the economic outlook · 2019-01-22 · beacon economics will the real economy please stand up? why...

Beacon EconomicsBeacon Economics | beaconecon.com

Christopher Thornberg, PhDFounding Partner, Beacon EconomicsDirector, UCR SoBA Center for Economic Forecasting and Development

The Economic OutlookFocus on Newport BeachJanuary 2019

Beacon EconomicsBeacon Economics

Will the Real Economy Please Stand Up?

Why so glum?⏤ 2018 Growth: 3.2% with .75% fiscal

stimulus after-burner⏤ Labor markets, consumer spending,

business investment, wages, exports, energy, debt levels still all on steady sustainable paths

⏤Interest rates, inflation still constrained⏤ 2019: back to a solid pace of 2.5%

growth ⏤Still a low chance of recession in next 24

months`⏤Southern California: Still out in front

2

0.0% 20.0% 40.0% 60.0%

2023

2022

2021

2020

2019

2018

WSJ Next Recession Poll

It isn’t the ‘when’, it’s the ‘why’ that matters


Will the Real Economy Please Stand Up?Brakes and Imbalances

⏤Labor shortages impacting employers⏤Local Housing Shortages⏤Recent market volatility / rising long term rates⏤Aggressive Fed, flattening yield curves⏤Sharp growth in government deficits⏤The Federal government shutdown⏤Global trade / security worries

Political Dysfunction in DC⏤Little effort to deal with underinvestment in infrastructure, rising

wealth inequality, healthcare cost inflation, pension and entitlement issues, etc etc etc

⏤The great disconnect between economic realities and political discourse

3

Federal Budget$3.8 trillion

Discretionary Spending$1.1 trillion

Cost of 1 aircraft carrier

$14 billion

Cost of full border wall$60 billion+

Cause of shut down$5.7 billion


GDP: Q3 3.5%, Q4 tracking 2.8%

-4

-3

-2

-1

0

1

2

3

4

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2018

Q1

Real GDP Growth (yoy) 2016 2017 Q2 Q3GDP 1.88 2.48 4.20 3.50Final DemandConsumption 1.87 1.83 2.57 2.69

Goods 0.75 0.96 1.16 1.20Services 1.11 0.87 1.42 1.49

Fixed investment 0.39 0.95 1.10 -0.04Structures 0.07 0.08 0.43 -0.26Equipment -0.08 0.54 0.27 0.03Intellectual prop 0.24 0.18 0.45 0.35Residential 0.16 0.15 -0.05 -0.16

Change inventories -0.20 -0.11 -1.17 2.07Net exports -0.34 -0.23 1.22 -1.78

Exports 0.09 0.56 1.12 -0.45Imports -0.43 -0.79 0.10 -1.34

Government 0.16 0.03 0.43 0.56Federal 0.02 0.09 0.24 0.21State and local 0.15 -0.06 0.20 0.35


Consumer Spending

-3.0-2.0-1.00.01.02.03.04.05.0

Jan-

03Fe

b-04

Mar

-05

Apr-0

6M

ay-0

7Ju

n-08

Jul-0

9Au

g-10

Sep-

11O

ct-1

2N

ov-1

3D

ec-1

4Ja

n-16

Feb-

17M

ar-1

8

Real Consumer Spending Growth (Y-o-Y)

0.01.02.03.04.05.06.07.08.09.0

10.0

Jan-

96Se

p-97

May

-99

Jan-

01Se

p-02

May

-04

Jan-

06Se

p-07

May

-09

Jan-

11Se

p-12

May

-14

Jan-

16Se

p-17

Personal Savings Rate


Autos?

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13Ja

n-14

Jan-

15Ja

n-16

Jan-

17Ja

n-18

US Auto Light Truck Sales

40

60

80

100

120

140

160

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13Ja

n-14

Jan-

15Ja

n-16

Jan-

17Ja

n-18

Domestic Auto Production


Labor Markets

0123456789

10

Jan-

01Ap

r-02

Jul-0

3O

ct-0

4Ja

n-06

Apr-0

7Ju

l-08

Oct

-09

Jan-

11Ap

r-12

Jul-1

3O

ct-1

4Ja

n-16

Apr-1

7Ju

l-18

Unemployment and Job Openings

Job Opening Rate Unemployment Rate

-500

50100150200250300350

Jan-

10Se

p-10

May

-11

Jan-

12Se

p-12

May

-13

Jan-

14Se

p-14

May

-15

Jan-

16Se

p-16

May

-17

Jan-

18Se

p-18

Change Non Farm Payrolls (Smoothed)


