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2016-2017

ECONOMIC FORECAST & INDUSTRY OUTLOOK LAEDC KYSER CENTER FOR ECONOMIC RESEARCH

10th Annual International Trade Outlook S P O N S O R E D B Y:

EVENT SPONSORS

MEDIA SPONSORS EVENT SPONSORS

ECONOMIC FORECAST AND

INDUSTRY OUTLOOK California and Southern California Including the National and International Setting

February 2016

Los Angeles County Economic Development Corporation The Kyser Center for Economic Research th 444 S. Flower St., 37 Floor, Los Angeles, CA 90071 Tel: 213-622-4300 | 888-4-LAEDC-1 | Fax: 213-622-7100 Web: http://laedc.org | E-mail: [email protected]

As Southern California’s premier economic development leadership organization, the Los Angeles County Economic Development Corporation (LAEDC) is focused on raising the standards of living for the residents of L.A. County by increasing economic opportunity and regional prosperity. We achieve this through objective economic research and analysis, strategic assistance to government and business, and targeted public policy. Our efforts are guided and supported by the expertise and counsel of our business, government and education members and partners. Strategic Planning LAEDC has again facilitated a collaborative, public consensus process to develop a regional blueprint for progress on regional economic priorities, resulting in the 2016-2020 L.A. County Strategic Plan for Economic Development, which will guide collective action throughout the region. Drawing Strength from Regional Leaders The membership of the LAEDC includes civic leaders and ranking executives of the region’s leading public and private organizations. Through financial support and direct participation in the mission, programs and public policy initiatives of the LAEDC, the members are committed to playing a decisive role in shaping the region’s economic future. Business Assistance and Job Creation The LAEDC’s Business Development and Assistance Program provides essential services to L.A. County businesses at no cost, including coordinating site searches, securing incentives and permits, and identifying traditional and nontraditional financing. Since 1996, the LAEDC has directly helped retain or attract more than 200,000 jobs. Economic Information and Analysis Through our objective economic research and analysis, the LAEDC provides valuable insight to business decision makers, education, media and government. The LAEDC Kyser Center for Economic Research publishes a variety of industry focused and regional analysis, including our Economic Forecast report, which has been ranked No. 1 by the Wall Street Journal. The LAEDC Institute for Applied Economics offers highly regarded economic and policy expertise to private- and public-sector clients, and produces regional industry cluster analyses, related workforce studies and occupational forecasts, as well as feebased studies that help clients understand economic impact of policy options, industries, or projects. Representing Southern California at the State Level The LAEDC partners with the Southern California Leadership Council, to help enable public sector officials, policy makers and other civic leaders to address and solve public policy issues critical to the entire Southern California region’s economic vitality and quality of life. Global Connections Our World Trade Center Los Angeles works to support the development of international trade and business opportunities for Southern California companies, by fostering exports, finding international market opportunities, and promoting the Los Angeles region as a prime destination for foreign investment. The LAEDC is a public-benefit, private, non-profit 501(c)3 organization established in 1981.

©2016 Los Angeles County Economic Development Corporation th 444 S. Flower Street, 37 Floor., Los Angeles 90071 T: (213) 622-4300 | F: (213) 622-7100 | www.laedc.org

On behalf of our dedicated members and talented staff, we are pleased to present the LAEDC 20162017 Economic Forecast and Industry Outlook, with a special focus on the future of mobility and the ways we will be moving people and goods through the Los Angeles region in the years to come. The LAEDC Economic Forecast is Southern California’s premier source for in-depth economic information and analysis on our global, national, state and regional economies, produced by the LAEDC Kyser Center for Economic Research, led by its Chief Economist, Dr. Robert Kleinhenz. Dr. Kleinhenz is joined at the event this year by Brogan BamBrogan, CTO & Co-founder, Hyperloop Technologies, Inc., Wilhelm Cashen, Chairman, UAV Systems Association, Jim Cooper, Entrepreneur in Residence, PortTech Los Angeles, Keith Kaplan, CEO & Co-Founder, Tesla Foundation Group, Nick Sampson, SVP, R&D and Product Development, Faraday Future, Joshua L. Schank, Chief Innovation Officer, Los Angeles County Metropolitan Transportation Authority (LA Metro), Michael Shabun, Marketing Manager, DJI, and Rodney E. Slater, Partner, Squire Patton Boggs and former U.S. Secretary of Transportation. These guest experts provide an insider’s look at what lies ahead for our region in the areas of autonomous vehicles, commercial drones, high-speed commuting, goods movement, and the impact of such innovation on our cities. Repeating his role as Master of Ceremonies, is Frank Mottek, the voice of business news in Los Angeles, and the host of the top-rated KNX NEWSRADIO Money Hour. This event has been made possible by our generous sponsors, Squire Patton Boggs, CDS Insurance

Services, and Southern California Association of Governments (SCAG). Our media sponsor is KNX NEWSRADIO 1070. Our sincere thanks go to them. Thank you for your continued support of the LAEDC and our work to attract, retain, and grow businesses and jobs for the residents of Los Angeles County. This work has directly led to more than 200,000 good jobs for L.A. County. The beneficial impacts these jobs have on the health and well-being of families and communities of our region is a great reminder of the true value of economic development. We also want to thank the hundreds stakeholders from all across our region who helped develop the new 2016-2020 L.A. County Strategic Plan for Economic Development, a blueprint for a strong economy and more widely shared prosperity for L.A. County's residents. To learn more about the plan and how you can get involved in its implementation, please visit www.LACountyStrategicPlan.com Sincerely, Bill Allen, President and CEO LAEDC

Praful Kulkarni, President, gkkWorks Chairman LAEDC

PREPARED AND RESEARCHED BY:

Robert A. Kleinhenz Ph.D. Chief Economist Kimberly Ritter-Martinez Economist Bengte Evenson Ph.D. Economist George Entis Research Analyst

About the Kyser Center for Economic Research The Kyser Center for Economic Research was named in November 2007 in honor of the LAEDC’s first Chief Economist, Jack Kyser. The Kyser Center’s economic research encompasses the Southern California region, which includes the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura. The center also tracks developments and produces forecasts, studies and reports on the California, national and international economies. The economy of the greater Los Angeles region is driven by more than its famed entertainment industry. The region’s broad economic base also includes aerospace, automotive, biotechnology, fashion, manufacturing and international trade. The Kyser Center conducts research on the individual industries of the region to gain a better understanding of ongoing changes in the economy. The Kyser Center is highly regarded for its accurate and unbiased assessment of the economy. Kyser Center economists are also sought-after public speakers and frequent contributors to media coverage of the economy. At the heart of the Kyser Center is its mission to provide information, insights and perspectives to help business leaders, government officials and the general public understand and take advantage of emerging trends.

TABLE OF CONTENTS

2016-2017 Forecast at a Glance..................................................................................... 1 The U.S. Economy .......................................................................................................... 2 The International Economy ............................................................................................. 9 Foreign Exchange Rates ........................................................................................................... 17

The California Economy................................................................................................ 19 Gross Product Comparisons ..................................................................................................... 25

Los Angeles County...................................................................................................... 34 Orange County.............................................................................................................. 40 Riverside and San Bernardino Counties........................................................................ 46 San Diego County......................................................................................................... 53 Ventura County ............................................................................................................. 59 Major Industries of the Southern California Economy.................................................... 64 Aerospace and Defense ............................................................................................................ 64 Apparel Design and Manufacturing ........................................................................................... 66 Computer and Electronic Product Manufacturing ..................................................................... 68 Professional and Business Services ........................................................................................ 68 Financial Services ..................................................................................................................... 69 Health Care Services and Biomedical ...................................................................................... 69 International Trade/Goods Movement ...................................................................................... 70 Motion Picture and Video Production ........................................................................................ 72 Real Estate and Construction ................................................................................................... 73 Retail Trade ............................................................................................................................... 86 Travel and Tourism ................................................................................................................... 87

Index of Statistical Tables ............................................................................................. 92

2016-2017 Forecast at a Glance

2016-2017 FORECAST AT A GLANCE The U.S. Economy     

Economic and job growth continue at a moderate pace Consumer sector maintains momentum with business investment holding steady Service sector adds jobs, while manufacturing performance is mixed Low oil prices help the overall economy more than they hurt Risks: weak global growth; Fed’s move to normalize key policy rates

2014

2015

2016F

2017F

Real GDP (% Change)

2.4

2.4

2.5

2.5

Nonfarm Jobs (% Change)

1.9

2.1

1.7

1.4

Unemployment Rate

6.2

5.3

4.9

4.7

Consumer Price Index (% Change)

1.6

0.1

2.0

2.4

The California Economy   

Most industries see job gains, unemployment rate improves gradually Housing and construction up; strongest employment gains in health services; professional, scientific and technical services; administrative and support services; and leisure and hospitality Public sector employment achieving moderate gains; improved fiscal outlook; ongoing water issues

2014

2015

2016F

2017F

Unemployment Rate

7.5

6.2

5.5

5.3

Nonfarm Jobs (% Change)

3.0

3.0

2.5

1.6

Population Growth (% Change)

0.9

0.9

0.9

0.9

The Southern California Economy   

Employment gains at slower pace, continued improvement in local unemployment rates Leading industries: health care and social assistance: professional and business services; retail trade; and leisure and hospitality Lagging industries: natural resources, finance and insurance, and other services

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy

THE U.S. ECONOMY The first quarter has been a treacherous one in recent years, marked by natural disasters (East Coast snowstorm), government machinations (sequestration budget cuts) and sovereign debt crises. This year is no different: the U.S. has been attacked by an economic Hydra in the form of plunging oil prices, central bank uncertainty and volatility in China. Let’s begin with China. This is a story with two parts. First, the country is transitioning from an industrializing, export-oriented economic system to one that will be driven more by internal forces such as the consumer sector. Second, China’s financial markets are evolving and experiencing growing pains to say the least. How will these developments affect the U.S. this year? Exports are the most direct link between the U.S. and China, but U.S. exports to China equate to less than one percent of U.S. GDP. As such, China’s economic transition will have little effect on the performance of the U.S. economy in the near term. Financial market linkages, however, pose a greater risk. China’s financial markets may be small, but their growing pains can cause “referred pain” around the globe, and, given the extensive integration of global markets, can increase volatility in U.S. financial markets. In turn, uncertainty in financial markets can have an adverse effect on consumer and business confidence. Meanwhile, who would have thought ten years ago that the world would be awash in oil? The U.S. has seen oil production increase in recent years, Saudi Arabia is flooding the market with its supplies, and other oil producers are scrambling to maintain their revenue stream in the midst of plunging oil prices. Low oil prices are good for consumers and most businesses in the U.S., but the global glut in oil is just one symptom of weak demand in the global economy. Finally, central banks, and the Federal Reserve in particular, continue to play a central role in economic policy. With the U.S. economy at full employment, the Fed would like to raise rates and prepare itself for the next battle. But central banks in Europe, Japan and elsewhere around the globe are dealing with fragile economies, which rate hikes will further weaken. In the midst of all this, the U.S. economy keeps chugging along, with a 2.4% GDP growth rate last year that matched that of 2014. Two percent growth is not stellar, but it has been steady, and the tightening labor market should prompt long-awaited increases in the wages of many workers. Modest growth of 2.5% is expected this year and next, partly because of the momentum inherent in the consumer sector, the economy’s flywheel, but also because of improving numbers in housing. It also helps that the U.S. economy is relatively isolated from the rest of the world.

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy

KEY SECTORS Consumers: The consumer sector represents nearly seventy percent of the U.S. economy. Its size and its acceleration helped the U.S. economy turn in a respectable performance last year. With the consumer sector accounting for 2.1% of the economy’s 2.4% growth rate, increases in consumer spending accounted for nearly all of the economic growth in the U.S. in 2015. Advancing by 3.1% last year, consumer spending grew at the fastest pace in ten years. While spending was led by a 6.0% increase in purchases of durable goods, slowergrowing segments (services were up by 2.8% and nondurable goods rose by 2.7%) accounted for most of the absolute increase in consumer spending. Vehicle purchases made up a large part of household durable goods purchases. In fact, with 17.8 million vehicles sold, 2015 matched the record that was set in 2000. Improvement in the housing market and general gains in household income led to a sizable increase in spending on home furnishings, appliances and the like. With declining oil and energy prices, households spent less on fuel and energy, and instead increased both their savings and their purchases of other goods and services. With growing confidence in their financial situation, households have been more willing to use credit. Credit card balances rose by 5.0% in the third quarter of 2015 compared with the same period a year earlier, but are still nearly 20% below their peak prior to the recession. Record-tying vehicle sales triggered an 11.9% year-to-year increase in auto 1 loans, while student loan balances rose by 6.8% year-to-year. Overall, total household debt is still 4.8% lower than the peak of the third quarter of 2008. This may be due to greater caution on the part of households with respect to using credit, but it is also related to homeownership, which stood at 63.7% in the third quarter of last year, considerably below the 69.2% peak that was achieved in early 2005. In fact, mortgage debt in the third quarter of last year still lagged behind its peak (third quarter of 2008) by 11.1%. Assuming the housing market improves over this year and next, homeownership and mortgage debt will increase together, pushing total household debt to a new high. Increased household wealth has also supported higher levels of spending. Household net worth surpassed the prerecession peak three years ago in response to higher returns in the financial markets and improving property values. Homeowner’s equity increased by 11.6% year-to-year in the third quarter of 2015, continuing a string of double-digit gains that began in mid-2012. Homeowner’s equity was still 7% below peak in the third quarter of last year, but the gap has closed steadily. If anticipated gains in housing are realized this year and next, the gap will ultimately be closed. Continued gains in the labor market and the higher incomes that are associated with those gains will sustain somewhat higher levels of consumer spending this year and next. Increases in expenditures of both goods and services can be expected. Moreover, consumer spending on appliances and furnishings and other items for the home should be pulled forward by the housing market. As mentioned elsewhere, several forces will

1

Quarterly Report on Household Debt and Credit, Federal Reserve Bank of New York, November 2015

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy support increased demand for housing: more Millennials coming of age and forming households, stronger incomes supporting increased capacity to buy or rent, and heighted urgency to buy in anticipation of higher mortgage rates. In recent years, these trends have been met by sluggish increases in supply. Inventories of existing homes are lean, and while new home building has been rising at a respectable rate (about 10% annually), new construction has consistently fallen below expectations. For a more detailed discussion of the region’s real estate and construction sector, see the Real Estate and Construction section of this report. Businesses: Investment spending accounts for one-sixth of GDP and has made regular contributions to the current economic expansion, increasing by 5.0% in 2015 despite weakness in the energy sector. Nonresidential fixed investment spending (business investment spending except for residential construction and inventory changes) increased by 2.9% last year. Increased spending on equipment and intellectual property more than offset a decline in spending on structures due to a pullback in the energy sector. It is worth noting that investment spending is notoriously volatile, increasing by an impressive 9.0% in 2012, followed by a subdued 3.0% gain in 2013, which doubled to a 6.2% increase in 2014. Other components of investment spending include residential construction and changes in inventories. Residential investment spending (construction) advanced at an 8.6% rate last year, which is roughly in line with the performance of other housing-related indicators. Residential construction has been on the rise in recent years, but remains somewhat tentative. As for changes in inventory, weakness in final demand last year, both in the U.S. and abroad, resulted in increases in inventories across many of the economy’s key industries, including agriculture, construction, mining and utilities, and the retail sector. Elevated inventories will have to be drawn down in 2016, which will likely take the edge off of growth rates in the first half of the year. With the overall economy is expected to maintain its trajectory over the next two years, investment spending is expected to grow more slowly (just under four percent) this year, mainly because of inventory corrections and continued weakness in energy. However, investment spending should accelerate to a growth rate between six and seven percent in 2017. Looking at the major categories of investment spending, business fixed investment should grow by five percent this year and next, with increased spending anticipated in equipment, intellectual property and structures. Residential investment spending should see sustained growth of approximately ten percent this year and next, while inventory changes will register wide swings, first offsetting the 2015 buildup with a sharp dip in 2016, then rising modestly in 2017. Government: After four consecutive years of decline, government purchases saw a slight gain (0.8%) in 2015. This occurred despite a 0.4% cut in federal government expenditures because increased spending at the state and local level more than offset another decrease in federal spending. State and local finances have generally improved in recent years, resulting in a 1.5% increase in expenditures last year. Even so, state and local outlays were 7% lower in inflation-adjusted terms when compared with the 2009 peak. State and local spending will accelerate somewhat this year growing by 1.5%, with a 1.2% gain expected next year. Federal spending will be a mixed bag, up this year with next year less certain. Overall, total government expenditures are expected to rise by 2.3% this year, downshifting to a 0.4% increase in 2017. LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy Trade: The headline in recent months may have been China, but the main themes in the story on U.S. trade have been the value of the dollar and the health (or lack thereof) of our trading partners. With a stronger economy and anticipated increases in interest rates, the U.S. Dollar appreciated nearly 13% against a basket of foreign currencies last year. When coupled with the fact that many of our trading partners are facing weak conditions at home, it should be no surprise that U.S. exports of goods (adjusted for inflation) fell last year. However, the decline in exports of goods was just 0.2%, and the exports of both goods and services actually rose by 1.1% last year. (Locally, the situation was more dire, with exports of containers from the twin San Pedro ports falling by 10.0% in 2015). Meanwhile, imports rose by 5.0% last year in response to strength of the U.S. economy. All in all, the trade picture is not all that bad. As for China and its likely impact on the U.S. economy, one should note that U.S. exports to China equate to less than one percent of GDP. As such, volatility in China’s economy should have a muted effect in the U.S. Over the next two years, exports are expected to increase modestly (just over two percent), while imports should stay on track with last year’s growth rate. With imports exceeding exports by about thirty percent, net trade will make a net negative contribution to growth in the U.S. economy. However, it bears mentioning that strong imports (rather than weak exports) drive the negative contribution and are the result of strength in the domestic economy. Labor: The labor market hit key milestones in 2015. First, the headline unemployment rate fell to 5.1% in August, which is equivalent to the economy’s long-run natural rate as gauged by the Congressional Budget office. Second, nonfarm jobs are on track to increase at a rate of 2.1% this year, which would be the fastest growth rate in the past 15 years. Inflation: Despite the Federal Reserve Bank’s hopes for inflation approaching two percent, prices showed little movement in 2015, with the consumer price index rising by a scant 0.1%. The biggest sources of inflation in recent years have been increases in consumer and commodities prices, but weak global demand has kept a lid on those prices. Together with the price of oil, which has been dancing around the $30 mark as of this writing, there is little to ignite inflation. However, tightening labor markets should trigger wage increases over this year and next, resulting in inflation hitting 2.0% this year and 2.4% in 2017.

