Analysis.Answers.

Analysis. Answers

Beacon Economics, LLC

|||||||||||||||

StayingOnTrack…ForNowEconomic & Industry Outlook, 2018-19

Robert A. Kleinhenz, Ph.D.Economist & Executive Director of ResearchBeacon Economics, LLC

CaliforniaAssociationofSchoolBusinessOfficialsCASBOAnnualConference

April7,2018

Analysis.Answers.

Outline

• U.S.Economy

• CaliforniaEconomy

• K-12Education

• Conclusion

Analysis.Answers.

U.S. Economy

Analysis.Answers.

GDP2017:2.3%--- 2018:2.5to2.8%

2.3

-3

-2

-1

0

1

2

3

4

GrossDomesticProductYTY%Change ContributionstoChange inGDP

Sector 2015 2016 2017

Consumer 2.5 1.9 1.9

Investment 0.9 -0.3 0.5

Netexports -0.7 -0.2 -0.2

Government 0.2 0.1 0.0

TotalGDP%Chg. 2.9 1.5 2.3*

*Doesnotaddupduetorounding

Analysis.Answers.

ConsumerSpendingSupportedby…

• Increasingwagesandrealpersonalincome

• Growingwealth:financialandrealestate

• Increaseuseofcredit(butnoimbalances)

• Drawingdownsavings

Analysis.Answers.

Macro-EconomyataGlance

Sector OutlookCONSUMERS Steady solidgrowth,taxboostBUS.INVESTMENT Accelerating,tax boost, energydragover

GOVERNMENT Trillion dollarfederaldeficits

NETTRADE Imports &Exports up,Importslarger… NETNegative

SUMMARY DomesticSpendingUp

Analysis.Answers.

FullEmployment:SlowerJobGrowthatTimeofRecordHighJobOpenings

1.92.1

1.71.5

0.5

1.0

1.5

2.0

2.5

2014 2015 2016 2017

Yr-To-Yr%ChangeinJobs

2%4%6%8%

10%12%14%16%18%

UnemploymentRate

U-3 U-6

Analysis.Answers.

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

KyserCenterforEconomicResearch

Inflation:RisingMoreSlowlyThanYouHear

Analysis.Answers.

FiscalPolicy

• TaxCuts/FederalBudget:juicingeconomy• Immigration:reformsenableeconomicgrowth• InternationalTrade:tradescuffle,notawar• Infrastructure:$4.5trillionneeded• HealthCare:spendingreform,notinsurancereform

Analysis.Answers.

MonetaryPolicy&FinancialMarkets

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

FedFundsRate 10YearYield 30YearMort

Analysis.Answers.

YieldCurve

0.0

1.0

2.0

3.0

4.0

1Mo 3Mo 6Mo 1Yr 2Yr 3Yr 5Yr 7Yr 10Yr 20Yr 30Yr

USTreasurySecurities3/22/17 9/22/17 3/22/18

Analysis.Answers.

EquityMarketsTameUntilJan’18,butVolatility…

1500

1700

1900

2100

2300

2500

2700

2900

3100

2016-02-19

2016-03-19

2016-04-19

2016-05-19

2016-06-19

2016-07-19

2016-08-19

2016-09-19

2016-10-19

2016-11-19

2016-12-19

2017-01-19

2017-02-19

2017-03-19

2017-04-19

2017-05-19

2017-06-19

2017-07-19

2017-08-19

2017-09-19

2017-10-19

2017-11-19

2017-12-19

2018-01-19

2018-02-19

2018-03-19

S&P500

Analysis.Answers.

…isMoreCommonThanNot

1500

1700

1900

2100

2300

2500

2700

2900

3100

2013-04-12

2013-06-12

2013-08-12

2013-10-12

2013-12-12

2014-02-12

2014-04-12

2014-06-12

2014-08-12

2014-10-12

2014-12-12

2015-02-12

2015-04-12

2015-06-12

2015-08-12

2015-10-12

2015-12-12

2016-02-12

2016-04-12

2016-06-12

2016-08-12

2016-10-12

2016-12-12

2017-02-12

2017-04-12

2017-06-12

2017-08-12

2017-10-12

2017-12-12

2018-02-12

Series1

Analysis.Answers.

California Economy

Analysis.Answers.

CAEconomy-- AmongLeadingStates

Analysis.Answers.

0%2%4%6%8%

10%12%14%16%

UnemploymentRate,SeasonallyAdjusted

CA:4.3% US:4.1%

CA&USatFullEmployment

CA@4.3%LowestonRecord(1976+)

Analysis.Answers.