Consequences

8

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Sep-

02Se

p-03

Sep-

04Se

p-05

Sep-

06Se

p-07

Sep-

08Se

p-09

Sep-

10Se

p-11

Sep-

12Se

p-13

Sep-

14Se

p-15

Sep-

16Se

p-17

Real Wage Gains for Continuously Employed FT Workers

Median Average

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-

80Ju

n-82

Nov

-84

Apr

-87

Sep

-89

Feb-

92Ju

l-94

Dec

-96

May

-99

Oct

-01

Mar

-04

Aug

-06

Jan-

09Ju

n-11

Nov

-13

Apr

-16

US Labor Force Growth (Smoothed)


Looking Ahead

0-24 25-64 65+Current 104.5 169.4 49.2

2016-26 0.9 4.7 17.82026-36 2.0 6.2 11.92036-46 2.3 9.4 4.8

Total 5.3 20.3 34.5

US Population Forecast

-

5.0

10.0

15.0

20.0

25.0

Und

er 5

yea

rs5

to 9

yea

rs10

to 1

4 ye

ars

15 to

19

year

s20

to 2

4 ye

ars

25 to

29

year

s30

to 3

4 ye

ars

35 to

39

year

s40

to 4

4 ye

ars

45 to

49

year

s50

to 5

4 ye

ars

55 to

59

year

s60

to 6

4 ye

ars

65 to

69

year

s70

to 7

4 ye

ars

75 to

79

year

s80

to 8

4 ye

ars

85 y

ears

and

ove

r

2016 Population by Age (Millions)


Housing Markets: Slight Slowing

10

3000.0

3500.0

4000.0

4500.0

5000.0

5500.0

6000.0

6500.0

7000.0

7500.0

Jan-

99A

pr-0

0Ju

l-01

Oct

-02

Jan-

04A

pr-0

5Ju

l-06

Oct

-07

Jan-

09A

pr-1

0Ju

l-11

Oct

-12

Jan-

14A

pr-1

5Ju

l-16

Oct

-17

Home Sales

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13Ja

n-14

Jan-

15Ja

n-16

Jan-

17Ja

n-18

Median Prices Y-o-Y Growth

Beacon Economics

Home Prices / Inventories

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-

99M

ar-0

0M

ay-0

1Ju

l-02

Sep

-03

Nov

-04

Jan-

06M

ar-0

7M

ay-0

8Ju

l-09

Sep

-10

Nov

-11

Jan-

13M

ar-1

4M

ay-1

5Ju

l-16

Sep

-17

Months Supply of Homes

0

0.5

1

1.5

2

2.5

3

3.5

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

Housing Starts per New Household


Consumer Debt Loads

12

0.7

0.75

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

1.2

03:Q

104

:Q1

05:Q

106

:Q1

07:Q

108

:Q1

09:Q

110

:Q1

11:Q

112

:Q1

13:Q

114

:Q1

15:Q

116

:Q1

17:Q

118

:Q1

Household Debt / DPI Ratio

500

550

600

650

700

750

800

99:Q

200

:Q2

01:Q

202

:Q2

03:Q

204

:Q2

05:Q

206

:Q2

07:Q

208

:Q2

09:Q

210

:Q2

11:Q

212

:Q2

13:Q

214

:Q2

15:Q

216

:Q2

17:Q

2

Mortgage Origination by Credit Score

Median 25th percentile 10th percentile


Industrial Production

400

600

800

1000

1200

1400

1600

1800

2000

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2018

Q1

Exports of goods, Real

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

10.0%

Mar

-95

Sep

-96

Mar

-98

Sep

-99

Mar

-01

Sep

-02

Mar

-04

Sep

-05

Mar

-07

Sep

-08

Mar

-10

Sep

-11

Mar

-13

Sep

-14

Mar

-16

Sep

-17

Industrial Production YoY Growth


Oil Production / Prices

20003000400050006000700080009000

100001100012000

1/7/

831/

7/85

1/7/

871/

7/89

1/7/

911/

7/93

1/7/

951/

7/97

1/7/

991/

7/01

1/7/

031/

7/05

1/7/

071/

7/09

1/7/

111/

7/13

1/7/

151/

7/17

US Crude Oil Production (TB/D)

