Southern California Economic Forecast & Industry Outlook

2016-17 Southern California Economic Forecast & Industry Outlook Robert A. Kleinhenz, Ph.D. Sr. VP/Chief Economist, LAEDC February 17, 2016

Outline U.S. Economy California Economy Southern California Economy & Industries Conclusion/2016-17 Forecast Summary

U.S. Economy

Annual % Change GDP Low Steady Growth 3.3 2.7 1.8 2.5 1.6 2.3 2.2 2.4 2.4 2.5 2.5-0.3-2.8 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f Sources: Bureau of Economic Analysis, forecasts by LAEDC

U.S. Economy at a Glance Consumer Sector Business Sector Government International Trade Other Macro Indicators: Labor Market Inflation

Consumption Up With Income Growth 4 Annual % Change 3 2 1 0-1 -2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: Bureau of Economic Analysis Source: Bureau of Economic Analysis

8% 7% Business Investment Spending Annual Percentage Change 2015 2016 2017 6.6% 6% 5% 4% 5.0% 4.5% 3% 2.6% 2% 1% 0% -1% Total Equipment Intellectual Property Structures Source: IHS, LAEDC

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f Budget Deficit Stable, Rising in 2020+ 26 24 22 20 18 16 14 12 Receipts Outlays 10 Source: Office of Management and Budget Source: Office of Management & Budget

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Dollar: Index vs Basket of Currencies 100 95 Higher Dollar: Pricier Exports Less Expensive Imports/Foreign Travel 90 85 80 75 Source: Federal Reserve Source: Federal Reserve via FRED

Global Economy Up Overall 10.0 8.0 Annual % Growth 2014 2015 2016f 2017f 6.0 4.0 2.0 0.0-2.0 World Euro Area Developing Asia Latin America/Carb. Source: IMF World Economic Outlook, January 2016 Update Japan

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. At Full Employment 12% 10% Unemployment Rate U.S.: 4.9% 8% 6% 4% 2% 0% Source: US BLS, CA EDD

Wage & Salary Jobs Slower Growth 3 2 1 0-1 -2-3 -4 % Change 2.1 1.9 1.7 1.7 1.7 1.4-5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f Sources: Bureau of Labor Statistics, forecasts by LAEDC

U.S. Consumer Inflation Rising 4.5 Year-Year % Change in CPI-U 4.0 3.5 3.0 2.5 2.0 1.5 1.0 2.0 2.4 0.5 0.0 0.1-0.5-1.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f Source: Bureau of Labor Statistics; forecasts by LAEDC

U.S. Forecast: What to Watch Kyser Center for for Economic Research

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 Key Interest Rates 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Fed Funds Fixed Rate Mort 10-Year T-Bond Source: Federal Reserve

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 150 125 Plunging Oil Good or Bad? Dollars/barrel West TX Intermediate 100 75 50 25 0 Source: US Energy Information Administration Source: US Energy Information Administration

First Significant Wage Gains in Years 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Annual % Change in Hourly Wage Annual Inflation Rate -1.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Bureau of Labor Statistics

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Hot Button Issue: Household Income Median HH Income in Thousands of 2014 Dollars 60 57.8 57.4 55 53.7 50 45 40 Source: Census Bureau

Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Stock Market Volatility Up 19,000 Daily DJIA 18,500 18,000 17,500 17,000 16,500 16,000 Oct. 14 15,500 15,000 14,500 14,000 13,500 Source: Federal Reserve

China & U.S. Economy Exports to China as % of GDP: US: 0.96% CA: 1.10% Linkages & Ripple Effects Financial system: global integration Economic system: U.S. linkages limited Ripple effects

S. Korea Saudi Arabia European Union Mexico Canada China Australia Nigeria Japan (2013) USA Brazil Exports as % of GDP 55 50 45 40 35 30 25 20 15 10 5 0 51 48 Selected Countries (2014) 42 32 32 23 21 18 16 14 12 Source: World Bank

U.S. Forecast

U.S. FORECAST: Steady, Modest Growth Real GDP - Annual % Chg. Nonfarm Jobs - Annual % Chg. 2014 2015 2016f 2017f 2.4% 2.4% 2.5% 2.5% 1.9% 2.1% 1.7% 1.4% Unemployment Rate 6.2% 5.3% 4.9% 4.7% Consumer Prices - Annual % Chg. 1.6% 0.1% 2.0% 2.4% Forecast Source: LAEDC

California Economy

California Growth Outpacing U.S. 4% Annual % Change US GDP CA GSP 3% 2% 1% 0% -1% -2% -3% -4% 2012 2013 2014 2015 2016f 2017f Source: US Bureau of Economic Analysis, IHS, forecasts by LAEDC

