jon haveman founding principal, beacon economics
TRANSCRIPT
Jon HavemanJon HavemanFounding Principal, Beacon EconomicsFounding Principal, Beacon Economics
Roots of the RecessionRoots of the Recession
Recessions
The trend isn’t always The trend isn’t always your friend…your friend…
Trend Fundamental
The Dow rose 47% from Q3 1997 to Q3 2000
Corporate profits fell 10.7% over the same period of time
Home prices rose 45% from Q1 2003 to Q1 2006
Household incomes rose 7% over the same period of time
The big pictureThe big picture• The Trends are GOODThe Trends are GOOD
– Economic growth is solid– 2010 likely to be stronger than consensus forecast
• The Fundamentals are BADThe Fundamentals are BAD– Government intervention, bounce in financial markets
driving the show– Government intervention preventing fundamental issues
from being fixed– Government intervention has created its own set of
potentially serious problems for the economy• So what next? So what next?
– The next year promises to be solid– After that, no one knows, but its not likely to be pretty
Q1 Growth: SolidQ1 Growth: Solid
Production on the RiseProduction on the Rise
Leading IndicatorsLeading Indicators
Jobs, Jobs, JobsJobs, Jobs, Jobs03-08 08-10 Jan to Apr
Total 1,535 -4,170 2,236
Manufacturing -229 -1,083 316Admin Serv 137 -528 540Construction 153 -916 -44Retail 122 -577 138Leisure 271 -262 436Federal -10 59 488Wholesale 80 -238 67Professional 243 -200 6Financial 61 -292 -96Other 25 -103 48Transport 62 -201 -82Education 62 65 120Information -49 -138 -84Health 369 322 359State 21 14 8Local 139 -23 -128
Housing BounceHousing Bounce
Housing BounceHousing Bounce
CA-San Francisco 15.2CA-San Diego 9.9MN-Minneapolis 9.7CA-Los Angeles 8.7AZ-Phoenix 6.8DC-Washington 6.3OH-Cleveland 5.1MA-Boston 4.1CO-Denver 3.7TX-Dallas 3.0MI-Detroit 2.2NV-Las Vegas 1.3FL-Miami 1.0GA-Atlanta 1.0IL-Chicago 0.4
Price Trough to Current Level (%)(Case Shiller)
Banker Survey 10Q2Banker Survey 10Q2
California: A widespread hitCalifornia: A widespread hit
Jan-10Decline from
peak (%)
Bakersfield 224,800 -5.5
Salinas 121,300 -5.7
San Diego 1,212,700 -7.3
Santa Barbara 161,200 -7.4
San Francisco 922,200 -7.7
Stockton 191,500 -8.0
Los Angeles 3,761,900 -8.2
Ventura 270,100 -8.3
San Jose 841,700 -8.5
Modesto 143,900 -9.6
Oakland 945,700 -9.6
Santa Ana 1,351,500 -10.6
Santa Rosa 168,000 -11.7
Riverside 1,102,400 -12.2
Better news on spendingBetter news on spending
Better news on jobsBetter news on jobs
New Figures: April, CA employment at 13,966, +30,000 for 2 months (1.2% AR)Unemployment Flat (12.6%) due to big
Increase in the labor force.
CA Housing Sales to Q1-10CA Housing Sales to Q1-10
Real Estate MarketsReal Estate Markets
Drivers of Housing Bounce Drivers of Housing Bounce
DemandDemand• Interest RatesInterest Rates• The FHAThe FHA• The tax creditThe tax creditSupplySupply• Hope for Hope for
HomeownersHomeowners
How many underwater? How many underwater?
CBSA Name MortgagesNegative Equity
Share (%)
Las Vegas-Paradise NV 458,385 74.7
Riverside-San Bernardino-Ontario CA 870,134 54.9
Sacramento CA 497,591 46.1
Oakland-Fremont-Hayward CA 551,125 35.0
San Diego-Carlsbad-San Marcos CA 598,717 32.9
Los Angeles-Long Beach-Glendale CA 1,551,801 27.0
San Jose-Sunnyvale-Santa Clara CA 348,751 21.8
Santa Ana-Anaheim-Irvine CA 567,214 20.0
MBA Numbers for CaliforniaMBA Numbers for Californiato Q4-09to Q4-09
Jobs Reality CheckJobs Reality Check
Spending Fumes?Spending Fumes?
