Regional Economic OutlookEric Hayes, Associate EconomistLos Angeles County Economic Development Corporation

Institute for Applied Economics

March, 2020

The “Tight” Labor Market &Slower Growth

Unemployment Rates:

Source: BLS

3

4

5

6

7

8

9

10

11

12

13

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

U3 Unemployment

Los Angeles California United States San Gabriel

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

U6 Unemployment,4-Quarter Moving Average

Los Angeles California United States

Unemployment Rates:

Source: BLS

80.1 79.9

72.7 73.7

87.8 86.3

65

70

75

80

85

90

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Prime-Age Employment Rate,United States

Total Women Men

Prime Age Employment:

Source: BLS

Prime Age Employment Drives Wage Growth:

Source: BLS

R² = 0.8171

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

74% 75% 76% 77% 78% 79% 80% 81%

ECI Growth (y/y) vs Prime Age EmploymentQ1 2002 - Q3 2019

2002-2017

2019

2018

1

2

3

4

5

6

7

US Wage Growth by Wage Quartile

1st 2nd 3rd 4th

Wage Growth:

Source: Atlanta Fed

California Historical Employment Growth:

Sources: IHS

-200 0 200 400 600 800

Manufacturing

Financial Activities

Other Services

Information

Government

Construction & Natural Resources

Transp., Trade, & Utilities

Leisure & Hospitality

Professional & Business Svcs

Educational & Health Svcs

Thousands

10 Year Employment Change

Los Angeles Other Southern CA Rest of California

San Gabriel Valley Historical Employment :

-10 -5 0 5 10 15 20 25 30 35

Manufacturing

Public Administration (Non HC/Edu)

Financial Activities

Education

Natural Resources & Mining

Information

Professional & Business Services

Retail Trade

Transportation & Utilities

Other Services

Construction

Wholesale Trade

Leisure & Hospitality

Health Services

Thousands

10-Year Employment Change

Sources: CA EDD, LAEDC Analysis

California Employment Forecast:

Sources: IHS, Forecast by LAEDC

-20 20 60 100 140 180

Financial Activities

Other Services

Information

Manufacturing

Transp., Trade, & Utilities

Construction & Natural Resources

Government

Leisure & Hospitality

Professional & Business Svcs

Educational & Health Svcs

Thousands

2 Year Employment Forecast

Los Angeles Other Southern CA Rest of CA

San Gabriel Valley Employment Forecast:

-2000 -1000 0 1000 2000 3000 4000 5000 6000 7000 8000

Manufacturing

Natural Resources & Mining

Public Administration (Non HC/Edu)

Financial Activities

Information

Other Services*

Wholesale Trade

Retail Trade

Transportation & Utilities

Education

Leisure & Hospitality

Professional & Business Services

Construction

Health Services

2 Year Employment Forecast

2020f 2021f

Sources: LAEDC

California Economic Growth:

Sources: IHS, Forecast by LAEDC

-5.0%

0.0%

5.0%

10.0%

15.0%

1991 1996 2001 2006 2011 2016 2021f

Real GDP Growth Forecast

Los Angeles Other Southern CA Rest of California

Demographic Headwinds

Population Trends:

Source: CA DoF

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year-over-Year % Change In Population

Los Angeles California San Gabriel Valley

Low Fertility:

Source: CDC

2.20

1.631.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

Total Fertility Rate

United States California

Outmigration:

-1000

-800

-600

-400

-200

0

200

400

600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tho

usa

nd

s

California Domestic Migration

Coming Going Net

-1%

1%

2%

3%

4%

5%

6%

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Labor Force Productivity % Growth (Year-Over-Year)

Low Labor Force Productivity:

Source: BLS

Housing Crisis

Housing Undersupply

Source: US Census Bureau

116.0

22.0

45.9

2.10

50

100

150

200

250

Tho

usa

nd

s

Housing Permits Issued

California Los Angeles SCAG San Gabriel

SCAG Region RHNA Target: 1.3 million over 8 years

Home Prices vs Household Incomes:

Source: US Census ACS

9.2

7.3

3.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Home Price to Median Household Income Ratio

Los Angeles California United States

Home Prices vs Household Incomes:

6.6

9.2

10.3

9.5

5

6

7

8

9

10

11

2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Home Price to Median Household Income

East San Gabriel Valley Pasadena Southwest San Gabriel Valley Upper San Gabriel Valley

Source: US Census ACS

Home Affordability

Source: C.A.R.

