Analysis. Answers. Analysis. Answers Beacon Economics, LLC The Economic Outlook Focus on Los Angeles February 2015

Analysis. Answers. 2014: Santa came to town 2014 Ended Strong – California one of the stronger economies in the nation – Growth has broadened to other parts of the state – Consumer spending doing great – Credit is expanding on many levels Economic growth to continue to accelerate through 2015 – Incomes about to start rising – Interest rates aren’t going anywhere – The stock market is not in a bubble – The housing market has a second wave of recovery – Gas Prices a net positive 2

Analysis. Answers. GDP 2014: Soft End IIIIIIV GDP Consumption Durable goods Nondurable goods Services Investment Structures Equipment IP Residential Inventories Net exports Exports Imports Government Federal State and local

Analysis. Answers. Consumer Spending 4

Analysis. Answers. Employment 5

Analysis. Answers. Consumer Credit 6 $166B

Analysis. Answers. Degrees Among with Bachelor 7 Diploma’s Awarded PSYCHOLOGY289,968 BUSINESS MANAGEMENT AND A217,369 BIOLOGY178,560 GENERAL BUSINESS171,875 NURSING170,595 COMMUNICATIONS162,915 MARKETING AND MARKETING R160,309 ACCOUNTING146,322 ENGLISH LANGUAGE AND LITE132,367 CRIMINAL JUSTICE AND FIRE123,509 POLITICAL SCIENCE AND GOV123,106 FINANCE123,068 ELEMENTARY EDUCATION116,591 GENERAL EDUCATION111,969 ECONOMICS101,525 PHYSICAL FITNESS PARKS RE100,639 HISTORY96,637 SOCIOLOGY88,220 COMMERCIAL ART AND GRAPHI84,843 COMPUTER SCIENCE82,940 MECHANICAL ENGINEERING67,953 FINE ARTS56,589 ELECTRICAL ENGINEERING53,805 LIBERAL ARTS52,043 JOURNALISM51,500 Annual Income PETROLEUM ENGINEERING55,103 COMPUTER ENGINEERING50,542 CHEMICAL ENGINEERING48,668 COMPUTER SCIENCE46,060 AEROSPACE ENGINEERING44,651 INDUSTRIAL AND MANUFACTUR43,898 INDUSTRIAL AND ORGANIZATI43,804 MECHANICAL ENGINEERING43,495 ELECTRICAL ENGINEERING42,238 MATHEMATICS AND COMPUTER41,640 PHARMACY PHARMACEUTICAL S40,933 OPERATIONS LOGISTICS AND40,840 FINANCE40,236 GENERAL ENGINEERING40,179 MISCELLANEOUS ENGINEERING39,965 ACTUARIAL SCIENCE39,773 ARCHITECTURAL ENGINEERING39,522 BIOMEDICAL ENGINEERING39,098 COMPUTER ADMINISTRATION M38,760 BUSINESS ECONOMICS38,484 CONSTRUCTION SERVICES38,176 FOOD SCIENCE38,057 CIVIL ENGINEERING37,940 NURSING37,915 MISCELLANEOUS ENGINEERING37,594

Analysis. Answers. Weekly Earnings 8

Analysis. Answers. Gas Prices: Still Falling ~20,000 barrels per day in consumption – Gasoline: 45% – Jet Fuel: 20% – Other: 35% Annual US spending on refined products down $1,000b to $700b with consumption increase 9

Analysis. Answers. Marginal Cost Ceiling 10 JPMorgan

Analysis. Answers. Industry Outlook 11

Analysis. Answers. Interest Rates 12

Analysis. Answers. Where are rates heading? 13

Analysis. Answers. Construction Trends 14

Analysis. Answers. Housing 15

Analysis. Answers. Better Signs… 16

Analysis. Answers. Trade 17

Analysis. Answers. Global Situation 18

Analysis. Answers. China 19 (Bloomberg) -- Managing the yuan is turning into a different game for China’s policy makers these days. After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy. A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is at its strongest-ever level compared with the market price.

Analysis. Answers. California fact versus fiction 20 California Hype:  High taxes, Over regulated  People/business fleeing Reality  Business Climate is not that important  State still outperforming  Certain industries more vulnerable than others, but others doing great  Real enemy: CEQA, dumb taxes “Looking back a few years (2009 / 2010) everyone was saying that CA would fail like Greece or Detroit, but things look different now. What has happened to turn things around?”