2% Pace
Consumer IndicatorsConsumer Indicators
92-IV 08-I 10-I
Savings 6.5% 1.0% 2.8%
Spending 79.2% 83.1% 84.9%
Taxes 11.6% 12.6% 9.3%
Spending as Percent of Income
Credit Markets Cleared?Credit Markets Cleared?
GDP and UnemploymentGDP and Unemployment
Lots of questions.Lots of questions.
RisksRisks
• #1: What the market giveth…?#1: What the market giveth…?
• #2: Inflation watch#2: Inflation watch
• #3: Federal Debt#3: Federal Debt
• #4: Sovereign debt issues#4: Sovereign debt issues
• #5: Double-dip?#5: Double-dip?
Things to look forThings to look for
Good ThingsGood Things• Dollar falls, exports riseDollar falls, exports rise• Business spending Business spending
continues to growcontinues to grow
Bad ThingsBad Things• Sovereign debt issuesSovereign debt issues
– Domestic– Abroad
• InflationInflation• Asset PricesAsset Prices
– A new bubble– A new crash
• Consumer spendingConsumer spending– The trade deficit
SummarySummaryThe Recession is Over!The Recession is Over!
The next year may be good…
We are not there yetWe are not there yet– Consumer weakness will reemerge– Can exports survive Europe?– Housing bounce won’t last– Banks not out of the woods yet– Commercial trouble to continue– Significant chance of a double dip– Higher Rates coming down the pike
Its not permanentIts not permanent– Its just going to take some time—PATIENCE!!
As for CaliforniaAs for California• Recovery will be turbulentRecovery will be turbulent
– Follow the US path• Post-recession will be goodPost-recession will be good
– Shifting from internal to external drivers– Cheap $US and cheap housing
• Budget Issues should still be centralBudget Issues should still be central– Structural Problems remain– Long term issues– Realistically better than many states
2009 Nonfarm Employment 2009 Nonfarm Employment Distribution: San MateoDistribution: San Mateo
Employment Growth to Q3-09Employment Growth to Q3-09
UnemploymentUnemployment
Unemployment (%,SA) Apr-10 Apr-09 Apr-08
California 12.6 11.0 6.4
Bay Area
San Mateo 9.2 7.9 3.9
Napa 10.2 8.3 4.2
Oakland (MD) 11.7 10.0 5.1
San Francisco (MD) 9.7 8.4 4.3
San Jose 11.8 10.6 5.1
Santa Rosa 10.8 9.2 4.9
Vallejo 12.5 10.2 5.8
Other Regions
Los Angeles (MD) 12.3 11.2 6.4
Ventura 11.4 9.5 5.3
Residents Versus Workers: Residents Versus Workers: All WorkersAll Workers
San Mateo County:San Mateo County:Commute PatternsCommute Patterns
Where do county residents work? Where do county employees live?
