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
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
billions of dollars 135 125 115 General Fund Revenues / California Prop 30 FY 2000 - FY 2020 105 95 85 75 65 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 thousands of Real Per Capita Personal Income / California 2016 dollars 1997-2021 Prop 30 60 58 56 54 52 50 48 46 44 42 40 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
billions of dollars 12.0 General Fund Surplus / California FY 2000 - FY 2020 Prop 30 9.0 6.0 3.0 0.0-3.0-6.0-9.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 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 2006 1998 2006: 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 on Infrastructure California Community Colleges FY 2008 - FY 2017 Before Prop 51 Total Spending 2008 2017 $4.3 Billion 400 200 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Principal Components of New Building Construction Cost Steel Lumber Skilled Labor Cement
index/ 1982=100 160 150 140 U.S. Producer Price Index / Cement-Concrete September 2004 -- September 2016 19% from 2010 130 120 110 100 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 index/ 1982=100 220 210 200 U.S. Producer Price Index / Lumber September 2002 -- September 2016 22% from 2010 190 180 170 160 150 140 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16
index/ 1982=100 300 260 U.S. Producer Price Index / Iron and Steel September 2002 -- September 2016-16% from 2010 220 180 140 100 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 thousands of dollars 70 65 Average Salary per Worker in Constructrion California 2004 Q3 --- 2016 Q3 17% from 2010 60 55 50 45 2004Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3
percent 8 7 6 Wage Inflation / Construction Workers California 1996-2016 6.0 % 4.9 % 5 4 3 2 1 0-1 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Wage Inflation / Construction Workers California Regions 2015 2015 Region Average Salary % change Sacramento Valley Southern California Bay Area Central Valley $59,105 $59,127 $74,540 $52,168 6.9 4.8 4.4 3.3 California $62,257 4.9
Consumer Confidence / The Conference Board index 1985=100 September 2008 -- September 2016 110 100 90 80 70 60 50 40 30 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
index 19,500 Dow Jones Industrial Average November 14, 2015 -- November 14, 2016 19,000 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 2011 -- September 2016 3 2 1 0-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
percent 10 Unemployment Rate / US October 2008 -- October 2016 9 8 7 6 5.0 % 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
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....
thousands of jobs 6,000 Job Openings / U.S. July 2001 -- September 2016 5,500 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.
thousands of jobs 310 Employment in Computer Systems Design California September 2010 -- September 2016 295 280 265 250 235 220 205 190 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 2010 -- September 2016 210 200 190 180 170 160 150 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 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....
6.0 expansion Business Cycle we are here 3.0 recession expansion recovery 0.0 1 4 7 10 13 16 19 22 25 28 31 34 Probability of Recession / U.S. the probability that the U.S. economy will be in recession in 6 months % likelihood May 2011 -- August 2016 45 40 35 30 25 20 15 10 5 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16
137 132 127 122 117 112 107 102 Index of Leading Indicators / U.S. index 2010 = 100 September 2006 -- September 2016 97 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. 2006 Q2-2016 Q2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 2006Q2 2008Q2 2010Q2 2012 Q2 2014 Q2 2016 Q2
millions New Car & Light Truck Sales / U.S. of sales everyone s employed 1976-2016 gasoline prices are cheap financing a car is real cheap dealer incentives are common 18 17 16 15 14 13 12 11 10 9 1976 1981 1986 1991 1996 2001 2006 2011 2016 millions of sales, SAAR 5.6 Existing Home Sales / U.S. September 2011 -- September 2016 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.0 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
billions of 2016 dollars, SAAR 455 Real Retail Sales / U.S. September 2009 -- September 2016 445 435 425 415 405 395 385 375 365 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 as a percent of personal income 13.0 12.5 12.0 11.5 11.0 10.5 10.0 Mortgage debt Auto loan debt Credit card debt Household Debt / U.S. 1981 Q2 -- 2016 Q2 9.5 1981Q2 1986Q2 1991Q2 1996Q2 2001Q2 2006Q2 2011Q2 2016 Q2
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.... 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
Let s turn to California and the Forecast for 2017 thousands of students 150 Distance Education / FTES California Community Colleges 1994 -- 2016 125 100 75 50 25 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
millions of students 3.0 Student Enrollment / California Community Colleges 1996 to 2016 What s the outlook for enrollment? 2.8 2.6 2.4 2.2 2.0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 425 400 375 350 325 300 275 250 225 High School Graduates / California millions of students 1986-2016 200 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 Population Ages 18 to 22 / California millions of persons 1986-2025 2.1 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 millions 3.0 18 to 22 year olds / California 1985-2025 2.8 2.6 CC enrollment 2.4 2.2 18 to 21 year olds 2.0 1985 1990 1995 2000 2005 2010 2015 2020 2025
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 0.7 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 percent 18 16 14 12 15.6 Unemployment Rate by Age / U.S. October 2016 10 8 6 4 8.4 5.1 3.7 2 0 16 to 19 20 to 24 25 to 34 35 & over
percent 36 18 to 35 Year Olds Living With Parents 1880 -- 2015 32 28 24 20 16 1880 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2015 thousands of jobs 600 Total Jobs Created / California 2002-2016 400 200 0-200 -400-600 -800-1,000 2002 2004 2006 2008 2010 2012 2014 2016
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
The 2017 Outlook For the U.S. and California