Analysis. Answers. Regional: Who’s Hot and Not

Analysis. Answers. Regional: Who’s Hot and Not North Dakota % Texas % Utah443.4% Florida % Oregon % Delaware % Washington % North Carolina % Arizona % South Carolina % Georgia % Colorado % Nevada % California % Kentucky % Oklahoma % Indiana561.9% Maine6.91.1% Michigan % Iowa % New York % West Virginia7.20.9% New Hampshire5.10.8% Wyoming2.40.8% South Dakota30.7% Pennsylvania % Illinois % Nebraska6.20.6% Maryland % Kansas7.50.5% Virginia % New Jersey % Mississippi % Alaska %

Analysis. Answers. Job Estimates 23 ?

Analysis. Answers. Nonfarm Employment Growth 24 California Employment Growth by Metro, Year over Year RegionDec-13Dec-14Change (000s)Change (%) San Jose982.51, San Francisco (MD)1,088.01, San Diego1,320.51, Oakland (MD)1,043.21, Other Bay Area Orange County (MD)1,469.51, Other Southern California Inland Empire1,244.71, North Central Valley1,253.01, South Central Valley Central Coast Los Angeles (MD)4,146.84, Bakersfield San Luis Obispo California15, , Source: California EDD

Analysis. Answers. Labor Markets 25 Los Angeles County Household vs. Firm Employment Indicator Nonfarm Employment Household Employment Peak MonthMar-07Nov-07 Peak Employment (000s)4,235.64,649.1 Trough MonthFeb-10Dec-09 Trough Employment (000s)3,879.54,258.0 Peak to Trough Change (000s) Peak to Trough Change (%)-8.4 Current MonthDec-14 Current Employment (000s)4,216.64,641.3 Trough to Current Change (000s) Trough to Current Change (%) Remaining to Previous Peak (000s) Remaining to Previous Peak (%) Source: California EDD

Analysis. Answers. Employment by Industry 26 Los Angeles County Employment Growth by Major Industry, Year over Year IndustryDec-13Dec-14 Change (000s) Change (%) Management Construction Admin Support Education/Health Information Transport,Warehouse Leisure and Hospitality Real Estate NR/Mining Total Private3,597.43, Prof Sci and Tech Retail Trade Other Services Wholesale Trade Finance and Insurance Government Manufacturing Total Nonfarm4,146.84, Source: California EDD

Analysis. Answers. Key Sectors 27 Sep-02Sep-13Sep-14 Civilian Employment4,472.94,518.24,652.2 Civilian Unemployment Fabricated Metal Product Manu Electronic Instrument Manu Aerospace Product & Parts Manu Furniture Mfg Food Manufacturing Apparel Manufacturing Plastics & Rubber Products Manu Motion Picture & Sound Recording Computer Systems Design Management, Scientific Consulting Scientific Research & Development Accommodation Local Government Education

Analysis. Answers. Sales Tax Receipts by Category 28 Los Angeles County Sales Tax Receipts by Category, Q3 YTD vs Q3 TYD Category2013 YTD2014 YTDChange (%) Autos and Transportation156,146,902167,559, Building and Construction64,094,80567,816, Business and Industry133,962,543143,351, Food and Drugs58,402,43159,684, Fuel and Service Stations127,660,380127,625, General Consumer Goods239,734,105245,752, Restaurants and Hotels140,105,316149,985, Total1,031,038,5781,085,155, Source: HdL Companies

Analysis. Answers. Sales Tax by City/Submarket 29 Los Angeles County Taxable Sales by City/Submarket, Q3 YTD vs Q3 YTD City2013 YTD2014 YTDChange (%) Other2,333,7922,651, Beverly Hills1,792,7302,028, San Fernando Valley1,094,0761,210, West Hollywood881,935960, Tri-Cities6,062,2346,562, Antelope Valley2,225,6452,348, Los Angeles30,990,95932,580, San Gabriel Valley13,015,19213,682, South La County12,081,31812,663, Santa Monica2,236,1262,323, Santa Clarita2,125,3592,196, Unincorporated16,505,03416,673, Long Beach3,698,7123,679, South Bay9,271,1748,902, County Total104,314,286108,464, Source: California State Board of Equalization