Source: www.BeaconEcon.com/LEHD
Top 5 Counties of Employment, 2008
County Number % of total
San Mateo 123,830 41.1
San Francisco 64,004 21.2
Santa Clara 50,475 16.8
Alameda 23,074 7.7
Los Angeles 6,893 2.3
Top 5 Counties of Residence, 2008
County Number % of total
San Mateo 123,830 40.4
Alameda 39,266 12.8
Santa Clara 38,982 12.7
San Francisco 38,911 12.7
Contra Costa 14,214 4.6
Industry Employment Growth: Industry Employment Growth: High Skilled to Q4-09High Skilled to Q4-09
Industry Employment Growth: Industry Employment Growth: Low Skilled to Q4-09Low Skilled to Q4-09
San Mateo Employment Clusters: San Mateo Employment Clusters: Q4-07 and Comparable CountiesQ4-07 and Comparable Counties
Transportation: 4.9% > CaliforniaTehama 5.36 Yolo 4.35 San Bernardino 3.51
San Joaquin 2.55 Shasta 1.68 Glenn 1.03Los Angeles 0.67 Solano 0.61
Professional and Technical Services: 4.6% > CaliforniaSan Francisco 6.52 Santa Clara 5.60 Marin 3.42
Alameda 2.02 San Diego 1.62 Orange 0.73El Dorado 0.53
Information: 2.1% > CaliforniaLos Angeles 1.93 Santa Clara 1.50 Contra Costa 0.64
Area Wages ($)Santa Clara 79,404San Mateo 68,692San Francisco 65,416Alameda 55,744Contra Costa 52,676Marin 52,260California 49,400Los Angeles 47,528San Diego 46,280
Average Annual Wages and Average Annual Wages and Change, 1998 to 2007Change, 1998 to 2007
Manufacturing 57.7 105.4 82.8 116.3 10.3
Information 67.4 123.4 83.0 142.5 15.5
Prof and Technical Services 72.0 105.4 46.4 114.4 8.6
Employment Forecast to Q4-15Employment Forecast to Q4-15
Industry Growth, Industry Growth, Q4-09 to Q4-15 (%)Q4-09 to Q4-15 (%)
Industry Future Growth
Increase over Recent
Maximum
Information 26.0 13.9Education and Health Services 11.4 9.0Professional and Business Services 15.7 6.2Other Services 8.7 5.9Nondurables Manufacturing 9.4 2.2Financial Activities 15.2 -1.4Leisure and Hospitality 5.3 -2.4Trade, Transportation, and Utilities 7.7 -3.1Manufacturing 5.7 -7.8Construction 25.2 -10.0Durables Manufacturing 2.0 -16.6Total 11.33 1.52
Occupation Employment Occupation Employment Growth, Q3-09 to Q4-15 (%) Growth, Q3-09 to Q4-15 (%)
Occupation Wages ($) Future Growth
Increase overRecent Peak
Health Care Support 37.37 11.25 8.14Production 35.69 7.39 -4.07Personal Care and Services 31.33 7.55 -0.32Building and Grounds Cleaning Maintenance 29.97 12.35 4.38Food Preparation and Serving-Related 24.19 5.76 -1.89
Management 127.51 11.66 1.08Legal 121.99 13.73 4.07Computer and Mathematical 93.00 16.15 5.24Health Care Practitioners and Technical 91.01 11.65 7.87Business and Financial Operations 89.36 13.33 2.84
Residential MarketResidential Market
San Mateo County Housing San Mateo County Housing Distress to Q1-10Distress to Q1-10
Residential RE Forecast to Q4-15Residential RE Forecast to Q4-15
Taxable Sales to Q4-09Taxable Sales to Q4-09
Taxable Sales Forecast to Q4-15Taxable Sales Forecast to Q4-15
San Mateo Recession SummarySan Mateo Recession Summary
• EmploymentEmployment fell on the order of 7% fell on the order of 7%• UnemploymentUnemployment rose by 5.3 percentage pts rose by 5.3 percentage pts• HousingHousing experienced a dramatic loss in value, though experienced a dramatic loss in value, though
much less than in the rest of the statemuch less than in the rest of the state• Local revenuesLocal revenues: strained by the reduced home : strained by the reduced home
turnover and declines in taxable salesturnover and declines in taxable sales• San Mateo’s reliance on business services suggests San Mateo’s reliance on business services suggests
its its recoveryrecovery is linked to overall US/CA economies is linked to overall US/CA economies
Employment in San MateoEmployment in San Mateo
• Still a bedroom communityStill a bedroom community– Though less so than in the past
• Unemployment speaks more to residents and Unemployment speaks more to residents and less to business activityless to business activity
• Clusters of employment in high skill and Clusters of employment in high skill and transportationtransportation
• Very high wage employees and residentsVery high wage employees and residents• High paying jobs will dominate the recoveryHigh paying jobs will dominate the recovery
Fiscal RecoveryFiscal Recovery
• Real estate is making a comebackReal estate is making a comeback– Though it will be slow for several years
• Taxable sales are also reboundingTaxable sales are also rebounding– But will not recover previous levels for some time
• Look for strained local budgets for several Look for strained local budgets for several yearsyears– Less local activity– Continued pocket picking by the state
Economic Forecasting Regional Intelligence Reports Business & Market Analysis Real Estate Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis
Analysis. Answers.
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