John Husing, Ph.D.

Economics & Politics, Inc.

Chief Economist, IEEP

Inland Empire Economic Growth . . .

Building An Expansion

After Losing 8.71 Million Jobs …U.S. Jobs Almost All The Way Back

-670,000 Government Jobs+9,239,000 Private Sector

(106.1%)

U.S. & CA Unemployment History

Cold War Ends Great RecessionPrime Rate: 21%

California Job Gains/Losses2008-2010-1,066,400

DefenseCutbacks

Dot.Com

GreatRecession

2011-2013+965,700

2013 Short-100,700

Unemployment Rates, March 2014

Interior CA

Unemployment Falling, But High

Inland Empire

Worst U.S. Metropolitan Area Unemployment Rates

Primary Tier

Secondary Tier

Economic Development … Increase The Economic Base!

How Regional Economies Work

Three Step Growth ProcessBased On Interaction Of:

• Population

• Preferences

• Dirt

Prices Force Decisions

Southern California Population Growth, 2000-2012

People Prefer To Live Near The Coast

As a homeowner, would you prefer to move closer to work if it involved a townhouse or condo?

(I-15 & Sr-91 Commuters, 2008)

72.3% No

Same question to Renters:

87.5% No

Answer stable over 5 years

Importance of Blue Collar Sectors

• People forced to move inland for affordable homes

• Population Serving Jobs Only

• High Desert & I-215 South are current examples

Stage #1: Rapid Population Growth

Commuting Bad, But Stable Over Time

1,650,384 Total Jobs

1,156,313 Inside IE

494,071 Commute Outside County

154,845 Between IE Counties

339,226 Outside IE

20.6% Commute Outside the IE

16.3% Orange County Commuters

Construction & Real Estate:Finally Some Hope

Share of Underwater Homes Plunging

Direct Investor Purchases of Foreclosures

Notices of Default At Low Levels

Home Price Trends

61.5%

43.1%

50.3% less for Existing home -34.7%

2014

Long Term Competitive Price Advantage Still Exists

Affordability To Median Income Family19

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%

0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%

Inland Empire Orange County Los Angeles

Source: CA Association of Realtors

Exhibit 14.-Housing Affordability, Southern CaliforniaShare of Families Afford Median Priced Home, 1988-2014

FICO Score Average Is Easy A Little

Feb-2014Approved

724

Feb-2014 Denied

689

Sub-Prime Loans 2007

621

Volume Stagnant

Inland Empire’s In-migration From Coastal Counties Has Not Yet Recovered

-27,324

Not Bringing Skills, Wealth, Income & Spending

Why Low Volume

• Less Foreclosures

• Buyers Want or Need High Prices

• Continued Wall Street Acquisition of Large Share of Foreclosures

• Credit Hurt By Foreclosures

• Higher FICO Scores

• FHA Lowering Conforming Mortgage Ceiling From $500,000 to $350,000

• Fear

Permits: Finally A Little Hope

Construction & Mining Job Growth

Assessed Valuation Finally Growing (6.1% for SB County)

6.3%Inflation

Firms Prefers The Coastal Counties

Stage 2: Strong Industrial Growth

Industrial Construction

Logistics Flow of Goods

Port Container Volumes

Fulfillment Centers

E-Commerce Growth RatesYear Over Year by Quarter

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Source: Bureau of the Census

U.S. E-Commerce Growth RatesQuarter over Same Quarter Prior Year, 2000-2013

2013

Job Growth: Logistics

19% of All Inland Jobs … During 2013

Manufacturing: Could Be A Major Growth Source

U.S. Manufacturing Job Creation

CA Manufacturing Job Creation

Job Growth: Manufacturing

Health Care

Health Care Demand Set To Explode

People Without Health Insurance (2012) 828,431 (19%)People Will Age, Already Those 55 & Over 926,696 (21%)

Population Growth Will Resume (2000-2013) 1,075,807 (33%)

Inland Health Care Workers Handle More People Than CA (28%)

Job Growth: Health Care

Stage 3.-Office Based Firms Follow Their Workers

Skilled Workers Migrate InlandFor Better Homes

High End Homes

$553,051

$421,581

$474,176

UPLAND

EASTVALE$469,814

$484,332

$449,797

CORONA

$437,038

TEMECULA$341,339

8$399,759

Office Absorption Finally Starting to Recover

High-End Jobs Follow Workers

into the Area

Office Vacancy Rates Improving But Still Very High

18.2%

Growth:Office Based Jobs

Primary Tier

Secondary Tier

How Regional Economies Work

Retail Sales Almost Back

13.7%Inflation

Job Growth: Population Serving & Lower Paying

Job Growth: Government & Education

Where Will IE Be In Its Job History?

2011-201381,733 of 143,108 lost or 57.1%

2011-2014121,833 of 143,108 lost or 85.1%

21,275 Jobs To Go

Forecast: Review

2014 Better Than 2013• Construction Returning• Logistics Strong• Manufacturing Weak• Health Care Set To Take-Off• Office Sectors Modest• Pop. Related Group Gaining• Govt & Education Crawling• Unemployment Drops to 8.5%• Growth Looking Normal• A Little Below Pre-Recession

www.johnhusing.com