Beyond the Headlines Economic Outlook and Forecast

RobertA.Kleinhenz,Ph.D.Economist/Execu:veDirectorofResearch,BeaconEconomics,LLC

HighDesertAssocia:onofREALTORS

September21,2016

Outline

•  U.S.Economy

•  CaliforniaEconomy

•  HighDesert/InlandEmpire

•  Conclusion

2

HeardintheHeadlines

•  FedTightening:WhenandLikelyImpact?

•  The“R”Word:Aren’tWeDueforOne?

•  Elec:on2016:EffectsontheEconomy?

3

U.S. Economy

4

TwoViewsofGDP

-2

-1

0

1

2

3

4

5

6

2013I II III

IV

2014I II III

IV

2015I II III

IV

2016I II

GrossDomes)cProduct 2013 2014 2015

GDP 1.7 2.4 2.6 Final Demand 1.2 3.3 3.3

Consumption 1.5 2.9 3.2 Goods 3.1 3.9 4 Services 0.6 2.3 2.8 Investment 6.1 4.5 5

Structures 1.4 10.3 -4.4 Equipment 4.6 5.4 3.5 Intellectual Property 3.4 3.9 4.8 Residential 11.9 3.5 11.7 Change Inventories 43.9 -26.7 45.6

Net Exports 2.4 -0.1 -4.5 Exports 3.5 4.3 0.1 Imports 1.1 4.4 4.6 Government -2.9 -0.9 1.8 Federal -5.8 -2.5 0 State and local -0.8 0.2 2.9

5

ConsumerSpending-FlywheelofEconomy

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

AnnualAutoLightTruckSales

0

1

2

3

4

5

6

7

8

9

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

YOYCh

ange(%

)

RealSpendingonGoodsMA(3)

RealGoods(BEA) NominalRetail(Census)

Aug‘16YTD:+0.5%

6

KeySectorsofMacroeconomy

Consumer/Households ↑Business/CapitalExpenditures ?Government ↑Interna:onalTrade ↓OtherMacroIndicatorsLaborMarket ↑Infla:on !

7

InternationalTrade

Exports Imports Bal. Total -104.4 -87.3 -17.1

Canada -28.8 -45.8 17 Netherlands -2.8 -3.9 1.1 Belgium -0.6 -1.2 0.6 India 0.3 -0.1 0.4 Germany 0.2 0.3 -0.1 Taiwan -0.5 0.1 -0.6 Japan -3.5 -2.7 -0.8 France -1.1 0.6 -1.7 UK 2.8 4.5 -1.7 Italy -0.9 1.7 -2.6 Korea, South -0.6 2.8 -3.4 Mexico -3.6 1.3 -4.9 Brazil -10 -2.3 -7.7 China -5.7 17.8 -23.5

ChangeinNominalGoodsTrade2014to2015

17001800190020002100220023002400250026002700

2010.1

2010.3

2011.1

2011.3

2012.1

2012.3

2013.1

2013.3

2014.1

2014.3

2015.1

2015.3

2016.1

Exports Imports

RealImportsandExports

8

UnemploymentDown,OpeningsUp

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

U-6 Headline

Unemployment

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-05

Mar-06

May-07

Jul-0

8Sep-09

Nov-10

Jan-12

Mar-13

May-14

Jul-1

5

JobOpeningRate

9

LaborMarket/IndustriesonTrack

0

50

100

150

200

250

300

350

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

MonthlyChangePayrollJobs By Sector 15-Jul 16-Jul % Total Nonfarm 142,001 144,448 1.7 Construction 6,437 6,652 3.3 Health Care 18,614 19,191 3.1 Professional/Business 19,707 20,257 2.8 Leisure 15,125 15,546 2.8 Administrative 8,832 9,054 2.5 Financial 8,137 8,299 2.0 Management 2,226 2,267 1.9 Retail Trade 15,671 15,960 1.8 Educational 3,462 3,523 1.8 Other 5,631 5,691 1.1 Information 2,756 2,783 1.0 Logistics 4,857 4,895 0.8 Wholesale Trade 5,876 5,922 0.8 Government 22,022 22,176 0.7 Manufacturing 12,336 12,305 -0.3 NR/Mining 812 682 -16.0 10

2.5%

1.1%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual % Change in Hourly Wage Annual Inflation Rate

MuchNeededWageGainsvs.InNlation

KyserCenterforEconomicResearch

11

HotIssue:HouseholdIncomeGrowth

57.9 57.4

53.7

56.5

40

45

50

55

60

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Median HH Income in Thousands of 2015 Dollars

12

U.S.Outlook•  Con:nuedUSEconomicGrowth:~2.0%•  Domes:cSpendingIntact:

– Consumers– Businesses– Government

•  USIsola:onLimitsGlobalSpillovers•  OilPricePlunge:OilGlut•  FinancialMarketVola:lity/FedRateHikes:SavingsGlut

•  SecularStagna:on

13

California Economy

14

0%

2%

4%

6%

8%

10%

12%

14%

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

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

Jan-

16

U.S.: 4.9% CA : 5.5%

CAUnemploymentRateFallingQuicklyUnemployment Rate, Seasonally Adjusted

15

CAAddingJobsFasterthanU.S.