TheBigSlowdown

Location 2017 14-15 15-16 16-17

LosAngeles MD 4,441,600 2.2% 2.6% 1.3%

OrangeCounty 1,619,000 3.2% 2.6% 2.2%

InlandEmpire 1,454,700 4.9% 3.6% 3.8%

SanDiegoMSA 1,454,200 2.9% 2.7% 2.1%

OaklandMD 1,164,300 3.3% 3.3% 2.4%

SanFranciscoMD 1,117,900 4.9% 4.0% 2.4%

SanJoseMSA 1,099,200 3.8% 3.1% 2.6%

SacramentoMSA 970,200 3.2% 3.4% 2.2%

FresnoMSA 345,100 3.7% 3.5% 2.8%

VenturaCounty 304,300 0.9% 1.3% 1.3%

0%

1%

2%

3%

4%

StateandNationalJobGrowth

California UnitedStates

Analysis.Answers.

MetroAreasVaryin%JobGains…

0% 1% 2% 3% 4%

LACountyVenturaCounty

SanFranciscoMDSanDiegoCounty

OrangeCountySonomaCountyOaklandMSAKernCounty

SacramentoMSASanJoseMSAFresnoMSA

RV-SBStocktonMSA

YeartoYear%Chg.(Feb-18)

Analysis.Answers.

CAExistingHomeSales&Price

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Jan-00

Dec-00

Nov-01

Oct-02

Sep-03

Aug-04

Jul-0

5

Jun-06

May-07

Apr-0

8

Mar-09

Feb-10

Jan-11

Dec-11

Nov-12

Oct-13

Sep-14

Aug-15

Jul-1

6

Sales(SAAR) MedianPrice

Analysis.Answers.

ApartmentRentsWages Rents Share

SantaCruz $48,280 $1,937 48%Sonoma $50,648 $1,578 37%SanJoaquin $44,628 $1,073 29%Orange $59,923 $1,781 36%Monterey $44,960 $1,407 38%Tulare $38,010 $864 27%SantaBarbara $50,006 $1,490 36%SanBernardino $44,116 $1,245 34%Riverside $42,223 $1,245 35%ContraCosta $65,055 $1,789 33%SanDiego $57,527 $1,639 34%SanFrancisco $101,194 $2,548 30%Alameda $70,697 $1,789 30%Fresno $42,006 $904 26%Kern $43,961 $956 26%Sacramento $57,113 $1,157 24%SantaClara $121,314 $2,111 21%

800900

1,0001,1001,2001,3001,4001,5001,6001,7001,800

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

Q4-15

Q3-16

RentsinSouthernCalifornia

InlandEmpire LosAngeles(MD)

OrangeCounty(MD) SanDiego

Analysis.Answers.

StateHousingConstruction

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

BuildingPermits

SingleFamily MultiFamily

NewPop/PermitsCalifornia 4.1 Tulare 4.0

Ventura 6.8 LosAngeles 4.0

ContraCosta 6.6 Fresno 4.0

Sonoma 6.1 SanMateo 3.4

Alameda 5.9 Kern 3.0

SantaBarbara 5.3 SantaClara 3.0

SanBernardino 5.0 Orange 2.8

Solano 4.6 Placer 2.1

Riverside 4.5 SanFrancisco 2.1

SanDiego 4.2 Sacramento 0.7

Analysis.Answers.

K-12 Education

Analysis.Answers.

LocalEducation:Enrollment(‘17:6.2Mil.)&Employment

977,400 965,900 970,300

6.32

6.196.23

5.9

6

6.1

6.2

6.3

6.4

6.5

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

<<-- Employment Enrollment(Millions)-->>

Analysis.Answers.

Current$vsInflationAdjustedExpenseperADA

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

00-01

01-02

02-03

03-04

04-05

05-06

06-07

07-08

08-09

09-10

10-11

11-12

12-13

13-14

14-15

15-16

16-17

Nominal Inflation-Adjusted

Analysis.Answers.

Prop98Funding

Analysis.Answers.

K-12RelianceonStateFunds

Analysis.Answers.

HeavyRelianceonIncomeTaxMeansMoreVolatilityAhead

0

5000

10000

15000

20000

25000

30000

MajorSourcesStateRevenue

PIT Sales Corporate

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

PITShareGeneralFund

Analysis.Answers.

Conclusion

Analysis.Answers.

CaliforniaOutlook

• ContinuedbutSlowerGrowthinState/Regions• Labor&OtherInputMarketsTightening• MoreVolatilityinFinancialMarkets• Leaders:

– Healthcare,Construction,Tourism• HousingMarket/Homeownership

– ChronicProblemAcrossHousingSpectrum– StateEffortstoPushLocalstoAddressHousingNeeds

Analysis.Answers.

K-12Education

• Fundingupduetobettereconomy

• Greatervolatilityincomingyears

• Replacingretiringteachersandstaff

• Coreprogramsneedstablesupport

Analysis.Answers.

Economic&RevenueForecasting

RegionalIntelligenceReports

Business&MarketAnalysis

RealEstateMarketAnalysis

Ports&InfrastructureAnalysis

EconomicImpactAnalysis

PublicPolicyAnalysis

v Toviewordownloadthispresentationorforfurtherinformation,visit:www.BeaconEcon.com

v ContactRobertKleinhenzRobert@BeaconEcon.com310-571-3399

OurServices