0.0020.0040.0060.0080.00

100.00120.00140.00160.00

2004

-01-

0220

05-0

1-02

2006

-01-

0220

07-0

1-02

2008

-01-

0220

09-0

1-02

2010

-01-

0220

11-0

1-02

2012

-01-

0220

13-0

1-02

2014

-01-

0220

15-0

1-02

2016

-01-

0220

17-0

1-02

2018

-01-

02

WTI Oil Prices ($/B)


Twin Deficits

15

-1800-1600-1400-1200-1000

-800-600-400-200

0200400

1995

Q1

1996

Q3

1998

Q1

1999

Q3

2001

Q1

2002

Q3

2004

Q1

2005

Q3

2007

Q1

2008

Q3

2010

Q1

2011

Q3

2013

Q1

2014

Q3

2016

Q1

2017

Q3

Net Surplus Federal Go

-70000

-60000

-50000

-40000

-30000

-20000

-10000

0

Jan-

93N

ov-9

4Se

p-96

Jul-9

8M

ay-0

0M

ar-0

2Ja

n-04

Nov

-05

Sep-

07Ju

l-09

May

-11

Mar

-13

Jan-

15N

ov-1

6

Trade Deficit


Country Exports ImportsTotal, 829.8 1233.9China 64.0 7.7% 249.7 20.2%Canada 151.9 18.3% 160.0 13.0%Mexico 131.3 15.8% 169.3 13.7%Japan 35.7 4.3% 70.3 5.7%Germany 29.4 3.5% 62.3 5.0%United Kingdom 33.9 4.1% 29.3 2.4%Korea, South 27.1 3.3% 35.4 2.9%France 18.1 2.2% 25.7 2.1%India 15.5 1.9% 26.8 2.2%Italy 11.9 1.4% 26.8 2.2%Taiwan 13.6 1.6% 21.6 1.8%Netherlands 24.2 2.9% 10.7 0.9%

The China Syndrome

16

Value US Exports to China as % of

GDP: 0.75%

Value China Exports to US as

% of GDP: 4.0%


The Yuan response

5.40

5.60

5.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

10/2

8/13

1/28

/14

4/28

/14

7/28

/14

10/2

8/14

1/28

/15

4/28

/15

7/28

/15

10/2

8/15

1/28

/16

4/28

/16

7/28

/16

10/2

8/16

1/28

/17

4/28

/17

7/28

/17

10/2

8/17

1/28

/18

4/28

/18

7/28

/18

Yuan / Dollar Exchange Rate

Economics Group Global Review Wells Fargo Securities

4

Global Review

Fears of Global Economic Slowdown Linger

Economic news on the global front was somewhat mixed in the first week of the new year, with concerns lingering over prospects for global economic growth. China garnered attention as the official and Caixin manufacturing PMIs fell into contraction territory (i.e., below 50), reigniting concerns around a sharper slowdown in the world’s largest developing economy. Later in the week, China announced that it would reduce the reserve requirement ratio (RRR) for major banks 100 basis points to 13.50%, effectively increasing the amount of liquidity in the banking system. That announcement is likely at least partly a response to weak economic data, and comes after 250 basis points worth of RRR cuts in 2018. On a more positive note, the official and Caixin services PMIs climbed higher in December and remain well above the 50-line demarcating expansion and contraction. Meanwhile, there appears to be a great deal of anticipation around upcoming U.S.-China trade talks scheduled to take place on January 7-8. As a reminder, if the two sides do not reach a formal trade deal by March 1, President Trump has threatened to raise the current 10% tariff on $200 billion worth of Chinese goods to 25%.

Economic data from the United Kingdom were a bit less downbeat, as the December manufacturing and services PMIs recovered to 54.2 and 51.2, respectively. Still, it is hard to get particularly optimistic regarding U.K. economic prospects as a resolution to the current Brexit uncertainty remains elusive. Little progress was made in lessening that Brexit uncertainty in recent weeks as parliaments in the United Kingdom and European Union were on holiday recess, while U.K. Prime Minister Theresa May is still targeting a vote on the current Brexit withdrawal deal for the week of January 14. Elsewhere, Canada’s December jobs report was generally soft in tone—9,300 jobs were added over the month, but mostly in part-time industries, while the unemployment rate stayed at 5.6% and wage growth remained low at 1.5% year-over-year. The Bank of Canada already shifted toward a more dovish stance at its meeting in mid-December, and is likely to remain on hold at its upcoming policy announcement next week.

