School of Business. Economic Outlook and Forecast. Beyond the Headlines

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1 Beyond the Headlines Economic Outlook and Forecast San Bernardino County Superintendent of Schools: Chief Officials September 30, 2016 Robert A. Kleinhenz, Ph.D. Economist/Director of Research, UCR Forecast

2 Outline U.S. Economy California Economy Inland Empire Conclusion/Policy Issues 2

3 Heard in the Headlines Fed Tightening: When and Likely Impact? The R Word: Aren t We Due for One? ElecUon 2016: Effects on the Economy? 3

4 U.S. Economy 4

5 Two Views of GDP Gross Domes)c Product 2013I II III IV 2014I II III IV 2015I II III IV 2016I II GDP Final Demand Consumption Goods Services Investment Structures Equipment Intellectual Property Residential Change Inventories Net Exports Exports Imports Government Federal State and local

6 Consumer Spending- Flywheel of Economy YOY Change (%) Real Spending on Goods MA(3) Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Real Goods (BEA) Nominal Retail (Census) 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 Annual Auto Light Truck Sales Aug 16 YTD: +0.5%

7 Key Sectors of Macroeconomy Consumer/Households /Capital Expenditures? Government InternaUonal Trade Other Macro Indicators Labor Market School of InflaUon! 7

8 International Trade Real Imports and Exports Exports Imports Change in Nominal Goods Trade 2014 to 2015 Export s Imports Bal. Total Canada Netherlands Belgium India Germany Taiwan Japan France UK Italy Korea, South Mexico Brazil China

9 Unemployment Down, Openings Up 16.0 Unemployment 4.5 Job Opening Rate U-6 Headline Jan-05 Mar-06 May-07 Jul-08 Sep-09 Nov-10 Jan-12 Mar-13 May-14 Jul-15 9

10 Labor Market/Industries on Track Jan-13 Monthly Change Payroll Jobs By Sector 15-Jul 16-Jul % Total Nonfarm 142, , Construction 6,437 6, Health Care 18,614 19, May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Professional/ 19,707 20, Leisure 15,125 15, Administrative 8,832 9, Financial 8,137 8, Management 2,226 2, Retail Trade 15,671 15, Educational 3,462 3, Other 5,631 5, Information 2,756 2, Logistics 4,857 4, Wholesale Trade 5,876 5, Government 22,022 22, Manufacturing 12,336 12, NR/Mining

11 Much Needed Wage Gains vs. InNlation 4.0% 3.5% Annual % Change in Hourly Wage Annual Inflation Rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% 2.5% 1.1% -1.0% Kyser Center for Economic Research

12 Hot Issue: Household Income Growth Median HH Income in Thousands of 2015 Dollars

13 U.S. Outlook ConUnued US Economic Growth: ~2.0% DomesUc Spending Intact: Consumers es Government US IsolaUon Limits Global Spillovers Oil Price Plunge: Oil Glut Financial Market VolaUlity/Fed Rate Hikes: Savings Glut Secular StagnaUon 13

14 California Economy 14

15 CA Unemployment Rate Falling Quickly 14% 12% Unemployment Rate, Seasonally Adjusted U.S.: 4.9% CA : 5.5% 10% 8% 6% 4% 2% 0% 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 15

16 CA Adding Jobs Faster than U.S. YTY % change in nonfarm jobs, seasonally adjusted 4 US: +1.7% CA: +2.3% Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 16

17 CA Among Faster Growing States (2.0%) 17

18 California Outlook ConUnued Economic Growth in State/Regions Job Gains Across Spectrum of Industries Strength in Healthcare, Tech, Medical, ConstrucUon, Tourism Venture Capital in 2016 (first half 2016): CA: $16.6 B Other 49 States: $11.4 B 18

19 Inland Empire 19

20 Southern California Unemployment Rates 16 Unemployment Rates in Southern California Feb-07 Jun-07 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 Oct-15 Feb-16 Jun-16 Inland Empire Los Angeles Orange County San Diego 20

21 Job Gains Across California YTY % Change Jobs (Aug.'16) Stockton-Lodi MSA San Jose-Sunnyvale-Santa Clara MSA Fresno MSA Santa Rosa MSA Anaheim-Santa Ana-Irvine Metro Div Oakland-Hayward-Berkeley Metro Div Sacramento--Roseville--Arden-Arcade MSA Riverside-San Bernardino-Ontario MSA Bakersfield MSA San Diego-Carlsbad MSA Los Angeles-Long Beach-Glendale Metro Div Oxnard-Thousand Oaks-Ventura MSA 2.2% 0.0% 1.0% 2.0% 3.0% 4.0% 21

22 Absolute Job Gains, Selected MSAs MSA YTY Oxnard-Thousand Oaks-Ventura MSA 3,200 Bakersfield MSA 5,200 Santa Rosa MSA 6,100 Stockton-Lodi MSA 7,500 Fresno MSA 10,400 Sacramento--Roseville--Arden-Arcade MSA 22,300 Oakland-Hayward-Berkeley Metro Div 27,100 San Diego-Carlsbad MSA 27,100 Riverside-San Bernardino-Ontario MSA 30,100 San Jose-Sunnyvale-Santa Clara MSA 34,300 Anaheim-Santa Ana-Irvine Metro Div 40,800 Los Angeles-Long Beach-Glendale Metro Div 76,100 Note: Seasonally Adjusted Figures by MSA Shown 22

