A comment on recent events, and...

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Harold Patterson
5 years ago
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1 A comment on recent events, and... where we are in the current economic cycle November 15, 2016 Mark Schniepp Director Likely Trump Policies $4 to $5 Trillion in tax cuts over 10 years to corporations, middle and high income HHs Higher tariffs, new trade deals, perhaps even trade wars More defense and homeland security spending Less regulation A rigorously enforced immigration policy Repeal of Obamacare.... to be replaced by Trumpcare

2 Prop 55 (previously prop 30) passed with 62 percent of total votes cast (5.5 million yes votes) affects the top 3 % of California taxpayers -- individuals with > $263,000 will pay 10.3 percent income tax rate --- $1 million+ will pay 13.3 percent $4 to $9 billion a year in revenue to State California continues to rely on the most wealthy households for a substantial contribution to the state budget Tax Calculations Median household: $ 64,000 California income tax: $ 3,045 income tax rate: 4.8 percent Hi Income household: $ 2,000,000 California income tax: $ 256,025 income tax rate: 12.8 percent The higher income household earns 31 times as much income, but pays 84 times as much tax as the median household

3 billions of dollars General Fund Revenues / California Prop 30 FY FY thousands of Real Per Capita Personal Income / California 2016 dollars Prop

4 billions of dollars 12.0 General Fund Surplus / California FY FY 2020 Prop Prop 51 passed 53.9 percent to 46.1 percent $9 billion for K-12 and Community Colleges $2 billion for constructing, renovating, acquiring, and equipping CC facilities school bonds are popular, but there have been no statewide measures since : FOUR Community College bonds approved totaling of $4 billion for facilities & infrastructure No state budget funding has been available for Community College infrastructure

milions of dollars 1,200 1,000 800 600 Expenditures

2008 - FY 2017 Before Prop 51 Total Spending 2008

3 Billion 400 200 0 2008 2009 2010 2011 2012 2013

5 milions of dollars 1,200 1, Expenditures on Infrastructure California Community Colleges FY FY 2017 Before Prop 51 Total Spending $4.3 Billion Principal Components of New Building Construction Cost Steel Lumber Skilled Labor Cement

6 index/ 1982= U.S. Producer Price Index / Cement-Concrete September September % from Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 index/ 1982= U.S. Producer Price Index / Lumber September September % from Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16

7 index/ 1982= U.S. Producer Price Index / Iron and Steel September September % from Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 thousands of dollars Average Salary per Worker in Constructrion California 2004 Q Q3 17% from Q Q Q Q Q Q Q3

percent 8 7 6 Wage Inflation / Construction Workers California 1996-2016 6.0 % 4.

8 percent Wage Inflation / Construction Workers California % 4.9 % Wage Inflation / Construction Workers California Regions Region Average Salary % change Sacramento Valley Southern California Bay Area Central Valley $59,105 $59,127 $74,540 $52, California $62,

9 Consumer Confidence / The Conference Board index 1985=100 September September Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Why is Confidence High? q the stock market is at record highs q home prices continue to move higher q wages are rising q inflation is very low q gasoline prices are low q food prices are low (despite the drought) q interest rates remain very low q and unemployment is essentially full

10 index 19,500 Dow Jones Industrial Average November 14, November 14, ,000 18,500 18,000 17,500 17,000 16,500 16,000 15,500 Nov-15 Dec-15 Feb-16 Mar-16 Apr-16 May-16 Jul-16 Aug-16 Sep-16 Nov-16 percent 4 U.S. Consumer Price Inflation September September Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

11 percent 10 Unemployment Rate / US October October % 4.9 % 5 4 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Fortune Magazine, February 5, 2016, online

12 Meaning of Full Employment If you can fog a mirror you can get a job... Employers have a tough time filling job vacancies, and they start to bid up wages, either to keep their employees from leaving, or to recruit skilled employees from other firms....

13 thousands of jobs 6,000 Job Openings / U.S. July September ,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Jul-01 Sep-03 Nov-05 Jan-08 Mar-10 May-12 Jul-14 Sep-16 Full Employment q everyone can get a job q well, maybe excluding millennials.... q but prepared millennials can get a job q the largest number of openings are in professional services (including tech) and healthcare services q For tech-savvy, well-educated people, jobs abound.

