2017 Economic Outlook

1

Ray MajorChief Economist

Jan 5, 2017

It’s not 2016 anymore……..

2

Trumponomics

YEAH, BUT WHAT ABOUT ……….

3

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 MilitaryRepeal/Modify Obama CareRelax Regulations – Energy, Environment, Financial PolicyTradeImmigrationForeign PolicyDrain the SwampBuild the wall (now with doors)

4

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

7

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‐00

Apr‐00

Jul‐0

0Oct‐00

Jan‐01

Apr‐01

Jul‐0

1Oct‐01

Jan‐02

Apr‐02

Jul‐0

2Oct‐02

Jan‐03

Apr‐03

Jul‐0

3Oct‐03

Jan‐04

Apr‐04

Jul‐0

4Oct‐04

Jan‐05

Apr‐05

Jul‐0

5Oct‐05

Jan‐06

Apr‐06

Jul‐0

6Oct‐06

Jan‐07

Apr‐07

Jul‐0

7Oct‐07

Jan‐08

Apr‐08

Jul‐0

8Oct‐08

Jan‐09

Apr‐09

Jul‐0

9Oct‐09

Jan‐10

Apr‐10

Jul‐1

0Oct‐10

Jan‐11

Apr‐11

Jul‐1

1Oct‐11

Jan‐12

Apr‐12

Jul‐1

2Oct‐12

Jan‐13

Apr‐13

Jul‐1

3Oct‐13

Jan‐14

Apr‐14

Jul‐1

4Oct‐14

Jan‐15

Apr‐15

Jul‐1

5Oct‐15

Jan‐16

Apr‐16

Jul‐1

6Oct‐16

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

Government

Military

Health & Soc. Assist

Education 

Retail/Wholesale Trade& Other Services

FIRE, Prof, Info

ManufacturingConstruction

Tourism

Innovation 10%

8%

9%7%

16%

12%

16%

5%4%

11%

Transport. and Util. 2%

SAN DIEGO 2017: Diverse and Expanding Economic Base

Traditional Sectors

Supporting Sectors

Driving Sectors30%30%

27%

43%

 60

 70

 80

 90

 100

 110

 120

 130

 140

0 1 2 3 4 5 6 7 8

2012

San Diego, Employment: Driving Sectors

+12+14

+15

Years since last peak (2007) 

2007Peak

2010Trough

2014Recovery

Index 2007=100 Innovation

Tourism

Military

 60

 70

 80

 90

 100

 110

 120

 130

 140

0 1 2 3 4 5 6 7 8

2011

San Diego, Employment: Supporting Sectors

+34

+11

+4

Years since last peak (2007) 

2007Peak

2010Trough

2014Recovery

Index 2007=100

Government

Health Care &Soc. Assis.

Education 

FIRE, Prof, Info

 60

 70

 80

 90

 100

 110

 120

 130

 140

0 1 2 3 4 5 6 7 8

2015

Years since last peak (2007) 

2007Peak

2010Trough

2014Recovery

Index 2007=100

San Diego, Employment: Traditional Sectors

+1

Retail/Wholesale Trade & Other Serv.

Manufacturing‐5

Construction

‐16

‐20

‐2Tran. & Util.

Government

Military

Health & Soc. Assis.

Education 

Retail Trade, Wholesale Tr& Other Serv.

FIRE, Prof, Info

ManufacturingConstruction

Tourism

Innovation 10%

8%

9%

7%

16%

12%

16%

5%4%

11%

Transport. and Util. 2%

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. 

Employment: 40,000 new jobs (2.7% growth) Unemployment: drops below 4.5%

San Diego Outlook: Wages

14

San Diego County Wages

100

105

110

115

120

125

130

135

140

145

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

25th 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 

17

SAN DIEGO 2017 OUTLOOK ON WAGES

San Diego Outlook: Housing

18

“Housing permits and prices”

0

50

100

150

200

250

300

01/01/20

00

11/01/20

00

09/01/20

01

07/01/20

02

05/01/20

03

03/01/20

04

01/01/20

05

11/01/20

05

09/01/20

06

07/01/20

07

05/01/20

08

03/01/20

09

01/01/20

10

11/01/20

10

09/01/20

11

07/01/20

12

05/01/20

13

03/01/20

14

01/01/20

15

11/01/20

15

09/01/20

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

20

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

Increased demand for housingPrices increase in the short‐term

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.

21

SAN DIEGO 2017/2018 OUTLOOK ON HOUSING

22

100% Chance Trump Drives Economy into Depression in 2017

•Brian Maher Daily ReckoningUpdated: Nov. 18, 2016 10:19 AM

Economists Concur, U.S. Economy Poised to Double Under 8 Years

TrumpBy Andrew Soergel | Economy Reporter Nov. 28, 2016, at 10:35 a.m.