ECONOMIC POLICY Fiscal Policy: Fiscal policy has been on automatic pilot in recent years. Although federal government expenditures have exerted a net drag on the economy over the last few years, an uptick in spending is expected this year and next. Meanwhile, there is not much chance that any changes in taxation policy will be forthcoming. Thus, despite 2016 being an election year, fiscal policy will have little effect on the direction and overall performance of the economy this year and next. Monetary Policy: All eyes have been on the Federal Reserve Bank (the Fed) for some time now. With little happening in the fiscal policy arena, the Fed has been left to singlehandedly pursue its dual mandate of achieving full employment in the labor market while maintaining price stability. Full employment was reached in recent months and prices are stable, but the rate of inflation is well below the Fed’s two percent target. Even so, the LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy Fed’s current task-at-hand is to normalize the federal funds rate which has effectively been at zero since late in 2008. That is, it would like to move the federal funds rate to a neutral position of 2.5 to 3% to be ready for future contingencies. In theory, a set of welltimed increases should get the Fed to that neutral position sometime in 2017 or 2018. But increases in U.S rates can wreak havoc on economies around the globe: Europe, Japan, China, and emerging economies. With that in mind, the Fed must balance the need to move forward with rate hikes against the damage such a move may inflict on other countries.

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy

Table 1: U.S. Economic Indicators Annual % change except where noted Real GDP Nonfarm Employment Unemployment Rate (%) Consumer Price Index Federal Budget Balance (FY, $billions)

2009 -2.8 -4.3 9.3 -0.4 -1413

2010 2.5 -0.7 9.6 1.6 -1294

2011 1.6 1.2 8.9 3.2 -1300

2012 2.3 1.7 8.1 2.1 -1087

2013 2.2 1.7 7.4 1.5 -680

2014 2.4 1.9 6.2 1.6 -$485

2010 0.18 3.22 4.69

2011 0.10 2.78 4.45

2012 0.14 1.80 3.66

2013 0.11 2.35 3.98

2014 0.10 2.50 4.20

2015 2.4 2.1 5.3 0.1 -$426

2016f 2.5 1.7 4.9 2.0 -$414

2017f 2.5 1.4 4.7 2.4 -$454

2016f 0.90 2.60 4.30

2017f 1.90 2.80 4.60

Sources: BEA, BLS and CBO; forecasts b y LAEDC

Table 2: U.S. Interest Rates Annual Average, % Fed Funds Rate 10-Yr Treasury Note 30-Year Fixed Mortgage

2009 0.16 3.26 5.04

2015 0.10 2.10 3.90

Sources: Federal Reserve Board; forecasts by LAEDC

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The U.S. Economy

U.S. Economic Snapshot

U.S. Labor Market

U.S. Economic Growth

% Change 5

Annual % Change

12.0% Change in Nonfarm Employment

4 3.3

Unemployment Rate 10.0%

3 2.7

2.5 1.8

2.3 1.6

2.2

2.4

2.4

2.5

2.5

2

8.0%

1 0

6.0%

-1 -0.3

4.0%

-2 -3

2.0%

-4

-2.8

-5

0.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f Sources: Bureau of Labor Statistics, forecasts by LAEDC

Sources: Bureau of Economic Analysis, forecasts by LAEDC

U.S. Personal Consumption

U.S. Consumer Inflation 4.5

Year-Year % Change in CPI-U

Annual % Change

4

4.0 3.5

3

3.0

2

2.5 2.0

1

1.5 1.0

0

0.5 0.0

-1

-0.5 -1.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

-2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Bureau of Labor Statistics; forecasts by LAEDC

Source: Bureau of Economic Analysis

Crude Oil Prices 2007-Present

Federal Budget Receipts & Outlays as Percentage of GDP Receipts

150

Dollars/barrel West TX Intermediate

Outlays

125

26 24

100

22 75

20 18

50

16 25

14 12

LAEDC Kyser Center for Economic Research

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

2017f

2016f

2015f

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

Source: Office of Management & Budget

Jan-05

0

10

Source: US Energy Information Administration

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Economic Forecast, February 2016

The International Economy

THE INTERNATIONAL ECONOMY Southern California’s ties to the international economy, and especially China, continued th to strengthen in 2015. With the nation’s dominant customs district and the world’s 16 largest economy, Southern California continues to be a principal gateway for international business activity, a leading destination for foreign direct investment (FDI), and a popular destination location, with 2015 seeing particularly strong growth in Chinese tourism.

CURRENT CONTEXT Although expectations for global growth were revised downward in January, the IMF World Economic Outlook anticipates a partial global uptick in growth over the course of this year and next. In advanced economies, growth rates are expected to continue along their trend of the last few years: modest but increasing. Emerging market and developing economies saw declining growth for a fifth consecutive year in 2015, but growth is expected to improve in both 2016 and 2017 despite continued adverse external conditions such as the rebalancing of the Chinese economy, weak global demand, depressed commodity prices, tightening of U.S. monetary policy, and constraints on the application of monetary and fiscal stimulus.

The downward revisions to expected global GDP growth are based on weak global demand resulting in weak global trade. “Robust trade and global growth go hand in 2 hand,” says OECD chief economist Catherine Mann. This weakness can be traced back to China’s slowdown as it moves to consumption-led growth. China’s slower growth has resulted in lower demand for commodities, leading to a decline in global commodity prices. Many global forecasts are based on the assumption that prices will stabilize and rebound somewhat in 2016, with the effects of low commodity prices fading into 2017. Assuming interest-rate and currency-value adjustments do not create unforeseen shocks, GDP growth is then expected to ease back up toward 3.5%. Two cautions, however. First, the current economic environment is fraught with risk, especially for emerging market and developing economies. Second, these generalized numbers mask considerable diversity in growth rates across countries, with expectations being similarly uneven.

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“The projected pickup in growth in the next two years—despite the ongoing slowdown in China—primarily reflects forecasts of a gradual improvement of growth rates in countries currently in economic distress, notably Brazil, Russia, and some countries in the Middle East, though even this projected partial recovery could be frustrated by new economic or political shocks.” —IMF World Economic Outlook Update January 2016

http://www.bbc.com/news/business-34763751

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The International Economy

SELECTED COUNTRY AND REGION SUMMARIES 3 CHINA GDP GROWTH (%) China’s policymakers are orchestrating a gradual slowdown and rebalancing of economic activity away from investment and manufacturing toward consumption and services. The scope of China’s deliberate slowing of economic growth is, perhaps, best seen in comparison to India, which is projected to continue growing at a robust pace.

SOURCES OF RISK China’s slowdown in growth as the economy continues to rebalance is evolving broadly as projected, but with a faster-than-expected slowdown in imports and exports. These developments, along with market concerns about future performance, are spilling over into other economies through decreased trade, weaker commodity prices, and diminished confidence in increasingly volatile financial markets. China is a significant source of future risk to the forecast, as a sharper-than-expected slowdown could magnify these international spillovers, impacting global financial markets and currency values. SOUTHERN CALIFORNIA IN FOCUS As it shifts from an investment-led economy to a consumption-led economy, China’s demand for global exports is declining along with GDP growth. Not surprisingly, then, trade with China (mainland) through the Los Angeles Customs District (LACD) has also decreased over the last year—exports to China more so than imports from China. But in conjunction with slowing economic growth, Chinese policymakers are allowing more money to leave the country, and the U.S. is an attractive haven for Chinese nationals looking to invest. Chinese foreign direct investment (FDI) to the U.S. increased over 30% in 2015 according to the Rhodium Group, with California attracting over 20% of the total. A forthcoming Kyser Center analysis of FDI in Southern California specifically will be released at the SelectLA Summit in June.

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   

#1 TRADING PARTNER #1 EXPORT MARKET #1 SOURCE OF TOURISM GROWTH #2 SOURCE OF TOURISM

Adapted from the IMF World Economic Outlook, 10/2015 and the IMF World Economic Outlook Update, 1/2016

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The International Economy

ASIA PACIFIC REGION GDP GROWTH (%) Expectations for GDP growth in the Asia-Pacific region are uneven. India and emerging Asia are expected to continue their robust growth, while advanced economies in the region, which saw relatively low growth in 2015, should pick up somewhat in 2016. All countries in this region face the risk of headwinds from China’s economic rebalancing.

SOURCES OF RISK According to the Brookings Institution, the Asia-Pacific region accounted for 60% of global GDP and 50% of international trade. It has also been the fastest-growing region of the world since 2012. But decreased demand from China and the resulting disruptions to global trade flows are having outsized effects on other countries in the Asia-Pacific region, and new regional relationships are emerging. As the Wall Street Journal described it, “The U.S. and China are vying for commercial as well as military influence in 4 one of the most important corners of the global economy.” SOUTHERN CALIFORNIA IN FOCUS 

As patterns of global trade shift, a spotlight is being placed on trade agreements. Even as China’s slowdown in GDP growth has led to larger-thanexpected declines in exports to China, especially from East Asia, Washington is promoting the Trans-Pacific Partnership (TPP) to expand U.S. trade ties in the Asia-Pacific region. The TPP includes LACD’s #2 trading partner, Japan, which is shifting away from past protectionist policy and looking to increased trade to boost growth. Other LACD trading partners participating in the TPP include Vietnam (#5) and Australia (#10), while South Korea (#3), Taiwan (#4) and Thailand (#7) have announced an interest in joining.

#2- #5 TRADING PARTNERS JAPAN, SOUTH KOREA, TAIWAN, VIETNAM



#2- #8 EXPORT MARKETS JAPAN, SOUTH KOREA, HONG KONG, TAIWAN, AUSTRALIA, SINGAPORE, INDIA



#1 SOURCE OF FDI: JAPAN

4

May 16, 2012 “The Significance of the Trans-Pacific Partnership for the United States”, http://www.brookings.edu/research/testimony/2012/05/16-us-trade-strategy-meltzer and November 18, 2015, “U.S., China Intensify Trade Competition on APEC Stage,” http://www.wsj.com/articles/u-schina-intensify-trade-competition-on-apec-stage-1447849577

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Economic Forecast, February 2016

The International Economy

U.K. AND EUROZONE GDP GROWTH (%) In general, uneven growth is expected across advanced economies in 2016. Along with the U.S., the U.K. is well into the recovery process, whereas the Eurozone, where the recovery has been more tentative, is still grappling with continued austerity demands, the refugee crisis, and uncertainty about the E.U. as the U.K. 2017 exit vote approaches.

SOURCES OF RISK Most advanced economies have relied on accommodative monetary policy to prop up weak growth. In the Eurozone, easy financial conditions combined with lower oil prices are supporting consumption, outweighing weakness in net exports. Japan followed the lead of the European Central Bank in announcing negative interest rates at the end of January, but the Bank of England is expected to follow the Fed’s lead and begin raising interest rates later this year as growth stabilizes. Prospects of increasing interest rates and financial volatility have already contributed to tighter financial conditions, declining capital flows and further currency depreciations in many emerging market economies. Much as one would like to see future interest rate normalization proceed smoothly, transitions such as these commonly cause disruptions in some parts of the global economy during the process. SOUTHERN CALIFORNIA IN FOCUS With the Fed taking the lead in tightening monetary policy, the dollar has appreciated. The implications of a stronger dollar are widespread, but it has direct impacts on one of Southern California’s largest industries: trade. On the one hand, a stronger currency supports trade and trade-related industries as domestic demand increases because foreign imports are cheaper. On the other hand, trade may be depressed as demand—both domestic and foreign—declines because the cost of money, including the cost of credit card and other types of debt, has increased. The Fed’s careful signaling of its interest rate policy speaks to the concern about global sensitivity to these effects.

5

   

#6 TRADING PARTNER: GERMANY #14 TRADING PARTNER: UK #10 EXPORT MARKET: GERMANY 5 9 TOP 20 SOURCES OF FDI

Excluding non-euro countries Sweden and Switzerland

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Economic Forecast, February 2016

The International Economy

CANADA AND MEXICO GDP GROWTH (%)

Growth in the U.S. and Mexico was slower than expected in 2015, but should stay stable this year. Lower oil prices tempered growth in Canada relative to other advanced countries, but growth is expected to increase in 2016 as commodity prices stabilize.

SOURCES OF RISK So far, the strengthening dollar has not seemed to harm Southern California’s tourism industry, which has benefitted from solid GDP growth in Mexico, Southern California’s number one source of foreign visitors, and is on track to meet Mayor Garcetti’s goal of 50 million visitors by 2020. However, in the current environment of higher risk aversion, market volatility and ongoing geopolitical tensions, it may not take much to depress confidence, disturb the markets, and disrupt trade and tourism. SOUTHERN CALIFORNIA IN FOCUS    

Despite global economic weakness and the strengthening dollar, Southern California is still a popular travel destination. Tourism experienced its fifth consecutive year of record visitors in 2015 and tourism-industry supported employment is well above its pre-recession peak. Mexico was still the top source of foreign visitors, but China displaced Canada as the number two source in 2015. This has pushed visitor spending up, as visitors from China tend to stay longer and spend more than visitors from other countries. According to the Mastercard 2015 Global Destination Cities Index, visitors from Shanghai (Los Angeles’ #1 spenders) spent over $2,800 each, on average, whereas visitors from Vancouver (#5) spent only a little over $300 each. Rounding out the top five cities are Tokyo ($1,692), Paris ($1,377) and London ($1,020).

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#1 SOURCE OF TOURISM: MEXICO #3 SOURCE OF TOURISM: CANADA IN TOP 15 SOURCES OF FDI #25-26 TRADING PARTNERS: CANADA, MEXICO

Economic Forecast, February 2016

The International Economy

OIL AND COMMODITY PRODUCERS GDP GROWTH (%) Expectations based on futures markets are for modest oil price increases in 2016 and 2017. Lower oil prices strain the fiscal positions of fuel exporters and weigh on their growth prospects. On top of that, many oil exporters are facing other financial pressures that have made it more difficult to smooth the shock of lower oil prices, leading to reductions in their domestic demand.

