inAction

Peter RupertProfessor and Chairperson

Department of Economics, UCSBDirector, UCSB Economic Forecast Project

EFP Update, Alisal RanchJanuary 14, 2016

Roadmap for today

national perspective: FOMC (aka the Fed)

narrow the focus to California and local areas

“forecast” the future

Federal Open Market Committee

finally!!!

they raised rates! up 0.25 percentage points

the world did not implode!

why did they raise now?

Federal Open Market Committee

finally!!!

they raised rates! up 0.25 percentage points

the world did not implode!

why did they raise now?

Federal Open Market Committee

finally!!!

they raised rates! up 0.25 percentage points

the world did not implode!

why did they raise now?

Jul−54 Jan−60 Jan−70 Jan−80 Jan−90 Jan−00 Jan−10 Dec−15

0

5

10

15

Source: FRB St. Louis

Effective Federal Funds RatePercent

Jan−06 Jan−07 Jan−08 Jan−09 Jan−10 Jan−11 Jan−12 Jan−13 Jan−14 Jan−15 Dec−15

0

1

2

3

4

5

Source: FRB St. Louis

Effective Federal Funds RatePercent

FOMC

parse the Dec. 16 FOMC statement

“economic activity has been expanding at amoderate pace”

recall:

Y = C + I + G + (X −M)

FOMC

parse the Dec. 16 FOMC statement

“economic activity has been expanding at amoderate pace”

recall:

Y = C + I + G + (X −M)

economic activity

Y = C + I + G + (X −M)

Y = Real GDP, Income, or Expenditures

C = Real Personal Consumption Expenditures

I = Investment Expenditures

G = Real Government Expenditures

X −M = eXports - Imports

1947 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

9.5

10.0

10.5

11.0

Econsnapshot.com Source: BEA

Real GDPLog Real Per Capita GDP, 2009$, Seasonally Adjusted

Linear Trend

1929 1935 1945 1955 1965 1975 1985 1995 2005 2014

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Econsnapshot.com Source: BEA

Real GDPLogged Billions of 2009$, Seasonally Adjusted

Linear Trend

County Income Inequality

how is income distributed across CA?

CA Average: $45.3

$20−$30

$30−$40

$40−$50

$50−$60

$60−$70

$80+

Per−Capita Personal Income: 2014 In Thousands

Source: BEA

1969 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

0.08

0.10

0.12

0.14

0.16

0.18

Economic Forecast Project Source: BEA

Gini CoefficientReal per capita personal income across counties

−10

0

10

20

Col

usa

Alp

ine

Mod

ocYu

baIm

peria

lG

lenn

Sie

rra

Lass

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arip

osa

Del

Nor

teS

utte

rIn

yoT

rinity

Hum

bold

tF

resn

oTe

ham

aP

lum

asS

acra

men

toB

utte

Yolo

Sol

ano

Sis

kiyo

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alav

eras

Ker

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ono

Men

doci

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an B

erna

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mad

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s A

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an J

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ado

Sha

sta

Sta

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aus

San

Die

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uolu

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Mon

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an L

uis

Obi

spo

Mer

ced

Tul

are

Nev

ada

Nap

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lace

rS

an B

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Ala

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iver

side

Kin

gsS

an F

ranc

isco

San

ta B

arba

raM

ader

aO

rang

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ontr

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osta

Vent

ura

Son

oma

San

Mat

eoS

anta

Cla

raS

anta

Cru

zM

arin

US Average: 6%CA Average: 8.95%

Percent Change in Per−Capita Personal Income 2007−2009

Source: BEA

0

20

40

60

Alp

ine

San

ta C

lara

Mad

era

San

Fra

ncis

coK

ings

Sie

rra

Plu

mas

Tul

are

San

Mat

eoM

erce

dLa

ssen

Mar

inK

ern

Gle

nnIn

yoA

lam

eda

Trin

ityT

uolu

mne

San

ta C

ruz

Mar

ipos

aLa

keM

endo

cino

El D

orad

oC

alav

eras

Sis

kiyo

uA

mad

orS

onom

aN

evad

aN

apa

San

Lui

s O

bisp

oTe

ham

aS

tani

slau

sM

odoc

Hum

bold

tC

ontr

a C

osta

Impe

rial

Del

Nor

teYo

loB

utte

Los

Ang

eles

San

Ben

itoS

anta

Bar

bara

San

Die

goO

rang

eM

ono

Fre

sno

Vent

ura

Pla

cer

San

Joa

quin

Sha

sta

Sac

ram

ento

Sol

ano

Yuba

Mon

tere

yS

an B

erna

rdin

oR

iver

side

Sut

ter

Col

usa

US Average: 6%CA Average: 8.95%

Percent Change in Per−Capita Personal Income 2009−2014

Source: BEA

Financial Activities

Government Prof. & Bus. ServicesManufacturing

Educ. & Health ServicesRetail trade

Information

Total Farm

Leisure & HospitalityWholesale trade

Construction

Mining

Other Services

Trans., Ware. & Util.