Analysis. Answers. LA Economic Structure 30 Los AngelesUS Met Portion Industry2013Share Share All industry total %-1.3%15.8%5.2% Construction %-9.4%-19.5%3.7%-12.0%-13.4%-1.0% Durable goods manufacturing %39.8%-5.4%6.8%38.8%7.3%-0.9% Nondurable goods manufacturing %12.7%-22.4%5.1%4.8%0.4%-1.6% Wholesale trade %23.7%-5.5%5.9%24.5%-5.4%0.9% Retail trade %5.3%-2.6%5.7%7.8%4.0%-0.4% Transportation and warehousing %16.0%-0.2%2.8%22.7%2.2%-0.3% Information %53.4%24.6%5.5%55.5%10.2%7.3% Finance and insurance %-5.1%21.4%6.8%-3.2%20.3%-1.7% Real estate and rental and leasing %40.2%-9.8%14.1%20.5%7.7%4.0% Professional, scientific, and technical services %25.7%-4.0%7.6%26.5%4.5%0.2% Management of companies and enterprises %-33.4%7.9%2.2%-3.3%18.5%-0.6% Administrative and waste management services %21.1%5.1%3.2%26.9%6.0%0.2% Educational services %24.9%9.9%1.1%21.9%6.0%0.0% Health care and social assistance %27.9%8.3%7.3%27.1%9.5%-1.5% Arts, entertainment, and recreation %17.9%7.2%1.0%17.6%9.3%1.1% Accommodation and food services %9.7%2.7%2.8%9.0%4.7%-0.2% Other services, except government %-8.4%-11.1%2.1%-3.7%-6.1%-0.1% Government %5.9%-5.9%12.2%8.2%-0.6%-3.0%

Analysis. Answers. Tourism 31 China36,782Taiwan3,493 Europe11,038Japan2,750 India 4,265S Korea1,833 Brazil 4,051Colombia1,511

Analysis. Answers. California Exports 32

Analysis. Answers. Goods Trade Movement 33

Analysis. Answers. Ag and the Drought 34

Analysis. Answers. The Role of Reservoirs

Analysis. Answers. Residential Real Estate 36 County/MSA2014Year over Year (%) Median Prices Santa Barbara462, San Francisco MD982, South Bay809, Inland Empire272, Monterey423, Los Angeles478, San Diego481, Orange County652, San Luis Obispo449, Existing Home Sales San Francisco MD11, San Luis Obispo2, South Bay12, San Diego24, Inland Empire50, Los Angeles52, Santa Barbara2, Orange County20, Monterey2, Source: DataQuick

Analysis. Answers. Real Estate Prices by City 37 Los Angeles County Residential Real Estate Market by City, 2013 vs 2014 City Change (%) Median Prices Inglewood300,047372, Palmdale191,098221, Burbank588,117665, Pomona284,112319, El Monte352,131387, Lancaster169,513184, Norwalk339,074365, Long Beach442,480469, Santa Clarita456,814483, Pasadena706,913743, South Gate299,635314, West Covina417,829438, Glendale700,536722, Torrance608,903624, Downey424,045434, Los Angeles540,542550, County Total449,033478, Source: DataQuick Los Angeles County Defaults and Foreclosures by City, 2013 vs City Change (%) Foreclosures Glendale Burbank Santa Clarita Norwalk Pasadena Torrance Pomona Long Beach Downey Lancaster Los Angeles South Gate Inglewood Palmdale El Monte West Covina County Total6,5124,

Analysis. Answers. Bubble? No… 38

Analysis. Answers. Apartment Rental Market 39

Analysis. Answers. Permits and Prices 40

Analysis. Answers. Residential Permitting 41 City2013 YTD2014 YTDChange (%)City2013 YTD2014 YTDChange (%) Multi-Family UnitsSingle-Family Units Long Beach West Hollywood San Fernando Valley Santa Monica South LA County San Gabriel Valley Beverly Hills Los Angeles1,0611, San Gabriel Valley7981, Tri-Cities Santa Monica Beverly Hills South Bay South Bay Tri-Cities Santa Clarita Los Angeles9,42710, San Fernando Valley Unincorporated Antelope Valley West Hollywood Unincorporated Other South LA County Antelope Valley Other Santa Clarita031N/ALong Beach County Total12,62414, County Total3,6144,