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 CA Unemployment Rate Falling Quickly 14% 12% Unemployment Rate, Seasonally Adjusted U.S.: 5.0% CA : 5.8% 10% 8% 6% 4% 2% 0% Source: US BLS, CA EDD

4 3 % Change CA Job Gains Outpace U.S. 2 1 0-1 -2-3 -4-5 -6-7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f Sources: Bureau of Labor Statistics, forecasts by LAEDC

Job Trends by California Metro Area Annual percent change in nonfarm jobs, seasonally adjusted San Jose San Francisco Riverside-San Bernardino Fresno Orange San Diego Stockton Sacramento Modesto Los Angeles Oakland Ventura Bakersfield CALIFORNIA 2015: +470,000 +3.0% YTY 1.1% 3.8% 3.2% 3.2% 3.1% 2.9% 2.6% 2.3% 2.2% 2.1% 1.7% 4.4% 5.4% 0% 1% 2% 3% 4% 5% 6% Source: CA EDD, Labor Market Information Division

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Long Term Job Trajectories Vary 200 CA SF OR LA RVSB 180 160 185 140 120 100 80 60 121 103 Source: EDD, Compiled by LAEDC

California Economic Forecast 2014 2015 2016f 2017f Nonfarm Jobs - annual % chg. 3.0% 3.0% 2.5% 1.6% Unemployment Rate 7.0% 6.2% 5.5% 5.3% Personal Income - annual % chg. Total Taxable Sales - % chg. Housing Permits - thousands of units 4.7% 5.7% 4.7% 5.7% 4.9% 3.4% 5.5% 7.0% 85.8 96.5 110.0 128.8 Forecast Source: LAEDC

Southern California Economy

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Local Unemployment Rates 20% Dec. 2015 LA - 5.8% OC - 4.1% IE - 5.9% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: CA EDD, Labor Market Information Division

Major Industries in Southern California INCOME GENERATING International Trade Entertainment Tourism Business Services Aerospace Fashion & Apparel Knowledge Creation INCOME CIRCULATING Retail Sales Leisure & Hospitality Health Care/Social Assistance Personal Services Nonprofit Sector

Job Trends by Industry Los Angeles YTY % change in nonfarm employment by industry, not seasonally adjusted 2015 YTY: +94,700 jobs, +2.2% YTY; u-rate: 6.9% Construction Leisure & Hospitality Health Care & Social Assistance Wholesale Trade Educational Services Professional, Scientific & Technical Services Transportation, Warehousing & Utilities Retail Trade Administrative & Support & Waste Services Government Financial Activities Information Manufacturing 0.0% -0.9% 4.2% 3.5% 3.5% 2.9% 2.0% 2.0% 1.9% 1.8% 1.8% 0.5% 5.9% -6% -4% -2% 0% 2% 4% 6% 8% Source: CA EDD, Labor Market Information Division

Job Trends by Industry Orange County YTY percent change in nonfarm employment by industry Educational Services Construction Transportation & Warehousing Professional, Scientific & Technical Services Health Care & Social Assistance Real Estate & Rental & Leasing Nondurable Goods Leisure & Hospitality Durable Goods Government Wholesale Trade Administrative & Support & Waste Services Retail Trade Finance & Insurance Information 2015 YTY: +47,400 jobs, +3.2%; u-rate: 4.4% -1.2% 5.4% 4.5% 4.2% 3.4% 3.2% 3.1% 2.5% 2.3% 1.9% 1.4% 1.2% 0.8% 7.9% 11.9% Source: CA EDD, Labor Market Information Division -4% 0% 4% 8% 12% 16%

Job Trends by Industry Riverside San Bernardino YTY percent change in nonfarm employment by industry Administrative & Support & Waste Services Transportation & Warehousing Professional, Scientific & Technical Services Construction Wholesale Trade Educational Services Leisure & Hospitality Finance & Insurance Nondurable Goods Real Estate & Rental & Leasing Durable Goods Government Health Care & Social Assistance Retail Trade Information 2015 YTY: +48,400 jobs, +3.8%; u-rate: 6.5% -0.6% 0.5% 1.7% 1.7% 7.8% 9.4% 7.4% 6.7% 6.1% 5.1% 5.1% 4.4% 4.2% 4.1% 3.6% -5% 0% 5% 10% Source: CA EDD, Labor Market Information Division