SOURCES OF RISK Commodity markets pose two-sided risks. On the downside, further price declines will worsen the outlook for already-fragile commodity producers. On the upside, declines in oil prices support household spending and lower business and energy costs, especially in advanced economies where price declines are more fully passed on to end users. Since oil importers tend to spend more than oil exporters, a decline in oil prices should increase global demand as importers spend their windfall. However, the pickup in consumption by oil importing countries has so far been weaker than evidence from past episodes of oil price declines would have suggested. SOUTHERN CALIFORNIA IN FOCUS In Southern California, a net oil importer, declining oil prices would be expected to support the consumer spending that drives regional GDP growth. Each of the nearly six million commuters in the Los Angeles MSA drove, on average, 40 miles per day in 2014 (five miles more than is average in U.S. urban areas), according to the Texas Transportation Institute. The drop in gasoline prices, puts Southern California’s annual savings somewhere in the neighborhood of $3.3 billion, based on the back-of-the-envelope calculation shown at right. The decline in oil prices should, therefore, leave the region with more discretionary income, supporting GDP growth. The effect may be dampened, however, by declining LACD import/export activity, where gasoline and other th fuels were the 11 largest export and oil was the third largest import in 2014.

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  

14

#15 TRADING PARTNER: IRAQ #21 TRADING PARTNER: SAUDI ARABIA #23 EXPORT MARKET: QATAR

Economic Forecast, February 2016

The International Economy

RISK ASSESSMENT Several factors could affect global economic growth in 2016. Political instability, immigration policy, commodity prices, export diversification, monetary policy normalization, increasing global demand, investment to accommodate aging populations and infrastructure, and reserve buffers against unexpected natural disasters (such as last year’s Ebola outbreak, the 7.8 magnitude earthquake in Nepal or worldwide flooding episodes), will all be important for keeping economic expectations on track across the globe in the coming year. While many of the economic concerns of 2015 have carried over into 2016, so have several optimistic notes, too. China’s economic transition will take some time – measured in years, not in months – and there may be bumps in the road. But ultimately, it is moving to a path of slower but sustainable growth. U.S. relations with Cuba are normalizing, a nuclear deal was reached with Iran, Africa marked the one-year anniversary of no new cases of wild polio, the United Nations Climate Change Conference in Paris led to a 195country agreement, and the list goes on. There are many reasons to be optimistic about 2016, so long as one or more of the many risks to the global growth forecasts do not derail expectations.

“Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economics, China’s rebalancing, lower commodity prices, and the gradual exit from the extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.” —IMF World Economic Outlook Update January 2016

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The International Economy

Global Economic Snapshot

Asian Economic Outlook

Global Economic Outlook 12.0

Annual % Growth

2014

2015

2016f

14.0

2017f

10.0

12.0

8.0

10.0

6.0

8.0

4.0

6.0

Annual % Growth

2014

2015f

2016f

2017f

4.0

2.0

2.0 0.0

0.0

-2.0 World

Euro Area

Developing Latin Asia America/Carb.

Japan

Source: IMF World Economic Outlook, January 2016 Update

-2.0 China

ASEAN

Americas Economic Outlook 5.0

Annual % Growth

2014

3.0

India

Source: IMF World Economic Outlook, January 2016 Update

European Economic Outlook 3.5

Japan

2015f

2016f

2017f

Annual % Growth

2014

4.0

2015f

2016f

2017f

3.0

2.5

2.0

2.0

1.0

1.5

0.0

1.0 0.5

-1.0

0.0

-2.0

-0.5

-3.0

-1.0 Germany

UK

France

Italy

Source: IMF World Economic Outlook, January 2016 Update

LAEDC Kyser Center for Economic Research

-4.0 Canada

Mexico

Brazil

Source: IMF World Economic Outlook, January 2016 Update

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Economic Forecast, February 2016

The International Economy

FOREIGN EXCHANGE RATES In 2015, the U.S. Dollar strengthened significantly, appreciating 12.6% relative to 6 the broad currency basket. Appreciation was especially strong relative to the Mexican Peso (+19.3%), the Euro (+16.6%), the Canadian Dollar (+15.8%) and the Japanese Yen (+14.5%). The dollar’s across-board strengthening against other currencies is a concern for American exporters, who will find their products are increasingly expensive for buyers in top export markets such as China (#1), Japan (#2) and South Korea (#3).

Real Trade Weighted U.S. Dollar Index: Broad, 2013-Present 100 95 90 85 80

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

75

Source: Federal Reserve via FRED

With the increase in the Federal Funds rate of December 16, 2015, as well as expectations for a slow but steady continuing increase in 2016, while other central banks continue to loosen their monetary policy, the dollar is expected to continue to appreciate this year. According to the IMF forecast:

“The constellation underpinning dollar appreciation over the past year or so is expected to remain in place for some time in the baseline forecast. It includes domestic demand strength relative to most other advanced economies, monetary policy divergence among major advanced economies, and an improved external position with lower oil prices. U.S. dollar appreciation against most currencies could thus continue, causing a lasting upswing in the dollar, as has happened previously. If this risk were to materialize, balance sheet and funding strains for dollar debtors could potentially more than offset trade benefits from real depreciation in some economies.” —IMF World Economic Outlook October 2015

6

A weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The International Economy

Table 3: Foreign Exchange Rates of Major U.S. Trading Partners Country (Currency)* Broad Currency Basket (index) Canada (US$/C$) China (US$/yuan) Euro Zone (€/US$)** Japan (US$/Y) Mexico (US$/peso) South Korea (US$/₩) United Kingdom (£/US$)**

2003 119.27 1.401 8.28 1.132 115.9 10.79 1192 1.635

2005 110.84 1.216 8.19 1.245 110.1 10.89 1024 1.820

2006

2007

2008

2009

2010

2011

2012

113.76 1.302 8.28 1.244 108.2 11.29 1145 1.833

2004

108.70 1.134 7.97 1.256 116.3 10.91 954 1.843

103.58 1.073 7.61 1.371 117.8 10.93 929 2.002

99.88 1.066 6.95 1.473 103.4 11.14 1099 1.855

105.67 1.141 6.83 1.394 93.7 13.50 1275 1.566

101.82 1.030 6.77 1.326 87.8 12.62 1156 1.545

97.15 0.989 6.46 1.393 79.7 12.43 1107 1.604

99.81 1.000 6.31 1.286 79.8 13.15 1126 1.585

2013 100.98 1.030 6.15 1.328 97.6 12.76 1095 1.564

2014 104.16 1.104 6.16 1.330 105.7 13.30 1052 1.648

2015 117.28 1.279 6.28 1.110 121.1 15.87 1131 1.528

Percent Change*** Broad currency basket (index) Canada (C$) China (yuan) Euro Zone (c) Japan (Y) Mexico (peso) South Korea (W) United Kingdom (£)

2003 -6.0% -10.9% 0.0% -19.7% -7.4% 11.7% -4.7% -8.8%

2004 -4.6% -7.1% 0.0% -9.9% -6.7% 4.6% -3.9% -12.1%

2005 -2.6% -6.6% -1.0% -0.1% 1.8% -3.5% -10.6% 0.7%

2006 -1.9% -6.7% -2.7% -0.9% 5.6% 0.1% -6.8% -1.3%

2007 -4.7% -5.3% -4.6% -9.1% 1.2% 0.2% -2.7% -8.6%

2008 -3.6% -0.7% -8.7% -7.4% -12.2% 2.0% 18.3% 7.4%

2009 5.8% 7.1% -1.7% 5.4% -9.4% 21.1% 16.0% 15.6%

2010 -3.6% -9.8% -0.9% 4.8% -6.3% -6.5% -9.3% 1.3%

2011 -4.6% -4.0% -4.5% -5.1% -9.2% -1.6% -4.2% -3.8%

2012 2.7% 1.1% -2.4% 7.7% 0.2% 5.8% 1.7% 1.2%

2013 1.2% 3.1% -2.6% -3.3% 22.3% -3.0% -2.8% 1.3%

2014 3.1% 7.2% 0.2% 0.1% 8.3% 4.3% -3.9% 5.4%

2015 12.6% 15.8% 2.0% -16.6% 14.5% 19.3% 7.5% -7.3%

Source: Federal Reserve Statistical Release G.5A; Annual Averages Notes: *Foreign currency units per U.S. dollar **The value in U.S. dollars versus the foreign currency ***Performance of U.S. dollar versus the foreign currency

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Economic Forecast, February 2016

The California Economy

THE CALIFORNIA ECONOMY INTRODUCTION California has enjoyed remarkable economic growth in recent years. For three years running, the state has added jobs at a faster pace than the nation as a whole. California’s economy is also growing at a faster rate than that of the nation (3.9% vs. 2.4% in 2015, estimated) and accounts for over 13% of U.S. GDP, by far the largest of any state. California’s gross product is expected to expand by 3.1% this year, outpacing the 2.5% pace anticipated for U.S. GDP. California has a large and fast-growing economy. Running counter to the narrative that the state is uniformly unfriendly to business, California received more venture capital 7 funds in 2015 than all 49 other states combined ($33.5 billion vs. $24.2 billion). California is a global leader in the technology, aerospace, and life sciences industries as well as entertainment, tourism and agriculture. Silicon Valley leads the world in technological innovation, San Diego is a global hub for biotechnology and pharmaceutical research, and Los Angeles ranks third in the world behind New York and London as the 8 preferred city for foreign real estate investment (up from tenth place last year). In 2015, California’s unemployment rate averaged 6.2%, the lowest in eight years. Nonfarm employment was up over the year by 468,900 wage and salary jobs, an increase of 3.0%. The five largest metro areas in California accounted for over 60% of the increase. Los Angeles added 94,700 jobs, the largest number of any metro area. This equated to a growth rate of 2.2%. Silicon Valley (San Jose MSA) generated jobs at the fastest pace (5.4%), followed by Riverside-San Bernardino (3.8%). Elsewhere in Southern California, Orange County nonfarm employment increased by 3.2% over the year; San Diego County followed with a rate of 3.0%, while in Ventura County, nonfarm employment grew by 1.6%. Over the course of last year, nearly every major industry sector in the state added jobs. The largest gains occurred in professional, scientific and technical services (74,100 jobs); leisure and hospitality (70,700); healthcare and social assistance (63,600); administrative, support and waste services (48,700); and construction (46,700). These five industries accounted for 65% of total job gains for the year. In percentage terms, construction added jobs at the fastest rate (6.9%), followed by professional, scientific and technical services (6.2%). Administrative, support and waste services added jobs at a rate of 4.8%, while leisure and hospitality employment expanded by 4.0%. The only two industries to post declines in 2015 were nondurable goods manufacturing (down by 1.2%, or 5,700 jobs) and natural resources (down by 6.2% or 2,000 jobs). The

7

Price Waterhouse Coopers Money Tree Survey

8

Association of Foreign Investors in Real Estate, 2016 Foreign Investment Survey

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The California Economy decline in natural resources was due primarily to a pullback in energy sector investment resulting from low energy prices. Unfortunately, California’s current prosperity has not been spread equally across the state. There are regions within the state where the labor markets continue to struggle with high unemployment and low growth. As of December 2015, 12 of California’s 58 counties still had an unemployment rate over ten percent, predominately agricultural or rural areas. The highest recorded unemployment rates were Imperial County at 19.6% and Colusa County at 19.3%.

TRENDS IN MAJOR INDUSTRIES Aerospace and Technology: California’s technology sector consists of a combination of manufacturing and service industries in aerospace, information technology and biomedical technology. The aerospace and technology industries are concentrated in Los Angeles and Orange counties, San Diego County and the San Francisco/Silicon Valley region. Together, these regions make up the core of the state’s information, technology and innovation economy. They also receive the majority of the venture capital dollars that flow into California. Technology employment exceeded 1.12 million workers in 2015, advancing past the previous peak of 1.06 million reached in 2014 by 5.0%. While overall employment is growing, most jobs are concentrated in the service sector. As late as 2004, employment was about evenly split between jobs in technology manufacturing and services, but as of 2015, employment in technology services had grown to over 66% of total sector employment. Nearly half of the new technology jobs created in 2015 were in computer systems design (23,700 jobs) with management and consulting contributing 16,300 jobs. Smaller increases occurred elsewhere, except for aerospace product and parts manufacturing, which lost 1,900 jobs over the year. These trends are expected to continue with the largest gains occurring in technology services, while technology manufacturing employment remains flat or down marginally. Agriculture: California is the nation’s leading producer of fruits, vegetables, nuts and dairy products. The state’s highest value commodities are milk, grapes, almonds and nursery plants. California’s top producing agricultural counties are Fresno, Tulare, Kern, Monterey and Merced, which together had a combined share of 44% of the total state farm receipts in 2014. Agricultural and related products are also one of California’s largest exports to the rest of the world – already the slowing of China’s economy has made itself felt through a drop in demand for California almonds, dairy products and wine. The number of farm workers totaled 417,000 in 2015, which was 0.1% lower than recorded in 2014. Agricultural output in California increased by an estimated 2.9% in 2015 accounting for about 1.1% of the state’s gross product and 2.6% of civilian employment, both of which are consistent with recent trends.

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Economic Forecast, February 2016

The California Economy 9

California’s 76,400 farms and ranches generated cash receipts of $51.8 billion (inflation adjusted) in 2014 (latest data available), up by 3.6% compared with 2013 and a new record high in spite of California’s ongoing drought. Crop receipts edged down by 1.4% to $35.1 billion, while livestock receipts increased by 17.5% to $14.1 billion. California was also the top state in cash farm receipts in 2014 with 12.0% of the total for the U.S. In 2014, California ranked first among the 50 states in terms of net real farm income at $13.9 billion, or 16.7% of the national total. According to the USDA, as of March 2015, over 97% of California’s $43 billion agricultural sector was experiencing severe, extreme or exceptional drought. California’s agricultural sector has proven exceptionally resilient but if this year’s winter El Niño storms are followed by more dry years, employment, which is already beginning to erode, will suffer further declines along with a drop in production as more land is left fallow. Researchers at UC Davis estimate that the drought cost the state economy $2.74 billion 10 in 2015. Health Care: The health care and social assistance industry is California’s largest private sector employer and one of the fastest growing. With over 2.1 million workers, this sector accounts for slightly more than 13% of the state’s 16.1 million wage and salary jobs. Over the course of 2015, health care added 63,600 jobs, an annual growth rate of 3.1%. By the close of 2016, health care employment is expected to post an even stronger annual increase of 3.9%, bringing total health care jobs up to 2.2 million across a range of skill and income levels. The health care industry continues to adjust to rising costs, rapidly evolving technologies and new regulations legislated by the Affordable Care Act. Over the past two years, a wave of consolidations has rippled through the industry as health care providers, insurers and large corporate customers formed partnerships and alliances in order to survive the shift to value-based (as opposed to volume-based) health care. Meanwhile, the expansion of health care technology has been explosive. Rapidly evolving technological advancements include not only diagnostic and treatment equipment, but also wearable tracking devices, patient centered care, and increased data demands and data security concerns. Over the longer term, the health care industry must respond to the state’s growing 11 population, a larger share of older residents and increased longevity. The challenge for California will be to manage the ongoing costs associated with demographic changes and expanded access to high quality health care. International Trade: The international trade sector is a significant part of California’s economy and a vital link in the nation’s trade network. The majority of the nation’s goods

9

California Department of Food and Agriculture

10

Howitt, Richard, et al; “Economic Analysis of the 2015 Drought For California Agriculture”, UC Davis (August 17, 2014)

11

California’s senior population is expected to grow by 87%, or four million people, over the next two decades (PPIC August 2015)

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Economic Forecast, February 2016

The California Economy trade is highly concentrated in the corridors between its largest metropolitan areas. The Los Angeles-Riverside and San Francisco-San Jose trade corridors are among the largest in the U.S. Likewise, eight of the nation’s 25 most valuable international trade corridors are in California. This should come as no surprise given the state’s extensive trade infrastructure, and its geography and status as one of the nation’s largest consumer 12 markets. California is the second-largest goods exporting state in the country (just behind Texas, which is heavily dependent on energy-related exports). California’s largest export categories by value are computer products, transportation equipment (mainly aerospacerelated), machinery, agricultural products, and chemicals (pharmaceuticals). Measured by value, imports outweigh exports by a two-to-one margin. California is also a major exporter of services to the rest of the world. Film and music industry royalties are a major source of export revenues as are financial services, management and consulting services, entertainment services and information technology services. Global trade slowed sharply in 2015. Last year, statewide two-way trade declined by 4.5% to $581 billion after reaching a record setting $608 billion in 2014. With expectations for subdued global growth in 2016, two-way trade in California is forecast to decline again this year (by 0.4%) before rebounding in 2017 to $632 billion (a gain of 9.2%) and achieving a new record high. The IMF names three key factors underlying low expectations for trade this year. The first is the slowdown and rebalancing of economic activity in China. The second is lower prices for energy and other commodities, and the third is the tightening of U.S. monetary policy against the backdrop of other major advanced economies continuing to ease policy. Expectations for a recovery in global trade volumes over the next two years are based on U.S. and Eurozone growth, which will spur trade of both capital and consumer goods. The drag on global trade will also be reduced as conditions stabilize in China and as other Asian economies regain their footing. Tourism: The multibillion dollar travel and tourism industry has achieved a prominent position in California’s economy. In 2014 (latest figures available), the gross product generated by California’s travel industry was $57.6 billion, 13 or approximately 2.5% of total state gross product. California also had the largest share of the domestic travel market among all 50 states. Total visitor counts were up by an estimated 2.1% on an annual basis in 2015, slowing from a stronger growth rate of 3.5% in 2014. The growth of international visitors slowed considerably in 2015, to 2.2% (estimated) from 9.9% the previous year. The forecast for 2016 is an increase of 2.3% in total visits, with domestic travel forecast to increase by

