Jon Haveman Founding Principal, Beacon Economics

Roots of the Recession Recessions

The trend isn’t always your friend… TrendFundamental The Dow rose 47% from Q to Q Corporate profits fell 10.7% over the same period of time Home prices rose 45% from Q to Q Household incomes rose 7% over the same period of time

The big picture The Trends are GOOD The Trends are GOOD – Economic growth is solid – 2010 likely to be stronger than consensus forecast The Fundamentals are BAD The Fundamentals are BAD – Government intervention, bounce in financial markets driving the show – Government intervention preventing fundamental issues from being fixed – Government intervention has created its own set of potentially serious problems for the economy So what next? So what next? – The next year promises to be solid – After that, no one knows, but its not likely to be pretty

Q1 Growth: Solid

Production on the Rise

Leading Indicators

Jobs, Jobs, Jobs Jan to Apr Total1,535-4,1702,236 Manufacturing-229-1, Admin Serv Construction Retail Leisure Federal Wholesale Professional Financial Other Transport Education Information Health State Local

Housing Bounce

CA-San Francisco 15.2 CA-San Diego 9.9 MN-Minneapolis9.7 CA-Los Angeles8.7 AZ-Phoenix6.8 DC-Washington6.3 OH-Cleveland5.1 MA-Boston4.1 CO-Denver3.7 TX-Dallas3.0 MI-Detroit2.2 NV-Las Vegas1.3 FL-Miami1.0 GA-Atlanta1.0 IL-Chicago0.4 Price Trough to Current Level (%) (Case Shiller)

Banker Survey 10Q2

California: A widespread hit Jan-10 Decline from peak (%) Bakersfield224, Salinas121, San Diego1,212, Santa Barbara161, San Francisco922, Stockton191, Los Angeles3,761, Ventura270, San Jose841, Modesto143, Oakland945, Santa Ana1,351, Santa Rosa168, Riverside1,102,

Better news on spending

Better news on jobs New Figures: April, CA employment at 13,966, +30,000 for 2 months (1.2% AR) Unemployment Flat (12.6%) due to big Increase in the labor force.

CA Housing Sales to Q1-10

Real Estate Markets

Drivers of Housing Bounce Demand Interest Rates Interest Rates The FHA The FHA The tax credit The tax creditSupply Hope for Homeowners Hope for Homeowners

How many underwater? CBSA NameMortgages Negative Equity Share (%) Las Vegas-Paradise NV458, Riverside-San Bernardino-Ontario CA870, Sacramento CA497, Oakland-Fremont-Hayward CA551, San Diego-Carlsbad-San Marcos CA598, Los Angeles-Long Beach-Glendale CA1,551, San Jose-Sunnyvale-Santa Clara CA348, Santa Ana-Anaheim-Irvine CA567,

MBA Numbers for California to Q4-09

Jobs Reality Check

Spending Fumes? 2% Pace

Consumer Indicators 92-IV 08-I 10-I Savings6.5%1.0%2.8% Spending79.2%83.1%84.9% Taxes11.6%12.6%9.3% Spending as Percent of Income

Credit Markets Cleared?

GDP and Unemployment

Lots of questions.

Risks #1: What the market giveth…? #1: What the market giveth…? #2: Inflation watch #2: Inflation watch #3: Federal Debt #3: Federal Debt #4: Sovereign debt issues #4: Sovereign debt issues #5: Double-dip? #5: Double-dip?

Things to look for Good Things Dollar falls, exports rise Dollar falls, exports rise Business spending continues to grow Business spending continues to grow Bad Things Sovereign debt issues Sovereign debt issues – Domestic – Abroad Inflation Inflation Asset Prices Asset Prices – A new bubble – A new crash Consumer spending Consumer spending – The trade deficit

Summary The Recession is Over! The next year may be good… We are not there yet – Consumer weakness will reemerge – Can exports survive Europe? – Housing bounce won’t last – Banks not out of the woods yet – Commercial trouble to continue – Significant chance of a double dip – Higher Rates coming down the pike Its not permanent – Its just going to take some time—PATIENCE!!

