1. Analysis. Answers. Analysis. Answers Beacon Economics, LLC The Economic Outlook Focus on the State and Nation April 2016

2. Analysis. Answers. Word of the Day Miserabilism Morrissey Louis CK Wall Street The philosophy of pessimism – or – Trying really hard to convince everyone that things are really bad when, in reality, they aren’t.

3. Analysis. Answers. The Wrong Question 3

4. Analysis. Answers. The Right Answer US Economy Still Moving Along – 2015: Better than it looked – Labor markets strong – Forget the turmoil: there is no bubble – Housing still in recovery mode – Credit expanding on many levels – Commodity prices are down – California is leading, not lagging the nation Issues? Sure… – State and Local Budgets still stressed – The drought – Global economy—particularly Asia – Bad Financial Regulations – Local Housing shortage – Pensions / Entitlements – Growing Inequality / Political Gridlock 4

5. Analysis. Answers. 2015: Better that it looks 5 201320142015 GDP1.502.40 Final Demand1.242.532.86 Consumption1.161.842.09 Goods0.710.750.83 Services0.451.091.26 Investment0.700.870.82 Structures0.040.23-0.05 Equipment0.190.340.18 Intellectual property0.150.200.23 Residential0.270.050.28 Change inventories0.060.050.18 Net exports0.20-0.18-0.64 Exports0.380.460.15 Imports-0.18-0.63-0.79 Government-0.58-0.110.13 Federal-0.46-0.18-0.02 State and local-0.120.070.15

6. Analysis. Answers. Consumer Spending 6

7. Analysis. Answers. Employment Growth 7

8. Analysis. Answers. Participation and Unemployment 8

9. Analysis. Answers. Consumer Credit 9

10. Analysis. Answers. Consumer Credit 10

11. Analysis. Answers. Existing Home Sales 11 20142015 OR-Portland7.2%11.8% WA-Seattle6.8%10.8% CA-San Francisco7.8%10.5% CO-Denver8.4%10.2% TX-Dallas8.1%9.2% FL-Tampa5.7%7.4% MI-Detroit3.1%7.2% CA-Los Angeles5.5%6.9% CA-San Diego5.0%6.9% FL-Miami8.3%6.8% AZ-Phoenix2.5%6.1% NV-Las Vegas5.9%6.0% GA-Atlanta4.9%5.7% National-US4.3%5.4% Case-Shiller Regional HPIs

12. Analysis. Answers. Affordability and Construction 12

13. Analysis. Answers. Improved Outlook 13

14. Analysis. Answers. Production 14 2015Mar. '15 Proportionto Mar. '16 Total industry100-2 Energy21.5-9.6 Consumer products3.4-8.6 Oil and gas well drilling0.4-55.4 Primary energy10.8-11.6 Non-energy78.50.2 Selected high-technology2.72.1 Motor vehicles and parts5.95 Consumer goods20.90.3 Business equipment9.7-1.4 Construction supplies5.11.5 Business supplies6.90.7 Materials25.1-0.9

15. Analysis. Answers. Trade 15 ExportsImportsBal. Total-104.4-87.3-17.1 Canada-28.8-45.817 Netherlands-2.8-3.91.1 Belgium-0.6-1.20.6 India0.3-0.10.4 Germany0.20.3-0.1 Taiwan-0.50.1-0.6 Japan-3.5-2.7-0.8 France-1.10.6-1.7 UK2.84.5-1.7 Italy-0.91.7-2.6 Korea, South-0.62.8-3.4 Mexico-3.61.3-4.9 Brazil-10-2.3-7.7 China-5.717.8-23.5 Change in Nominal Goods Trade 2014 to 2015

16. Analysis. Answers. Oil Activity 16

17. Analysis. Answers. Mining and Manufacturing: IP 17

18. Analysis. Answers. California fact versus fiction 18 California Hype:  High taxes, Over regulated  People/business fleeing Reality  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?”