14 thousands of jobs 310 Employment in Computer Systems Design California September September Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 thousands of jobs 220 Employment in Scientific & Technical Services California September September Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

jobs 65,000 Employment in Software Development / California September 2010 -- September 2016 62,000 59,000

15 jobs 65,000 Employment in Software Development / California September September ,000 59,000 56,000 53,000 50,000 47,000 44,000 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 In search of the next....

16 6.0 expansion Business Cycle we are here 3.0 recession expansion recovery Probability of Recession / U.S. the probability that the U.S. economy will be in recession in 6 months % likelihood May August May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16

17 Index of Leading Indicators / U.S. index 2010 = 100 September September Sep-06 Dec-07 Mar-09 Jun-10 Sep-11 Dec-12 Mar-14 Jun-15 Sep-16 trillions of dollars 2.2 Corporate Profits / U.S Q Q Q2 2008Q2 2010Q Q Q Q2

18 millions New Car & Light Truck Sales / U.S. of sales everyone s employed gasoline prices are cheap financing a car is real cheap dealer incentives are common millions of sales, SAAR 5.6 Existing Home Sales / U.S. September September Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

19 billions of 2016 dollars, SAAR 455 Real Retail Sales / U.S. September September Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 as a percent of personal income Mortgage debt Auto loan debt Credit card debt Household Debt / U.S Q Q Q2 1986Q2 1991Q2 1996Q2 2001Q2 2006Q2 2011Q Q2

20 Your sentiment towards debt (a) it s evil. I own my car, home, and I tore up all my credit cards long ago (b) I avoid it. I pay my credit cards off before the due date (c) I m fine with debt. I finance my home and car and I buy everything with my credit card (d) I love debt: I m in foreclosure and my car was repo d last night Summary q The U.S. Economy had a good summer q GDP growth 2.9 percent, highest since 2014 q The Job Market is impressive q Vehicle sales have never been stronger q Home sales and prices are higher q The global economy has firmed q The dollar has strengthened

Mexican Peso to the US Dollar November 2009 November 14, 2016 54 % 13 2010 2011 2012 2013 2014 2015 2016 Summary q The current expansion is old.

21 Mexican Peso to the US Dollar November 2009 November 14, % Summary q The current expansion is old.... but it s not running on fumes q Interest rates near record lows q Stock market at record highs q We are at full employment q No imbalances or bubble concerns q Therefore, at this time we don t see any recession in site

California Community Colleges 1994 -- 2016 125 100 75

22 Let s turn to California and the Forecast for 2017 thousands of students 150 Distance Education / FTES California Community Colleges

23 millions of students 3.0 Student Enrollment / California Community Colleges 1996 to 2016 What s the outlook for enrollment? High School Graduates / California millions of students

24 Population Ages 18 to 22 / California millions of persons millions to 22 year olds / California CC enrollment to 21 year olds

millions of students 1.4 Full Time Student Enrollment California Community Colleges 1994 to 2016 1.3 1.2 1.1 1.0 0.9 0.8 0.

25 millions of students 1.4 Full Time Student Enrollment California Community Colleges 1994 to percent Unemployment Rate by Age / U.S. October to to to & over

26 percent to 35 Year Olds Living With Parents thousands of jobs 600 Total Jobs Created / California ,

27 2017 Forecast Summary No recession!.... because we don t deserve one Labor markets remain strong Inflation is low interest rates are low Consumers are spending, but... Household debt levels are as light as ever The current expansion has a way to run 2017 Forecast Summary Not much change from 2016 You are in a full employment economy - The implications of this impact the forecast Recruitment will be tough Salaries and other costs are rising The world economy will expand at a faster pace next year Expect more pressure on commodity prices

28 The 2017 Outlook For the U.S. and California

Babson Capital/UNC Charlotte Economic Forecast. May 13, 2014

Babson Capital/UNC Charlotte Economic Forecast May 13, 2014 Outline for Today Myths and Realities of this Recovery Positive Economic Signs Negative Economic Signs Outlook for 2014 The Employment Picture