98
Apr-01
Sep-03
Feb-06
Jul-0
8
Dec-10
May-13
WorkforceTrends
Payroll LaborForce
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Jan-02
Apr-03
Jul-0
4Oct-05
Jan-07
Apr-08
Jul-0
9Oct-10
Jan-12
Apr-13
Jul-1
4
MedianHomePrices
SouthernCalifornia BayArea US
Analysis.Answers.
ResidentialRealEstate
48
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Q1-05
Q1-06
Q1-07
Q1-08
Q1-09
Q1-10
Q1-11
Q1-12
Q1-13
Q1-14
Q1-15
USD
$
MedianHomePrices
IE LA OC
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
Q1-05
Q4-05
Q3-06
Q2-07
Q1-08
Q4-08
Q3-09
Q2-10
Q1-11
Q4-11
Q3-12
Q2-13
Q1-14
Q4-14
Q3-15
USD
$perM
onth
ApartmentRents
IE LA OC
Analysis.Answers.
Bubble?No…
49
0.0
10.0
20.0
30.0
40.0
50.0
60.0
TotalH
ousingCosts(%
ofM
ed.H
H.In
come)
CaliforniaHousingAffordability%OverCrowded %VacantHawaii 8.6% Utah 5.1%California 8.2% Minnesota 5.2%Alaska 6.5% California 5.3%NewYork 5.0% Vermont 5.4%Texas 4.8% Colorado 5.5%Arizona 4.5% Massachuse?s 5.6%Nevada 4.2% NewHampshire 5.6%NewMexico 3.6% Wisconsin 5.8%DC 3.3% Oregon 6.0%Utah 3.3% Washington 6.4%Oregon 3.3% Idaho 6.4%
Analysis.Answers.
PaceofConstruction
50
0
2000
4000
6000
8000
10000
12000
14000
16000
Jan-95
Sep-96
May-98
Jan-00
Sep-01
May-03
Jan-05
Sep-06
May-08
Jan-10
Sep-11
May-13
Jan-15
CaliforniaPermits
Single-Family MulG-Family
California 4.1 Tulare 4.0Ventura 6.8 LosAngeles 4.0ContraCosta 6.6 Fresno 4.0Sonoma 6.1 SanMateo 3.4Alameda 5.9 Kern 3.0SantaBarbara 5.3 SantaClara 3.0
SanBernardino 5.0 OrangeCnty 2.8Solano 4.6 Placer 2.1
Riverside 4.5 SanFran 2.1SanDiego 4.2 Sacramento 0.7
NewPop/Permits
Analysis.Answers.
WhytheShortage?
CEQA
51
Prop-13Under $25,000 -192,061 $25,000 to $50,000 -58,600 $50,000 to $99,999 18,955 Over $100,000 2,619 Total -229,087
TotalDomesGcNetMigraGonbyIncome08-13
Texas Under $25,000 -40070 $25,000 to $50,000 -23741 $50,000 to $99,999 -3433 Over $100,000 599
Analysis.Answers.
Construction
52
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Q1-08
Q4-08
Q3-09
Q2-10
Q1-11
Q4-11
Q3-12
Q2-13
Q1-14
Q4-14
Q3-15
Non
reside
n@alValue
s(SA
)
Reside
n@alUnits(SA)
LosAngelesBuildingPermits
ResidenGalUnits NonresidenGalValues
LosAngelesCountyResidenGalBuildingPermits
PermitType2014YTD
2015YTD
Chg.(%)
Single-Family 4,031 3,970 -1.5
MulG-Family13,10017,386 32.7
TotalResidenGal 17,13121,356 24.7
Analysis.Answers.
LocalRealEstate
53
020406080
100120140160
MonthlyResiden@alUnitsPermijed
SouthBayCiGes(Units)
MedianHomePrice,Nov.2015,in$000s 2015
Change(%)
ElSegundo 1,171 37.3
Gardena 413 4.7
Hawthorne 519 4.8
HermosaBeach 1,562 57.4
Inglewood 371 6
Lawndale 521 20.3
Lomita 535 9.1
Manha?anBeach 1,831 -6
RanchoPalosVerdes 945 -2.6
RedondoBeach 860 8.9
Torrance 585 2
Analysis.Answers.
NonresidentialConstruction
54
Nonresiden@alPermitsbyCategory,in$MLosAngeles OrangeCounty
Category 2014 2015YTD 2014 2015YTDNewCommercial 1,895 1,664 713 474Office 267 342 72 20Retail 732 436 367 99Hotel 359 250 43 85RecreaGonal 54 124 56 40ParkingGarages 470 494 173 229
Industrial 121 85 155 87OtherNonres. 1,041 554 62 55Non-Structures 831 274 27 33Churches 25 25 5 3
Nonres.Alts./Adds. 3,327 2,481 1,033 967TotalNonres. 6,383 4,784 1,962 1,583
Analysis.Answers.
Incometaxdrivingtheshow
55
SalesTaxRateDecline
0
50
100
150
200
250
300
350
400
1995-96=100
Index
PIT CORP SALES
50
60
70
80
90
100
110
120
$Billions
CARevenuesandExpenditures
GFRevenues GFExpenditures
Analysis.Answers.
InSummary
Whatnottoworryabout.• TheUSDollar• StudentDebt• AssetBubbles• Drought• ConsumerSpending• LaborMarkets• CaliforniaBusiness• Taxes• CaliforniaTaxLevels• PoliGcs
Whattoworryabout.• China• EducaGonalChoices• BadfinancialregulaGon• WaterPolicy• SavingsRates• GrowingInequality• CaliforniaHousing• Lackofpublicinvestment• CaliforniaTaxStructure• Alackofengagement
56
Analysis.Answers. 57
Economic&RevenueForecastingRegionalIntelligenceReportsBusiness&MarketAnalysisRealEstateMarketAnalysisPorts&InfrastructureAnalysisEconomicImpactAnalysisPublicPolicyAnalysis
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