National and Regional Economic Outlook Central Southern CAA Conference Dr. Mira Farka & Dr. Adrian R. Fleissig California State University, Fullerton April 13, 2011
The Painfully Slow Recovery The Painfully Slow Recovery
Main Themes National Economy Recovery in Retrospect are we back yet? Recovery Outlook brighter, but cloudy and turbulent Risks and Forecasts Regional Economy Labor Market Housing Property Taxes
15,500 15,000 14,500 14,000 13,500 13,000 12,500 12,000 11,500 11,000 GDP Back to pre-crisis crisis but below trend Back to pre-recession but 7.5% below trend Actual Trend 10,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Same goes for Consumption 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,000 Back to pre-recession but 7% below trend Actual Trend 7,500 7,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
So far, a Painfully Weak Recovery (growth rates from trough to 6 quarters) Past Recoveries Current Difference Real GDP 5.9 4.5-1.4 Consumption 5.7 3.4-2.3 Residential Investment 13.6-2.4-16 Employment 2.8 0.2-2.6 Real Disposable Income 6.6 1.3-5.3 Profits 24.5 37.4 12.9
Recovery Outlook: Brighter, but still Cloudy and Turbulent The Bright Profits Business Inv. Production Exports The Cloudy Labor Consumption Banks The Turbulent Housing Fiscal Debt State/local gov. Inventories
Recovery Outlook: Brighter, but still Cloudy and Turbulent The Bright Profits Business Inv. Production Exports Inventories
Corporate Profits are at Record-High Levels 1,400 (after-tax-profits, billions, level) 1,200 1,000 800 600 400 200 0 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10
Business Investments Growing Robustly (equipment and software, y-o-y growth rate) 25 20 15 10 5 0-5 -10-15 -20-25 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Exports Have Supported Growth (contribution to GDP, percent) 3 2.6 2 1 0-1 -2 1.6 0.7 0.1 1.8 0.7 0.8 1.7 1.3 0.7 1.6-0.7-0.1 1.3 1.3 1.1 0.8 1.1-3 -4-3.0-3.6 2006 2007 2008 2009 2010
Recovery Outlook: Brighter, but still Cloudy and Turbulent The Cloudy Labor Consumption Banks
The Labor Market Has Improved (private payrolls, thousand of employees, changes) 600 400 200 0-200 -400-600 Jobs at last -800-1000 Jun-04 Mar-05 Dec-05 Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11
110 but not Enough (Payroll Index level, Dec 2007=100) 108 106 104 102 100 98 96 Current Recovery 1975 1981 2001 1990 94 92 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38
When will the Labor Market be Back to Normal? Jobs per Month New Jobs to keep up With Population Growth 120,000 120,000 Number of Years Never Back to Normal 200,000 120,000 7.3 years 300,000 120,000 3.2 years 400,000 120,000 2.1 years
10 Consumer Spending has Recovered (retail sales, y-o-y y y growth) 5 0-5 -10-15 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
86% but it s s still Unsustainable (consumer spending as % of income) 84% 82% 80% 78% 76% 74% 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
500 Bank Profits Have Recovered (financial profits, billion, level ) 400 300 200 100 0-100 01 02 03 04 05 06 07 08 09 10
3.5 but Charge-offs are Still High (financial profits, billion, level ) 3.0 2.5 2.0 1.5 1.0 Historial Average 0.5 0.0 85 87 89 91 93 95 97 99 01 03 05 07 09
Recovery Outlook: Brighter, but still Cloudy and Turbulent The Turbulent Housing Fiscal Debt State/local gov.
Housing Blues The homeless recovery
Housing Activity is Dismal (Housing Starts, thousands) 2400 1900 1400 900 400 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
7000 Federal Deficit is Terrifying (level, billions of dollars) 6000 5000 4000 3000 2000 Government Receipts Government Expenditures 1000 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
30.0 State/Local Gov. are in Terrible Shape (state/local employment, changes, thousands) 20.0 10.0 0.0-10.0-20.0-30.0-40.0 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11
Economy is Vulnerable to Additional Risks Oil Prices Implication for inflation and growth Eurozone Sovereign debt crisis Implication for financial markets (specially bonds) Japan s disaster Supply interruption, upward pressure on oil Monetary Policy (QE II etc.) Implication for Inflation and financial markets Domestic Municipal Bond Market Large number of states/localities in distress
Monetary Policy is Overly Accommodative 2500 (billions and ratio) 2.2 2000 1500 1000 500 Monetary Base Monetary Velocity 2.1 2.0 1.9 1.8 1.7 1.6 0 1.5 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Banks Exposure to Municipal Debt is Large (billions of dollars) 18 16 14 12 10 8 6 4 15.3 8.7 6.8 6.7 6.3 2 0 Citibank Wells Fargo US Bank State Street JP Morgan
Forecasts Year RGDP Consumer Prices Unemployment Rate Payroll Employment Federal Funds Rate 2009-2.6-0.3 9.3-4.4 0.16 2010 2.9 1.7 9.6-0.7 0.18 2011 3 2.5 8.8 1.5 0.22 2012 3.1 2.8 8.4 2.1 1.27
Outlook? Hope at Last!!
