Regional Economic Forecast

Regional Economic Forecast Lisa M. Grobar, Director Economic Forecast Project Joseph P. Magaddino Chairman, Department of Economics California State University, Long Beach OER@CSULB.EDU An Overview of the National Economy The Booming Economy 1997 Real GDP Inflation Unemployment Treasury Bond, 30 Yr. 4.4 2.3 4.9 5.1 1998 4.4 1.6 4.5 4.8 1999 4.2 2.2 4.2 5.9 2000 5.1 3.4 4.1 6.2 Contraction or Recession? • • • • Housing and auto sectors in contraction Manufacturing sector in recession Stock Market Correction Consumer Sentiment Plunges GDP Growth Rates and Federal Funds Rate 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 -0.01 GDP Growth Rate Federal Funds Rate 0.02 0.11 0.1 0.09 0.08 0.07 0.06 0.05 0.04 0.03 National Outlook 2000 GDP Growth Inflation Unemployment Treasury Bond, 30 yr. 5.1% 3.4% 4.1% 6.2% 2001-2005 2.4-3.5% 2.5-2.8% 4.7-4.9% 6.1-5.7% Contributions to GDP 1997-2000 6 5 4 3 2 1 0 -1 -2 1997 Total 1998 1999 Investment 2000e Govt. Consumption Net Exports Exports and Imports 1990-2000 (in billion $) 1800 1600 1400 1200 1000 800 600 400 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 Exports Imports Government Expenditures Rates of Growth 4% 3% 2% 1% 0% -1% 1990 1992 1994 1996 1998 2000e The Spending Binge Slows! Consumer Expenditures Growth Rates 8% 7% 6% 5% 4% 3% 2% 1% 0% 94 19 97 19 00 20 Gross Private Investment & Investment in Equipment and Software: Rates of Growth, 1994-99 14 12 10 8 6 4 2 0 1994 1995 1996 1997 1998 1999 Gross Private Investment Equipment & Software Productivity During 3 Expansions 4 3.5 3 2.5 2 1.5 1 0.5 0 1961-69 Yr 1 & 2 Yr 3 & 4 1982-90 Yr 5& 6 1991-00e Yr 7 & above Output Per Hour & GDP Growth Rates [Potential Growth at 3.5-4%] 6 5 4 3 2 1 0 1997 1998 Output per Hour 1999 GDP 2000e 1.6 2.8 3 5.1 4.4 4.4 4.2 4.4 Regional Economic Forecast 1999-2004 Regional Total Nonfarm Employment Growth [quarterly growth rates] 4% 2% 0% -2% -4% 90 93 96 99 County Employment Growth Rates 1999 & 2000 YTD 6 5 4 3 2 1 0 Los Angeles Orange 1999 R/SB 2000 Ventura 2000: What has been different? • We are feeling the effects of higher interest rates, especially in outlying counties – construction slower, but still healthy growth – durable goods, FIRE, also impacted • LA’s economy improving relative to 99 – this, in spite of continuing losses in aerospace Regional Total Nonfarm Employment Growth percent 4 3 2 1 0 -1 -2 -3 -4 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 Regional Construction Employment Growth percent 15 10 5 0 -5 -10 -15 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional Durable Manufacturing Employment Growth percent 6 4 2 0 -2 -4 -6 -8 -10 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Declines in Durable Manufacturing • Much of the region’s decline due to Los Angeles County • Last year, durable goods employment is down 1.4%. • Of the 4,900 jobs lost, 6,900 were in the aircraft sector. • Aerospace continues to be a drag on the region’s economy Regional Nondurable Manufacturing Employment Growth percent 3 2 1 0 -1 -2 -3 -4 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional TCU Employment Growth percent 7 6 5 4 3 2 1 0 -1 -2 -3 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional FIRE Employment Growth percent 6 4 2 0 -2 -4 -6 -8 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional Trade Employment Growth percent 3 2 1 0 -1 -2 -3 -4 -5 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional Service Employment Growth percent 4 3 2 1 0 -1 -2 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Regional Government Employment Growth percent 6 5 4 3 2 1 0 -1 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 A Bull Market for Teachers! • In 