12

Tomer, Adie and Kane, Joseph; “Mapping Freight: The Highly Concentrated Nature of Goods Trade in the United States” Brookings Institute (November 2014) 13

“California Travel Impacts”; Dean Runyan Associates, VisitCalifornia.com (April 2015)

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The California Economy 14

2.1% and international travel by 4.2%. The slower pace of visitor growth last year is primarily attributable to the stronger dollar and slow domestic wage growth. Expenditures by business and leisure travelers to the state totaled $120.7 billion in 2015, an increase of 2.7% compared with 2014. Domestic travelers accounted for $96.6 billion, while international visitors spent $24.1 billion. On average, hotel occupancy rates closed in on 75% in 2015, while increased demand, lack of new hotel construction and high 15 occupancy rates drove revenue per room to $112 from $102 in 2014. Leisure and hospitality jobs account for about 11% of all wage and salary jobs in California. While a significant part of leisure and hospitality activity is associated with tourism, many of these jobs serve the local population more so than the region’s tourists and business travelers. Jobs in this industry include lodging, food services, the performing arts, museums, amusement parks and gambling establishments. Leisure and hospitality employment grew by 4.0% in 2015 to 1.8 million jobs, with an additional expected gain of 2.2% in 2016. Payrolls continue to grow the fastest at restaurants and bars, which account for over 70% of all leisure and hospitality employment. All of California’s major tourism markets are expected to see gains this year and next. Continuing improvements in the labor markets, income growth and rising consumer confidence will support higher household spending, which in turn suggests solid nearterm growth for the state’s travel and tourism industry in spite the stronger dollar and uneasiness abroad. Construction: Construction activity and employment in 2015 posted another welcome increase after struggling in the years during and immediately following the Great Recession. New office construction continues to lag because of elevated vacancy rates in many regions of the state, but industrial construction is gaining momentum, especially in the goods movement and distribution and technology sectors. Nonresidential construction permits in 2015 rose by 4.3% to $24.7 billion and are expected to increase by 9.3% this year. New home permits, which showed a moderate gain in 2015 (12.4%), are expected to accelerate slightly this year rising to 110,000 permitted units, an increase of 14.0%. Construction employment saw substantial growth in 2015, growing by 6.9% to 722,100 jobs. Employment gains in recent years have finally started to offset the 373,900 construction jobs lost during the recession. Construction employment is expected to grow by an additional 4.7% this year with a 5.5% gain projected for 2017, bringing California construction employment to within 14% of the pre-downturn peak.

14

Tourism Economics (July 2015), VisitCalifornia.com

15

2016 STR, Inc, VisitCalifornia.com

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The California Economy

LOOKING AHEAD On many levels, California’s economy is doing very well. Following a 3.0% increase in 2015, nonfarm jobs are expected to grow by 2.5% in 2016, slowing to 1.6% in 2017. The unemployment rate averaged 6.2% last year and is expected to decline to 5.5% in 2016 (the long-run average since 1990 is 7.5%). With further improvements anticipated for the labor market, personal income and total taxable sales should increase by 4.5% and 5.5% respectively this year, with additional gains expected in 2017. In addition to a relatively strong employment outlook, California has made significant headway in setting its fiscal house in order. The state’s finances have stabilized, and after years of deficits, the General Fund is expected to end the current fiscal year with a cash surplus for the third consecutive year. California’s bond rating has also improved (although the state still ranks among the bottom three – only New Jersey and Illinois have a lower rating), saving the General Fund millions of dollars per year in borrowing costs. In January, Governor Brown proposed a 2016-17 budget that would bring the state’s cash reserves up to $10.2 billion by the end of the next fiscal year while increasing spending on infrastructure and education. Although passing a budget is in the hands of the Legislature, the Governor has communicated his position that planning for the next downturn is necessary to protect the remarkable economic progress California has achieved in recent years. At the same time, a number of persistent problems continue to defy resolution. The unfunded liability of state retiree health care costs (currently at $74.1 billion) remains a concern. Moreover, it is not yet certain how much the Legislature will budget to fund critical and long deferred infrastructure projects and maintenance. There is also a severe shortage of housing (affordable and otherwise) particularly in the metro areas that are experiencing the fastest rates of job growth. At the same time, many of California’s inland and rural regions have not shared in the economic growth enjoyed by the state’s larger coastal metro areas. Additionally, California’s poverty rate remains depressingly high, 16.4% by official measures and as high as 21% if California’s high cost of living is factored in. 16 Still, most regions in the state have regained all of the jobs lost during the recession or are very close to doing so. Expanding the benefits of the state’s economic growth to a larger share of the population is the next big step. Meeting this challenge will require attracting skilled workers to the state, increasing college enrollment and completion rates, upgrading the state’s physical infrastructure, and careful management of California’s finances and water resources.

16

“Poverty in California”, Public Policy Institute of California (December 2015)

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

The California Economy

GROSS PRODUCT COMPARISONS California has a diverse and innovative economy that ranks as one of the largest in the world. If Southern California and Los Angeles County were nations in their own right, they would also rank among the world’s 25 leading economies. Contributing to the strength of the economies of California and Southern California are strong and well developed technology, manufacturing, entertainment and tourism sectors. Also underlying their success is openness to international trade. In addition to being one of the nation’s largest consumer markets, Southern California, also serves as the primary conduit for trade and travel between the U.S. and Asia. With an estimated nominal gross state product of $2.4 trillion in 2015, California had the sixth largest economy in the world, coming in between the United Kingdom and France. California ranked eighth in 2014 and 2013, rising from the tenth position in 2012. California has moved up in the ranks in part because its economy has outpaced the United States in terms of real economic growth and is outperforming many of the world’s leading developed and emerging nations including Japan, Germany, Korea, and Australia. At the same time, the rise in value of the U.S. Dollar has played a role in boosting the nominal value of California’s output. The Los Angeles five-county region had an estimated gross product of over $1.1 trillion in 2014, making it the 16th largest economy in the world. Los Angeles County earned the 20th position on the list with an estimated gross product of over $664 billion.

LAEDC Kyser Center for Economic Research

Table 4: Gross Product Comparisons, 2015 Estimated (Billions of $US)

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Note: Source:

25

Country/State/Region United States China Japan Germany United Kingdom California France India Italy Brazil Canada Korea Australia Russia Spain Mexico L.A. 5-County Region Indonesia Netherlands Turkey Switzerland Los Angeles County Saudi Arabia Argentina Taiwan Nigeria Sweden Poland

Nominal GDP 2015(e) $US Billions $17,968.2 $11,384.8 $4,116.2 $3,371.0 $2,864.9 $2,430.3 $2,422.6 $2,182.6 $1,819.0 $1,799.6 $1,572.8 $1,393.0 $1,240.8 $1,235.9 $1,221.4 $1,161.5 $1,093.4 $872.6 $750.8 $722.2 $677.0 $664.2 $632.1 $578.7 $518.8 $493.0 $483.7 $481.2

Nominal 2014-2015 % Change 3.4% 9.9% -10.6% -13.0% -2.9% 5.4% -14.5% 6.4% -15.3% -23.3% -11.9% -1.2% -14.0% -33.6% -13.2% -10.0% 4.4% -1.8% -14.8% -9.5% -3.8% 4.1% -15.3% 6.6% -2.0% -14.1% -15.2% -12.2%

Real 2014-2015 % Change 2.4% 6.8% 0.6% 1.5% 2.5% 3.9% 1.2% 7.3% 0.8% -3.0% 1.0% 2.7% 2.4% -3.8% 3.1% 2.3% 2.7% 4.7% 1.8% 3.0% 1.0% 2.4% 3.4% 0.4% 2.2% 4.0% 2.8% 3.5%

Nominal Per Capita Income 2015(e) $55,904 $8,280 $32,481 $41,267 $44,118 $52,569 $37,728 $1,688 $29,847 $8,802 $43,935 $27,513 $51,642 $8,447 $26,327 $9,592 $58,426 $3,416 $44,333 $9,290 $82,178 $49,772 $20,139 $13,428 $22,083 $2,758 $48,966 $12,662

Figures based on mark et exchange rates IMF World Economic Outlook (WEO), January 2016 Bureau of Economic Analysis; IHS Global Insight

Economic Forecast, February 2016

The California Economy

California Snapshot California Employment Growth, 2016

California Employment Growth, 2016 Total nonfarm job growth forecast for 2016, percent change: +2.5%

Total nonfarm job growth forecast for 2016 (thousands): +402.8 jobs

Annual Percent Change 65.0 51.6 40.8 38.0 34.2 23.2 18.7 16.0 11.9 9.5 7.9 5.1 3.3 3.3 -2.6 -6.8

Admin. & Support Srvs Prof, Sci & Tech Srvs Leisure & Hospitality Retail Trade Construction Government Transport. & Utilities Wholesale Trade Information Manufacturing Real Estate, Rental & Leasing Other Services Mgmt. of Enterprises Finance & Insurance Natural Resources Educational Services

4.7% 4.1% 3.9% 3.5% 2.9% 2.5% 2.5% 2.3% 2.2% 2.2% 1.4% 0.9% 0.9% 0.8% 0.6% -1.9% -8.9%

Construction Prof, Sci & Tech Srvs Health Care & Social Asst Transport. & Utilities Real Estate, Rental & Leasing Information Total Nonfarm Employment Retail Trade Leisure & Hospitality Wholesale Trade Mgmt. of Enterprises Other Services Government Manufacturing Finance & Insurance Educational Services Natural Resources

80.0

-11.0% -9.0% -7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0% 7.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

California Employment

California Personal Income & Taxable Sales Growth

Annual average in thousands, 2015 benchmark Total Nonfarm Employment

Unemployment Rate

17,000

14%

16,500

12%

$Billions

Total Personal Income

Taxable Sales Growth

2,500

15%

16,000 10%

15,500 15,000

8%

14,500

6%

14,000

10%

2,000

5% 1,500

0%

4%

1,000

-5%

2%

500

13,500

-10%

13,000 12,500

-15%

0% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f

0

-20% '04 '05 '06 '07 08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

Source: EDD Labor Market Information Division; forecast by LAEDC

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC

Residential Building Permits Issued in California

Home Sales & Median Prices California Existing, single-family homes 700

Sales, Thousands, SAAR

Price, Thousands

600

200

$600

500

$500

400

$400

300

Home Sales Median Home Price

0

Permits issued, thousands Multi-Family Single-Family 61.5 53.7

150

56.3

100

$300

200 100

250

$700

44.6

151.4 155.3

$200

50

$100

0

108.0 68.4

'04

$0

'05

'06

'07

46.3 48.8

31.9

53.1

59.0

67.3

30.2 10.9 19.5 25.4 51.0 61.5 33.1 25.5 25.1 21.6 25.9 36.0 37.1 43.4

'08

'09

'10

'11

'12

'13

'14

'15 '16f '17f

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: CIRB, California Home Building Foundation, forecast by LAEDC Source: California Association of Realtors

LAEDC Kyser Center for Economic Research

26

Economic Forecast, February 2016

The California Economy

Table 5: California Economic Indicators Year

Population on July 1 (Thousands)

Nonfarm Em ploym ent (Ave., thousands)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

35,752.8 35,985.6 36,246.8 36,552.5 36,856.2 37,077.2 37,339.5 37,676.0 38,037.9 38,366.5 38,725.1 39,071.3 39,423.0 39,777.8

14,723.6 15,012.9 15,285.9 15,413.5 15,244.1 14,375.8 14,215.5 14,364.1 14,712.1 15,183.3 15,645.1 16,114.0 16,516.9 16,781.1

% Change Column1 04/03 1.0% 05/04 0.7% 06/05 0.7% 07/06 0.8% 08/07 0.8% 09/08 0.6% 10/09 0.7% 11/10 0.9% 12/11 1.0% 13/12 0.9% 14/13 0.9% 15/14 0.9% 16/15 0.9% 17/16 0.9%

Column2 1.1% 2.0% 1.8% 0.8% -1.1% -5.7% -1.1% 1.0% 2.4% 3.2% 3.0% 3.0% 2.5% 1.6%

Unem ploym ent Rate (Ave., %)

6.2 5.4 4.9 5.4 7.3 11.2 12.2 11.7 10.4 8.9 7.5 6.2 5.5 5.3 Column3

Total Personal Incom e ($Billions)

Per Capita Personal Incom e ($)

Total TaxableSales ($Billions)

Value of Tw ow ay Trade ($Billions)

Housing Unit Perm its Issued

Nonresidential Buidling Perm its ($Millions)

1,324.9 1,399.0 1,501.8 1,565.3 1,602.7 1,537.1 1,583.4 1,691.0 1,812.3 1,849.5 1,939.5 2,060.3 2,153.6 2,271.5

34,244 39,046 41,693 43,182 43,786 41,588 42,411 44,852 47,614 48,125 49,985 52,700 54,600 57,100

500.1 536.9 559.7 561.1 531.7 456.5 477.3 520.6 558.4 586.8 615.5 636.2 671.0 718.1

394.3 433.1 487.6 512.9 523.3 413.3 502.6 558.5 578.2 596.4 608.5 581.0 579.0 632.1

212,960 208,972 164,280 113,034 64,962 36,421 44,762 47,090 57,496 82,283 85,846 96,451 110,000 128,800

19,718 21,469 23,298 23,733 19,588 10,866 11,200 12,991 14,815 21,792 23,686 24,700 27,000 29,100

Column4 6.2% 5.6% 7.3% 4.2% 2.4% -4.1% 3.0% 6.8% 7.2% 2.1% 4.9% 6.2% 4.5% 5.5%

Column5 -3.2% 14.0% 6.8% 3.6% 1.4% -5.0% 2.0% 5.8% 6.2% 1.1% 3.9% 5.4% 3.6% 4.6%

Column6 8.7% 7.4% 4.2% 0.2% -5.2% -14.1% 4.6% 9.1% 7.3% 5.1% 4.9% 3.4% 5.5% 7.0%

Column7 13.4% 9.9% 12.6% 5.2% 2.0% -21.0% 21.6% 11.1% 3.5% 3.1% 2.0% -4.5% -0.4% 9.2%

Column8 8.8% -1.9% -21.4% -31.2% -42.5% -43.9% 22.9% 5.2% 22.1% 43.1% 4.3% 12.4% 14.0% 17.1%

Column9 5.9% 8.9% 8.5% 1.9% -17.5% -44.5% 3.1% 16.0% 14.0% 47.1% 8.7% 4.3% 9.3% 7.8%

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce, Construction Industry Research Board; California Homeb uilding Foundation; estimates and forecasts b y the LAEDC

LAEDC Kyser Center for Economic Research

27

Economic Forecast, February 2016

The California Economy

Table 6: California Nonfarm Employment Annual averages, thousands, March 2014 benchmark Year

Total Nonfarm Em ploym ent

Natural Resources

Construction

Manufacturing

M fg. -Durable

M fg .-Nondurable

Wholesale Trade

Retail Trade

Transport. & Utilities

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

14,723.6 15,012.9 15,285.9 15,413.5 15,244.1 14,375.8 14,215.5 14,364.1 14,712.1 15,183.3 15,645.1 16,114.0 16,516.9 16,781.1

22.8 23.6 25.1 26.7 28.7 26.1 26.8 28.8 30.5 30.6 31.3 29.4 26.7 27.4

850.4 905.3 933.7 892.6 787.7 623.1 559.8 561.3 589.9 637.3 675.4 722.1 756.2 798.0

1,523.5 1,505.2 1,490.9 1,465.4 1,426.7 1,283.6 1,244.0 1,250.1 1,254.7 1,256.3 1,269.6 1,271.0 1,280.6 1,297.4

