Analysis. Answers.
Analysis. Answers
Beacon Economics, LLC
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So…Should We Be Worrying?Economic & Industry Outlook, 2017
Robert A. Kleinhenz, Ph.D.
Economist & Executive Director of Research
Beacon Economics, LLC
California Association of School Business Officials CASBO Annual Conference
April 15, 2017
Analysis. Answers.
Outline
• U.S. Economy
• California Economy
• Observations on K-12 Education
• Conclusion/Policy Concerns
Analysis. Answers.
U.S. Economy
Analysis. Answers.
2014 2015 2016
GDP 2.4 2.6 1.6
Final Domestic Demand 2.5 3.2 1.7
Consumption 2.9 3.2 2.7
Goods 3.9 4.0 3.6
Services 2.3 2.8 2.3
Investment 4.5 5 -1.6
Structures 10.3 -4.4 -3.0
Equipment 5.4 3.5 -2.9
Intellectual Property 3.9 4.8 4.9
Residential 3.5 11.7 4.9
Change Inventories -26.7 45.6 -74.9
Net Exports -0.1 -4.5 -0.7
Exports 4.3 0.1 0.4
Imports 4.4 4.6 1.1
Government -0.9 1.8 0.8
Federal -2.5 0 0.6
State and local 0.2 2.9 1.0
Two Views of GDP (% Change)
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Gross Domestic Product (Annualized QTQ% Change)
Analysis. Answers.
Labor Market – Full Employment (Unemployment rate ~4.5-5%)
1.9
2.1
1.7
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2014 2015 2016
Yr-To-Yr % Change in Jobs
0
50
100
150
200
250
300
350
400
14
.01
14
.04
14
.07
14
.10
15
.01
15
.04
15
.07
15
.10
16
.01
16
.04
16
.07
16
.10
17
.01
MTM Jobs
Analysis. Answers.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
CPI % Change
Inflation Historically Low But Rising
Kyser Center for Economic Research
Analysis. Answers.
Financial Markets
0
1
2
3
4
5
6
7
8
20
06
.01
20
07
.01
20
08
.01
20
09
.01
20
10
.01
20
11
.01
20
12
.01
20
13
.01
20
14
.01
20
15
.01
20
16
.01
20
17
.01
Fed Funds Rate 10 Year Yield 30 Year Mort
0
4,000
8,000
12,000
16,000
20,000
24,000
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
DJIA
Analysis. Answers.
Fiscal Policy
• Proposed By Trump Administration– Tax Cuts– Investment in Infrastructure– Challenging the Status Quo in Trade– Immigration Reform– Repealing ACA (Obamacare)
• When Reality Sets In– Republican factions in Congress– Lessons from Schwarzenegger– Populist backlash– Back to the future: Gridlock in DC?
Analysis. Answers.
Monetary Policy
• Rock-bottom federal funds rate 2008-2016
• Rate hike: 3 expected this year
• Adjusting to labor market, inflation, GDP
• Market rates less tied to FFR than before
• Balance sheet activity affect long rates
Analysis. Answers.
U.S. Outlook
• Continued US Econ Growth: 2017-18: 2%+
• Domestic Spending Intact
• Energy: Prices Steady; Cap-Ex Plunge Over?
• Inflation: Low, But Rising
• Financial Markets: Volatility, Fed Actions
• Any Global Surprises?
Analysis. Answers.
California Economy
Analysis. Answers.
CA Adding Jobs Faster than U.S.
-8
-6
-4
-2
0
2
4
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
US: +1.5% CA: +1.9
YTY % change in nonfarm jobs, seasonally adjusted
Analysis. Answers.