On a more positive note, Italian parliament approved a final budget proposal for 2019, settling on a deficit target of 2.04% of GDP for this year after a series of revisions recommended by the European Commission. The key question now for the Italian government will be how to allocate the limited stimulus to its various campaign promises, and moreover whether the government will actually be able to achieve its narrower deficit target. European data were limited this week—a slowing in December Eurozone CPI inflation to 1.6% year-over-year garnered some attention, but largely confirmed the narrative that ECB rate hikes are a long way off. Finally, Brazilian President Jair Bolsonaro took office on January 1, and is expected to detail his reform agenda in the coming days and weeks. Arguably at the top of the list, at least from an economic perspective, is reforming Brazil’s pension system, a key issue that has hindered consolidation in Brazil’s budget deficit and which is likely to pose an increasingly significant threat to the country’s finances unless addressed.

Source: Bloomberg LP and Wells Fargo Securities

48

50

52

54

56

58

60

48

50

52

54

56

58

60

10 11 12 13 14 15 16 17 18 19

China Purchasing Managers' IndicesIndex, Seasonally Adjusted

Chinese Manufacturing PMI: Dec @ 49.4Chinese Non-Manufacturing PMI: Dec @ 53.8

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

U.K. Purchasing Managers' IndicesIndex

U.K. Manufacturing: Dec @ 54.2U.K. Services: Dec @ 51.2

0%

1%

2%

3%

4%

5%

6%

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 190%

1%

2%

3%

4%

5%

6%

Canadian Average Hourly EarningsYear-over-Year Percent Change

Average Hourly Earnings: Dec @ 2.0%


The Markets

25002550260026502700275028002850290029503000

2018

-01-02

2018

-02-02

2018

-03-02

2018

-04-02

2018

-05-02

2018

-06-02

2018

-07-02

2018

-08-02

2018

-09-02

2018

-10-02

S&P 500

900

1200

1500

1800

2100

2400

2700

3000

2010

-01-04

2011

-01-04

2012

-01-04

2013

-01-04

2014

-01-04

2015

-01-04

2016

-01-04

2017

-01-04

2018

-01-04

S&P 500

11% Annual Return


A look backNBER says U.S. recession began December 2007Mon Dec 1, 12:20 pm ET WASHINGTON (Reuters) – The U.S. economy slipped into recession in December 2007, the National Bureau of Economic Research's business cycle dating committee announced on Monday.


The Markets

-20.00%-18.00%-16.00%-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%

2010

-01-04

2011

-01-04

2012

-01-04

2013

-01-04

2014

-01-04

2015

-01-04

2016

-01-04

2017

-01-04

2018

-01-04

Market Selloffs Current Expansion


Rising Rates?

21

3.003.203.403.603.804.004.204.404.604.805.00

2016

-01-

28

2016

-04-

28

2016

-07-

28

2016

-10-

28

2017

-01-

28

2017

-04-

28

2017

-07-

28

2017

-10-

28

2018

-01-

28

2018

-04-

28

2018

-07-

28

Mortgage Rates (30 Year Fixed)

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

1978

-01-

0619

81-0

1-06

1984

-01-

0619

87-0

1-06

1990

-01-

0619

93-0

1-06

1996

-01-

0619

99-0

1-06

2002

-01-

0620

05-0

1-06

2008

-01-

0620

11-0

1-06

2014

-01-

0620

17-0

1-06

Mortgage Rates (30 Year Fixed)


Inflation?

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1996

-04-

0119

97-1

1-01

1999

-06-

0120

01-0

1-01

2002

-08-

0120

04-0

3-01

2005

-10-

0120

07-0

5-01

2008

-12-

0120

10-0

7-01

2012

-02-

0120

13-0

9-01

2015

-04-

0120

16-1

1-01

2018

-06-

01

Core Inflation

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1981

-11-

02

1984

-11-

02

1987

-11-

02

1990

-11-

02

1993

-11-

02

1996

-11-

02

1999

-11-

02

2002

-11-

02

2005

-11-

02

2008

-11-

02

2011

-11-

02

2014

-11-

02

2017

-11-

02

M2 Growth (Y-o-Y)


Federal Reserve Policy: Normalization?