966.1 959.4 948.3 929.0 901.1 800.6 773.1 781.0 784.0 783.5 794.2 801.3 807.9 822.9

557.4 545.7 542.6 536.4 525.6 483.0 470.8 469.1 470.7 472.8 475.4 469.7 472.7 474.5

653.0 673.6 700.3 715.3 703.5 645.3 644.0 657.9 675.5 693.8 715.1 738.7 754.7 768.0

1,617.8 1,659.3 1,680.1 1,689.9 1,640.9 1,522.5 1,517.7 1,546.6 1,571.3 1,597.0 1,633.8 1,669.9 1,707.9 1,710.6

482.8 487.1 496.1 507.7 504.9 474.5 466.3 474.3 487.3 502.8 522.2 541.5 560.2 576.1

Year

Finance & Insurance

Real Estate, Rental & Leasing

Prof, Sci & Tech Srvs

Mgm t. of Enterprises

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

Leisure & Hospitality

Other Services

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

618.8 636.6 639.3 613.1 566.0 528.1 511.9 514.8 522.7 524.1 518.4 521.2 524.5 510.5

276.4 283.6 288.5 283.5 275.9 254.9 248.3 247.1 250.8 258.7 265.9 274.0 282.0 285.9

918.9 970.2 1,026.4 1,060.1 1,079.1 1,013.6 1,015.3 1,049.1 1,100.5 1,139.1 1,187.0 1,261.1 1,312.7 1,340.5

231.4 222.8 213.8 208.8 209.4 199.9 198.6 203.0 209.3 221.2 225.2 230.7 234.0 232.7

947.8 969.0 1,004.4 998.9 952.5 850.2 863.0 882.5 932.6 981.0 1,021.2 1,069.9 1,134.9 1,204.3

262.9 272.2 277.6 289.3 300.6 304.3 309.7 325.8 336.2 344.5 355.3 365.6 358.8 356.5

1,493.9 1,530.1 1,565.4 1,624.0 1,689.3 1,739.6 1,746.3 1,758.1 1,836.1 1,980.9 2,059.0 2,122.6 2,206.4 2,253.7

1,439.4 1,475.2 1,519.0 1,560.4 1,572.6 1,503.1 1,501.6 1,535.8 1,598.7 1,676.4 1,757.1 1,827.8 1,868.6 1,894.2

503.9 505.5 507.1 512.2 511.3 486.1 484.9 493.7 504.7 516.6 539.8 549.8 554.8 551.9

Inform ation

482.4 473.6 466.1 471.1 476.1 441.3 429.0 430.6 435.1 448.6 457.9 472.9 484.8 482.7

Governm ent

2,397.7 2,420.2 2,452.3 2,494.6 2,518.9 2,479.6 2,448.4 2,404.9 2,376.3 2,374.3 2,411.0 2,445.9 2,469.1 2,490.6

Sources: California Employment Development Department, LMID; estimates and forecasts b y LAEDC

LAEDC Kyser Center for Economic Research

28

Economic Forecast, February 2016

The California Economy

Table 7: California Regional Nonfarm Employment Annual averages for major metropolitan areas, thousands; March 2014 benchmark Northern California

Central California

\ MSA

State of California

Oakland

San Francisco

San Jose

Bakersfield

Fresno

Modesto

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

12,538.7 12,406.4 12,208.7 12,097.1 12,215.1 12,481.0 12,809.8 13,207.6 13,695.0 14,101.3 14,590.2 14,716.3 14,590.7 14,557.8 14,723.6 15,012.9 15,285.9 15,413.5 15,244.1 14,375.8 14,215.5 14,364.1 14,712.1 15,183.3 15,645.1 16,114.0 16,516.9 16,781.1

887.9 890.7 881.8 884.8 887.2 907.6 926.9 958.4 986.2 1,016.7 1,051.7 1,061.5 1,046.9 1,034.8 1,034.0 1,042.7 1,056.3 1,060.1 1,045.8 984.9 964.3 972.7 1,002.1 1,037.5 1,065.0 1,087.5 1,110.3 1,131.4

868.4 861.7 837.4 830.3 822.0 833.1 862.8 894.4 924.3 948.1 984.5 954.9 888.9 855.0 846.7 855.7 875.0 895.7 906.5 863.4 854.9 877.3 920.9 964.6 1,009.7 1,054.3 1,090.2 1,109.8

829.3 822.9 809.3 813.7 816.1 848.9 897.8 945.7 976.0 989.3 1,047.9 1,020.6 920.0 874.3 867.9 876.7 898.3 918.8 924.9 867.9 865.2 885.9 921.0 960.8 1,004.3 1,058.5 1,098.7 1,124.0

172.8 179.7 175.6 172.2 172.8 174.8 176.7 181.3 186.5 190.9 195.8 203.9 207.0 209.3 214.1 224.8 236.2 241.7 241.6 231.4 229.4 236.0 245.3 250.4 256.8 259.6 262.5 267.2

228.8 232.2 235.2 238.3 241.4 247.9 251.5 255.2 259.3 267.9 275.7 281.0 287.8 289.1 294.5 301.9 310.1 314.2 311.3 295.4 288.1 288.7 291.5 303.0 313.4 323.6 332.0 337.6

118.5 119.2 121.5 123.0 123.5 125.1 129.0 132.9 138.8 143.3 145.4 151.1 152.3 154.2 156.8 161.4 162.3 162.8 159.6 150.4 149.8 149.0 152.0 157.1 161.7 165.4 168.5 171.6

Southern California

Sacramento

624.8 639.7 633.3 635.6 653.2 673.6 692.6 712.6 742.1 779.6 804.0 825.1 839.6 855.7 870.4 893.0 912.0 917.0 897.7 848.5 825.7 823.3 842.4 866.8 890.4 913.8 934.8 952.5

Stockton

Los Angeles

153.8 156.9 156.5 157.9 158.5 161.7 164.9 169.0 172.9 179.9 186.9 192.3 195.6 199.3 203.3 208.6 212.0 214.7 209.4 197.7 191.2 190.7 195.0 202.6 208.8 214.8 220.0 223.5

4,179.5 4,035.2 3,855.6 3,753.2 3,741.5 3,789.0 3,834.2 3,914.9 4,003.3 4,057.3 4,123.2 4,129.9 4,088.9 4,056.3 4,079.1 4,119.9 4,194.5 4,229.0 4,185.4 3,951.0 3,890.0 3,911.6 4,010.5 4,129.8 4,226.4 4,321.1 4,394.5 4,438.5

Orange

Riverside-San Bernardino

San Diego

Ventura

1,182.0 1,155.9 1,138.0 1,126.6 1,136.3 1,161.2 1,193.5 1,242.2 1,307.6 1,350.6 1,393.0 1,417.4 1,407.2 1,433.4 1,462.1 1,496.7 1,525.1 1,521.7 1,490.0 1,383.5 1,366.7 1,382.4 1,419.6 1,459.4 1,495.9 1,543.3 1,581.9 1,608.8

720.4 729.5 741.5 745.6 760.3 789.0 812.0 850.3 891.8 947.3 995.1 1,037.3 1,073.0 1,110.1 1,173.3 1,236.2 1,282.4 1,286.2 1,243.1 1,163.2 1,144.7 1,148.0 1,180.3 1,231.9 1,285.1 1,333.5 1,374.9 1,410.6

977.9 977.2 962.7 960.1 965.7 988.6 1,015.5 1,063.3 1,115.2 1,160.0 1,199.7 1,224.1 1,236.5 1,247.9 1,269.1 1,291.9 1,312.1 1,320.1 1,311.9 1,245.9 1,237.1 1,247.0 1,280.5 1,317.8 1,348.0 1,389.4 1,424.1 1,449.7

232.1 233.2 229.5 229.9 235.3 239.3 239.6 244.4 254.2 265.1 276.0 280.7 282.5 285.0 287.0 292.0 298.9 297.8 292.4 276.9 274.7 276.6 281.6 287.9 293.0 298.0 302.8 307.3

Sources: California EDD, Labor Market Division, Current Employment Series; forecasts by LAEDC

LAEDC Kyser Center for Economic Research

29

Economic Forecast, February 2016

The California Economy

Table 8: Total Nonfarm Employment in Southern California

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Los Angeles County 4,185.4 3,951.0 3,890.0 3,911.6 4,010.5 4,129.8 4,226.4 4,321.1 4,394.5 4,438.5

Orange County 1,490.0 1,383.5 1,366.7 1,382.4 1,419.6 1,459.4 1,495.9 1,543.3 1,581.9 1,608.8

Inland Empire 1,243.1 1,163.2 1,144.7 1,148.0 1,180.3 1,231.9 1,285.1 1,333.5 1,374.9 1,410.6

Ventura County 292.4 276.9 274.7 276.6 281.6 287.9 293.0 298.0 302.8 307.3

L.A. 5County Region 7,210.9 6,774.6 6,676.1 6,718.6 6,892.0 7,109.0 7,300.4 7,495.9 7,654.0 7,765.2

San Diego County 1,311.9 1,245.9 1,237.1 1,247.0 1,280.5 1,317.8 1,348.0 1,389.4 1,424.1 1,449.7

State of California 15,244.1 14,375.8 14,215.5 14,364.1 14,712.1 15,183.3 15,645.1 16,114.0 16,516.9 16,781.1

Numerical Change from Prior Year (in thousands)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Los Angeles County -43.6 -234.4 -61.0 21.6 98.9 119.3 96.6 94.7 73.5 43.9

Orange County -31.7 -106.5 -16.8 15.7 37.2 39.8 36.5 47.4 38.6 26.9

Inland Empire -43.1 -79.9 -18.5 3.3 32.3 51.6 53.2 48.4 41.3 35.7

Ventura County -5.4 -15.5 -2.2 1.9 5.0 6.3 5.1 5.0 4.8 4.5

L.A. 5County Region -123.8 -436.3 -98.5 42.5 173.4 217.0 191.4 195.5 158.1 111.1

San Diego County -8.2 -66.0 -8.8 9.9 33.5 37.3 30.2 41.4 34.7 25.6

State of California -169.4 -868.3 -160.3 148.6 348.0 471.2 461.8 468.9 402.8 264.3

Orange County -2.1% -7.1% -1.2% 1.1% 2.7% 2.8% 2.5% 3.2% 2.5% 1.7%

Inland Empire -3.4% -6.4% -1.6% 0.3% 2.8% 4.4% 4.3% 3.8% 3.1% 2.6%

Ventura County -1.8% -5.3% -0.8% 0.7% 1.8% 2.2% 1.8% 1.7% 1.6% 1.5%

L.A. 5County Region -1.7% -6.1% -1.5% 0.6% 2.6% 3.1% 2.7% 2.7% 2.1% 1.5%

San Diego County -0.6% -5.0% -0.7% 0.8% 2.7% 2.9% 2.3% 3.1% 2.5% 1.8%

State of California -1.1% -5.7% -1.1% 1.0% 2.4% 3.2% 3.0% 3.0% 2.5% 1.6%

% Change from Prior Year

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Los Angeles County -1.0% -5.6% -1.5% 0.6% 2.5% 3.0% 2.3% 2.2% 1.7% 1.0%

Sources: EDD, Lab or Market Information Division; all estimates and forecasts b y LAEDC

LAEDC Kyser Center for Economic Research

30

Economic Forecast, February 2016

The California Economy

Table 9: California Technology Employment Annual averages, thousands, March 2014 benchmark

Year

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Technology Employment

|------------------

Manufacturing

-------------------|

Electronic Product Manufacturing

Aerospace Product & Parts Manufacturing

Pharmaceutical & Medicine Manufacturing

922.0 876.7 877.1 902.6 932.1 950.3 970.7 924.4 930.4 960.1 999.7 1026.9 1063.5 1117.1

353.7 320.9 313.4 310.8 308.2 304.1 300.0 278.6 271.8 275.2 270.0 262.9 262.6 265.2

79.6 73.6 73.7 73.4 73.0 72.8 73.7 72.4 73.1 71.5 71.1 72.0 71.4 69.5

39.5 39.1 40.6 42.0 44.0 44.2 43.6 43.5 43.4 43.3 44.4 45.6 47.4 47.6

|---------------------------

Services

----------------------------|

Software Publishers

Data Processing, Hosting & Related Services

Computer Systems Design & Rel. Services

Management, Scientific & Technical Consulting

Scientific R&D Services

48.8 44.7 42.6 41.6 41.3 43.0 44.9 45.0 45.0 48.3 51.9 53.8 55.5 57.9

20.7 18.7 18.5 19.6 20.9 20.7 20.4 19.3 18.6 18.8 21.0 23.6 25.4 27.3

177.1 168.8 168.5 175.6 187.2 198.9 205.2 194.6 199.7 212.6 228.2 243.6 263.0 286.7

102.1 109.7 119.0 135.4 151.3 159.0 166.8 156.1 160.5 169.7 187.5 197.9 208.8 225.1

100.5 101.2 100.8 104.2 106.2 107.6 116.1 114.9 118.3 120.7 125.6 127.5 129.4 138.0

Sources: California EDD, LMID

LAEDC Kyser Center for Economic Research

31

Economic Forecast, February 2016

The California Economy

Table 10: Population Trends in California and the Los Angeles 5-County Area Population estimates as of July 1 each year

Year

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p 2016f 2017f

Los Angeles Column County 2

Orange County

Column4

%∆ --1.1% 1.2% 0.3% 0.3% -0.1% 0.1% 0.9% 0.9% 1.4% 1.6% 1.0% 0.9% 0.7% 0.3% -0.1% -0.2% -0.1% 0.2% 0.1% 0.3% 0.6% 0.4% 1.1% 0.7% 0.7% 0.6% 0.4%

Data 2,412.0 2,458.8 2,511.8 2,550.4 2,575.7 2,604.5 2,646.1 2,699.6 2,749.6 2,802.8 2,853.9 2,889.9 2,914.4 2,939.7 2,956.5 2,957.2 2,955.4 2,965.8 2,982.8 2,998.8 3,017.2 3,051.5 3,086.3 3,113.4 3,139.6 3,165.2 3,198.1 3,230.6

%∆ --1.9% 2.2% 1.5% 1.0% 1.1% 1.6% 2.0% 1.9% 1.9% 1.8% 1.3% 0.8% 0.9% 0.6% 0.0% -0.1% 0.4% 0.6% 0.5% 0.6% 1.1% 1.1% 0.9% 0.8% 0.8% 1.0% 1.0%

Data 8,860.3 8,955.3 9,060.2 9,083.7 9,106.5 9,101.1 9,108.1 9,185.6 9,265.8 9,394.3 9,544.0 9,635.8 9,722.4 9,791.0 9,822.5 9,809.6 9,787.3 9,773.9 9,796.8 9,805.2 9,839.4 9,902.6 9,946.9 10,056.4 10,123.7 10,192.4 10,253.5 10,294.5

Riverside & Column6 San Bernardino Data 2,620.4 2,751.3 2,832.9 2,885.0 2,919.9 2,959.6 3,006.6 3,062.6 3,117.1 3,198.4 3,276.5 3,386.2 3,489.2 3,622.5 3,757.1 3,877.5 3,994.1 4,085.3 4,139.4 4,180.7 4,239.1 4,291.7 4,329.7 4,367.4 4,414.9 4,458.8 4,527.7 4,606.3

%∆ --5.0% 3.0% 1.8% 1.2% 1.4% 1.6% 1.9% 1.8% 2.6% 2.4% 3.3% 3.0% 3.8% 3.7% 3.2% 3.0% 2.3% 1.3% 1.0% 1.4% 1.2% 0.9% 0.9% 1.1% 1.0% 1.5% 1.7%

Ventura County Data 669.1 676.9 686.3 693.8 700.6 705.1 710.5 721.7 729.1 742.8 756.9 769.0 779.9 789.4 795.0 796.9 801.2 805.9 812.0 818.5 824.9 831.8 836.8 842.8 848.0 853.0 859.3 865.7

Column 8 %∆ --1.2% 1.4% 1.1% 1.0% 0.6% 0.8% 1.6% 1.0% 1.9% 1.9% 1.6% 1.4% 1.2% 0.7% 0.2% 0.5% 0.6% 0.8% 0.8% 0.8% 0.8% 0.6% 0.7% 0.6% 0.6% 0.7% 0.7%

Total of L.A. 5-Co. Area Data 14,561.8 14,842.4 15,091.2 15,212.9 15,302.7 15,370.3 15,471.2 15,669.4 15,861.6 16,138.4 16,431.3 16,680.9 16,906.0 17,142.6 17,331.1 17,441.1 17,538.1 17,630.9 17,731.0 17,803.3 17,920.6 18,077.6 18,199.6 18,380.0 18,526.2 18,669.3 18,838.6 18,997.1

Column 10 %∆ --1.9% 1.7% 0.8% 0.6% 0.4% 0.7% 1.3% 1.2% 1.7% 1.8% 1.5% 1.3% 1.4% 1.1% 0.6% 0.6% 0.5% 0.6% 0.4% 0.7% 0.9% 0.7% 1.0% 0.8% 0.8% 0.9% 0.8%

State of California Data 29,828.5 30,548.6 30,987.4 31,314.2 31,523.7 31,711.8 31,962.9 32,452.8 32,863.0 33,418.6 34,000.8 34,512.7 34,938.3 35,388.9 35,752.8 35,985.6 36,246.8 36,552.5 36,856.2 37,077.2 37,339.5 37,676.0 38,037.9 38,366.5 38,725.1 39,071.3 39,423.0 39,777.8

Column 12 %∆ --2.4% 1.4% 1.1% 0.7% 0.6% 0.8% 1.5% 1.3% 1.7% 1.7% 1.5% 1.2% 1.3% 1.0% 0.7% 0.7% 0.8% 0.8% 0.6% 0.7% 0.9% 1.0% 0.9% 0.9% 0.9% 0.9% 0.9%

Source: California Dept. of Finance, Demographic Research Unit, E2; forecasts b y LAEDC

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32

Economic Forecast, February 2016

The California Economy

Table 11: Components of Population Change in California and Southern California Counties Figures in thousands, July 1 data compared with July 1 data the previous year

Column1

Pop. Chg.