As for California Recovery will be turbulent Recovery will be turbulent – Follow the US path Post-recession will be good Post-recession will be good – Shifting from internal to external drivers – Cheap $US and cheap housing Budget Issues should still be central Budget Issues should still be central – Structural Problems remain – Long term issues – Realistically better than many states

2009 Nonfarm Employment Distribution: San Mateo

Employment Growth to Q3-09

Unemployment Unemployment (%,SA)Apr-10Apr-09Apr-08 California Bay Area San Mateo Napa Oakland (MD) San Francisco (MD) San Jose Santa Rosa Vallejo Other Regions Los Angeles (MD) Ventura

Residents Versus Workers: All Workers

San Mateo County: Commute Patterns Where do county residents work?Where do county employees live? Source: Top 5 Counties of Employment, 2008 CountyNumber% of total San Mateo123, San Francisco64, Santa Clara50, Alameda23, Los Angeles6, Top 5 Counties of Residence, 2008 CountyNumber% of total San Mateo123, Alameda39, Santa Clara38, San Francisco38, Contra Costa14,2144.6

Industry Employment Growth: High Skilled to Q4-09

Industry Employment Growth: Low Skilled to Q4-09

San Mateo Employment Clusters: Q4-07 and Comparable Counties Transportation: 4.9% > California Tehama5.36Yolo4.35San Bernardino3.51 San Joaquin2.55Shasta1.68Glenn1.03 Los Angeles0.67Solano0.61 Professional and Technical Services: 4.6% > California San Francisco6.52Santa Clara5.60Marin3.42 Alameda2.02San Diego1.62Orange0.73 El Dorado0.53 Information: 2.1% > California Los Angeles1.93Santa Clara1.50Contra Costa0.64

Average Annual Wages, Q3-09 AreaWages ($) Santa Clara79,404 San Mateo68,692 San Francisco65,416 Alameda55,744 Contra Costa52,676 Marin52,260 California49,400 Los Angeles47,528 San Diego46,280

Average Annual Wages and Change, 1998 to ($)2000 ($) %Change ($) %Change Total All Industries Manufacturing Information Prof and Technical Services

Employment Forecast to Q4-15

Industry Growth, Q4-09 to Q4-15 (%) Industry Future Growth Increase over Recent Maximum Information Education and Health Services Professional and Business Services Other Services Nondurables Manufacturing Financial Activities Leisure and Hospitality Trade, Transportation, and Utilities Manufacturing Construction Durables Manufacturing Total

Occupation Employment Growth, Q3-09 to Q4-15 (%) OccupationWages ($) Future Growth Increase over Recent Peak Health Care Support Production Personal Care and Services Building and Grounds Cleaning Maintenance Food Preparation and Serving-Related Management Legal Computer and Mathematical Health Care Practitioners and Technical Business and Financial Operations

Residential Market

San Mateo County Housing Distress to Q1-10

Residential RE Forecast to Q4-15

Taxable Sales to Q4-09

Taxable Sales Forecast to Q4-15

San Mateo Recession Summary Employment fell on the order of 7% Employment fell on the order of 7% Unemployment rose by 5.3 percentage pts Unemployment rose by 5.3 percentage pts Housing experienced a dramatic loss in value, though much less than in the rest of the state Housing experienced a dramatic loss in value, though much less than in the rest of the state Local revenues: strained by the reduced home turnover and declines in taxable sales Local revenues: strained by the reduced home turnover and declines in taxable sales San Mateo’s reliance on business services suggests its recovery is linked to overall US/CA economies San Mateo’s reliance on business services suggests its recovery is linked to overall US/CA economies

Employment in San Mateo Still a bedroom community Still a bedroom community – Though less so than in the past Unemployment speaks more to residents and less to business activity Unemployment speaks more to residents and less to business activity Clusters of employment in high skill and transportation Clusters of employment in high skill and transportation Very high wage employees and residents Very high wage employees and residents High paying jobs will dominate the recovery High paying jobs will dominate the recovery

Fiscal Recovery Real estate is making a comeback Real estate is making a comeback – Though it will be slow for several years Taxable sales are also rebounding Taxable sales are also rebounding – But will not recover previous levels for some time Look for strained local budgets for several years Look for strained local budgets for several years – Less local activity – Continued pocket picking by the state

 Economic Forecasting  Regional Intelligence Reports  Business & Market Analysis  Real Estate Market Analysis  Ports & Infrastructure Analysis  Economic Impact Analysis  Public Policy Analysis Analysis. Answers To view or download this presentation please visit: