2017 Economic Outlook
1
Ray MajorChief Economist
Jan 5, 2017
It’s not 2016 anymore……..
AgendaJobsWagesHousing
2
Demography Economy Outlook
SAN DIEGO REGION 2017: POISED FOR CONTINUED PROSPERITY
Diverse population of 3.2 million projected to continue growing
5th largest countyin the nation
Younger:Median AgeSD-35.3, US-37.7
Richer:Per-capita incomeSD-$51,459, US-$46,030
Better Educated: % of 25+ Pop with BA+ SD-37.1%, US-30.1%
$219 billion economy:San Diego would rank 26th as a state
Diverse:No sector represents more than 20% ofthe economy
Forward-looking:Positioned for the 21st
century in biotech and other innovative sectors
Resilient:More than halfthe economy is in recession-resilient sectors
Population:Ongoing growth adding 30,000 residents on average per year fornext 20 years
Jobs:Continued growth ofa diversified and balanced economy
Housing:Recovered housing market focused on revitalization of the urban core
San Diego region is diversified, with a resilient economy is uniquely positioned for long-term growth and prosperity.
SAN DIEGO 2017: Diverse and Expanding Economic Base
Innovation
Defense
Tourism
Economic Drivers
33%
General Dynamics – design/construction of ships General Atomics – precision laser weapons, “Predator” drone ViaSat – satellite communication, real-time intel, video, voice
San Diego Zoo – rated #1 in the worldSea World, Legoland, Balboa Park,
Qualcomm – pioneered CDMA mobile technology Illumina – revolutionized DNA sequencing ESET, Northrup Grumman, SPAWAR–
leaders in cyber security
PopulationDriven
29%Recession Resilient
62%
Government
Military
Health Care
Education
Trade, Trans,Utilities, Services
FI, Prof, Info
ManufacturingConstruction, RE
Tourism
Innovation
2016 Select Employers
12%
9%
10%
7%
19%
12%
9%
7%4%
12%
5
Trumponomics
YEA, BUT WHAT ABOUT ……….
6
Economists Warn of Global Recession Following Trump Victory
•Martha C. White Money Magazine
Updated: Nov. 9, 2016 10:19 AM
Trump Administration to Rev Up Global Growth, Says OECD
The OECD has revised its U.S. and global economic outlooks to reflect the projected effects of a Trump administration.
By Andrew Soergel | Economy Reporter Nov. 28, 2016, at 10:35 a.m.
Personal Tax CutsCorporate Tax CutsInfrastructure ProgramsDefense SpendingBuild up the MilitaryRepel/Modify Obama CareRelax Regulations – Energy, Environment, Financial PolicyTradeImmigrationForeign PolicyDrain the SwampBuild the wall (now with doors)
7
TrumponomicsWhat is:
“It takes time, It takes consensus”
= Fiscal Stimulus
Fiscal Stimulus
Employment
Unemployment National Debt
Inflation
Interest Rates
= Tax Cuts + Spending
Trumponomics
GDP Growth
Employment
Unemployment National Debt
Inflation
Interest Rates
GDP Growth +3%
National Forecast for 2017/ 2018
+2%
+2% +3%
$1 Trillion4.5%
+2%
A massive fiscal stimulus on any economy that is at or near full employment will lead to more
growth, higher levels of inflation and higher interest rates and then …….
San Diego Outlook: Jobs
10
Jobs, Jobs, JobsCorporate Tax cutsLoosening regulationsEncouraging businesses to stay in the USDefense Spending (disproportionately weighted towards
California and San Diego)
Infrastructure Spending (sanctuary state?)
Trade – Repeal NAFTA, TPP
11
on Employment (Jobs)Trumponomics
1313
1410
89
417
1030
25
91010101010
611
2118
51
222324
201819
102831
48762008-14
2001-031990-911981-8219801974-751969-701960-611957-581953-541948-49
Months of Job Decline
Months Until Return to Previous Jobs Peak
Total Decline/Recovery PeriodJobs
Recession
Pre 2008 RecessionAverage Decline 11.5 mo.Average Return 12.8 mo.Average Cycle 24.3 mo.
Job Decline and Recovery Throughout U.S. Recessions
Recovery Length of CycleDecline
San Diego Total Employment 2000-2016
1,150,000
1,200,000
1,250,000
1,300,000
1,350,000
1,400,000
1,450,000
Jan-
00Ap
r-00
Jul-0
0O
ct-0
0Ja
n-01
Apr-
01Ju
l-01
Oct
-01
Jan-
02Ap
r-02
Jul-0
2O
ct-0
2Ja
n-03
Apr-
03Ju
l-03
Oct
-03
Jan-
04Ap
r-04
Jul-0
4O
ct-0
4Ja
n-05
Apr-
05Ju
l-05
Oct
-05
Jan-
06Ap
r-06
Jul-0
6O
ct-0
6Ja
n-07
Apr-
07Ju
l-07
Oct
-07
Jan-
08Ap
r-08
Jul-0
8O
ct-0
8Ja
n-09
Apr-
09Ju
l-09
Oct
-09
Jan-
10Ap
r-10
Jul-1
0O
ct-1
0Ja
n-11
Apr-
11Ju
l-11
Oct
-11
Jan-
12Ap
r-12
Jul-1
2O
ct-1
2Ja
n-13
Apr-
13Ju
l-13
Oct
-13
Jan-
14Ap
r-14
Jul-1
4O
ct-1
4Ja
n-15
Apr-
15Ju
l-15
Oct
-15
Jan-
16Ap
r-16
Jul-1
6O
ct-1
6
Total, All Industries
Peak (Dec-07) Recovery (Jun-14)
Trough (Jan-10)
78 months
Recovery from the Great Recession took six times longer than the average recovery, now 7 years into an expansion. 70% of job creation was from low-paying jobs
SAN DIEGO 2017: Diverse and Expanding Economic Base
Government
Military
Health Care
Education
Trade, Trans,Utilities, Services
FI, Prof, Info
ManufacturingConstruction, RE
Tourism
Innovation 12%
9%
10%
7%
19%
12%
9%
7%4%
12%
Driving Sectors
Supporting Sectors
Traditional Sectors
‹#›
San Diego, Employment: Supporting Sectors
60
70
80
90
100
110
120
130
140
0 1 2 3 4 5 6 7 8
Health Care & Social Assistance
Educational Services
Government
Number of Years since 2007
Employment, 2007 =100
+34
+11
+4
o
-
-
‹#›
San Diego Region, 2017 Select Sector Forecasts
Economic Drivers: Innovation sector continues to thrive.Travel and Hospitality will outpace GDP growth in 2017. Military expands its strong presence.
