John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP So. California Prosperity . . . John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP

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

Unemployment Rates: Full Employment 18.0% 10.6% 9.1% 4.4%

Cut Taxes … Increase Spending Lower Taxes Massive Increase in Spending on Infrastructure Result: Increased Deficit Spending Increased Upward Pressure on Employment Increased Pressure On Prices FED Rate Increase Needed to Reduce Economic Pressure

Interest Rate History 10 year Fixed Rate

California Job Gains/Losses Up 1,064,038 6.7% Up 2007 15,844,325 2016 16,908,363 Recovery 2,243,097 Great Recession -1,179,058

Southern California

9 Southern County Economy Gaining Strength!

Job Quality: Split

California’s Fastest Growing Metropolitan Areas in 2015!

Unemployment Rates

The Issue: Poverty

Gold Mine Theory Secondary Tier Primary Tier

Sophisticated Warehousing Operations

Value of the Dollar: Helps Imports & Hurts Exports 100.0 2012-2016 25.6%

Port Container Volumes On Pace To Tie 2nd Highest Import Level

Place Tariffs on Imports Imports More Expensive Lower Foreign Imports & Hurts the Inland Empire Reduced U.S. Jobs Handling Imports Improve U.S. Manufacturing Jobs except for Automation Losses Higher Prices At Retail Stores

Corporate Taxes Based on U.S. Sales not Income Retailer Buy Imports for $80 … Sell in U.S. For $100 … Pay Tax on $100 Firm Makes U.S. Goods for $80 … Sells Abroad for $100 … Pay No Taxes Removes Incentive to Put HQ Abroad to Avoid U.S. Taxes Discourages Imports & Hurts the Inland Empire Encourages Exports Could Bring Billions of Dollars Back to the U.S.

E-Commerce Growth Rates Year Over Year by Quarter 1.1% 8.4%

Industrial Overwhelmingly In The Inland Empire

Industrial Vacancy Rate Low Everywhere! 2005/2006 2009Q3 2016Q3 San Diego 7.0% 12.0% 4.3% Inland Empire 2.7% 12.8% 4.3% Central Valley NA NA 2.0% Orange Co. 5.4% 6.5% 1.4% L.A. Co. 2.1% 3.2% 1.0% Source: CB Richard Ellis

Industrial Asking Price Per SF/Mo. Central Valley $0.36 Inland Empire $0.52 Ventura $0.65 Los Angeles $0.74 Orange $0.84 San Diego $0.85 Source: CB Richard Ellis

Logistics Powerful Job Growth 2011-2016 10.7% of New Jobs Median Pay $45,456

Manufacturing: Should Be A Major Growth Source

California Manufacturing Job Growth Just 4.8% of U.S. Growth

Manufacturing Jobs 2011-2016 1.8% of Job Growth Median Pay $52,000

Construction: Finally Coming Back

Massive Infrastructure Spending Tariffs Affect Imports Potential For Higher Interest Rates Privatize Fannie Mae & Freddie Mac But Leave FHA Alone Dollars For Freeways, Airports Transit, Harbors, Rail Lines Greater Union Construction Job Growth CA Opposition to Trump & CA Environmental Policies Reduced Construction of Logistics Facilities Lower Construction Job Growth Fed Already Discussing More Rate Rises In 2017 Due to Hot Economy Housing More Expensive Dampen Home Sales & Residential Construction Jobs All Mortgages Rates Act Like Jumbo Rates – Some Increase in Rates Housing More Expensive Still Have Lower Down Payments For Qualifying Homes Dampen Home Sales & Residential Construction Jobs

Residential Prices

Share of Local Population Can Afford the Median SFR Home

Construction Jobs 2011-2016 9.8% of Job Growth Median Pay $52,000

Health Care

Repeal & Replace Affordable Care Act Repeal Without Replacement Could Unsettle Insurance Market Impact of Repeal & Replace Together Depends Upon Conditions Remove Penalty For Not Having Insurance Previous Medical Conditions Use Subsidized High Risk Pool Children Stay on Parents Insurance Until 26 Eliminate Mandated Maternity & Mental Health Coverage End Subsidies & Give Refundable Tax Credits For Coverage If No Employer Coverage End Federal Subsidies for Medicaid, Use State Block Grants Create Multi-State Insurance Markets

Potential Impact On Health Care Demand & Quality of Life 1,800,482 Drop in Uninsured -46.5% Drop in Share Uninsured

Health Care Jobs: Continuous Growth 2011-2016 11.7% of Job Growth Median Pay $60,000

High Paying Sectors Jack Dangermond Ahmad Adel Al-Khatib

BA or Higher

Office Vacancy Rates Recovering But Remain High! Inland Empire 7.6% 22.6% 13.8% Ventura NA NA 13.8% L.A. Co. 9.4% 14.1% 13.4% Central NA NA 11.9% San Diego 10.1% 18.0% 12.4% Orange Co. 7.3% 18.7% 9.7% 2006Q4 2009Q4 2016Q3 Source: CB Richard Ellis

Professionals & Mgmt. , Higher Ed Professionals & Mgmt., Higher Ed., Mining Utilities, Information Group Slowly Adding Jobs 2011-2016 8.9% of Growth Median Pay $75,000

Government

Shrink Government Expand Military Continued Decline in Non-Defense Government Jobs Increase in Civilians & Military Defense Positions Twenty-Nine Palms Marine Corps, San Bernardino Co. Fort Irwin, San Bernardino Co. March Air Reserve Base, Riverside Co. Naval Surface Warfare Center, Corona; China Lake Naval Test Ctr. Edwards Air Force Base, Kern County Naval & Marine Corps Bases, San Diego Naval Base, Oxnard Air Force Missile Base, Los Angeles Skunk Works, Boeing, Other Defense Contractors

Federal, State, Local Government 2011-2016 -0.3% of Job Growth Median Pay $62,000

Change In Corporate Tax Code Hurt Retailers, Who Will Be Taxed on Domestic Sales Not Just Income Reduced Retail Job Growth Already hurt by E-Commerce

Low Paying Job Growth Retail, Consumer & Bus Low Paying Job Growth Retail, Consumer & Bus. Services, Hotel, Eat & Drink Amusement, Agriculture, Employment Agency 2011-2016 44.6% of Job Growth Median Pay $30,000

Summary: Look Ahead Trump Impacts Hit Mostly in 2018 Health Care Strong But Under ACA Repeal Threat Logistics Strong But Under Tariff Threat Manufacturing Encouraging Except For CA Environment Infrastructure Construction Helped By More Spending Except For CA Environment Interest Rates Likely To Rise More Than Anticipated Residential Market Stabilized But Possibly Hurt By Rates Industrial Construction Strong But Under Tariff Threat Office Market Weak Due to E-Commerce & Vacancy Levels Retailers Modest Growth But Under Threat from Tariffs & E-Commerce

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