19. Analysis. Answers. Regional Growth 19

20. Analysis. Answers. 2015 Job Growth ( Ch Gr from 14 ) 20 StateCh% Gr Idaho26.44.0%1 Utah44.53.3%2 Oregon55.33.1%3 Tennessee89.33.1%4 Washington96.53.1%5 Florida243.23.0%6 Arizona77.53.0%7 California451.62.8%8 Georgia1162.7%9 Virginia96.52.5%10 Michigan90.82.2%17 Texas170.91.4%29 New York130.31.4%31 Kansas-5.4-0.4%46 North Dakota-22.7-4.9%51

21. Analysis. Answers. What kind? 21 Feb-16ChgGr. Total Nonfarm 16,310.0451.62.8% Health Care 2,157.384.64.1% Accommodation 1,584.564.64.3% Construction 760.753.87.6% Prof Sci Tech 1,228.340.63.4% Retail Trade 1,682.631.51.9% Local Gov 1,721.827.41.6% Admin Support 1,065.222.32.1% Information 499.0224.6% Logistics 561.921.84.0% Feb-16ChgGr. Education 359.418.15.3% Entertainment 301.117.36.1% Wholesale Trade 731.5172.4% Other Services 551.911.42.1% State Gov 514.29.92.0% Real Estate 273.24.71.8% Management 232.43.91.7% Finance 525.43.50.7% Federal Gov 245.52.30.9% Durable Manu 808.20.80.1% Non-Durable Ma 478.4-3.2-0.7%

22. Analysis. Answers. Growing Inequality 22 Top 1% own 40% to 50% of all wealth in the world

23. Analysis. Answers. The Minimum Wage Debate Debacle The Working Poor Problem – Great Recession, tax policies, technological change – California is worse because of housing, immigration The reality: minimum wages don’t help – Only $1 out of $4 in increased payroll costs go to needy households – Small employment effects but mainly hit most at risk workers – Increase in costs hits those on fixed incomes There are better ways to handle – Modest state level rules with explicit exemptions / regional variances – Better yet- EITC, Pre-K, housing supports—but these cost money Median Rent Paid Median Full- Time Hourly Earnings Santa Clara$1,787$34.40 San Francisco$1,587$34.10 San Mateo$1,793$29.70 Contra Costa$1,443$29.50 Alameda$1,391$27.30 Orange$1,572$23.60 San Diego$1,373$23.30 Sonoma$1,374$23.20 Sacramento$1,017$20.10 Los Angeles$1,239$19.00 San Bernardino$1,125$18.90 Riverside$1,196$18.60 Santa Barbara$1,395$18.40 Kern$870$17.20 Monterey$1,233$15.60 Fresno$891$15.60 Tulare$829$15.10

24. Analysis. Answers. What? Where? 24 Feb-16Ch#Un RtCh California 16,3102.8% 451.65.5%-1.2% San Francisco 1,0764.0% 41.43.1%-0.6% Santa Cruz 1003.8% 3.77.1%-0.9% Stockton 2233.8% 8.18.1%-1.2% Salinas 1353.7% 4.87.7%-0.8% San Jose 1,0633.6% 37.43.8%-0.7% Vallejo 1353.4% 4.45.4%-1.1% Inland Empire 1,3703.3% 44.15.8%-1.2% Modesto 1693.2% 5.28.6%-1.4% Visalia 1203.0% 3.510.9%-1.1% Sacramento 9292.8% 25.35.2%-1.0% Feb-16Ch#Un RtCh San Diego 1,4072.8% 37.84.6%-0.9% SLO 1162.7% 3.14.2%-0.7% Fresno 3282.7% 8.69.4%-1.2% East Bay 1,1112.7% 29.04.3%-0.8% Santa Rosa 2002.7% 5.24.0%-0.8% Orange Cnty 1,5652.7% 40.64.0%-0.8% Los Angeles 4,3382.4% 100.45.6%-2.2% Santa Barbara 1832.3% 4.15.0%-0.5% Chico 781.8% 1.46.7%-0.8% Bakersfield 2611.2% 3.09.8%-0.3% Ventura 2971.0% 3.05.1%-0.8%