Population-Driven Sectors: Health Care grows as population ages. Education remains stable. Government grows proportional to population.
Other Economic Sectors: Retail trade Brick & mortar weak / Increases spending.Financial and Professional very slow growth. Construction and Real Estate strong growth through 2018. Manufacturing continues steady recovery.
Government
Military
Health Care
Education
Trade, Trans,Utilities, Services
FI, Prof, Info
ManufacturingConstruction, RE
Tourism
Innovation 12%
9%
10%
7%
19%
12%
9%
7%4%
12%
Employment: 40,000 new jobs (2.7% growth) Unemployment: drops below 4.5%
San Diego Outlook: Wages
19
Note: Near Full Employment
Immigration (H1b Visas)Immigration (unskilled labor)Deportations Opposed to minimum wage
20
on WagesTrumponomics
San Diego County Wages
100105110115120125130135140145
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201625th Median 75th
Nominal Hourly Wages
Index: 2004 = 100
+23%
+18%
+16%
San Diego County Wages
98
100
102
104
106
108
110
112
114
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
25th Median 75th
Real Hourly Wages
Index: 2004 = 100
+5.7%
+1.3%
+0%
Skilled (Visa program) vs nonskilled workersWages increase to induce workers to move to
California domestically Growth in real wages up 2% in 2017, 2.5% in 2018Deportations/ The Wall
o Impact on Central/Imperial Valley (farming)o Increase in wages for documented labor
$15 hr minimum wage , might be prevailing wage
23
SAN DIEGO 2017 OUTLOOK ON WAGES
San Diego Outlook: Housing
24
Relaxed regulations – may not impact Californiao Financialo Environmentalo Energy
Interest rates increase
25
on HousingTrumponomics
“Housing permits and prices”
0
50
100
150
200
250
300
01/0
1/20
00
11/0
1/20
00
09/0
1/20
01
07/0
1/20
02
05/0
1/20
03
03/0
1/20
04
01/0
1/20
05
11/0
1/20
05
09/0
1/20
06
07/0
1/20
07
05/0
1/20
08
03/0
1/20
09
01/0
1/20
10
11/0
1/20
10
09/0
1/20
11
07/0
1/20
12
05/0
1/20
13
03/0
1/20
14
01/0
1/20
15
11/0
1/20
15
09/0
1/20
16
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Single Family Permits Multi-Family Permits
Q3
SAN DIEGO 2016
June 2006
May 2009
Sept. 2016
55% SF
66% MF
Permits Issued Housing Prices
0%
10%
20%
30%
40%
50%
60%
Apr
-91
Jan-
92O
ct-9
2Ju
l-93
Apr
-94
Jan-
95O
ct-9
5Ju
l-96
Apr
-97
Jan-
98O
ct-9
8Ju
l-99
Apr
-00
Jan-
01O
ct-0
1Ju
l-02
Apr
-03
Jan-
04O
ct-0
4Ju
l-05
Apr
-06
Jan-
07O
ct-0
7Ju
l-08
Apr
-09
Jan-
10O
ct-1
0Ju
l-11
Apr
-12
Jan-
13O
ct-1
3Ju
l-14
Apr
-15
Jan-
16
Source: California Association of Realtors
46%
San Diego Region, Housing Affordability
27
Median Priced Home$557,000
Dual income $79,200Affordability Index
9%
24%
$433,000
Dual Income $55,300(all jobs 2015)
Avg. Income $55,300$232,000
Interest rates increase (mortgages hit 6%)Housing affordability falls below 20%Housing starts soften, possibly decreaseConstruction employment starts to slows and fails
to get back to pre 2007 levels.Increased demand for housingPrices increase in the short-termRents flat or decrease (if deportation)
28
SAN DIEGO 2017/2018 OUTLOOK ON HOUSING
Strengths Challenges
SAN DIEGO REGION 2017: OPTIMISM DESPITE SOME CHALLENGES
Underlying Economy is Sound
Diversified economy
Near full employment
Could benefit from some of the proposed spending
National• Unknown and possibly volatile
policies that affect San Diego
State• California vs Trump
• State regulations hamper local growth
• Water shortage/distribution
Locally• Job creation predominantly low paying • Decline in purchasing power• Housing affordability