United States and California

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United States and California Economic Outlook
Bill Watkins
January 2008
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Bears Are Everywhere!
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(No Transcript)
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Outline

• United States
• California

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United StatesEconomy
Realityvs.Perceptions
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What does todays news mean?
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How did we get here?

• First, there was the residential market.
• Then, there was the sub-prime crash.
• Then, there was panic.
• Then, all financial institutions are at risk.

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Are we in a recession?
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Real GDP Growth
United States - (percent)
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Industrial Production
United States - (Index 2002 100)
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Unemployment Rate
United States - (percent)
12
10
8
6
4
2
0
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
12
Real Consumption Growth
United States - (percent)
13
Real Investment Growth
United States - (percent)
14
Real Export Growth
United States - (percent)
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Will we have a recession?
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Professor Jack Marshall says
Only an idiot would Forecast a turning point.
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Frederick Nietzsche said
The majority is always wrong.
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Does it matter if we have a recession?
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What will the stimulus plan do?
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Is preventing a recession the right thing to do?
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Finn Kydland
Time Inconsistency
Real Business Cycle
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How much have markets changed?
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30-Day AA Commercial Paper
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What about oil prices?
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Real Crude Oil Price Growth
United States - (percent)
49.8
41.4
38.7
36.9
34.4
28.7
27.6
22.8
19.7
8.5
7.8
4.7
1.5
-1.9
-10.1
-10.4
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2004
2005
2006
2007
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Oil Prices Normalized by
Net Household Wealth
per barrel /
trillions wealth
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
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How bad off is the consumer?
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Net Wealth Growth
United States - (percent)
29
United States Commercial Banks
percent
delinquent
7
6
5
4
3
2
1
0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Credit Card Delinquency Rate
Loan Delinquency Rate
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Did Ben panic?
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Why Cut 75 Basis Points?

• Change lenders risk preferences?
• Weaken , increase exports?
• Increase investment?
• Prop up the financial sector?
• Politics?

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Economic Strengths

• The World economy is doing well.
• Third quarter output growth was 4.9!!!!!
• The latest data show job growth.
• Capacity exists for more growth.
• The weak dollar is helping.
• The consumer is ok.

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Economic Weaknesses

• Real Estate Sector
• Construction Sector
• Retail Sales
• Financial Sector
• Confidence

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Economic Forecast United States
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California Economy
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California is more volatile than the United
States.
Bill Says
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California Trends

• The economy appears to be still growing.

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California
Job Growth
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Total Employment Growth - 2007 Q3
California - (year-on-year percent change)
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California Non-Farm Job Growth Rate
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1950
1956
1962
1968
1974
1980
1986
1992
1998
2004
-2.0
-4.0
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Job Growth Rate Comparison
California vs. United States - (year-on-year
percent change)
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
United States
-2.0
California
-2.5
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2001
2002
2003
2004
2005
2006
2007
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Unemployment Rate Comparison
California vs. United States - (percent)
8
7
6
5
4
3
2
United States
1
California
0
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2001
2002
2003
2004
2005
2006
2007
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2-year Real Output Growth (percent) by Sector
California - (2007)
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2-Year Employment Growth by Sector - 2007 Q3
California - (year-on-year percent change)
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1-year Real Output Growth (percent) by Sector
California - (2007)
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1-Year Employment Growth by Sector - 2007 Q3
California - (year-on-year percent change)
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California Trends

• The economy appears to be still growing.
• Regional differences are significant.

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California's Job Distribution
1.7
5.6
16.0
Central Coast
Southern California
27.6
Los Angeles County
Greater Bay Area
Valley
21.9
Rural
27.1
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(No Transcript)
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Annual Job Growth Rates
6.0
4.0
2.0
0.0
1991
1994
1997
2000
2003
2006
-2.0
-4.0
-6.0
Southern California (Ex-LA)
Los Angeles County
Greater Bay Area
Valley
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California Trends

• The economy appears to be still growing.
• Regional differences are significant.
• Retail sales have been weak.

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Real Retail Sales Growth
California - (year-on-year percent change)
9.6
6.4
6.1
6.0
4.4
4.2
3.7
2.4
1.9
1.1
0.5
0.2
-0.2
-0.5
-0.6
-2.4
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2004
2005
2006
2007
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Real Per Capita Total Taxable Sales
California - (year-on-year percent change)
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2-Year Real Retail Sales Growth by Type - 2007 Q3
California - (year-on-year percent change)
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California Trends

• The economy appears to be still growing.
• Regional differences are significant.
• Retail sales have been weak.
• Tourism is a bright spot.

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Seasonally Adjusted Nominal Hotel/Motel Room Rate
California - (dollars)
140
120
100
80
60
40
20
0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
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Real Hotel/Motel Room Revenue Growth
California - (year-on-year percent)
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Real Hotel/Motel Room Rate per Night Growth
California - (year-on-year percent)
6.1
4.3
4.0
3.9
3.7
3.6
3.5
2.9
2.9
2.2
1.0
0.7
0.5
0.2
-0.6
-1.2
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2004
2005
2006
2007
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Seasonally Adjusted Hotel/Motel Occupancy Rate
California - (percent)
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Non-Seasonally Adjusted Hotel/Motel Occupancy Rate
California - (percent)
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California Trends

• The economy appears to be still growing.
• Regional differences are significant.
• Retail sales have been weak.
• Tourism is a bright spot.
• People keep on coming and going.

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California Net In-Migration
Thousands of
people
379.1
373.9
301.1
278.9
262.5
209.7
181.1
126.9
120.7
114.2
111.2
1995
1999
2003
2007
-68.1
-149.1
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Population Components Immigration vs. Migration
California - (thousands)
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K-12 Fall Student Enrollment Growth
California - (percent)
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California Has Some Strengths

• Tech
• Human Capital
• Location

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Complications
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Jerry Brown
Inaction may be The biggest form Of action.
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Trust me.
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Economic Forecast California
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What about Orange County?
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Things to take away

• Life is exciting in the 21st century.
• Volatility does not imply recession.
• California has issues, but it is still
  California.

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Thank you. Visit us at www.ucsb-efp.com