19.1 16.2 11.5 8.6 8 6.65.4

5.15

4.23.3

2.72.5

1.7

−30

−20

−10

0

10

0 25 50 75 1002014 Percent of Total GDP

2013

−20

14 G

row

th R

ate

(%)

Real Gross Domestic Product (GDP) by Industry Santa Barbara County

...FOMC

“Household spending and business fixed investmenthave been increasing at solid rates in recentmonths...”

Y = C + I + G + (X −M)

0 10 20 30 40

1.0

1.1

1.2

1.3

1.4

Quarters after peakSource: BEA

Real Personal Consumption ExpendituresPeak before recession = 1

1960 cycle1969 cycle1973 cycle1981 cycle1990 cycle2001 cycleCurrent cycle

Q4 1951 Q1 1960 Q1 1970 Q1 1980 Q1 1990 Q1 2000 Q1 2010

450

500

550

600

650

www.efp.ucsb.edu Source: Board of Governors, Flow of Funds

Net Worth as a Percentage of Disposable IncomePercent (%)

Q1 1960 Q2 1966 Q2 1972 Q2 1978 Q2 1984 Q2 1990 Q2 1996 Q2 2002 Q2 2008 Q2 2014

−15

−10

−5

0

5

10

15

Net Wealth [ 4.68% ]Personal Consumption [ 3.47% ]

www.efp.ucsb.edu Note: Most recent value in brackets.

Source: Board of Governors and Bureau of Economic Analysis

Net Wealth and Personal Consumption ExpendituresAnnual Growth Rate (%)

0 10 20 30 40

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Quarters after peakSource: BEA

Non−Residential Fixed InvestmentPeak before recession = 1

1960 cycle1969 cycle1973 cycle1981 cycle1990 cycle2001 cycleCurrent cycle

...FOMC

“and the housing sector has improved further;however, net exports have been soft.”

1999 2001 2003 2005 2007 2009 2011 2013 2015

4

5

6

7

Economic Forecast Project Source: NAR

Existing Home SalesMillions of Units, Seasonally Adjusted

2000 2002 2004 2006 2008 2010 2012 2014 2015

500

1000

1500

2000

Economic Forecast Project Source: Census

Housing StartsNumber of Units, Seasonally Adjusted

2000 2002 2004 2006 2008 2010 2012 2014 2015

100

120

140

160

180

200

Economic Forecast Project Source: BLS

Case−Shiller 20 City CompositeIndex 2000=100

2000−Feb 2002−Feb 2004−Feb 2006−Feb 2008−Feb 2010−Feb 2012−Feb 2014−Feb

40

60

80

100

120

Santa BarbaraSan DiegoSan FranciscoLos AngelesRiversideKingsCaliforniaUnites States

www.efp.ucsb.edu

Source: Zillow Research Data

Note: Current value in brackets.

Zillow Home Value Index (ZHVI)Index (100 = Pre−Recession Maximum Value)

can we afford it?

income

housing price

−20

−10

0

10

20

Div

iden

ds,

inte

rest

, ren

t

Net

ear

ning

s by

pl

ace

of r

esid

ence

Per

sona

l cur

rent

tr

ansf

er r

ecei

pts

CaliforniaSanta Barbara

Percent Change in Per−Capita Personal Income by Component 2007−2009

Source: BEA

0

5

10

15

Div

iden

ds,

inte

rest

, ren

t

Net

ear

ning

s by

pl

ace

of r

esid

ence

Per

sona

l cur

rent

tr

ansf

er r

ecei

pts

CaliforniaSanta Barbara

Percent Change in Per−Capita Personal Income by Component 2009−2014

Source: BEA

−10

0

10

20

Div

iden

ds,

inte

rest

, ren

t

Net

ear

ning

s by

pl

ace

of r

esid

ence

Per

sona

l cur

rent

tr

ansf

er r

ecei

pts

CaliforniaSanta Barbara

Percent Change in Per−Capita Personal Income by Component 2007−2014

Source: BEA

0

20

40

60

Kin

gs

San

Ber

nard

ino

Mer

ced

Tul

are

Mad

era

Fres

no

Sacr

amen

to

Sola

no

Plac

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Stan

isla

us

Riv

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de

San

Joaq

uin

Los

Ang

eles

San

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Mon

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Ven

tura

San

Die

go

Sono

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Nap

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Sant

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lara

Ala

med

a

Con

tra

Cos

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Mar

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Sant

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arba

ra

San

Mat

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San

Fran

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CA Average: 30%

US Average: 57%

CAR Affordability 2015Q2

Source: California Realtors Association

...FOMC

“The pace of job gains slowed and theunemployment rate held steady.”

