John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP National & California Economies John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP

After Losing 8. 71 Million Jobs … Now At A Record Level of Jobs U. S After Losing 8.71 Million Jobs … Now At A Record Level of Jobs U.S. Jobs Long Slow Growth - Not Over-Heating

Gross Domestic Product Very Slow Growth

Current Consumer Confidence Very High! 128.5

Oil Prices: Low But Roughly Stable $45.00

Consumer Quite Aggressive

Residential Construction Spending Gaining Speed

Value of the Dollar: Helps Imports & Hurts Exports 100.0 2012-2016 22.1%

Looking Six Month Ahead Consumer Confidence Lagging 87.8

Business Investment Spending Weak

Orders, Non-Defense Capital Goods Slowly Declining

Mfg. Purchasing Manager’s Index Weakening!

Industrial Capacity Utilization: Slack Full Capacity 82.5% 75.5%

U.S. Unemployment History Prime Rate: 21% Cold War Ends Great Recession

Consumer Price Stable: Below 2.0% Fed Target 1.1%

Interest Rate Environment 3.46% 1.62%

Required FICO Scores – 30 Year Fixed Fannie Mae Share of Income: 36% or less … 680 if LTV 75% … 620 if Less Share of Income: 45% or less … 700 if LTV 75% … 640 if Less Issue: Maximum Allowable Confirming Loan Levels FICO Report 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 300-499 6.6% 6.5% 7.1% 7.2% 7.4% 6.9% 6.2% 6.0% 5.8% 5.2% 5.0% 500-549 8.0% 8.2% 8.7% 9.0% 8.5% 8.4% 7.9% 550-599 8.8% 9.1% 9.6% 9.8% 9.9% 9.5% 9.2% 600-649 10.2% 9.7% 10.0% 10.1% 10.3% 650-699 12.8% 12.5% 12.1% 12.0% 11.9% 12.2% 12.7% 13.0% 700-749 16.4% 16.3% 16.2% 16.0% 15.9% 15.7% 15.5% 16.6% 16.8% 750-799 20.1% 19.8% 19.6% 19.4% 19.5% 18.8% 18.4% 18.1% 18.3% 800-850 16.9% 17.9% 18.7% 18.2% 18.6% 20.0% Total 100.0% 68.1% 55.1%

U.S. Home Sales Remain Relatively Weak

U.S. Median Home Prices Soaring!

California Job Gains/Losses Up 1,074,272 6.8% Up 2007 15,844,325 2016 16,918,587 Recovery 2,253,330 Great Recession -1,179,058

U.S. & CA Unemployment History Prime Rate: 21% Cold War Ends Great Recession

CA’s East-West Split in Prosperity San Francisco-Oakland-Fremont 4.10% Bay Area San Jose-Sunnyvale-Santa Clara Napa Orange County 4.40% So. Coast San Luis Obispo-Paso Robles 4.60% No. Coast Santa Barbara-Santa Maria-Goleta 4.80% San Diego-Carlsbad-San Marcos 5.00% Los Angeles County 5.30% Sacramento-Arden-Arcade-Roseville 5.50% No. Inland Salinas-Monterey 5.70% Vallejo-Fairfield Oxnard-Thousand Oaks-Ventura 5.80% Santa Cruz-Watsonville Riverside-San Bernardino-Ontario 6.60% So. Inland Chico 6.70% Redding 6.80% Stockton 7.80% Central Modesto 8.00% Yuba City 8.10% Madera-Chowchilla 8.30% Fresno 8.70% Hanford-Corcoran 8.90% Merced 9.30% Bakersfield-Delano 9.70% Visalia-Porterville 10.70% North El Centro 23.80%

Job Quality & Income Split 2011-2016e Growth Period

Gold Mine Theory Secondary Tier Primary Tier

Science, Technology, Math, Engineering

STEM - Strong Job Growth! 15.3%

Office Vacancy/SF Absorption Bay Area – Rest of CA Split! 2016Q2 Sacramento 15.8% 421,000 Inland Empire 14.1% 64,000 Central Valley 14.0% 24,000 L.A. Co. 13.8% 1,200,000 San Diego 12.5% -119,000 Orange Co. 10.0% -464,000 Contra Costa 8.7% 515,000 SF Peninsula 8.0% -149,000 Silicon Valley 7.9% 360,000 Alameda Co. 7.2% 16,000 San Francisco 6.3% 348,000