Riverside, San Bernardino, Los-Angeles, Long Beach, Orange County, San Diego
Labor Market
14.0% CA Unemployment Annual Rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Annual CA Total Nonfarm Employment 600,000 400,000 200,000 0-200,000-400,000-600,000-205,400-192,100-188,300-800,000-1,000,000-896,700 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SC LEADING INDICATOR 2.0 SC Employment SC Leading Indicator 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: California State University Fullerton, IEES
Monthly Unemployment Rates 16.0% RV-SB Unemployment Rate 16.0% OC Unemployment Rate 15.0% 14.0% 13.9% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 09.1 09.3 09.5 09.7 09.9 09.11 10.1 10.3 10.5 10.7 10.9 10.11 11.1 LA Unemployment Rate 16.0% 15.0% 14.0% 12.3% 13.0% 12.0% 11.0% 13.0% 12.0% 11.0% 10.0% 8.9% 9.0% 8.0% 7.0% 09.1 09.3 09.5 09.7 09.9 09.11 10.1 10.3 10.5 10.7 10.9 10.11 11.1 SD Unemployment Rate 16.0% 15.0% 14.0% 13.0% 12.0% 10.1% 11.0% 10.0% 9.0% 8.0% 7.0% 09.1 09.3 09.5 09.7 09.9 09.11 10.1 10.3 10.5 10.7 10.9 10.11 11.1 10.0% 9.0% 8.0% 7.0% 09.1 09.3 09.5 09.7 09.9 09.11 10.1 10.3 10.5 10.7 10.9 10.11 11.1
Monthly Nonfarm Employment 0-20,000-40,000-60,000-80,000-100,000-120,000 100,000 50,000 0-50,000-100,000-150,000-200,000-250,000-300,000-350,000 RV-SB Monthly Non Farm Employment Year-on-Year Change 08.02 08.05 08.08 08.11 09.02 09.05 09.08 09.11 10.02 10.05 10.08 10.11 11.02 LA Monthly Non Farm Employment Year-on-Year Change 08.02 08.05 08.08 08.11 09.02 09.05 09.08 09.11 10.02 10.05 10.08 10.11 11.02 100,000 50,000 0-50,000-100,000-150,000-200,000-250,000-300,000-350,000 40,000 20,000 0-20,000-40,000-60,000-80,000-100,000-120,000-140,000 SD Monthly Non Farm Employment Year-on-Year Change 08.02 08.05 08.08 08.11 09.02 09.05 09.08 09.11 10.02 10.05 10.08 10.11 11.02 OC Monthly Non Farm Employment Year-on-Year Change 08.02 08.05 08.08 08.11 09.02 09.05 09.08 09.11 10.02 10.05 10.08 10.11 11.02
Housing Market
70,000 Annual Sales of Detached Homes 60,000 RV OC LA SB 50,000 40,000 30,000 20,000 10,000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Monthly Sales of Detached Homes 5,500 RV OC LA SB 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11
$800,000 $750,000 Annual Median Price of Existing Homes $700,000 $650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 OC LA RV SB $100,000 $50,000 $0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Monthly Median House Price $700,000 $650,000 RV OC LA SB $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
30% Monthly Median House Price Year-on-Year Change RV OC LA SB 20% 10% 0% -10% -20% -30% -40% -50% Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Quarterly Foreclosures Foreclosures Los Angeles Foreclosures San Bernardino 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 90 91 9293 94 9596 97 9899 00 0102 03 0405 06 0708 09 10 2,000 0 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 Foreclosures Riverside 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 4,500 Foreclosures Orange County 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 90 9192 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 90 9192 90 9192
Property Taxes
Property Tax Factors Over 900,000 parcels Categories: Residential, Time Shares, Manufactured Homes, Vacant, Commercial, Agriculture and Other Delinquencies by Property type Proposition 13 Proposition 8 Property Prices Economy
Property Tax Factors Estimate our Macro Econometric Model Estimate the regional model Use data Delinquencies by property type: Proposition 13, Proposition 8 Regional employment, unemployment, building permits, other variables Project Ad Valorem Property Taxes
Questions? Please Contact: Mira Farka efarka@fullerton.edu (657) 278-7281 Adrian R. Fleissig afleissig@fullerton.edu (657) 278-3816