Los Angeles County 2011 63.2 2012 88.6 2013 65.3 2014 67.3 2015 68.7 Orange County 2011 34.3 2012 34.8 2013 27.1 2014 26.2 2015 25.6 Riverside County 2011 32.2 2012 25.3 2013 23.5 2014 28.6 2015 26.1 San Bernardino County 2011 20.3 2012 12.7 2013 14.2 2014 19.0 2015 17.7 San Diego County 2011 34.4 2012 37.5 2013 34.4 2014 38.3 2015 28.0 Ventura County 2011 6.9 2012 5.0 2013 6.0 2014 5.2 2015 5.0 State of California 2011 336.5 2012 361.9 2013 328.7 2014 358.6 2015 346.2

Natural Increase (Birth-Death)

Net Total Migration

Net Int'l Migration

Net Domestic Migration

Births

Deaths

132.6 129.1 130.6 129.4 131.3

58.0 57.9 60.1 57.9 58.9

74.6 71.2 70.5 71.4 72.3

-11.4 17.3 -5.3 -4.2 -3.7

38.8 42.0 44.6 47.7 46.7

-50.2 -24.6 -49.8 -51.9 -50.3

38.2 37.8 37.6 37.9 38.9

17.6 17.8 18.8 18.3 18.5

20.6 20.0 18.8 19.5 20.5

13.7 14.7 8.3 6.7 5.1

12.3 12.2 12.5 13.4 13.2

1.3 2.5 -4.2 -6.7 -8.1

31.0 30.1 29.9 30.3 30.5

14.4 14.6 15.0 14.9 15.0

16.6 15.5 14.9 15.4 15.6

15.6 9.8 8.6 13.1 10.6

4.9 5.4 5.3 5.1 5.1

10.7 4.4 3.3 8.1 5.4

31.4 30.1 3.6 30.7 31.6

12.2 12.1 12.7 12.8 12.7

19.2 18.1 17.8 17.8 18.8

1.1 -5.4 -3.6 1.1 -1.1

4.1 4.7 4.6 4.5 4.6

-3.1 -10.1 -8.2 -3.3 -5.8

44.7 43.8 43.7 44.2 45.0

19.6 19.9 20.8 19.7 19.9

25.0 24.0 23.0 24.5 25.0

9.4 13.6 11.4 13.8 3.0

10.5 11.2 11.1 12.0 11.7

-1.1 2.3 0.3 1.8 -8.7

11.0 10.5 10.5 10.3 10.6

5.1 5.0 5.4 5.3 5.3

5.9 5.5 5.2 5.1 5.3

1.0 -0.5 0.8 0.1 -0.3

2.1 2.0 1.8 1.7 1.7

-1.1 -2.6 -1.0 -1.6 -2.0

509.5 497.3 499.5 498.7 507.3

237.5 239.3 247.8 242.9 245.0

272.0 258.0 251.8 255.8 262.3

64.5 103.8 76.9 102.8 83.9

127.8 130.4 135.8 149.7 145.0

-63.3 -23.6 -58.9 -46.9 -61.1

Source: California Department of Finance, Demographic Research Unit

LAEDC Kyser Center for Economic Research

33

Economic Forecast, February 2016

Los Angeles County

LOS ANGELES COUNTY INTRODUCTION With over 10 million residents in 88 cities spread across 4,100 square miles, Los Angeles County’s population exceeds that of 43 states. If it were a country, it would be the twentieth largest economy in the world (having displaced Saudi Arabia to move up one spot from last year). In addition to its signature industries—entertainment, tourism and fashion—its enormous and diversified economy is home to the largest port complex in the Western Hemisphere and the largest number of manufacturing jobs of any county in the country. Other major industries include health care, education and knowledge creation and business services. The county added 94,700 jobs in 2015, equivalent to a 2.2% annual increase. A majority of the county’s major industries added jobs last year, as broad-based growth pushed wage and salary jobs to a record high. Los Angeles County should continue to add jobs at a 1.7% annual rate this year, followed by a 1.0% annual rate in 2017. Along with job growth, the unemployment rate fell to 6.9%, the lowest rate of the post-recession period. The unemployment rate should further improve to 6.2% this year and 5.9% in 2017. Total personal income increased by 4.5% in 2015, and is expected to maintain its trajectory this year with anticipated gains of 4.4%, followed by a gain of 5.3% in 2017. Now that the economy is back to full employment, upward pressure on wages, a strong dollar, and weak inflation may lead to significant gains in household purchasing power this year. Per capita income growth, which held relatively steady with a 3.6% gain in 2015, should respond to accelerating wage growth to rebound to 3.9% this year and accelerate to 4.9% in 2017. Since much of the gain in income is expected to be spent, local spending as measured by total taxable sales is expected to increase by 5.5% this year and 6.8% the next after a lackluster 2.9% increase in 2015. This means local sales and use tax revenues will climb, putting local government agencies on a sounder financial footing. Population growth is expected to slow slightly this year and next, with the rate of growth at approximately 0.6% this year and 0.4% in 2017. Even at such low growth rates, the county will increase by over 100,000 residents during that time period. Most of the recent population growth in Los Angeles County has been due to natural increase (births outnumbering deaths), while net migration was slightly negative again last year. The county’s high cost of living and lack of affordable housing units for low and middle-income households are contributing to the slowdown in population growth. Like most other parts of the state, the housing market in Los Angeles County improved in 2015. The median sales price for a home was $485,980, a 7.8% increase over 2014’s median price of $450,960. Moreover, home sales were up 6.2% compared with a year earlier. New home construction finally accelerated in 2015 and should continue to grow, although at lower rates, both this year and next. For a more detailed discussion of the region’s housing market, see the Real Estate and Construction section of this report.

LAEDC Kyser Center for Economic Research

34

Economic Forecast, February 2016

Los Angeles County

TRENDS IN MAJOR INDUSTRIES 17 Like the nation and state, Los Angeles County experienced broad-based job gains in 2015, adding approximately 95,000 jobs last year. Job gains were seen in most of the county’s major industries, with records reached in seven (out of 17) and two more poised to surpass their pre-recession peaks in 2016. The largest job gains occurred in health care and social assistance (21,800 jobs), followed by leisure and hospitality (19,600 jobs) and government (10,000 jobs). The fastest growing sectors in percentage terms were construction (5.9%), leisure and hospitality (4.2%), wholesale trade (3.5%), and health care and social assistance (also 3.5%). Private sector job losses occurred in manufacturing, information, finance and insurance, and the natural resources sector. International Trade: As America’s gateway to Asia, international trade plays an important role in the Los Angeles economy. The twin ports rebounded after the labor negotiations early in the year to post their third-best year in 2015, with throughput of 15.4 million containers. Despite this, low inflationary pressure combined with a strong dollar brought the value of two-way trade through the Los Angeles Customs District down to $393.4 from the record-setting volume of $416.6 billion in 2014. The Kyser Center tracks employment in two industries that are part of the international trade and goods movement sector: transportation and warehousing, and wholesale trade. Transportation and warehousing employment added 3,000 jobs (2.0%) in 2015, while wholesale trade added 7,800 jobs (3.5%), for a net gain of 10,800 jobs. Given the strength of the U.S. economy relative to other countries, imports have the potential to increase in 2016, but total container activity and two-way trade should be relatively flat. Longer-term, the prospects for the industry are promising, with expected stabilization leading to important payoffs to public and private investment in trade-related infrastructure and important new trade agreements that are either in place or currently being negotiated. Entertainment: The entertainment industry is the part of the economy that is most closely associated with Los Angeles. The industry’s largest component is the motion picture and sound recording industry, which is part of the information services supersector. Activity for this industry was mixed in 2015. According to FilmL.A., 18 onlocation filming in Los Angeles rose 1.3% in 2015 to 37,289 shoot days, mainly due to scripted television production. Projects that qualified for the California Film and Television Tax Credit generated 7.2% (1,130 shoot days) of local on-location television production in 2015. Despite this, the county’s motion picture and sound recording industry lost 600 jobs (-0.5%), falling to 119,425 jobs. This reflects an overall decline in local on-location feature production (down 4.2% to 4,344 shoot days), which, however, picked up in the fourth quarter with five incentivized feature projects that should boost shoots days into 2016.

17

This section features key industries that produce goods or services that are generally exported outside the region, hence generating an inflow of income to the region. See also Major Industries of the Southern California Economy for trends on other industries in the local economy 18

See FilmL.A.’s 2015 Production Retrospective

LAEDC Kyser Center for Economic Research

35

Economic Forecast, February 2016

Los Angeles County

Professional Services and Technology: In terms of employment, the professional services super-sector is the second largest in Los Angeles County, with over 620,000 workers in 2015 (surpassed only by health care and education). There are three major industries in this group: professional, scientific and technical services; management of enterprises; and administrative, support and waste services. All saw solid gains in 2015. Professional, scientific and technical services was the largest of the three with 288,700 jobs in 2015. The industry, which includes legal, accounting, architecture, computer systems design, consulting, research and advertising, added 5,800 jobs, equivalent to a 2.0% growth rate. Management of enterprises, which encompasses corporate headquarters, is smaller at 61,100 jobs, but experienced a somewhat faster growth rate of 2.8% (1,700 jobs) over the same period. Finally, the administrative, support and waste services sector added 4,900 jobs (1.8%) for a total of 271,900. All three components of professional services and technology are expected see additional job gains in 2016 and 2017.

LOOKING AHEAD Los Angeles County has seen steady improvement over the past four years, both in terms of job gains and unemployment rate declines. This improvement is expected to continue in 2016 and 2017, although at a slower pace. With the economy back at full employment levels, wage gains are expected over the next year across many occupations. Households could experience significant gains in purchasing power this year as wage gains spread out more broadly than in recent years.

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36

Economic Forecast, February 2016

Los Angeles County

Los Angeles County Snapshot L.A. County Employment Growth, 2016

L.A. County Employment Growth, 2016

Total nonfarm job growth forecast for 2016 (thousands): +73.4 jobs

Total nonfarm job growth forecast for 2016, percent change: +1.7% Health Care & Social Asst Prof, Sci & Tech Srvs Admin. & Support Srvs Retail Trade Leisure & Hospitality Educational Services Wholesale Trade Construction Transport. & Utilities Mgmt. of Enterprises Government Information Real Estate, Rental & Leasing Other Services Finance & Insurance Manufacturing

20.9 11.4 9.8 7.9 7.9 3.5 2.9 2.7 2.7 2.5 2.3 2.0 0.5 0.1 -0.2 -3.1 -5.0

0.0

5.0

10.0

15.0

20.0

Annual Percent Change Prof, Sci & Tech Srvs Admin. & Support Srvs Health Care & Social Asst Educational Services Construction Retail Trade Total Nonfarm Employment Transport. & Utilities Leisure & Hospitality Wholesale Trade Information Real Estate, Rental & Leasing Government Other Services Finance & Insurance Manufacturing

3.9% 3.6% 3.2% 2.8% 2.1% 1.9% 1.7% 1.6% 1.6% 1.3% 1.0% 0.7% 0.4% 0.1% -0.2% -0.9%

25.0

-1.0%

-2.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Los Angeles County Employment

Los Angeles County Personal Income & Taxable Sales Growth

Annual average in thousands, 2015 benchmark Total Nonfarm Employment

Unemployment Rate

4,500

$Billions

14%

4,400

Total Personal Income

Taxable Sales Growth

700

10%

600

5%

12%

4,300 10%

4,200

500

4,100

8%

400

4,000

6%

300

0% -5%

3,900 3,800

-15%

100

2%

3,700

-10%

200

4%

-20%

0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

0%

3,600 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC

Source: EDD Labor Market Information Division; forecast by LAEDC

Home Sales & Median Prices Los Angeles County

Residential Building Permits Issued in Los Angeles County

New and existing, single-family homes and condos Sales

Price, Thousands

$600

35

10,000

$500

30

8,000

$400

6,000

$300

12,000

Permits issued, thousands Multi-Family Single-Family

25

4,000 2,000

$200 Home Sales

20

12.9

10 5

$100

11.8 11.9 10.1

'04

$0

12.6

10.2 7.5

0

Median Home Price 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

15.2 13.7 16.3

15

'05

'06

'07

3.5

3.5 2.1

'08

'09

14.3

18.5

20.9

23.1

8.0

8.0

2.4

2.4

2.8

3.6

4.4

4.3

'10

'11

'12

'13

'14

'15 '16f '17f

5.0

5.1

6.5

Source: CIRB, California Home Building Foundation, forecast by LAEDC Source: California Real Estate Research Council; DataQuick/CoreLogic

LAEDC Kyser Center for Economic Research

37

Economic Forecast, February 2016

Los Angeles County

Table 12: Los Angeles County Economic Indicators Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Population on July 1 (Thousands)

Nonfarm Em ploym ent (Ave., thousands)

9,822.5 9,809.6 9,787.3 9,773.9 9,796.8 9,805.2 9,839.4 9,902.6 9,946.9 10,056.4 10,123.7 10,192.4 10,253.5 10,294.5

4,079.1 4,119.9 4,194.5 4,229.0 4,185.4 3,951.0 3,890.0 3,911.6 4,010.5 4,129.8 4,226.4 4,321.1 4,394.5 4,438.5

% Change Column1

04/03 05/04 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14/13 15/14 16/15 17/16

0.3% -0.1% -0.2% -0.1% 0.2% 0.1% 0.3% 0.6% 0.4% 1.1% 0.7% 0.7% 0.6% 0.4%

Column2 0.6% 1.0% 1.8% 0.8% -1.0% -5.6% -1.5% 0.6% 2.5% 3.0% 2.3% 2.2% 1.7% 1.0%

Unem ploym ent Rate (Ave., %)

6.5 5.4 4.8 5.1 7.6 11.6 12.5 12.2 10.9 9.8 8.3 6.9 6.2 5.9 Column3

Total Personal Incom e ($Billions)

343.4 363.0 392.7 409.2 424.8 408.3 418.0 441.7 475.9 478.4 499.2 521.9 545.1 574.0 Column4 5.0% 5.7% 8.2% 4.2% 3.8% -3.9% 2.4% 5.7% 7.7% 0.5% 4.3% 4.5% 4.4% 5.3%

Per Capita Personal Incom e ($)

35,070 37,095 40,326 42,187 43,633 41,714 42,540 44,627 47,713 47,580 49,400 51,200 53,200 55,800 Column5 4.8% 5.8% 8.7% 4.6% 3.4% -4.4% 2.0% 4.9% 6.9% -0.3% 3.8% 3.6% 3.9% 4.9%

Total TaxableSales ($Billions)

Total Value of Tw oOvernight & w ay Trade Day Visitors ($Billions) (Millions)

122.5 130.7 136.2 137.8 131.9 112.7 116.9 126.4 135.3 140.1 147.1 151.4 159.8 170.6

261.7 291.6 326.4 347.3 355.8 282.9 346.8 386.7 403.5 414.5 416.6 393.4 393.7 431.7