Job Trends by Industry Ventura County YTY percent change in nonfarm employment by industry 2015 YTY: +5,000 jobs, +1.7%; u-rate: 5.5% Professional, Scientific & Technical Services 10.7% Transportation, Warehousing & Utilities 5.4% Administrative & Support & Waste Services 3.3% Leisure & Hospitality 3.0% Construction 2.9% Information 2.7% Government 1.6% Wholesale Trade 1.5% Retail Trade 1.5% Educational & Health Services 0.3% Financial Activities -0.2% Manufacturing -2.6% -4% -2% 0% 2% 4% 6% 8% 10% 12% Source: CA EDD, Labor Market Information Division

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Container Throughput San Pedro Bay Ports Millions of TEUs 2015 YTY: +1.3% 11.8 13.1 14.2 15.8 15.7 14.3 11.8 14.1 14.0 14.1 14.6 15.2 15.4 Sources: Ports of Los Angeles and Long Beach; forecast by LAEDC

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Southern California Transportation and Warehousing Employment Thousands 300 Los Angeles Orange Inland Empire Ventura 250 200 150 100 50 Dec. 2015 YTY: +2.8% 2015 YTY: +4.2% 0 Source: CA EDD, Labor Market Information Division

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1,200 1,000 Southern California Professional & Thousands Business Services Employment Los Angeles Orange Inland Empire Ventura Dec. 2015 YTY: +2.3% 2015 YTY: +3.9% 800 600 400 200 0 Source: CA EDD, Labor Market Information Division

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Thousands 1,600 1,400 1,200 1,000 800 600 400 200 Southern California Education & Health Care Employment Los Angeles Inland Empire Ventura Orange San Diego Dec. 2015 YTY: +3.0% 2015 YTY: +3.5% 0 Source: CA EDD, Labor Market Information Division

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1,200 1,000 800 600 400 Southern California Leisure & Hospitality Employment Los Angeles County Orange County Inland Empire San Diego County Ventura County Thousands 200 0 Dec. 2015 YTY: +4.2% 2015 YTY: +4.0% Source: CA EDD, Labor Market Information Division

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Southern California Retail Employment 1,000 900 800 700 600 500 400 300 200 100 0 Los Angeles Orange Inland Empire San Diego Ventura Thousands Dec. 2015 YTY: +1.9% 2015 YTY: +1.5% Source: CA EDD, Labor Market Information Division

Tourism: LA County Record High 50 45 40 35 30 25 20 Day Visits Overnight Visits 15 2007 2008 2009 2010 2001 2012 2013 2014 2015 Source: L.A. Tourism and Convention Board

Motion Picture & Sound Recording Employment in Los Angeles County 140 120 100 80 60 40 20 Thousands 2015 YTY: -0.5% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: CA EDD. LMID

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Southern California Construction Employment 600 500 400 Thousands Los Angeles Orange Inland Empire San Diego Ventura 200 thousand jobs Dec. 2015 YTY: +9.4% 2015 YTY: +6.5% 300 200 100 0 Source: CA EDD, Labor Market Information Division

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SoCal Manufacturing Employment 1,000,000 900,000 800,000 700,000 Durable Goods Nondurable Goods 2015 YTY % Chg. Durable: +0.7% Nondurable: +0.3% 600,000 500,000 400,000 300,000 200,000 100,000 0 Source: CA EDD, Labor Market Information Division

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Value of Manufacturing Output California 275 250 225 200 175 150 125 100 75 50 25 0 Billions of Inflation Adjusted Dollars (2009 Base Year) Durable Goods Nondurable Goods Source: US Bureau of Economic Analysis; IHS Economics

Southern California Real Estate

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Homeownership Stabilizing in CA 70 Percent, annual, not seasonally adjusted U.S. California 68 66 64 62 60 58 56 54 52 50 Source: Federal Reserve Bank of St. Louis

Median Prices Existing Single-Family Homes Source: California Association of REALTORS County Dec-14 Dec-15 YTY % Change Los Angeles $464,650 $502,750 8.2% Orange County $683,490 $710,940 4.0% San Bernardino $216,020 $234,080 8.4% Riverside County $322,020 $348,020 8.1% Ventura $569,600 $601,910 5.7% San Diego $494,500 $548,080 10.8% California $453,270 $489,310 8.0%

05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 Apartment Rents Southern California $2,200 LA OC RV SB VN $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 Source: CA Real Estate Research Council

Housing Demand Depends On: Drivers: Job and income growth Net increases in wealth Demographics Expected increases in mortgage rates Constraints Down payment sources Rising mortgage rates Strict underwriting requirements

