30th Annual Visitors Industry Outlook Conference ECONOMIC OUTLOOK October 25, 2018

Outline US Economy State Economy So Cal Economy Visitors Industry –Background Trends Conclusion

Outlook Highlights Overall: US, CA, Southern California Slower, constrained growth, full employment Underperforming housing market National Economy Tax Cuts/Budget Deficit-mixed effects Financial Markets – affected by Fiscal and Monetary Policy State and Local Economy Among leading states for growth, So Cal among CA’s leading regions

US Economy

Contributions to Change in GDP 10/25/18 GDP 2017: 2.2% | 2018: 3.1% | 2019: 2.6 to 3.0% Contributions to Change in GDP Sector 2016 2017 2018.H1 Consumer 1.9 1.7 Investment -0.2 0.8 0.9 Net exports -0.3 Government 0.2 -0.01 Total GDP % Chg. 1.6 2.2 2.7* Chart – updated 9.27.18 rak Table – Updated 9.27.18 rak Source: GDP Chart: BEA Table 1.1.6 Annual; Table: BEA Table 1.1.2 (Annual Contributions to GDP) * Does not add up due to rounding Source: BEA

Real Disposable Personal Income Growth 10/25/18 Real Disposable Personal Income Growth RAK 9/27/18 Source: BEA

Lower Saving Rate, Houshold Leverage Good, No Debt Overhang… 10/25/18 Lower Saving Rate, Houshold Leverage Good, No Debt Overhang… Rak 9/27/18 LEFT: FRED/Personal Saving Rate (PSAVERT) RIGHT: FRED/Debt Serice as % of DPI (TDSP) Source: Federal Reserve Board of St. Louis

U.S. Outlook 2019 GDP: ~+2.5 to +3% Labor Market: U-rate under 4% = full-employment Modest slowdown in job growth Inflation: rising but not a threat Interest Rates: rising for the “right” reasons Worries: Trade policy and uncertainty Budget deficit

California

CA & US at Full Employment 10/25/18 CA & US at Full Employment *UPDATED http://www.bls.gov/news.release/empsit.nr0.htm Updated 10/21/2018 rak Updated 7/10/2018 – RN (U3 Unemployment)- CA up to May 2018 (data is lagged). (National has June 2018 numbers, but May number (3.8% displayed) to match CA may number) Source: California Employment Development Department

YTY % Change Jobs by State (Aug-18) 10/25/18 YTY % Change Jobs by State (Aug-18) 09/25/2018 Source: https://data.bls.gov/map/MapToolServlet?survey=la&map=state&seasonal=s California 11th fastest growth rate among states at 2.1% TX 3.2 FL 2.6 NY 0.9 IL 0.8 Source: Bureau of Labor Statistics

CA Outlook 2019 Gross State Product: Labor Market: Worries: World’s 5th largest economy Labor Market: U-rate record low = full-employment Modest slowdown in job growth Outsized contribution to U.S. job growth Worries: Housing costs Budget crisis in next downturn

Southern California Economy

Unemployment Rates 10/25/18 Update the most recent month for SB County Source: California EDD

Job Gains Across So Cal Metro Area YTY LA County 64,400 Riverside-San Bernardino-Ontario MSA 51,100 San Jose-Sunnyvale-Santa Clara MSA 42,000 San Diego-Carlsbad MSA 23,900 San Francisco Metro Div 23,200 Oakland-Hayward-Berkeley Metro Div 21,300 Sacramento—Roseville MSA 16,300 Anaheim-Santa Ana-Irvine Metro Div 13,100 Fresno MSA 10,600 Stockton-Lodi MSA 7,100 Bakersfield MSA 6,700 Santa Rosa MSA 5,500 Source: EDD, Compiled by UCR

Industry Job Changes, Aug. 2018 (YTY % Chg.) 10/25/18 Industry Job Changes, Aug. 2018 (YTY % Chg.) Source: EDD

Industry Job Changes, Aug. 2018 (YTY % Chg.) 10/25/18 Industry Job Changes, Aug. 2018 (YTY % Chg.) Source: EDD

San Bernardino County Median Earnings (25+ Yrs) 10/25/18 Worker Incomes Rising San Bernardino County Median Earnings (25+ Yrs)   2012 2017 % Change All Workers 25+ Yrs $32,050 $36,684 14.5% Less than high school $20,457 $23,642 15.6% High School diploma $28,298 $30,663 8.4% Some college $35,145 $36,977 5.2% BA $49,528 $53,264 7.5% Graduate degree $68,281 $75,241 10.2% 2012 and 2017 with five year change from the ACS Source: ACS

So Cal Home Prices & Sales 10/25/18 So Cal Home Prices & Sales County Q2-17 Q2-18 YTY % Change Price YTY % Change Sales Los Angeles $574,500 $623,800 8.6% -4.6% Orange $735,400 $774,700 5.3% -5.9% Riverside $353,900 $374,600 5.9% -6.2% San Bernardino $288,800 $309,700 7.2% -5.1% San Diego $573,700 $607,100 5.8% -8.0% Ventura $605,200 $636,400 5.2% -9.6% RIV CO ~8% SHORT OF PEAK Source: DataQuick

Apartments Location Q2-18 YoY Change Bakersfield $980 2.4% 10/25/18 Apartments Location Q2-18 YoY Change Bakersfield $980 2.4% Inland Empire $1,334 2.8% Los Angeles (MD) $1,940 4.6% Orange County (MD) $1,939 5.7% San Diego $1,766 3.6% Ventura $1,736 2.1% REIS Quarterly Data Needed for LA County Source: REIS

Population Forecast…More Older CA Residents CA Age Forecasts Age 2010 2015 2020 2025 2030 2035 0-19 26.4% 25.2% 24.2% 23.2% 22.0% 21.0% 19-24 9.0% 9.3% 8.7% 8.4% 25-64 53.1% 52.1% 51.1% 49.8% 48.7% 48.3% 65+ 11.5% 13.4% 15.8% 18.3% 20.6% 22.3% Total 100.0% Source: DOF, Compiled by UCR

Visitor Industry – Background Trends

So Cal Leisure & Hospitality Employment 10/25/18 So Cal Leisure & Hospitality Employment Source: EDD, Beacon Economics

Hospitality-Leading Traded Industry Cluster

Local Hospitality–Traded Cluster Synergies

Job Opening Rates by Industry, US (Sept.’18) 10/25/18 Job Opening Rates by Industry, US (Sept.’18) Source: Bureau of Labor Statistics

Conclusion

Conclusion US & CA: growth steady, full-employment Must monitor trade, monetary policy Leading Industries: health care, construction, leisure and hospitality, logistics Real Estate: MORE SUPPLY needed Record-long expansion in sight for 2019

Thank You! robert@beaconecon.com (310) 571-3399 10/25/18 Thank You! robert@beaconecon.com (310) 571-3399 Beacon Economics, LLC 5777 W. Century Blvd. Suite 895 Los Angeles, CA 90045