23 IE Job Changes vs. CA YTY % change in nonfarm jobs, seasonally adjusted 6.0% CA: +2.3% IE: 2.2% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 23

24 Employment & Formation 750 Non-Farm Employment 65,000 Establishments , , s ,000 45, Q1-07 Q4-07 Q3-08 Q2-09 Q1-10 Q4-10 Q3-11 Q2-12 Q1-13 Q4-13 Q3-14 Q2-15 Q1-16 Riverside San Bernardino 40,000 Q1-07 Q4-07 Q3-08 Q2-09 Q1-10 Q4-10 Q3-11 Q2-12 Q1-13 Q4-13 Q3-14 Q2-15 Q1-16 Riverside San Bernardino

25 Inland Empire Job Changes by Industry EducaUonal Services TransportaUon & Warehousing Government Wholesale Trade ConstrucUon Other Services Manufacturing Professional, ScienUfic & Technical Services Health Care & Social Assistance Real Estate & Rental & Leasing Retail Trade Leisure & Hospitality InformaUon AdministraUve & Support & Waste Services Finance & Insurance 2.6% 2.3% YTY % (Aug '16) -4% -2% 0% 2% 4% 6% 8% 10% 25

26 Wholesale Trade and Transportation/ Warehousing Employment 180,000 Wholesale Trade and Transporta)on/Warehouse Employment in the Inland Empire 160, , , ,000 80,000 60,000 40,000 20,000 - Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

27 San Pedro Ports On Track for Near Record Year Aug 16 YTD % Total: +0.9% Inbound Loaded: +0.2% Outbound Loaded: +2.7%

28 Manufacturing Employment 140,000 Manufacturing Employment in the Inland Empire 120, ,000 80,000 60,000 40,000 20,000 - Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

29 IE Manufacturing Output Rising GDP Qty Index for Mfg, IE (2009=100)

30 Construction Employment 140,000 Construc)on Employment in the Inland Empire 120, ,000 80,000 60,000 40,000 20,000 - Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

31 Leisure & Hospitality Employment 180,000 Leisure and Hospitality Employment in the Inland Empire 160, , , ,000 80,000 60,000 40,000 20,000 - Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

32 Retail Trade Employment 200, , , , , ,000 80,000 60,000 40,000 20,000 - Retail Trade Employment in the Inland Empire Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

33 Professional, ScientiNic, and Technical Employment 45,000 Professional, Scien)fic, and Technical Employment in the Inland Empire 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 San Bernardino Riverside

34 Real Median Household Income Up RV: +2.3% SB: +3.4% 58,292 53,803 LA: +6.1% CA: +4.1% OC: +2.8% US: +3.9% 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,

35 IE Taxable Sales On The Rise Q1-00 Q4-00 Q3-01 Q2-02 Q1-03 Q4-03 Q3-04 Q2-05 IE Taxable Sales ($ millions) Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q2-11 Q1-12 Q4-12 Q3-13 Q2-14 Q1-15 Q

36 SB Taxable Sales On The Rise Q1-00 Q4-00 Q3-01 Q2-02 Q1-03 Q4-03 SB County Taxable Sales ($ millions) Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q2-11 Q1-12 Q4-12 Q3-13 Q2-14 Q1-15 Q

37 Real Estate 37

38 So Cal Residential Outlook Price Change Sales Change Aug-15 Jul-16 Aug-16 MTM YTY MTM YTY Los Angeles $492,360 $513,700 $517, % 5.1% 2.6% 5.4% Orange $714,380 $734,000 $749, % 4.8% 8.2% 9.3% Riverside $335,000 $359,900 $355, % 6.0% 0.9% 12.1% San Bernardino $230,530 $248,210 $243, % 5.6% 1.9% 1.4% San Diego $539,000 $560,000 $563, % 4.5% 2.6% 7.6% Ventura $620,150 $644,010 $652, % 5.2% -3.4% -5.7% Lean inventories Demand Drivers: job/income growth, low rates, demographics Supply Drivers: rising prices, low rates Constraints: Ume, development costs 38

39 So Cal Residential Outlook Median Home Price for Exis)ng SFR Exis)ng SFR Home Sales 450,000 12, ,000 11,000 10, ,000 9, , , , ,000 8,000 7,000 6,000 5,000 4,000 3, ,000 2,000 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13 Q1-15 Q2-16 San Bernardino Riverside San Bernardino Riverside 39

40 Housing Affordability: % of HHs Affording Median Priced Home State/Region/County Q2-15 Q2-16 Los Angeles Orange County Riverside County San Bernardino County San Diego County Ventura California United States-All ExisUng

41 Residential Housing Construction 60,000 Housing Units Permifed for Construc)on Inland Empire, YTD Single-Family MulU-Family 50,000 40,000 30,000 20,000 10, (YTD) (YTD) 41