23

0.00

5.00

10.00

15.00

20.00

25.0019

74-0

1-02

1977

-01-

0219

80-0

1-02

1983

-01-

0219

86-0

1-02

1989

-01-

0219

92-0

1-02

1995

-01-

0219

98-0

1-02

2001

-01-

0220

04-0

1-02

2007

-01-

0220

10-0

1-02

2013

-01-

0220

16-0

1-02

2019

-01-

02

Federal Funds Rate

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

1982

-01-

0119

84-0

1-01

1986

-01-

0119

88-0

1-01

1990

-01-

0119

92-0

1-01

1994

-01-

0119

96-0

1-01

1998

-01-

0120

00-0

1-01

2002

-01-

0120

04-0

1-01

2006

-01-

0120

08-0

1-01

2010

-01-

0120

12-0

1-01

2014

-01-

0120

16-0

1-01

2018

-01-

01

10 Year 3 Month Spread


State Economic Performance

Source: U.S. Bureau of Labor Statistics, U.S Bureau of Economic Analysis 24

Q1 2018 1 Year 5 Year

Washington 4.3% 3.7%California 3.5% 3.7%Utah 3.7% 3.4%Colorado 4.5% 3.4%Oregon 3.4% 2.9%Florida 2.3% 2.8%

Texas 4.2% 2.8%

Idaho 3.2% 2.8%

Georgia 2.5% 2.8%

Nevada 4.0% 2.7%

Real Output

Metro 2017Chg, 11-17

% Absolute

Los Angeles-Long Beach 6,316,214 11.0 625,998

Dallas-Fort Worth-Arlington 3,542,411 16.7 508,100

Houston-The Woodlands 3,115,118 14.3 390,199

San Francisco-Oakland 2,447,183 17.1 356,613 Phoenix-Mesa-Scottsdale 2,135,994 14.0 262,366

Riverside-San Bernardino 1,870,456 16.1 259,420 Seattle-Tacoma-Bellevue 1,935,115 13.4 229,383

Austin-Round Rock 1,074,307 24.1 208,713

Denver-Aurora-Lakewood 1,492,974 14.9 193,291

San Jose-Sunnyvale 1,015,579 19.0 161,799

Job Gains by MSA


Myth Busting

25

California's economy recently grew to become the world's fifth-largest economy if it were its own country.

Sounds like great news, but that wealth mostly benefits the very rich in the tech sector.

"Almost all the income growth and high-end job growth took place in Silicon Valley,”

Joel Kotkin, professor of Urban Studies at Chapman UniversityMay 18, 2018

25-50K 50-75K 75K-100K 100K+

State 318,146 179,115 177,425 484,322

Bay 4.4% 9.1% 24.1% 39.4%

So Cal 43.1% 27.7% 29.5% 39.4%

S Cen Val 19.6% 19.9% 8.8% 7.1%

N Cen Val 16.1% 11.8% 12.1% 10.1%

Cen Cst 5.3% 6.0% 5.1% 2.2%

Other 11.4% 25.5% 20.3% 1.8%

Share New FT Employees


Myth Busting

26

California's economy recently grew to become the world's fifth-largest economy if it were its own country.

Sounds like great news, but that wealth mostly benefits the very rich in the tech sector.

"Almost all the income growth and high-end job growth took place in Silicon Valley,”

Joel Kotkin, professor of Urban Studies at Chapman UniversityMay 18, 2018

25-50K 50-75K 75K-100K 100K+

State 318,146 179,115 177,425 484,322

Bay 4.4% 9.1% 24.1% 39.4%

So Cal 43.1% 27.7% 29.5% 39.4%

S Cen Val 19.6% 19.9% 8.8% 7.1%

N Cen Val 16.1% 11.8% 12.1% 10.1%

Cen Cst 5.3% 6.0% 5.1% 2.2%

Other 11.4% 25.5% 20.3% 1.8%

Share New FT Employees 2013-2016


Taxable Receipts, Orange County

Source: HDL 27

100

110

120

130

140

150

160

170

180

Q3-09

Q3-10

Q3-11

Q3-12

Q3-13

Q3-14

Q3-15

Q3-16

Q3-17

Q3-18

Taxa

ble

Rec

eipt

s ($

, Milli

ons)

Total Taxable ReceiptsQ3-2009 to Q3-2018 Category

Q3-2018 Tax Receipts

Year over Year % Growth

Total 168,500,000 3.1

Fuel & Service Stations 12,766,596 7.8

Autos & Transportation 29,905,875 7.0

Building & Construction 13,156,909 4.1

Food and Drugs 7,247,511 3.5

Restaurants and Hotels 26,524,364 2.1

General Consumer Goods 36,349,653 0.1

Business and Industry 21,919,387 -1.3


Hotel Statistics, Orange County

28

95.0

115.0

135.0

155.0

175.0

195.0

215.0

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-18

Valu

e ($

)