25. Analysis. Answers. L.A. County Industries 25 IndustryFeb-16(000s)YoY Chg (%) Total Nonfarm 4,338.1 2.4 Total Private 3,767.7 2.5 Construction 129.1 4.9 Education/Health 767.5 4.8 Information 211.4 4.4 Leisure and Hospitality 499.5 4.0 Real Estate 81.6 3.6 Transport,Warehouse,Util. 171.8 3.6 Prof Sci and Tech 283.5 3.5 NR/Mining 3.7 2.9 Management 59.8 2.6 Retail Trade 426.3 1.7 Other Services 152.8 1.4 Government 570.4 1.3 Finance and Insurance 135.1 0.7 Admin Support 265.5 0.7 Wholesale Trade 226.1 0.3 Farm 4.9-0.5 Manufacturing 354.2-2.4

26. Analysis. Answers. State Output: Q3 14 to Q3 15 USCADiff All industry total2.0%3.5%1.4% Agriculture11.1%25.5%14.5% Professional4.6%9.0%4.4% Construction6.0%9.9%3.9% Wholesale0.9%4.0%3.1% Management3.7%6.5%2.8% Accommodation1.2%3.5%2.3% Information6.6%8.8%2.3% Administrative4.3%5.9%1.7% Real estate1.5%2.7%1.2% Retail trade3.9%5.1%1.2% Health care3.6%4.4%0.8% Transportation-2.3%-1.7%0.6% Other services0.3%0.1%-0.2% Government-0.2%-0.7%-0.5% Durable goods0.0%-0.6% Finance-1.1%-2.7%-1.6% Nondurable goods3.0%0.0%-3.1%

27. Analysis. Answers. Public Sector 27

28. Analysis. Answers. Income tax driving the show 28

29. Analysis. Answers. Ag and the Drought 29

30. Analysis. Answers. Looking Closer 30 Value ($000)Share Acres (000) Total$53,492,081 Hay$1,737,0243.2%1,375 Output (Tons) Hay Grown 7,388,000 Hay Exported 1,939,6680.9% Water Used (000 Acre Feet) Total Ag40,000 Total Hay 6,87517.2% Total Export 1,8054.5%

31. Analysis. Answers. 31 Homes and Workers

32. Analysis. Answers. Los Angeles County Real Estate 32

33. Analysis. Answers. Bubble? No… 33 % Over Crowded% Vacant Hawaii8.6%Utah5.1% California8.2%Minnesota5.2% Alaska6.5%California5.3% New York5.0%Vermont5.4% Texas4.8%Colorado5.5% Arizona4.5%Massachusetts5.6% Nevada4.2%New Hampshire5.6% New Mexico3.6%Wisconsin5.8% District of Columbia3.3%Oregon6.0% Utah3.3%Washington6.4% Oregon3.3%Idaho6.4% Washington3.1%Delaware6.9% Florida3.0%Maine7.0%

34. Analysis. Answers. Why the Shortage? 34 Under $25,000-192,061 $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 08-13 Texas Under $25,000-40070 $25,000 to $50,000-23741 $50,000 to $99,999-3433 Over $100,000599

35. Analysis. Answers. Pace of Construction 35 California4.1Tulare4.0 Ventura6.8Los Angeles4.0 Contra Costa6.6Fresno4.0 Sonoma6.1San Mateo3.4 Alameda5.9Kern3.0 Santa Barbara5.3Santa Clara3.0 San Bernardino5.0Orange2.8 Solano4.6Placer2.1 Riverside4.5San Francisco2.1 San Diego4.2Sacramento0.7 New Pop / Permits

36. Analysis. Answers. 36 Economic & Revenue Forecasting Regional Intelligence Reports Business & Market Analysis Real Estate Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis  To view or download this presentation or for further information, visit : www.BeaconEcon.com www.BeaconEcon.com  Contact Christopher Thornberg Chris@BeaconEcon.com 310-571-3399 Chris@BeaconEcon.com Our Services