-8

-6

-4

-2

0

2

4

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Feb-10

Jul-1

0

Dec-10

May-11

Oct-11

Mar-12

Aug-12

Jan-13

Jun-13

Nov-13

Apr-14

Sep-14

Feb-15

Jul-1

5

Dec-15

May-16

US:+1.7% CA:+2.3%

YTY % change in nonfarm jobs, seasonally adjusted

16

CAAmongFasterGrowingStates(2.0%)

17

CaliforniaOutlook

•  Con:nuedEconomicGrowthinState/Regions

•  JobGainsAcrossSpectrumofIndustries

•  StrengthinHealthcare,Tech,Medical,

Construc:on,Tourism

•  VentureCapitalin2016(firsthalf2016):– CA: $16.6B

– Other49States:$11.4B

18

High Desert/IE

19

JobGainsAcrossCalifornia

2.2%

0.0% 1.0% 2.0% 3.0% 4.0%

Oxnard-ThousandOaks-VenturaMSALosAngeles-LongBeach-GlendaleMetroDiv

SanDiego-CarlsbadMSABakersfieldMSA

Riverside-SanBernardino-OntarioMSASacramento--Roseville--Arden-ArcadeMSA

Oakland-Hayward-BerkeleyMetroDivAnaheim-SantaAna-IrvineMetroDiv

SantaRosaMSAFresnoMSA

SanJose-Sunnyvale-SantaClaraMSAStockton-LodiMSA

YTY%ChangeJobs(Aug.'16)

20

AbsoluteJobGains,SelectedMSAs

Note:SeasonallyAdjustedFiguresbyMSAShown

MSA YTYOxnard-Thousand Oaks-Ventura MSA 3,200Bakersfield MSA 5,200Santa Rosa MSA 6,100Stockton-Lodi MSA 7,500Fresno MSA 10,400Sacramento--Roseville--Arden-Arcade MSA 22,300Oakland-Hayward-Berkeley Metro Div 27,100San Diego-Carlsbad MSA 27,100Riverside-San Bernardino-Ontario MSA 30,100San Jose-Sunnyvale-Santa Clara MSA 34,300Anaheim-Santa Ana-Irvine Metro Div 40,800Los Angeles-Long Beach-Glendale Metro Div 76,100

21

IEJobChangesvs.CA

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Feb-10

Jul-1

0De

c-10

May-11

Oct-11

Mar-12

Aug-12

Jan-13

Jun-13

Nov-13

Apr-14

Sep-14

Feb-15

Jul-1

5De

c-15

May-16

CA:+2.3% IE:2.2%

YTY % change in nonfarm jobs, seasonally adjusted

22

SouthernCaliforniaUnemploymentRates

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%

2007.01

2007.06

2007.11

2008.04

2008.09

2009.02

2009.07

2009.12

2010.05

2010.10

2011.03

2011.08

2012.01

2012.06

2012.11

2013.04

2013.09

2014.02

2014.07

2014.12

2015.05

2015.10

2016.03

2016.08

LA:4.3% OC:3.6% IE:5.3%

23

InlandEmpireJobChangesbyIndustry

24

1.8%

2.6%

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

MiningandLoggingFinance&Insurance

Administra:ve&Support&WasteServicesInforma:on

Leisure&HospitalityRetailTrade

RealEstate&Rental&LeasingHealthCare&SocialAssistance

Professional,Scien:fic&TechnicalServicesTotalNonfarm

ManufacturingManagementofCompanies&Enterprises

OtherServicesConstruc:on

WholesaleTradeGovernment

Transporta:on,Warehousing&U:li:esTransporta:on&Warehousing

Educa:onalServicesYTY%(Aug'16)

LaborMarket–HeadlineNumbersImproving

SeasonallyAdjusted Aug2015 Aug2016 Change

California 6.0 5.5 -0.5

NotSeasonallyAdjusted Aug2015 Aug2016 Change

California 6.1 5.6 -0.5

SanBernardinoCounty 6.5 6.2 -0.3

Victorville 7.0 6.7 -0.3

Adelanto 10.9 10.5 -0.4

Hesperia 8.9 8.5 -0.4

Barstow 6.1 5.8 -0.3

25

UNEMPLOYMENTRATES(%)

ContainerThroughputSanPedroPortsonTrackforNearRecordYear

11.813.1

14.215.8 15.7

14.3

11.8

14.1 14.0 14.1 14.6 15.2 15.4

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Aug‘16YTD%Total: +0.9%InboundLoaded: +0.2%OutboundLoaded: +2.7%