Average Daily Rate and Revenue per Available Room

Nov. 2012 to Nov. 2018

ADR RevPAR

70

72

74

76

78

80

82

84

Nov-12

Jun-1

3

Jan-1

4

Aug-14

Mar-15

Oct-15

May-16

Dec-16

Jul-1

7

Feb-18

Sep-18

Rat

e (%

)

Occupancy RateNov. 2012 to Nov. 2018

Statistics And Trends Of Rooms Business In Orange CountyCBRE Hotels

AVERAGE DAILY RATE OCCUPANCY PERCENT VAR2018 2017 VAR2018 2017

MONTH OF NOVEMBER 2018

BY LOCATION REVPAR VAR2018 2017

ANAHEIM $210.59 1.9%$206.59 81.00% 83.42% -2.9% $170.57 -1.0%$172.33

COSTA MESA $129.48 -2.4%$132.66 73.78% 78.95% -6.5% $95.53 -8.8%$104.73

ORANGE COUNTY AIRPORT $130.99 -3.7%$136.02 73.32% 75.02% -2.3% $96.04 -5.9%$102.04

NORTH ORANGE COUNTY $128.63 -0.8%$129.71 76.21% 76.63% -0.6% $98.02 -1.4%$99.39

SOUTH ORANGE COUNTY $239.20 9.4%$218.68 68.52% 70.03% -2.2% $163.90 7.0%$153.15

NEWPORT BEACH $276.95 1.6%$272.55 74.00% 73.41% 0.8% $204.95 2.4%$200.10

HUNTINGTON BEACH $251.17 7.5%$233.65 69.75% 61.77% 12.9% $175.20 21.4%$144.32

OVERALL AVERAGE $195.68 2.3%$191.27 76.58% 78.12% -2.0% $149.86 0.3%$149.43

JANUARY TO NOVEMBER 2018

AVERAGE DAILY RATE OCCUPANCY PERCENT VAR2018 2017 VAR2018 2017

REVPAR VAR2018 2017

ANAHEIM $198.93 5.4%$188.77 83.70% 83.86% -0.2% $166.50 5.2%$158.30

COSTA MESA $146.15 0.2%$145.83 80.09% 80.85% -0.9% $117.05 -0.7%$117.90

ORANGE COUNTY AIRPORT $144.59 0.6%$143.72 79.71% 78.82% 1.1% $115.26 1.7%$113.28

NORTH ORANGE COUNTY $128.81 1.5%$126.87 80.75% 82.47% -2.1% $104.02 -0.6%$104.63

SOUTH ORANGE COUNTY $262.09 4.1%$251.71 75.88% 78.74% -3.6% $198.87 0.3%$198.20

NEWPORT BEACH $308.01 2.2%$301.50 83.09% 82.73% 0.4% $255.91 2.6%$249.44

HUNTINGTON BEACH $282.75 4.6%$270.44 76.37% 70.09% 9.0% $215.94 13.9%$189.55

OVERALL AVERAGE $198.38 3.8%$191.09 81.32% 81.42% -0.1% $161.31 3.7%$155.59


Commercial Trends

Source: REIS 29

0

5

10

15

20

25

30

Q3-03Q4-0

4Q1-0

6Q2-0

7Q3-0

8Q4-0

9Q1-1

1Q2-1

2Q3-1

3Q4-1

4Q1-1

6Q2-1

7Q3-1

8

Vaca

cny

Rat

e (%

)

Office Vacancy RateQ3-2003 to Q3-2018

Inland Empire Los AngelesOrange County San Diego

02468

1012141618

Q1-10Q3-1

0Q1-1

1Q3-1

1Q1-1

2Q3-1

2Q1-1

3Q3-1

3Q1-1

4Q3-1

4Q1-1

5Q3-1

5Q1-1

6Q3-1

6Q1-1

7Q3-1

7Q1-1

8Q3-1

8

Vaca

ncy

Rat

e (%

)

Industrial Vacancy RateQ1-2010 to Q3-2018

Inland Empire Los AngelesOrange County San Diego


Nonresidential Real Estate Permits

Source: CIRB 30

0200400600800

10001200140016001800

2003

2006

2009

2012

2015

2018

*

Perm

it Va

lues

($, M

illlio

ns)

Orange County Permit Values2003 to 2018

Commercial Nonres Alterations

*up to the third quarter

Region

Value of Permits2018 YTD*


Commercial Alt. Commercial Alt.