Column6 7.8% 6.7% 4.2% 1.2% -4.3% -14.5% 3.7% 8.1% 7.0% 3.6% 5.0% 2.9% 5.5% 6.8%

Column7 12.4% 11.4% 11.9% 6.4% 2.5% -20.5% 22.6% 11.5% 4.3% 2.7% 0.5% -5.6% 0.1% 9.7%

------35.7 36.5 34.4 38.5 40.4 41.4 42.2 44.2 45.5 46.6 47.8

Housing Unit Perm its Issued

26,935 25,647 26,348 20,363 13,704 5,653 7,468 10,403 10,709 16,200 18,707 22,831 26,000 29,600

Column8 --------2.2% -5.8% 11.9% 4.9% 2.5% 1.9% 4.7% 2.9% 2.4% 2.6%

Column9 26.4% -4.8% 2.7% -22.7% -32.7% -58.7% 32.1% 39.3% 2.9% 51.3% 15.5% 22.0% 13.9% 13.8%

Nonresidential Building Perm its ($Millions)

Chg. in CPI (%)

3,174 3,824 3,896 4,739 4,491 2,674 2,677 3,119 1,803 3,585 6,658 5,464 5,967 6,431

3.3 4.5 4.3 3.3 3.5 -0.8 1.2 2.7 2.0 1.1 1.3 0.9 1.1 2.2

Column10 8.3% 20.5% 1.9% 21.6% -5.2% -40.5% 0.1% 16.5% -42.2% 98.8% 85.7% -17.9% 9.2% 7.8%

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce, Los Angeles Tourism and Convention Board, Construction Industry Research Board, California Homeb uilding Foundation; estimates and forecasts b y the LAEDC

LAEDC Kyser Center for Economic Research

38

Economic Forecast, February 2016

Los Angeles County

Table 13: Los Angeles County Nonfarm Employment Annual averages, thousands, March 2014 benchmark Year

Total Nonfarm Em ploym ent

Natural Resources

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

4,079.1 4,119.9 4,194.5 4,229.0 4,185.4 3,951.0 3,890.0 3,911.6 4,010.5 4,129.8 4,226.4 4,321.1

3.8 3.7 4.0 4.4 4.4 4.1 4.1 4.1 4.3 4.6 4.7 4.5

Construction

140.2 148.7 157.5 157.6 145.2 117.3 104.5 105.1 109.2 116.2 120.2 127.3

Manufacturing

M fg. -Durable

M fg .-Nondurable

Wholesale Trade

Retail Trade

Transport. & Utilities

Inform ation

485.9 474.0 464.1 449.4 434.7 389.3 373.3 366.9 367.4 368.2 364.9 361.6

270.1 265.7 259.6 251.0 243.3 217.6 207.1 204.2 204.3 204.3 203.1 201.1

215.9 208.4 204.5 198.4 191.3 171.7 166.3 162.8 163.1 163.8 161.8 160.4

213.4 217.6 224.0 227.4 224.1 204.8 203.4 205.8 211.9 218.7 223.5 231.3

405.5 414.5 423.4 426.1 416.6 387.1 386.5 393.0 401.0 406.0 414.5 422.4

161.2 161.7 165.2 165.6 163.1 151.2 150.6 151.8 154.5 157.5 162.7 166.0

212.0 207.7 205.7 209.9 210.4 191.3 191.6 192.0 191.5 196.4 195.9 195.8

2016f

4,394.5

4.1

130.0

358.5

199.1

159.4

234.2

430.4

168.7

197.8

2017f

4,438.5

3.9

137.1

360.5

200.3

160.3

234.0

432.6

169.2

198.3

Year

Finance & Insurance

Real Estate, Rental & Leasing

Prof, Sci & Tech Services

Mgm t. of Enterprises

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

Leisure & Hospitality

Other Services

Governm ent

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

163.1 164.4 167.0 163.7 154.0 142.3 137.9 137.0 138.8 137.1 133.3 132.4 132.2 128.4

76.7 77.8 79.8 80.3 79.4 73.8 71.7 71.6 72.2 74.7 76.4 78.2 78.7 78.8

238.0 251.2 264.3 274.1 269.8 250.4 245.8 255.8 269.0 278.1 282.9 288.7 300.1 310.4

71.2 67.6 63.0 58.8 56.7 54.4 53.2 55.3 56.7 58.2 59.4 61.1 63.5 65.8

254.0 258.0 272.3 273.1 256.8 225.6 229.1 232.9 245.9 258.4 267.0 271.9 281.6 290.3

95.5 97.5 99.4 102.9 105.1 110.1 111.1 114.3 115.7 119.8 122.8 126.3 129.8 130.9

454.3 469.7 481.7 495.1 513.9 529.9 526.2 528.9 558.6 599.8 625.3 647.1 667.9 675.9

372.8 377.8 388.6 397.9 401.6 385.6 384.8 394.7 415.4 439.3 464.6 484.2 492.1 496.1

144.7 144.3 145.2 147.1 146.1 138.0 136.7 137.0 141.7 145.7 151.7 155.6 155.7 153.9

587.1 583.7 589.4 595.7 603.7 595.8 579.6 565.5 556.8 551.2 556.7 566.7 569.0 572.4

Sources: California Employment Development Department, LMID; estimates and forecasts b y LAEDC.

LAEDC Kyser Center for Economic Research

39

Economic Forecast, February 2016

Orange County

ORANGE COUNTY INTRODUCTION The Orange County economy has been one of the standout performers in California. During the current economic cycle, its unemployment rate peaked in 2010 at 9.7%, falling to an average annual rate of 4.4% in 2015. By December of last year, the unemployment rate stood at 4.1%, the lowest in Southern California and the fourth lowest in the state. In 2016, the unemployment rate is expected to decline yet further to 3.5%, the lowest since 2006 when it was 3.4%. At its lowest point in this cycle, Orange County total nonfarm employment fell 10.4% below the previous peak reached in 2006. Last year, rising job counts pushed nonfarm employment past its previous peak (by 1.1%) to reach 1.54 million jobs, a new record high. The largest gains were in healthcare and social assistance (up by 6,900 jobs); construction (6,500 jobs); leisure and hospitality (6,000 jobs); and professional, technical and scientific services (5,500 jobs). In 2016, total nonfarm employment in Orange County is expected to average 1.58 million jobs, a gain of 2.5% over 2015 with an additional gain of 1.7% anticipated for 2017.

TRENDS IN MAJOR INDUSTRIES Health Care: Health care is a large and integral part of the Orange County economy. Over eleven percent of the county’s wage and salary jobs are in the health care sector. Employment in 2015 rose by 4.2% to 171,600 jobs, making it the largest private sector employer in the county. In 2016, employment is expected to reach 177,500 jobs, representing an annual gain of 3.4%. The health care industry has also had a major impact on commercial real estate in the county through the expansion of medical offices and healthcare facilities. As the industry grows, healthcare organizations, insurance companies and large employers are reshaping the region’s healthcare industry as they form new partnerships and alliances to expand their reach and control costs. Technology and Manufacturing: Orange County has a strong high-tech manufacturing sector that includes computer and related electronic products, aerospace parts and products and medical devices. These capital-intensive sectors rely on Orange County’s highly skilled and productive workforce to remain competitive. Manufacturing employment also accounts for nearly eleven percent of total nonfarm jobs in Orange County. However, unlike the healthcare sector, which has seen jobs increase by two-thirds since 2000, manufacturing jobs have declined by two-thirds. More recently, Orange County’s manufacturing sector has experienced a small resurgence, adding jobs at a moderate pace in four of the last five years with further gains anticipated in 2016 and 2017. About 73% of manufacturing jobs in Orange County are concentrated in durable goods (computers, machinery, aerospace parts and products, and medical devices). The balance of manufacturing workers produces nondurable goods such as pharmaceuticals, apparel and food. In 2015, total manufacturing jobs in Orange County increased by 2.7%

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Economic Forecast, February 2016

Orange County to 163,100 workers with all four of Orange County’s primary manufacturing sectors showing gains compared with 2014: fabricated metal products (up by 1.2%); machinery (1.0%); computer and electronic products (5.0%); and transportation equipment – primarily aerospace (1.3%). The LAEDC anticipates manufacturing employment will average 165,100 jobs for all of 2016, increasing to 167,000 in 2017. Real Estate and Construction: Orange County’s housing market has been recovering since 2012 but is like most parts of California and the nation in that it is still not fully normalized. Sales of existing homes (single-family and condominiums) have now risen on a year-over-year basis for nine of the past ten months. Median prices, on the other hand, have climbed year-over-year for 44 consecutive months. According to CoreLogic, the median home price in Orange County rose by 8.2% over the year in December to $630,000, which is just 4% below the previous peak reached in 2007. Strong demand (among both domestic and foreign buyers) and a lack of inventory have pushed up prices and reduced affordability, but have resulted in only a moderate pickup in new home building activity. The number of permits issued for new residential construction in 2015 increased by an estimated 7.4% to 11,428 compared with the previous year. In 2016, activity is expected to accelerate in response to job growth and rising wages, increasing to 13,600 new homes permitted, a gain of 19.0%. The local commercial and industrial real estate markets have made significant progress over the past year. Office and industrial vacancy rates continue to decline and lease rates are on the rise throughout the county. The overall office vacancy rate decreased by 2.1 percentage points to 11.5% during the last quarter of 2015 compared with the year ago rate. Direct class A asking rents increased by 6.3% to $2.70/square foot during the same period, while occupancy gains increased for all of 2015 by 26.6% to 1.7 million square feet. Orange County’s industrial market performed well in 2015, but it was constrained by a lack of new development. The industrial vacancy rate dropped to 2.8% during the final half of 2015, reaching a new record low. Net absorption last year was 2.4 million square feet compared with 1.7 million square feet in 2014. Meanwhile, the year closed with over 1.1 million square feet of new industrial space added to the market with an additional 625,000 square feet in development. Non-residential building permits edged up by 1.0% to nearly $2 billion in 2015 after increasing by 49.5% during the previous year. The bulk of the value of nonresidential construction in Orange County (and elsewhere in Southern California) continues to be remodels and renovations as opposed to new structures. Leasing fundamentals are expected to further strengthen through 2016, paving the way for more substantial gains in new non-residential construction next year. For a more detailed discussion of the region’s real estate and construction sector, see the Real Estate and Construction section of this report. Leisure and Hospitality: Tourism is one of Orange County’s most important industries and is its second largest industry employer after healthcare. The Orange County Visitor and Convention Bureau reported that over 47 million people (including 4.3 million international travelers) visited Orange County and spent $11.3 billion in 2015. Visitor counts and spending are expected to continue to increase at a moderate pace this year and next. LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Orange County Attractions like Disneyland, Fashion Island, and the county’s spectacular beaches are drawing increasing numbers of international visitors, particularly tourists from China and the Middle East. Orange County is also a major convention destination. In the spring of 2015, the Anaheim Convention Center began work on an expansion to increase total meeting space to one million square feet. In the lodging sector, both occupancy rates and average daily room rates continue to achieve new peak levels. Countywide occupation averaged 77.8% in 2015 while the average daily room rate increased by 6.1% over the 19 year to $156.74. After once again achieving record high employment levels in 2015, leisure and hospitality jobs in Orange County are projected to increase by 2.0% to 203,400 workers in 2016.

LOOKING AHEAD The Orange County economy has made significant headway over the last six years in terms of economic growth and job creation. As employment prospects continue to improve, the population will grow moderately, although the high cost of housing will constrain that growth. An increase in population of about 1.0% is expected this year and next. Most of the recent population growth in the county has come from natural increases (births outnumbering deaths), as opposed to migration. Along with job growth and higher incomes, rising home values all point to strong consumer spending with total taxable sales rising by 6.2% this year and next. Since the 1950s, Orange County’s economy has evolved from one based largely on agriculture to what it is today – an economy rooted in the high-tech and biomed industries, health care, tourism and professional business services. Facilitating the transformation of Orange County’s economy was its success in attracting a highly skilled workforce. Home to well regarded colleges and universities, nearly 84% of the adult population in Orange County has a high school diploma and roughly 37% has a bachelor’s degree or higher, both above the statewide average. Quality of life is another attribute in which Orange County ranks high. Orange County’s “new economy” and traditional industries alike will continue to expand, leading to economic and job growth over the forecast period, providing opportunities for the region’s talented workers.

19

2016 Southern California Lodging Forecast”, PKF Consulting USA/CRBR Hotels

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Economic Forecast, February 2016

Orange County

Orange County Snapshot Orange County Employment Growth, 2016

Orange County Employment Growth, 2016 Total nonfarm job growth forecast for 2016, percent change: +2.5%

Total nonfarm job growth forecast for 2016 (thousands): +38.6 jobs

Annual Percent Change Health Care & Social Asst Admin. & Support Srvs Leisure & Hospitality Retail Trade Construction Government Manufacturing Wholesale Trade Educational Services Mgmt. of Enterprises Other Services Real Estate, Rental & Leasing Transport. & Utilities Information Natural Resources Finance & Insurance

5.9 4.3 3.9 3.8 2.8 2.1 2.0 1.8 1.0 0.9 0.8 0.8 0.7 0.2 0.0 -0.3 -1

0

1

2

3

4

5

6

Prof, Sci & Tech Srvs Educational Services Health Care & Social Asst Admin. & Support Srvs Construction Mgmt. of Enterprises Retail Trade Transport. & Utilities Total Nonfarm Employment Wholesale Trade Leisure & Hospitality Real Estate, Rental & Leasing Other Services Government Manufacturing Information Natural Resources Finance & Insurance

6.0% 3.5% 3.4% 3.4% 3.1% 3.1% 2.5% 2.5% 2.5% 2.2% 2.0% 2.0% 1.6% 1.4% 1.2% 1.0% 0.0% -0.3%

7

-2.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

0.0%

2.0%

4.0%

6.0%

8.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Orange County Personal Income & Taxable Sales Growth

Orange County Employment Annual average in thousands, 2015 benchmark Total Nonfarm Employment

1,650

Unemployment Rate

1,600 1,550 1,500

$Billions 12%

250

10%

200

Total Personal Income

Taxable Sales Growth 10% 5% 0%

8% 150

1,450

-5%

6%

1,400

100

1,350

-10%

4%

1,300

2%

1,250 1,200

50

-15%

0

0%

-20% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC Source: EDD Labor Market Information Division; forecast by LAEDC

Home Sales & Median Prices Orange County

Residential Building Permits Issued in Orange County

New and existing, single-family homes and condos Sales

18

Price, Thousands

4,500

$700

4,000

$600

14

$500

12

$400

10

3,500 3,000 2,500 2,000

8

$300

1,500

6

$200

4

$100

2

$0

0

1,000 Home Sales 500

Median Home Price

0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: California Real Estate Research Council; DataQuick/CoreLogic

LAEDC Kyser Center for Economic Research

Multi-Family Single-Family

Permits issued, thousands

16

10.6 9.2 4.9

3.1

4.6

4.1

3.7

'04

'05

'06

7.0

7.8

4.0

4.9

4.4

6.2

2.2

1.9 1.3

0.8 1.4

1.5 1.6

'07

'08

'09

'10

2.9

4.4

5.2

1.9

2.8

3.8

3.6

3.6

'11

'12

'13

'14

'15 '16f '17f

Source: CIRB, California Home Building Foundation, forecast by LAEDC

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Economic Forecast, February 2016

Orange County

Table 14: Orange County Economic Indicators Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Population on Nonfarm July 1 Em ploym ent (Thousands) (Ave., Thousands)

2,956.5 2,957.2 2,955.4 2,965.8 2,982.8 2,998.8 3,017.2 3,051.5 3,086.3 3,113.4 3,139.6 3,165.2 3,198.1 3,230.6

% Change Colum n1

04/03 05/04 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14/13 15/14 16/15 17/16

0.6% 0.0% -0.1% 0.4% 0.6% 0.5% 0.6% 1.1% 1.1% 0.9% 0.8% 0.8% 1.0% 1.0%

Unem ploym ent Rate (Ave., %)

Total Personal Incom e ($Billions)

Per Capita Personal Incom e ($)

4.2 3.7 3.4 3.9 5.3 8.7 9.7 9.0 7.8 6.5 5.5 4.4 3.5 3.2

128.9 137.3 146.4 147.5 148.9 140.2 144.9 154.5 165.0 165.9 173.8 183.5 193.1 204.3

43,805 46,702 49,931 50,315 50,334 46,924 48,007 50,547 53,390 53,128 55,096 58,000 60,400 63,300

