1. Jon Haveman Founding Principal, Beacon Economics

2. Roots of the Recession Recessions

3. The trend isn’t always your friend… TrendFundamental The Dow rose 47% from Q3 1997 to Q3 2000 Corporate profits fell 10.7% over the same period of time Home prices rose 45% from Q1 2003 to Q1 2006 Household incomes rose 7% over the same period of time

4. 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

5. Q1 Growth: Solid

6. Production on the Rise

7. Leading Indicators

8. Jobs, Jobs, Jobs 03-0808-10Jan to Apr Total1,535-4,1702,236 Manufacturing-229-1,083316 Admin Serv 137-528540 Construction 153-916 -44 Retail 122-577138 Leisure 271-262436 Federal -10 59488 Wholesale 80-238 67 Professional 243-200 6 Financial 61-292 -96 Other 25-103 48 Transport 62-201 -82 Education 62 65120 Information -49-138 -84 Health 369322359 State 21 14 8 Local 139 -23-128

9. Housing Bounce

10. 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)

11. Banker Survey 10Q2

12. California: A widespread hit Jan-10 Decline from peak (%) Bakersfield224,800-5.5 Salinas121,300-5.7 San Diego1,212,700-7.3 Santa Barbara161,200-7.4 San Francisco922,200-7.7 Stockton191,500-8.0 Los Angeles3,761,900-8.2 Ventura270,100-8.3 San Jose841,700-8.5 Modesto143,900-9.6 Oakland945,700-9.6 Santa Ana1,351,500-10.6 Santa Rosa168,000-11.7 Riverside1,102,400-12.2

13. Better news on spending

14. 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.

15. CA Housing Sales to Q1-10

16. Real Estate Markets

17. 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

18. How many underwater? CBSA NameMortgages Negative Equity Share (%) Las Vegas-Paradise NV458,38574.7 Riverside-San Bernardino-Ontario CA870,13454.9 Sacramento CA497,59146.1 Oakland-Fremont-Hayward CA551,12535.0 San Diego-Carlsbad-San Marcos CA598,71732.9 Los Angeles-Long Beach-Glendale CA1,551,80127.0 San Jose-Sunnyvale-Santa Clara CA348,75121.8 Santa Ana-Anaheim-Irvine CA567,21420.0

19. MBA Numbers for California to Q4-09

20. Jobs Reality Check

21. Spending Fumes? 2% Pace

22. 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

23. Credit Markets Cleared?

24. GDP and Unemployment

25. Lots of questions.

26. 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?

27. 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

28. 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!!

29. 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

30. 2009 Nonfarm Employment Distribution: San Mateo

31. Employment Growth to Q3-09

32. Unemployment Unemployment (%,SA)Apr-10Apr-09Apr-08 California12.611.06.4 Bay Area San Mateo9.27.93.9 Napa10.28.34.2 Oakland (MD)11.710.05.1 San Francisco (MD)9.78.44.3 San Jose11.810.65.1 Santa Rosa10.89.24.9 Vallejo12.510.25.8 Other Regions Los Angeles (MD)12.311.26.4 Ventura11.49.55.3

33. Residents Versus Workers: All Workers

34. San Mateo County: Commute Patterns Where do county residents work?Where do county employees live? Source: www.BeaconEcon.com/LEHD Top 5 Counties of Employment, 2008 CountyNumber% of total San Mateo123,83041.1 San Francisco64,00421.2 Santa Clara50,47516.8 Alameda23,0747.7 Los Angeles6,8932.3 Top 5 Counties of Residence, 2008 CountyNumber% of total San Mateo123,83040.4 Alameda39,26612.8 Santa Clara38,98212.7 San Francisco38,91112.7 Contra Costa14,2144.6

35. Industry Employment Growth: High Skilled to Q4-09

36. Industry Employment Growth: Low Skilled to Q4-09

37. 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

38. 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

39. Average Annual Wages and Change, 1998 to 2007 1998 ($)2000 ($) %Change 98-00 2007 ($) %Change 00-07 Total All Industries 45.467.147.872.37.8 Manufacturing 57.7105.482.8116.310.3 Information 67.4123.483.0142.515.5 Prof and Technical Services 72.0105.446.4114.48.6

40. Employment Forecast to Q4-15

41. Industry Growth, Q4-09 to Q4-15 (%) Industry Future Growth Increase over Recent Maximum Information26.013.9 Education and Health Services11.49.0 Professional and Business Services15.76.2 Other Services8.75.9 Nondurables Manufacturing9.42.2 Financial Activities15.2-1.4 Leisure and Hospitality5.3-2.4 Trade, Transportation, and Utilities7.7-3.1 Manufacturing5.7-7.8 Construction25.2-10.0 Durables Manufacturing2.0-16.6 Total11.331.52

42. Occupation Employment Growth, Q3-09 to Q4-15 (%) OccupationWages ($) Future Growth Increase over Recent Peak Health Care Support37.3711.258.14 Production35.697.39-4.07 Personal Care and Services31.337.55-0.32 Building and Grounds Cleaning Maintenance29.9712.354.38 Food Preparation and Serving-Related24.195.76-1.89 Management127.5111.661.08 Legal121.9913.734.07 Computer and Mathematical93.0016.155.24 Health Care Practitioners and Technical91.0111.657.87 Business and Financial Operations89.3613.332.84

43. Residential Market

44. San Mateo County Housing Distress to Q1-10

45. Residential RE Forecast to Q4-15

46. Taxable Sales to Q4-09

47. Taxable Sales Forecast to Q4-15

48. 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

49. 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

50. 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

51.  Economic Forecasting  Regional Intelligence Reports  Business & Market Analysis  Real Estate Market Analysis  Ports & Infrastructure Analysis  Economic Impact Analysis  Public Policy Analysis Analysis. Answers. Jon@BeaconEcon.com 415-457-6006 To view or download this presentation please visit: www.BeaconEcon.com