Orange County 1,619,475 804,307 276.8 13.5

Inland Empire 562,050 561,596 9.7 19.4

Los Angeles 1,205,626 1,636,011 0.3 -31.0

San Diego 369,776 826,541 -32.1 1.5

*up to the third quarter

Beacon Economics

Non-Residential Permits

Source: CIRB 31

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

$ M

illion

s (S

A &

Sm

ooth

ed)

Value of Permits Issued*YTD through Q3 of each year Type

2018 YTD ($ Mil.)

Chg 2017 YTD ($ Mil.)

Chg 2019 YTD ($ Mil.)

Total NR 59,029.5 11,303.1 -4,078.6

Office 2,350.0 -4,924.0 2,350.0

Hotel - -35,691.0 -

Alts 49,822.9 11,620.3 21,805.8

Other 3,506.6 -200.4 3,476.6


State Job Growth

Nov-18San Jose 1,147,800 2.6% 3.4%Stockton 246,000 3.8% 3.1%Santa Rosa 211,500 2.0% 2.3%Riverside 1,509,100 4.2% 2.3%Fresno 357,600 3.1% 2.1%Oakland 1,194,800 2.0% 1.9%San Francisco 1,146,000 1.9% 1.9%Bakersfield 264,800 1.5% 1.8%San Diego 1,490,500 1.8% 1.8%Oxnard 309,400 1.1% 1.6%Sacramento 993,500 2.6% 1.3%Los Angeles 4,523,400 1.4% 1.3%Orange 1,635,300 1.7% 0.4%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13Ja

n-14

Jan-

15Ja

n-16

Jan-

17Ja

n-18

California Non Farm Payroll YoY Growth


Employment Comparisons

Source: California EDD 33

1200

1250

1300

1350

1400

1450

1500

1550

1600

1650

1700

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-18

Empl

oym

ent (

Thou

sand

s)

Orange County Total NonfarmNov. 2003 to Nov. 2018 Industry

Orange CountyEmployment (thousands)


Total Nonfarm 1,635 0.4Prof, Sci & Tech 130.5 4.1Education/Health 225.6 3.0Leisure/Hospitality 228.0 2.9Wholesale Trade 83.3 1.7Admin Support 146.8 1.2Construction 104.2 0.6Logistics 263.7 0.2Information 27.4 0.0Retail Trade 151.7 -1.2Financial Activities 116.7 -1.4Manufacturing 152.8 -3.0Government 156.0 -3.4Other Services 48.6 -3.7


California Labor Markets

Source: U.S. Census 34

-0.50%

-0.30%

-0.10%

0.10%

0.30%

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Net Migration as a % of Pop

3456789

10111213

Jan-

90A

ug-9

1M

ar-9

3O

ct-9

4M

ay-9

6D

ec-9

7Ju

l-99

Feb-

01S

ep-0

2A

pr-0

4N

ov-0

5Ju

n-07

Jan-

09A

ug-1

0M

ar-1

2O

ct-1

3M

ay-1

5D

ec-1

6

Unemployment Rate

California


Labor Force and Unemployment

Source: California EDD 35

100

101

102

103

104

105

106

107

108

109

110

Nov

-03

Nov

-04

Nov

-05

Nov

-06

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Nov

-18

Labor

Forc

e (

Index a

t 100)

Labor ForceNov. 2003 to Nov. 2018

Los Angeles Orange County

0

2

4

6

8

10

12

14

16

Nov

-03

Nov

-04

Nov

-05

Nov

-06

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Nov

-18

Unem

plo

ym

ent R

ate

(%

)

Unemployment RateNov. 2003 to Nov. 2018

Inland Empire Los Angeles Orange County


New Housing Supply

36

How Much Housing Needed?Housing Needed to maintain 2% State

Job Growth

Method 1Total 722,022 Per Year 206,674 Current 111,185 Shortfall 100,489

Method 2Total 911,001 Per Year 263,667 Current 111,185 Shortfall 157,482

0

50000

100000

150000

200000

250000

Q1-

95Q

2-96

Q3-

97Q

4-98

Q1-

00Q

2-01

Q3-

02Q

4-03

Q1-

05Q

2-06

Q3-

07Q

4-08

Q1-

10Q

2-11

Q3-

12Q

4-13

Q1-

15Q

2-16

Q3-

17

Residential Permits (SAAR)