42 Housing Permits, San Bernardino County 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Single-family MulU-family -5.6% YTD (Q2 16)

43 Apartment Rents 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, Rents in Southern California Inland Empire Los Angeles (MD) Orange County (MD) San Diego Q2-05 Q2-06 Q2-07 Q2-08 Q2-09 Q2-10 Q2-11 Q2-12 Q2-13 Q2-14 Q2-15 Q2-16 Wages Rents Share Santa Cruz $46,133 $1,774 46% Sonoma $48,290 $1,465 36% San Joaquin $42,850 $1,275 36% Orange $59,274 $1,724 35% Monterey $43,463 $1,243 34% Tulare $35,701 $986 33% Santa Barbara $51,015 $1,408 33% San Bernardino $43,094 $1,168 33% Riverside $43,313 $1,168 32% Contra Costa $63,087 $1,701 32% San Diego $57,702 $1,532 32% San Francisco $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% Santa Clara $115,437 $2,074 22% 43

44 Non Residential Real Estate Vacancy Rate and Rent Growth in the Inland Empire Q2-15 Q2-16 Office Vacancy Rate Office Rent Growth (YoY) Retail Vacancy Rate Retail Rent Growth (YoY) Flex/R&D Vacancy Rate Flex/R&D Growth (YoY) Warehouse Vacancy Rate Warehouse Growth (YoY)

45 Conclusion/Looking School Ahead of 45

46 Mix of Industries Matters EXPORT-ORIENTED enormous potenual LogisUcs = TransportaUon & Warehousing + Wholesale Trade Manufacturing Tourism & Entertainment Professional, ScienUfic, and Technical Servics LOCAL SERVING enormous market Health Services Retail Trade Leisure & Hospitality 46

47 Composition of Industry by County Industry Share of Non-Farm Employment (%): 2015 Riverside San Bernardino California Los Angeles Orange

48 Bottom Line Education Counts! Educational Attainment LA County Orange County Inland Empire Ventura County Less than high school diploma 21.9% 15.9% 20.4% 17.1% High school graduate 21.2% 17.3% 26.8% 18.4% Some college, no degree 19.2% 20.5% 25.1% 23.6% Associate's degree 6.8% 7.6% 7.7% 8.2% Bachelor's degree 20.2% 25.1% 12.9% 20.9% Graduate or professional degree 10.7% 13.7% 7.2% 11.9% Median Household Income $59,134 $78,428 $56,048 $80,032

49 Commuting Patterns Will Evolve Live In Work in LA OC RV SB VN LA 4,050, ,262 54, ,235 68,408 OC 178,536 1,195,005 71,355 34,568 1,052 RV 14,131 14, ,446 60, SB 55,014 12,369 92, , VN 35, ,273 Rest of CA 25,793 20,603 46,661 6,449 14,018 Total 4,359,531 1,425, , , ,404 Work in Home County 92.9% 83.9% 68.9% 70.2% 77.9%

50 Outlook ConUnued Economic Growth in IE Strength in Healthcare, LogisUcs, ConstrucUon, Leisure & Hospitality, Manufacturing Housing and Real Estate 50

51 Outlook Regional OpportuniUes: Proximity to Major So Cal Markets Affordable Housing AxracUng Educated Workers Regional Challenges: EducaUonal Axainment 51

52 Population Dynamics Popula)on Index 1980= % 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% Popula)on Growth from Net Migra)on % U.S. California Riverside San Bernardino Riverside San Bernardino 52

53 The Next 20 Years So-Cal Popula)on Forecast (Indexed) Thousands I.E. Popula)on Forecast 3,200 3,000 2,800 2,600 2,400 2, million people in 20 years or X 7 Rancho Cucamonga , LA OC IE Riverside San Bernardino 53

54 Population Forecast by Age Riverside Current Gr < ,115 54, % ,771 19, % ,170, , % , , % Total 2,336, , % San Bernardino Current Gr < ,990 47, % ,778 14, % ,088, , % , , % Total 2,133, , % I.E. Employment Forecast ,000 new local jobs ResidenUal Employment Payroll Employment 54

55 Planning Ahead In Summary 1.2 million new people 500,000 new payroll jobs 140,000 more youth 540,000 people of reurement age Demographic Issues Housing for the new populauon Healthcare, parucularly for the reured EducaUon from K through College Preparing for density Economic Issues Training for the new jobs in the region Infrastructure for movement of goods and workers Planning and construcuon urban job centers 55

56 State Revenues & School Funding Revs/Per ADA Rising San Bernardino California 12,000 10,000 8,000 6,000 4,000 2, State Revenue Depends Heavily on Income Taxes VolaUle Revenue Stream, Hence Wide Budget Swings Need Tax Structure With More Stable Revenue Stream 56

57 The Center for Economic Forecasting and Development is the Nirst world class university forecasting center located in Inland Southern California. The Center s mission is to expand knowledge of the regional economy and serve as a robust resource to the governments, businesses, and people of the Inland region. Available Services Economic Forecasting Regional Intelligence Reports & Market Analysis Real Estate Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis 900 University Ave. Riverside, CA the Speaker: Robert.Kleinhenz@ucr.edu 57

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