California Among Fastest Growing States
3 Year Change in Payroll Jobs by State
Abs Growth Share
Florida 792.8 3.3% 10.0%
Utah 131.6 3.2% 1.7%
Nevada 117 3.2% 1.5%
Oregon 167.6 3.2% 2.1%
Colorado 219 2.9% 2.8%
Washington 273.7 2.9% 3.5%
Georgia 349.6 2.8% 4.4%
California 1309.1 2.8% 16.5%Idaho 52.6 2.6% 0.7%
South Carolina 150.7 2.6% 1.9%
Tennessee 211.9 2.5% 2.7%
Texas 828.3 2.4% 10.4%
Arizona 179.4 2.3% 2.3%
North Carolina 264.9 2.1% 3.3%
Delaware 27.9 2.1% 0.4%
Massachusetts 198.6 1.9% 2.5%
Michigan 220.8 1.7% 2.8%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
20
06
Q1
20
06
Q4
20
07
Q3
20
08
Q2
20
09
Q1
20
09
Q4
20
10
Q3
20
11
Q2
20
12
Q1
20
12
Q4
20
13
Q3
20
14
Q2
20
15
Q1
20
15
Q4
Real GDP Growth (Y-o-Y)
US CA
Analysis. Answers.
CA Job Adding Jobs Across Industries
Analysis. Answers.
Job Growth Across the State
0% 1% 2% 3% 4%
Bakersfield MSA
Anaheim-Santa Ana-Irvine Metro Div
Santa Rosa MSA
San Jose-Sunnyvale-Santa Clara MSA
Los Angeles-Long Beach-Glendale Metro Div
Sacramento--Roseville--Arden-Arcade MSA
San Diego-Carlsbad MSA
Oakland-Hayward-Berkeley Metro Div
Stockton-Lodi MSA
Oxnard-Thousand Oaks-Ventura MSA
San Francisco-Redwood City-South San Francisco…
Fresno MSA
Riverside-San Bernardino-Ontario MSA
YTY % Change Jobs (Feb.'17)
Analysis. Answers.
California Home Prices and Sales
PriceChange SalesChange
County Feb'16 Jan'17 Feb'17 MTM% YTY% MTM% YTY%
LAMetroArea $429,980 $450,710 $454,270 0.8% 5.6% -4.9% 3.1%
InlandEmpire $290,270 $312,500 $327,510 4.8% 12.8% -2.3% 7.1%
S.F.BayArea $698,950 $730,200 $784,470 7.4% 12.2% -4.3% -2.7%
SanDiego $523,500 $550,000 $559,950 1.8% 7.0% 6.4% 6.8%
Sacramento $299,000 $305,000 $324,900 6.5% 8.7% -6.8% -5.4%
CASFH(SAAR) $444,780 $489,680 $478,790 -2.2% 7.6% -4.7% 4.9%
Analysis. Answers.
CA Existing Home Sales & Price
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Jan
-00
No
v-0
0
Sep
-01
Jul-
02
May
-03
Mar
-04
Jan
-05
No
v-0
5
Sep
-06
Jul-
07
May
-08
Mar
-09
Jan
-10
No
v-1
0
Sep
-11
Jul-
12
May
-13
Mar
-14
Jan
-15
No
v-1
5
Sep
-16
Sales (SAAR) Median Price
Analysis. Answers.
Housing Not Yet Normal
• Demand– Drivers: demographics, job/income growth, low
but rising rates– Constraints: credit standards, high down payment
requirements
• Supply– Drivers: rising prices, low cost of capital, shortage
of housing in many markets– Constraints: weak demand, time/development
Analysis. Answers.
Apartment Rents
Wages Rents Share
Santa Cruz $48,280 $1,937 48%
Sonoma $50,648 $1,578 37%
San Joaquin $44,628 $1,073 29%
Orange $59,923 $1,781 36%
Monterey $44,960 $1,407 38%
Tulare $38,010 $864 27%
Santa Barbara $50,006 $1,490 36%
San Bernardino $44,116 $1,245 34%
Riverside $42,223 $1,245 35%
Contra Costa $65,055 $1,789 33%
San Diego $57,527 $1,639 34%
San Francisco $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%
Santa Clara $121,314 $2,111 21%
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
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
Rents in Southern California
Inland Empire Los Angeles (MD)
Orange County (MD) San Diego
Analysis. Answers.