SF MF

Beacon Economics

Home Prices

Source: DataQuick 37

City Q3-18 1-year % Chg

Irvine 1,119,500 10.6

Santa Ana 638,200 7.8

Newport Beach 2,217,600 5.5

Orange County 779,300 4.2

Huntington Beach 866,600 3.5

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Q1-00

Q1-02

Q1-04

Q1-06

Q1-08

Q1-10

Q1-12

Q1-14

Q1-16

Q1-18

$ (S

A &

Sm

ooth

ed)

Median Home Prices

Huntington Beach Irvine Newport BeachSanta Ana Orange County

Beacon Economics

Residential Permits

Source: CIRB 38

0

100

200

300

400

500

600

700

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

# of Permits Issued*YTD through Q3 of each year

Multi-Family Single-Family

Type 2018 YTD 2017 2009

Total 139 -496 82

Single-Family 105 -36 54

Multi-Family 34 -460 28


The Upside of Labor Shortages

39

County Gr 15-17 City Gr 15-17

Pop w

Earn 5,364 2.7% 2,218 4.3%

Median

Earn 32,169 5.1% 31,191 12.8%

< HS 21,901 7.2% 21,372 15.6%

HS 28,882 6.7% 26,656 5.7%

SC 36,535 3.4% 35,392 9.6%

Bach 54,442 4.8% 51,896 1.9%

Grad 77,200 7.6% 75,290 12.7%

29

30

31

32

33

34

35

36

37

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Media

n R

ent (%

of In

com

e)

Median Rent as % of Income2005 to 2017

Inland Empire Los Angeles

Orange County San Diego


§ Positives: It will be a good year�GDP Growth Outlook for 2019: 2%+�State revenues will look positive�Labor markets to remain tight�Rising wages to put pressure on profits�Exports, business investment continue

to grow�Inflation to remain constrained�Interest Rates Still Low�Debt Levels still safe�California: Still a top performer

The Big Picture

40

§ Negatives: Problems Growing�Labor shortages will be an issue�Local housing supply tightening�Fed will continue to tighten, yield curve

flattening�Markets behaving oddly�Federal deficit widening sharply�Current shutdown—how long?�Political uncertainty to dominate

headlines�Critical Policy Issues Remain

Undiscussed�Miserabilism warping our sense or reality


What can Beacon do for you?

41

Housing, Land Use, & Real Estate

Advisory

Sustainable Growth and

Development

Economic & Revenue

Forecasting

Economic, Fiscal and Social Impact

Analysis

Regional and Sub-Regional Analysis

Litigation and Testimony

For more information, see Slide 2.

Continue the conversation.

Contact Dr. Chris Thornberg directly at [email protected] or 310.571.3399

Let’s discuss your goals and needs.

Beacon has 6 Practice Areas covering a range of services and products.

To view again or download this presentation and for further information, go to: www.BeaconEcon.com

Connect with us.

Our 6 Practice Areas


Portfolio Spotlight

42

Housing, Land Use, &

Real Estate Advisory

Economic & revenue

forecasting

Litigation and

testimony

Sustainable Growth &

Development

Impact (Economic,

Fiscal, Social) & EB5

Analysis

Regional and Sub-

Regional Analysis

Beacon conducts analysis at an international, national, state, county, and city level -- and even down to the zip code, pending data availability. We analyze data on Employment, Industry, Real Estate, and Consumption.

Past Clients:

• City and County of Los Angeles• City and County of Riverside • East Bay Economic Dev. Agency

Beacon has evaluated the impact of entities like universities, music festivals, infrastructure projects, and real estate development projects. Beacon has also conducted impact analyses that combine more than one of the above like that of L.A’s Olympic bid.

Past Clients:

• University of Southern California• Metropolitan Water District• LA 2024 Olympic Bid Committee

Beacon conducts industry and policy analysis on topics like green innovation, tech and workforce development, and industry sector strategies. Beacon has strong in-house expertise around housing policy and economic development support.

Past Clients:

• California Apartment Association• Long Beach Downtown Dev. Corp.• Santa Cruz Workforce Dev. Board

Beacon Economics

Thank You

[email protected] | www.BeaconEcon.com

the economic outlook · 2019-01-22 · beacon economics will the real economy please stand up? why...

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