J A S O N D J F M A M J J A S O N D

−100

0

100

200

300

400

econsnapshot.com Source: BLS

Net Employment ChangeThousands, SA

first estimatesecond estimatethird estimate

2000 2002 2004 2006 2008 2010 2012 2014 2015

4

5

6

7

8

9

10

Economic Forecast Project Source: BLS

Unemployment RatePercent, SA

1948 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

2

4

6

8

10

12

14

Economic Forecast Project Source: BLS

Unemployed PersonsMillions, SA

employment

large differences within and across counties

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

Agri., Forestry, Fishing & Hunting

Mining

Construction

Manufacturing-Durable

Manufacturing-Nondurable

Wholesale Trade

Retail Trade

Information

Financial Activities

Prof. & Business Services

Educational & Health Services

Leisure and Hospitality

Government

Industry Employment for Santa Barbara County Areas2013, Employment Shares (%)

City of Santa Barbara

Goleta Valley

Carpinteria

Santa Maria

Santa Ynez Valley

Lompoc

Source: QCEW

01234

Current Annual Empl. Growth (%)

Anaheim−Irvine MD

Bakersfield

Chico

El Centro

Fresno

Hanford−Corcoran

Los Angeles MD

Madera

Merced

Modesto

Napa

Oakland−Berkeley MD

Ventura

Redding

Riverside

Sacramento

Salinas

San Diego−Carlsbad

San Francisco MD

San Jose−Santa Clara

San Luis Obispo

San Rafael MD

Santa Cruz

Santa Barbara

Santa Rosa

Stockton−Lodi

Vallejo−Fairfield

Visalia−Porterville

Yuba City

0 5 10 15 20

Current Unempl. Rate (%)

1948 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

56

58

60

62

64

Economic Forecast Project Source: BLS

Employment to Population RatioPercent

60

80

100

120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years45 to 54 years 55 to 64 years 65 years and over

California: Employment to Population RatioMen (Index: 2002 = 100)

Source: BLS − Local Area Unemployment Statistics

50

75

100

125

150

175

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years45 to 54 years 55 to 64 years 65 years and over

California: Employment to Population RatioWomen (Index: 2002 = 100)

Source: BLS − Local Area Unemployment Statistics

93

94

95

96

97

98

99

100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Men Total Women

California: Participation Rate(Index 2002 = 100)

Source: BLS − Local Area Unemployment Statistics

75

100

125

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years

45 to 54 years 55 to 64 years 65 years and over

California: Participation RateMen (Index: 2002 = 100)

Source: BLS − Local Area Unemployment Statistics

60

70

80

90

100

110

120

130

140

150

160

170

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years

45 to 54 years 55 to 64 years 65 years and over

California: Participation RateWomen (Index: 2002 = 100)

Source: BLS − Local Area Unemployment Statistics

lingering issues

current stance of policy

regulatory pressures

1984 1988 1992 1996 2000 2004 2008 2012 2015

0

500

1000

1500

2000

2500

3000Excess ReservesRequired ReservesTotal ReservesCash Assets

Economic Forecast Project Source: FRB St. Louis

ReservesBillions of Dollars

1954 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

0

5

10

15

Econsnapshot.com Source: BLS, BEA

Taylor RuleFF = .5*(5.0−URATE) + 2 + INF + .5*(INF−2)

Implied Taylor RuleEffective Fed Funds Rate

outlook for the rest of the world

still sucks

outlook for the rest of the world

still sucks

2004 2005 2007 2008 2010 2011 2013 2014

0.85

0.90

0.95

1.00

1.05

1.10

Econsnapshot.com Source: OECD

Real GDPIndex, 2010=1, Quarterly, SA

USUKGermanyFranceNetherlandsIrelandSpainItalyPortugalGreece

final thoughts

some good, some bad

1967 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2015

70

75

80

85

90

Capacity Utilization Rate

Source: Board of GovernorsEconomic Forecast Project

82.5 is estimated inflation boom/bust level

1986 1990 1994 1998 2000 2004 2006 2010 2012 2016

20

40

60

80

100

120

140 West Texas IntermediateBrent

Economic Forecast Project Source: U.S. Energy Information Administration

Oil PricesPrice per barrel, weekly

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2015

0.5

1.0

1.5

2.0

2.5

3.0

Economic Forecast Project Source: FRB St. Louis

5 Year Inflation ExpectationsPercent

1948 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

56

58

60

62

64

Economic Forecast Project Source: BLS

Employment to Population RatioPercent

how to not grow a business

Waste Connections...Folsom to Dallas:

“Then the other part of it was the cost of doingbusiness in California. Highest tax rates in thenation. Until recently very expensive real estate.Tremendous regulation and really a brokenlegislature. Something thats got a built-instructural deficit thats not going to improve,”explained Mittelstaedt. “The reality is this is justa very difficult place to do business. Its a veryexpensive place to do business.”

“forecasting”

where we are: google trends (nowcasting)

where will we be: Fed forecasts

1947 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

9.5

10.0

10.5

11.0

Econsnapshot.com Source: BEA

Real GDPLog Real Per Capita GDP, 2009$, Seasonally Adjusted

Linear Trend

final thoughts

lots of weakness out there

and yes, signs of strength

1947 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

9.5

10.0

10.5

11.0

Econsnapshot.com Source: BEA

Real GDPLog Real Per Capita GDP, 2009$, Seasonally Adjusted

Linear Trend

thank you!