Health Care

Physician Availability, CA Regions, 2013

Share of Adults, 18-64, No Health Insurance By California Region, 2012 vs. 2015

Health Care - Strong Job Growth! 9.4%

Construction: Slowly Coming Back

Housing Permits, Single Family Residential Seasonally Adjusted Annual Rate

Change In Sales Demand vs. Supply of Active Listings August 2015-2016 Active Listings: Supply 8% 7% 6% -2% -4% -9% Bay Area Southern California Central Valley

Months of Housing Supply Available By California Region Bay Area So. CA Central Valley 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 3.6 3.2 2.4

CA: State Prices Almost All The Way Back Median Price Existing Detached Homes, 2005-2016 $594,530 $526,580 5.8% -11.4% $497,520 $245,230 -59%

High Priced Bay Area & Central Coast Affordability Median Price Payment Required Income San Francisco 13% $1,375,000 $6,740 $269,601 San Mateo 14% $1,330,000 $6,519 $260,778 Marin 18% $1,225,000 $6,005 $240,190 Santa Clara 19% $1,085,000 $5,318 $212,740 Alameda 20% $825,700 $4,047 $161,898 Napa 25% $630,000 $3,088 $123,526 Contra-Costa 32% $628,150 $3,079 $123,164 Sonoma 26% $585,000 $2,868 $114,703 Solano 45% $386,000 $1,892 $75,684 U.S. = $307,454 Central Coast Affordability Median Price Payment Required Income Santa Cruz 17% $799,000 $3,917 $156,663 Santa Barbara 20% $703,460 $3,448 $137,930 San Luis Obispo 27% $546,620 $2,679 $107,178 Monterey 25% $535,000 $2,622 $104,899

Mix Priced So. California Modestly Priced Central Valley Affordability Median Price Payment Required Income Orange County 22% $742,220 $3,638 $145,530 Ventura 29% $647,320 $3,173 $126,922 San Diego 26% $589,910 $2,892 $115,666 Los Angeles 30% $480,040 $2,353 $94,123 Riverside County 41% $355,320 $1,742 $69,669 San Bernardino 56% $242,370 $1,188 $47,522 U.S. = $307,454 Central Valley Affordability Median Price Payment Required Income Placer County 46% $438,490 $2,149 $85,976 Sacramento 45% $323,710 $1,587 $63,471 San Joaquin $313,840 $1,538 $61,536 Stanislaus 48% $271,940 $1,333 $53,320 Fresno 50% $235,020 $1,152 $46,081 Kern (Bakersfield) 54% $228,950 $1,122 $44,891 Madera $221,700 $1,087 $43,469 Kings County 56% $212,660 $1,042 $41,697 Merced 52% $212,080 $1,040 $41,583 Tulare $207,700 $1,018 $40,724

Construction - Strong Job Growth! 9.2%

Logistics Flow of Goods

Port Container Volumes On Pace For Import Record

Fulfillment Centers

E-Commerce Growth Rates Year Over Year by Quarter

Logistics - Strong Job Growth! 8.7%

Manufacturing: Should Be A Major Growth Source

California Manufacturing Job Growth Just 5.4% of U.S. Growth

CA Is Not Loved By Executives & Entrepreneurs

Manufacturing Poor Job Growth! 1.9%

Industrial Vacancy Rate Low Almost Everywhere! 2016Q4 Sacramento 8.5% San Diego 4.5% Inland Empire 3.3% Central Valley 2.0% Orange Co. 1.6% Silicon Valley 1.4% SF Peninsula 1.2% L.A. Co. 1.1%

Industrial Absorption Sq. Feet Largely Related To So. CA Ports Inland Empire 6.2 million Central Valley 2.3 million L.A. Co. 1.0 million Sacramento 0.9 million Silicon Valley 0.8 million Orange Co. 0.2 million San Diego 0.03 million SF Peninsula 0.001 million

Political Key: 42-45 Votes of 80 Moderate Democrats from Poor Districts: Their Party is Hurting Their Constituents (14-17) Combined With Republicans Create Legislation Rolling Back Regulators (28) CEQA AQMD CARB

Economic Impact?

www.johnhusing.com