State Housing Construction
California 4.1 Tulare 4.0
Ventura 6.8 Los Angeles 4.0
Contra Costa 6.6 Fresno 4.0
Sonoma 6.1 San Mateo 3.4
Alameda 5.9 Kern 3.0
Santa Barbara 5.3 Santa Clara 3.0
San Bernardino 5.0 Orange 2.8
Solano 4.6 Placer 2.1
Riverside 4.5 San Francisco 2.1
San Diego 4.2 Sacramento 0.7
New Pop / Permits
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Q1
-03
Q4
-03
Q3
-04
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
State Residential Permits (Units)
Single Family Multi-Family
Analysis. Answers.
Housing, Migration, & Economic Growth
• CA affordability lower than elsewhere• State-to-state migration
– CA: negative net state-to-state migration– Inbound: higher incomes and greater ed attainment– Outbound: lower incomes, lower ed attainment, retirees
• International migration– CA: positive international migration– More than offsets state-to-state outmigration– Spectrum of education and skill levels
• Conclusions:– CA workforce is increasingly homegrown– CA continues to rely on international migration to augment
labor force– High cost of living drives some out of state=impedes growth
Analysis. Answers.
Observations on K-12 Education
Analysis. Answers.
Local Education: Enrollment & Employment
977,400965,900
952,100
96.0
97.0
98.0
99.0
100.0
101.0
102.0
103.0
104.0
105.0
106.0
107.0
840,000
860,000
880,000
900,000
920,000
940,000
960,000
980,000
1,000,000
K-12 Empl Enrollment (1999-00=100)
Analysis. Answers.
Expense per ADA
6,188 6,360 6,719 6,822 6,919 7,127
7,521 8,117
8,594 8,736 8,452 8,323 8,382 8,448
8,867
9,794
10,795
99-00 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
Analysis. Answers.
Current $ vs Inflation Adjusted Expense per ADA (1999=100)
0
20
40
60
80
100
120
140
160
180
200
99-00 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
Nominal Inflation-Adjusted
CA in 2014 (US Census):• 34th out of 50 states• 13% below US average
Analysis. Answers.
K-12 Reliance on General Fund
Analysis. Answers.
Income Tax Driving The Trend
0
5000
10000
15000
20000
25000
Q1
-95
Q2
-96
Q3
-97
Q4
-98
Q1
-00
Q2
-01
Q3
-02
Q4
-03
Q1
-05
Q2
-06
Q3
-07
Q4
-08
Q1
-10
Q2
-11
Q3
-12
Q4
-13
Q1
-15
Q2
-16
Major Sources State Revenues
Pit Sales Corp
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
Q1
-95
Q2
-96
Q3
-97
Q4
-98
Q1
-00
Q2
-01
Q3
-02
Q4
-03
Q1
-05
Q2
-06
Q3
-07
Q4
-08
Q1
-10
Q2
-11
Q3
-12
Q4
-13
Q1
-15
Q2
-16
PIT Share General Fund
Analysis. Answers.
Prop 55 = Greater Budget Volatility
90
100
110
120
130
140
150
160
170
180
19
95
I
III
19
98
I
III
20
01
I
III
20
04
I
III
20
07
I
III
20
10
I
III
20
13
I
III
20
16
I
Price Government Services / Consumer Goods
Analysis. Answers.
Conclusion/Policy Concerns
Analysis. Answers.
K-12 Education
• Playing catchup relative to other states
• Increased volatility of general fund revenue
• Core programs need stable support
• Replacing retiring teachers and staff
• Educating tomorrow’s workforce
Analysis. Answers.
California Outlook
• Continued but Slower Growth in State/Regions• Labor & Other Input Markets Tightening• Job Gains Across Most Industries• Leaders:
– Healthcare, Tech, Construction, Tourism, Education
• Housing Market/Homeownership– Challenges to CA economy once again– Groundhog Day: 1980s, early 2000s, Now
So…should we be worrying?
Analysis. Answers.
Economic & Revenue Forecasting
Regional Intelligence Reports
Business & Market Analysis
Real Estate Market Analysis
Ports & Infrastructure Analysis
Economic Impact Analysis
Public Policy Analysis
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