1999 region added 36,000 in state & local government • 24,000 of these jobs were in local education Total Nonfarm Employment Growth Region and the Nation 4 3 2 1 0 -1 -2 -3 -4 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 Region US Summary: Regional Economic Forecast • After strong growth in 2000, the pace of job creation will slow a bit in 2001-02 • Region will not slow as much as the nation • Region will continue to outperform US through 2005 Economic Forecast: Los Angeles County 2000-2005 Los Angeles County Total Nonfarm Employment 4.5 4 3.5 3 88 91 94 97 '00 Number of Jobs Added in 2000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 L.A. Orange RSB V LA Durable Manufacturing Employment Growth percent 4 2 0 -2 -4 -6 -8 -10 -12 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 LA Retail Trade Employment Growth percent 3 2 1 0 -1 -2 -3 -4 -5 -6 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 LA Services Employment Growth percent 4 3 2 1 0 -1 -2 -3 -4 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 LA Government Employment Growth percent 6 5 4 3 2 1 0 -1 -2 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 LA’s large sectors doing well retail services st & local other LA Nonfarm Employment Forecast percent 3 2 1 0 -1 -2 -3 -4 -5 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Population Growth: LA County, State & Nation: 1980-1999 0.03 0.025 0.02 0.015 0.01 0.005 0 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 Los Angeles County California Nation SOURCE: U.S. Census Bureau; California Department of Finance; California Association of REALTORS® Sources of Population Growth Los Angeles County 200,000 150,000 100,000 50,000 0 Natural Increase Net Migration -50,000 81 83 85 87 89 91 93 95 97 SOURCE: CA Dept. of Finance 99 -100,000 NET IMMIGRATION VS. DOMESTIC MIGRATION Los Angeles County 200,000 150,000 100,000 50,000 0 -50,000 -100,000 -150,000 -200,000 -250,000 -300,000 91 92 93 94 95 96 97 98 99 Net Immigration Domestic Migration • Domestic net migration still negative: -39,337 • Foreign immigration remains strong SOURCE: CA Dept. of Finance Housing Prices : Los Angeles County Median Housing Prices Los Angeles County 250000 200000 150000 100000 50000 0 YT D 00 92 93 94 95 96 97 98 99 Appreciation Rates Los Angeles County 10 8 6 4 2 0 -2 -4 -6 96 97 98 99 YTD00 Factors Influencing Housing Appreciation • Fundamentals – – – – job growth personal income growth interest rates population growth: net migration • Intra-regional substitution effects • Expectations MORTGAGE RATES 10% 9% 8% 7% 6% 5% 4% 3% • Fed has raised short term rates by 175 basis points five times since June 1999 • Fed cut short term rate by 100 basis points in Jan 2001 Jul-00 FRM ARM Federal Funds 2% Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 SOURCE: Federal Home Loan Mortgage Corp. Jan-00 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Housing Affordability Index Los Angeles County 45 40 35 30 25 20 15 10 5 0 89 92 95 98 Source: California Association of Realtors Housing Affordability Index Orange County 60 50 40 30 20 10 0 89 92 95 98 Source: California Association of Realtors Unsold Housing Inventory Index Los Angeles County 25 20 15 10 5 0 89 92 95 98 Source: California Association of Realtors Housing Appreciation Forecast Los Angeles County 10% 8% 6% 4% 2% 0% -2% -4% -6% 94 95 96 97 98 99 00 01 02 Housing Prices Los Angeles County • Recovery in housing coincided with regional growth accelerating faster than the nation • Current prices meet or exceed previous highs; affordability not a problem….. Yet! • Higher interest rates have dampened housing market a bit • “Fundamentals” for future appreciation remain strong