0%

10%

20%

30%

40%

50%

60%

Housing Affordability, Traditional

CA LA

Minimum Qualifying Income LA County Q3 2019: $127,200

SoCal Apartment Rents

Source: Zillow; American Community Survey

$1,915

$2,548

$2,612

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

LA/OC Inland Empire San Diego Ventura

Estimated Annual Rent in L.A. County (2018): ~$31,000

Median HH Income in Los Angeles County (2018): $68,093

$2,187

$2,710

$1,500

$1,700

$1,900

$2,100

$2,300

$2,500

$2,700

$2,9002

01

0-0

9

20

11

-01

20

11

-05

20

11

-09

20

12

-01

20

12

-05

20

12

-09

20

13

-01

20

13

-05

20

13

-09

20

14

-01

20

14

-05

20

14

-09

20

15

-01

20

15

-05

20

15

-09

20

16

-01

20

16

-05

20

16

-09

20

17

-01

20

17

-05

20

17

-09

20

18

-01

20

18

-05

20

18

-09

20

19

-01

20

19

-05

20

19

-09

20

20

-01

Pomona Pasadena El Monte West Covina Alhambra

SGV Median Apartment Rents

Source: Zillow

Economic Upside Potential

California Venture Capital Investment

Source: PwC

0

5

10

15

20

25

30

Q1 1995 Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015 Q1 2017 Q1 2019

0

100

200

300

400

500

600

700

800

900

1000

Bill

ion

s

Venture Capital Investment

Los Angeles California Number of deals

6 6

14.3

2.5

23.8

1

2.5

15

0

5

10

15

20

25

Amazon(2019)

Apple (2019) AT&T(including

HBO) (2018)

HBO (2017) Disney (Non-Sports) (2019)

Disney+(2019)

Hulu (2018) Netflix (2019)

Content Investment ($billions)

Streaming Content Investment

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Bill

ion

s

LA Metro Budget

Regional Transit Expansion:

Source: LA Metro

Conclusions:

• Still more slack in the labor market, particularly in Los Angeles

County

• Low to moderate but sustained economic growth in the near

term

• Employment expansion, particularly in health care

• Barriers To Growth:

• Demographic Headwinds

• Housing Crisis

• Potential for Greater Growth:

• Business investment, particularly in the digital and traditional media ecosystem

• Transit expansion, both direct fiscal stimulus and helping to connect labor market

• Wage growth for the bottom quartile

COVID-19 Coronavirus:

Risks:

Supply Side• Supply chain disruption: primary and intermediate goods halted

• Labor Supply: dramatic reduction in labor supply

Demand Side• Quarantine directly reduces consumption of goods and services

• Part time and contingent workers: Don’t work = don’t get paid

Local• High trade exposure through the ports: preliminary numbers suggest container

traffic down around 25% y/y

$-

$50

$100

$150

$200

$250

$300

$350

Exports Imports

Bill

ion

s

Los Angeles Customs District Trade Value 2019

Other China

Exports to China: $2.7 billion

Imports from China $132.7 billion

Trade Exposure:

Source: US Census

Trade Exposure:

• Employment in Trade, Transportation & Utilities:

Los Angeles County: 850,000San Gabriel Valley: 151,000

• Retail Sales Down around 80-90% y/y in parts of China

• Supply shortage means retail consumption down locally

• So trade getting hit from supply shock and demand shock

Leisure & Hospitality Exposure:

Tourism• Employment in Leisure & Hospitality:

Los Angeles County: 545,000San Gabriel Valley: 84,000

• LAX sees over 50 million visitors a year

• Nearly 8 million international visitors, Over 1 million from China

Local Consumption

• Establishment closures due to lack of workers (restaurants, bars, theaters etc.)

• Lack of demand as consumer confidence falls

Manufacturing Exposure:

50

35.7

30

35

40

45

50

55

NBS (China) Manufacturing PMI

Source: National Bureau of Statistics of China

Employment in Manufacturing:

LA County: 343,000SGV: 54,000

1.81.5

0.3

-3.1

-4

-3

-2

-1

0

1

2

3

Baseline GDP Growth 1-Month Disruption 3-Month Disruption 6-Month Disruption

Los Angeles County 2020 Real GDP Growth(Preliminary Estimates)

Los Angeles Potential GDP Impacts:

Source: LAEDC Forecast

Thank you!

For Further Insight into the Local Economy Visit:

LAEDC Research & Data:

http://laedc.org/research-data/