Millennial Population by Age ~11 Million Millennials in State of California 100% 75% 50% 25% 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 0% 2000 2005 2010 2015 2020 Source: CA Department of Finance

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 California Household Formation Annual change number of households, thousands 200 New HH Formations Average since 1990 150 100 50 0-50 Source: IHS Global Insight

Apr-71 Feb-73 Dec-74 Oct-76 Aug-78 Jun-80 Apr-82 Feb-84 Dec-85 Oct-87 Aug-89 Jun-91 Apr-93 Feb-95 Dec-96 Oct-98 Aug-00 Jun-02 Apr-04 Feb-06 Dec-07 Oct-09 Aug-11 Jun-13 Apr-15 20 18 16 14 12 10 8 6 4 2 0 Percentage Mortgage Interest Rates 30-year Fixed Rate, Conventional Mortgage Source: Federal Reserve

Residential Building Permits Issued in Los Angeles County 35 30 25 Permits issued, thousands Multi-Family Single-Family 20 15 10 5 0 15.2 13.7 16.3 23.1 20.9 12.9 18.5 12.6 14.3 10.2 11.8 11.9 8.0 8.0 10.1 5.0 7.5 3.5 3.5 2.1 2.4 2.4 2.8 3.6 4.4 4.3 5.1 6.5 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f Source: CIRB, California Home Building Foundation, forecast by LAEDC

18 16 Residential Building Permits Issued in Orange County Permits issued, thousands Multi-Family Single-Family 14 12 10 8 6 4 2 0 10.6 9.2 4.9 6.2 7.0 7.8 3.1 4.6 4.9 4.0 2.9 4.4 4.1 3.7 1.9 2.2 1.3 1.4 1.6 1.9 2.8 3.8 3.6 3.6 4.4 5.2 0.8 1.5 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f Source: CIRB, California Home Building Foundation, forecast by LAEDC

Residential Building Permits Issued in the Inland Empire 60 50 40 30 Permits issued, thousands 9.2 5.5 5.8 Multi-Family Single-Family 20 10 0 43.5 45.3 33.3 4.5 2.6 3.3 16.0 1.8 1.2 1.5 1.3 2.7 3.2 2.4 2.5 5.8 4.9 5.2 3.7 4.7 6.1 6.9 7.3 9.2 11.8 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f Source: CIRB, California Home Building Foundation, forecast by LAEDC

Office Vacancy Rates Declining 30 Percent vacant, quarterly averages 26 22 18 14 10 6 2 3q07 1q08 3q08 1q09 3q09 1q10 3q10 1q11 3q11 1q12 3q12 1q13 3q13 1q14 3q14 1q15 3q15 Source: Cushman and Wakefield Los Angeles Orange Inland Empire Ventura

Industrial Vacancy Rates Very Low 16 Percent vacant, quarterly averages 14 12 10 8 6 4 2 0 3q07 1q08 3q08 1q09 3q09 1q10 3q10 1q11 3q11 1q12 3q12 1q13 3q13 1q14 3q14 1q15 3q15 Los Angeles Orange Inland Empire Ventura Source: Cushman and Wakefield

2016 Southern California Forecast

L.A. 5-County Employment Growth, 2016 Total nonfarm job growth forecast for 2016 (thousands): +158.2 jobs -0.1 9.9 9.6 7.7 7.4 5.5 3.9 2.5 1.7 0.9 0.5 16.0 15.4 22.3 19.8 35.6 Health Care & Social Asst Prof, Sci & Tech Srvs Admin. & Support Srvs Retail Trade Leisure & Hospitality Government Construction Transport. & Utilities Wholesale Trade Educational Services Mgmt. of Enterprises Information Real Estate, Rental & Leasing Other Services Manufacturing Finance & Insurance -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 Source: CA EDD, Labor Market Information Division, forecast by LAEDC

2016 Top Five Industries by Percentage Gains in Employment Rank Los Angeles Orange Inland Empire Ventura 1 Prof, Sci, Tech Prof, Sci, Tech Prof, Sci, Tech Admin & Supp 2 Admin & Supp Education Admin & Supp Health Care 3 Health Care Health Care Construction Prof, Sci, Tech 4 Education Admin & Supp Mgmt. of Co's Education 5 Construction Construction Trans & Utilities Real Estate Source: CA EDD, Labor Market Information Division

Conclusion Cruise Speed Growth: US, CA, & So Cal Income Gains and Growth in Spending California Outpacing US Real Estate/Construction Outlook Good Job Gains in Most Local Industries

2016-17 Southern California Economic Forecast & Industry Outlook Thank You! Robert.Kleinhenz@laedc.org