26

So.CalTransportation&WarehousingEmployment

0

50

100

150

200

250

300

350

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

VenturaCounty OrangeCounty LosAngeles InlandEmpire

IETrans/Whsg:+8.4:IEWholsale:+5.2%

27

KeyIndustries

EXPORT-ORIENTED•  Transporta:on&Warehousing•  WholesaleTrade•  Manufacturing

LOCALSERVING•  HealthServices•  RetailTrade•  Leisure&Hospitality

28

Real Estate

29

SoCalResidentialOutlook

30

Aug-15 Jul-16 Aug-16 MTM YTY MTM YTYLosAngeles $492,360 $513,700 $517,400 0.7% 5.1% 2.6% 5.4%Orange $714,380 $734,000 $749,000 2.0% 4.8% 8.2% 9.3%Riverside $335,000 $359,900 $355,000 -1.4% 6.0% 0.9% 12.1%SanBernardino $230,530 $248,210 $243,370 -1.9% 5.6% 1.9% 1.4%SanDiego $539,000 $560,000 $563,000 0.5% 4.5% 2.6% 7.6%Ventura $620,150 $644,010 $652,330 1.3% 5.2% -3.4% -5.7%

PriceChange SalesChange

•  Leaninventories•  DemandDrivers:job/incomegrowth,lowrates,demographics•  SupplyDrivers:risingprices,lowrates•  Constraints::me,developmentcosts

HDARSales&Prices

02004006008001,0001,2001,4001,6001,8002,000

0

50

100

150

200

250

300

350

400

2000.01

2001.01

2002.01

2003.01

2004.01

2005.01

2006.01

2007.01

2008.01

2009.01

2010.01

2011.01

2012.01

2013.01

2014.01

2015.01

2016.01

Sales MedianPrice

Aug’16:SALES1,020,+3.3%YTY,+0.1YTD,--PRICE$233,300,+15.8%YTYMedianPrice($000s)-LINE Sales-BAR

31

HousingAffordability:%ofHHsAffordingMedianPricedHomeState/Region/County Q2-15 Q2-16LosAngeles 30 30OrangeCounty 21 22RiversideCounty 40 41SanBernardinoCounty 56 56SanDiegoCounty 25 26Ventura 25 29California 30 31

UnitedStates-AllExis:ng 57 57

32

ApartmentRents

33

Wages Rents ShareSantaCruz $46,133 $1,774 46%Sonoma $48,290 $1,465 36%SanJoaquin $42,850 $1,275 36%Orange $59,274 $1,724 35%Monterey $43,463 $1,243 34%Tulare $35,701 $986 33%SantaBarbara $51,015 $1,408 33%SanBernardino $43,094 $1,168 33%Riverside $43,313 $1,168 32%ContraCosta $63,087 $1,701 32%SanDiego $57,702 $1,532 32%SanFrancisco $97,903 $2,517 31%Alameda $68,326 $1,701 30%Fresno $40,473 $885 26%Kern $43,387 $922 26%Sacramento $56,477 $1,063 23%SantaClara $115,437 $2,074 22%

700

900

1100

1300

1500

1700

1900

2100

Q2-05

Q2-06

Q2-07

Q2-08

Q2-09

Q2-10

Q2-11

Q2-12

Q2-13

Q2-14

Q2-15

Q2-16

InlandEmpire LosAngeles(MD)OrangeCounty(MD) SanJose

HousingPermits,SanBernardinoCounty

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Single-family Mul:-family

34

-5.6%YTD(Q2’16)

PaceofConstruction

35

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 3.0SanBernardino 5.0 Orange 2.8Solano 4.6 Placer 2.1Riverside 4.5 SanFrancisco 2.1SanDiego 4.2 Sacramento 0.7

NewPop/Permits

0

2000

4000

6000

8000

10000

12000

01-06

12-06

11-07

10-08

09-09

08-10

07-11

06-12

05-13

04-14

03-15

02-16

Mul:family SingleFamily

CaliforniaPermits

NonResidentialRealEstate

•  Office(Q2-2016)– Vacancyrates:14.1%vs15.6%lastyr– Askingrents:+1.0%YTY

•  Industrial(Q1-2016)– Vacancyrates:3.7%vs3.6%lastyr– Askingrents:+22.0%YTY

36

Conclusion

37

HeardintheHeadlines

•  FedTightening:WhenandLikelyImpact?

•  The“R”Word:Aren’tWeDueforOne?

•  Elec:on2016:EffectsontheEconomy?

38

Conclusion

•  Continued Economic Growth: US and CA

•  Income Gains Support Growth in Spending

•  California Outpacing US

•  Job Gains in Most Local Industries

•  Real Estate/Construction Outlook Mixed

39

40

EmailtheSpeaker:Robert.Kleinhenz@ucr.edu

900UniversityAve.Riverside,CA92521951-827-6329http://soba.ucr.edu

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