Analysis. Answers. In the Long Term? 42 1Alaska36.4% 2Wyoming22.2% 3New York18.7% 4Delaware18.1% 5North Dakota17.8% 6West Virginia17.0% 7New Mexico16.5% 8South Carolina16.4% 9Vermont16.2% 10Hawaii15.9% 11California15.7% 12Mississippi15.6% 13Wisconsin15.6% United States Total14.7% 2011 Taxes Fees Paid as share PI Under $25, ,061 $25,000 to $50,000-58,600 $50,000 to $99,99918,955 Over $100,0002,619 Total-229,087 Total Domestic Net Migration by Income Texas Under $25, $25,000 to $50, $50,000 to $99, Over $100,000599

Analysis. Answers. Nonres. Permitting by Type 43 Los Angeles County Nonresidential Building Permit Values by Type ($000s) Permit Type2013 YTD2014 YTDChange (%) New Commercial1,109,7211,512, Office246,153272, Retail398,367577, Hotel145,40988, Industrial128,371129, Other Nonres.460,7731,053, Nonres. Alts./Adds.2,094,1383,187, Total Nonres.3,793,0035,883,

Analysis. Answers. Nonres. Permitting by City 44 Los Angeles County Nonresidential Building Permit Values by City/Submarket, 2013 vs City2013 YTD2014 YTDChange (%) Unincorporated270,679,7821,106,657, Santa Monica42,661,47294,484, Antelope Valley29,371,10860,260, Tri-Cities198,744,068406,108, West Hollywood52,491,96892,280, San Fernando Valley40,371,02659,865, Los Angeles1,690,894,7602,477,739, South Bay286,837,043358,472, San Gabriel Valley447,454,078501,533, South LA County349,628,918383,348, Other66,187,55470,532, Beverly Hills75,084,05575,540, Long Beach175,838,207144,228, Santa Clarita66,758,58252,237, County Total3,793,002,6405,883,289,

Analysis. Answers. California Office Properties 45

Analysis. Answers. California Retail Properties 46

Analysis. Answers. L.A. Office and Retail Submarkets 47 Submarket Vacancy Rate (%) Net Absorption (Thous. Sq. Ft. over last 4- quarters) Cost of Rent ($ Sq. Ft./Month West LA County (inc. Downtown) 12.61, Antelope Valley San Fernando Valley San Gabriel Valley Tri-Cities South LA County South Bay Office SubmarketsRetail Submarkets Submarket Vacancy Rate (%) Net Absorption (Thous. Sq. Ft. over last 4- quarters) Cost of Rent ($ Sq. Ft./Month West LA County Antelope Valley San Fernando Valley San Gabriel Valley Tri-Cities South LA County South Bay

Analysis. Answers. L.A. Industrial Submarkets 48 Submarket Vacancy Rate (%) Net Absorption (Thous. Sq. Ft. over last 4- quarters) Cost of Rent ($ Sq. Ft./Month San Gabriel Valley South LA County6.71, Antelope Valley San Fernando Valley South Bay Warehouse/Distribution SubmarketsFlex/R&D Submarkets Submarket Vacancy Rate (%) Net Absorption (Thous. Sq. Ft. over last 4- quarters) Cost of Rent ($ Sq. Ft./Month South LA County Antelope Valley South Bay San Gabriel Valley San Fernando Valley

Analysis. Answers. The Revenue Outlook 49 But… Revenue Increases Short Term Pensions still underfunded Public employee unions pushing for big pay hikes Way behind on infrastructure investments Built up short term debt (unemployment, etc) Still overly sensitive to capital gains Rainy day fund? Not really…

Analysis. Answers. So what does it mean? Big Themes for the 2015  Labor markets reaching full recovery, incomes to rise  Consumers will continue to spend on better income, easier credit  Housing recovery to rebound again  Commercial rebound will continue, construction in hot spots  Business spending to grow steadily  Fed will move slow. long term rates to drift up slowly—flatter yield curve ahead  California still in the growth mix as long as there is still slack to work with 50 Future issues remain  Government investments constrained  Global economy still wobbly, uncertainty in the developing world  State short on housing / needs CEQA reform  State budget surplus in name only, need revenue reform  Long term issues: healthcare, pensions, entitlements  Growing inequality of income and wealth  Politics politics politics

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