1,462.1 1,496.7 1,525.1 1,521.7 1,490.0 1,383.5 1,366.7 1,382.4 1,419.6 1,459.4 1,495.9 1,543.3 1,581.9 1,608.8 Colum n2

Colum n3

2.0% 2.4% 1.9% -0.2% -2.1% -7.1% -1.2% 1.1% 2.7% 2.8% 2.5% 3.2% 2.5% 1.7%

Colum n4

5.7% 6.5% 6.6% 0.8% 0.9% -5.8% 3.4% 6.6% 6.8% 0.5% 4.8% 5.6% 5.2% 5.8%

Colum n5

5.3% 6.6% 6.9% 0.8% 0.0% -6.8% 2.3% 5.3% 5.6% -0.5% 3.7% 5.3% 4.1% 4.8%

Total Total Overnight TaxableSales & Day Visitors ($Billions) (Millions)

51.7 55.1 57.2 57.3 53.6 45.7 47.7 51.7 55.2 57.6 60.2 62.3 66.2 70.3 Colum n6

8.8% 6.5% 3.9% 0.2% -6.4% -14.7% 4.3% 8.5% 6.8% 4.3% 4.5% 3.4% 6.2% 6.2%

43.5 44.7 44.9 44.3 43.1 42.7 42.7 42.9 43.8 44.4 45.7 47.3 48.5 49.5 Colum n7

1.7% 2.8% 0.4% -1.3% -2.7% -1.0% 0.1% 0.5% 2.1% 1.4% 2.9% 3.5% 2.5% 2.1%

Housing Unit Perm its Issued

Nonresidential Building Perm its ($Millions)

9,322 7,206 8,371 7,072 3,159 2,200 3,091 4,807 6,862 9,936 10,636 11,428 13,600 15,800

1,133 1,495 2,401 2,005 1,439 952 1,152 1,300 1,227 1,301 1,945 1,965 2,025 2,124

Colum n8

0.1% -22.7% 16.2% -15.5% -55.3% -30.4% 40.5% 55.5% 42.8% 44.8% 7.0% 7.4% 19.0% 16.2%

Colum n9

12.6% 32.0% 60.6% -16.5% -28.2% -33.8% 21.0% 12.8% -5.6% 6.0% 49.5% 1.0% 3.1% 4.9%

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce, CIC Research, Inc., Construction Industry Research Board; California Homeb uilding Foundation; estimates and forecasts b y the LAEDC

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Economic Forecast, February 2016

Orange County

Table 15: Orange County Nonfarm Employment Annual averages, thousands, March 2014 benchmark

Year

Total Nonfarm Em ploym ent

Natural Resources

M fg. -Durable

M fg .-Nondurable

Wholesale Trade

Retail Trade

Transport. & Utilities

Inform ation

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1,462.1 1,496.7 1,525.1 1,521.7 1,490.0 1,383.5 1,366.7 1,382.4 1,419.6 1,459.4 1,495.9 1,543.3

0.6 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7

92.2 99.9 106.6 103.1 91.2 74.2 68.0 69.2 71.3 76.8 82.0 88.5

183.5 182.9 182.7 180.4 174.1 154.9 150.5 154.3 158.3 158.0 158.8 163.1

127.1 128.3 128.0 126.2 122.6 109.1 106.5 110.8 114.4 115.1 116.6 119.6

56.4 54.6 54.7 54.2 51.5 45.7 43.9 43.5 43.9 43.0 42.2 43.5

82.6 83.2 83.9 87.1 86.9 79.6 77.8 77.3 77.2 79.4 81.7 83.3

153.3 158.2 160.9 161.2 155.9 143.0 141.3 142.6 144.0 145.5 148.7 150.5

29.2 28.7 28.2 28.9 29.3 27.8 26.7 27.5 28.0 27.5 26.6 28.0

33.8 32.8 31.9 31.2 30.1 27.3 24.8 23.8 24.3 25.0 24.2 23.9

2016f

1,581.9

0.7

91.3

165.1

121.4

43.7

85.1

154.3

28.7

24.1

2017f

1,608.8

0.7

96.6

167.0

123.1

43.9

85.6

155.6

29.0

24.3

Year

Finance & Insurance

Real Estate, Rental & Leasing

Prof, Sci & Tech Srvs

Mgm t. of Enterprises

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

Leisure & Hospitality

Other Services

Governm ent

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

96.1 101.0 99.1 89.2 76.1 70.6 69.4 71.2 73.8 77.0 76.2 76.8 76.5 75.1

36.3 37.5 39.1 38.6 37.0 34.6 34.1 33.6 34.5 36.1 37.9 39.2 40.0 40.4

97.8 103.4 109.5 113.7 116.2 107.3 106.2 108.8 113.3 116.5 122.4 127.9 135.6 142.9

30.6 30.0 28.9 27.9 26.3 25.0 23.9 24.7 26.4 27.7 28.7 29.1 30.0 30.7

126.9 131.3 136.6 132.2 124.7 108.9 114.8 114.3 120.9 123.2 124.7 126.4 130.6 133.9

19.2 19.8 20.8 21.6 23.6 23.4 23.6 24.4 24.7 25.2 25.7 28.7 29.7 30.1

Construction Manufacturing

116.3 118.7 122.3 126.6 134.3 138.0 141.9 143.7 149.2 159.0 164.7 171.6 177.5 180.1

162.9 165.0 169.6 172.9 176.4 169.2 168.6 174.0 180.6 187.8 193.5 199.5 203.4 205.8

47.4 48.4 47.7 47.4 46.5 42.6 42.2 43.2 44.6 45.6 47.7 51.0 51.8 51.6

153.4 155.3 156.7 159.4 160.8 156.6 152.3 149.3 147.9 148.7 151.9 155.4 157.5 159.4

Sources: California Employment Development Department, LMID; estimates and forecasts b y LAEDC

LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Riverside and San Bernardino Counties

RIVERSIDE AND SAN BERNARDINO COUNTIES INTRODUCTION Job growth in the Inland Empire, as the combined Riverside County-San Bernardino County region is known, outpaced the state and the rest of Southern California for the fourth year in a row in 2015. This has been a welcome development, as the Inland Empire suffered a more severe blow during the Great Recession and took longer to turn around. Job gains have brought the unemployment rate down and contributed to rising personal income, which has supported growth in a number of consumer-driven industries. Wage and salary (nonfarm) jobs in the Inland Empire grew at a rate of 3.8% in 2015, outpacing the state’s 3.0% growth rate during the same year. With 1.33 million jobs in 2015, the region has finally surpassed the prerecession annual peak of 1.29 million jobs from 2007, about six years after the technical end of the recession. The unemployment rate in 2015 fell to 6.5%, down from 8.2% a year earlier, and down significantly from the recession-era peak of 13.7% in 2010. Job creation accounted for most of the decline in the unemployment rate last year, as the labor force increased by 1.2% from 2014 to 2015. The composition of employment gains in the Inland Empire was broad-based with many strong performers, including business and professional services, goods movement, leisure and hospitality, construction and manufacturing. Manufacturing had its largest gains since 2004, growing by 3.9% last year. Noteworthy increases also occurred in construction and government, the latter finally recovering from the job cuts in the wake of the recession when local government coffers were severely depleted. While consumer-serving industries such as leisure and hospitality have seen large gains in absolute terms, other business-serving industries (transportation and warehousing, wholesale trade, professional, scientific and technical services) have also added jobs. Administrative, support and waste services led the way, growing by 9.4% on a year-overyear basis while professional, scientific and technical services grew by 7.5% in 2015. Meanwhile, natural resources and mining and information lost jobs during the course of the year, not unlike many other parts of Southern California.

TRENDS IN MAJOR INDUSTRIES Goods Movement: The goods movement industry includes transportation and warehousing along with wholesaling. The industry employed over 150,000 workers in the Inland Empire in 2015, accounting for almost 12% of total nonfarm employment. Last year, transportation and warehousing employment rose by 6,400 jobs to 93,700, an annual gain of 7.3%. Wholesale trade added 3,600 jobs (a 6.1% yearly gain) over the same period, with employment averaging 62,600 jobs in 2015. Over the last two years, with the national economy moving forward, the region’s goods movement industry has benefited from an increase in activity at the Ports of Los Angeles and Long Beach. The number of containers passing through the twin ports hovered

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Economic Forecast, February 2016

Riverside and San Bernardino Counties around 14 million from 2010 through 2012, but jumped by 3.8% to 15.2 million in 2014, and edged up by 1.6% to 15.4 million in 2015, despite labor disputes and port congestion. The outlook for 2016 is a modest gain of 1.6% to 15.6 million containers. Accordingly, transportation and warehousing employment along with wholesaling should hit new record highs in 2016 and in 2017. Real Estate: The Inland Empire is a relatively affordable alternative to the more expensive coastal regions of Southern California. Last year, the region’s housing market performed well, with job growth and low interest rates driving demand. In December, home sales were up by 6.8% over the year. The median price of a home in Riverside County returned to levels that were last seen in early 2008, with a 2015 median price of $310,500. The median price of a home in San Bernardino County was $272,000, also roughly on par with home prices in early 2008. Overall, the Inland Empire continued to see steady price appreciation for the fourth year in a row. Price increases have been due to limited supplies of homes for sale, and to rising demand resulting form higher incomes and demographic pressures. On the supply side, low inventories have constrained sales. The unsold inventory (supply) of existing homes in Riverside County was just 4.4 months in December while the figure for San Bernardino was 3.5 months. Both readings were higher than a year ago, but continue to be somewhat below long-run average levels. Demand has been hindered by declining affordability and stricter underwriting standards. New home construction responded to tight market conditions and higher home prices in 2013 with a 46.3% increase in housing permits. This trend was expected to continue through 2014 and into 2015, but uncertainty about the future direction of the market depressed homebuilding activity in 2015, which fell by 4.7%. With pent-up demand expected to speed up the housing market over the next two years, permits for new home construction should advance more quickly, with an increase of 22.1% expected in 2016 followed by a gain of 24.6% in 2017. Permit levels will remain well below peak levels of the last decade, however. About three out of four homes built in 2015 were single-family homes, a pattern that should continue into 2016 and 2017. The Inland Empire housing market will register additional gains in 2016. The supply of new and existing homes for sale should increase in response to stronger demand as the population grows and as the financial condition of households in the region improves. In turn, both higher home prices and sales are expected. For a more detailed discussion of the region’s housing market, see the Real Estate and Construction section of this report.

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Economic Forecast, February 2016

Riverside and San Bernardino Counties

LOOKING AHEAD While job growth in 2015 did not acheive the 4.3% growth rate of the previous year, the 3.8% increase was still among the fastest in the state. Employment should expand by an additional 3.1% in 2016 before slowing to 2.6% in 2017, with annual wage and salary employment expected to hit a new high this year. As the region’s industries grow over this year and next, the unemployment rate will fall from 6.6% in 2015 to 5.6% this year and 5.1% in 2017, well below the 8.8% average since 2004. As the economy moves forward and population growth accelerates, personal income will grow by 5.5% in 2016 and 6.3% in 2017, and give rise to further gains in taxable sales and continued job growth in population-serving industries.

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Economic Forecast, February 2016

Riverside and San Bernardino Counties

Inland Empire Snapshot Inland Empire Employment Growth, 2016

Inland Empire Employment Growth, 2016 Total nonfarm job growth forecast for 2016, percent change: +3.1%

Total nonfarm job growth forecast for 2016 (thousands): 41.4 jobs 7.4 5.0 4.9 4.2 4.1 3.9 3.4 2.6 2.3 1.7 0.8 0.4 0.3 0.2 0.2 0.0 0

0

0

0

0

0

0

0

0

5.9%

Unemployment Rate

1,600

16%

1,400

14%

1,200

12%

1,000

10% 8%

600

6%

400

4% 2%

0

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Inland Empire Personal Income & Taxable Sales Growth

Annual average in thousands, 2015 benchmark

200

0.0%

Prof, Sci & Tech Srvs Admin. & Support Srvs Construction Mgmt. of Enterprises Transport. & Utilities Health Care & Social Asst Educational Services Wholesale Trade Total Nonfarm Employment Leisure & Hospitality Information Government Retail Trade Manufacturing Real Estate, Rental & Leasing Finance & Insurance Other Services

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Inland Empire Employment

800

5.1% 4.7% 4.6% 4.4% 4.1% 4.0% 3.7% 3.1% 2.8% 2.2% 2.2% 2.0% 1.8% 1.3% 1.1% 0.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Total Nonfarm Employment

Annual Percent Change

Health Care & Social Asst Government Admin. & Support Srvs Leisure & Hospitality Transport. & Utilities Construction Retail Trade Prof, Sci & Tech Srvs Wholesale Trade Manufacturing Educational Services Mgmt. of Enterprises Finance & Insurance Information Real Estate, Rental & Leasing Other Services

$Billions

Total Personal Income

Taxable Sales Growth

200

20%

180

15%

160

10%

140 120

5%

100

0%

80

-5%

60

-10%

40 20

-15%

0

-20% '04 '05 '06 '07 08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

0% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 16f 17f

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC

Source: EDD Labor Market Information Division; forecast by LAEDC

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Economic Forecast, February 2016

Riverside and San Bernardino Counties

Inland Empire Snapshot Home Sales & Median Prices Riverside County

Home Sales & Median Prices San Bernardino County

New and existing, single-family homes and condos

New and existing, single-family homes and condos

Sales

Price, Thousands

7,000 6,000

$450

5,000

$400

4,500

$350

Sales

Price, Thousands

$400 $350

4,000 $300 3,500

5,000

$300

4,000

$250

3,000 2,000 Home Sales Median Home Price

1,000

2,500

$200

$200

2,000

$150

$150

1,500

$100

1,000

$50

0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

$250

3,000

$0

$100 Home Sales Median Home Price

500

0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

$50 $0

Source: California Real Estate Research Council; DataQuick/CoreLogic

Source: California Real Estate Research Council; DataQuick/CoreLogic

Residential Building Permits Issued in the Inland Empire 60 50

Permits issued, thousands 9.2

Multi-Family Single-Family

5.5

40

5.8

30 20

43.5 45.3

33.3 4.5

10

16.0

0 '04

'05

'06

'07

2.5

2.6

2.7

3.2 2.4

4.7

6.1

6.9

7.3

'12

'13

'14

'15 '16f '17f

3.3

1.8 1.2

1.3

5.8

1.5

4.9

5.2

3.7

'08

'09

'10

'11

9.2 11.8

Source: CIRB, California Home Building Foundation, forecast by LAEDC

LAEDC Kyser Center for Economic Research

50

Economic Forecast, February 2016

Riverside and San Bernardino Counties

Table 16: Inland Empire Economic Indicators Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Population on July 1 (Thousands)

3,757.1 3,877.5 3,994.1 4,085.3 4,139.4 4,180.7 4,239.1 4,291.7 4,329.7 4,367.4 4,414.9 4,458.8 4,527.7 4,606.3

% Change Column1 04/03 3.7% 05/04 3.2% 06/05 3.0% 07/06 2.3% 08/07 1.3% 09/08 1.0% 10/09 1.4% 11/10 1.2% 12/11 0.9% 13/12 0.9% 14/13 1.1% 15/14 1.0% 16/15 1.5% 17/16 1.7%

Nonfarm Em ploym ent Unem ploym ent Rate (Ave., %) (Ave., thousands)

1,173.3 1,236.2 1,282.4 1,286.2 1,243.1 1,163.2 1,144.7 1,148.0 1,180.3 1,231.9 1,285.1 1,333.5 1,374.9 1,410.6 Column2 5.7% 5.4% 3.7% 0.3% -3.4% -6.4% -1.6% 0.3% 2.8% 4.4% 4.3% 3.8% 3.1% 2.6%

5.9 5.3 4.9 5.8 8.3 12.9 13.7 13.0 11.5 9.8 8.2 6.5 5.6 5.1 Column3

Total TaxableSales ($Billions)

Nonresidential Building Perm its ($Millions)

Total Personal Incom e ($Billons)

Per Capita Personal Incom e ($)

103.5 110.8 119.0 124.0 126.6 122.8 125.4 132.5 136.9 141.0 147.7 156.6 165.2 175.6

27,546 28,586 29,859 30,491 30,776 29,518 29,542 30,793 31,489 32,112 33,258 35,100 36,500 38,100

51.4 58.0 61.1 59.5 53.8 45.9 47.8 53.0 57.6 61.2 64.8 67.8 73.0 78.3

52,696 50,818 39,083 20,457 9,101 6,685 6,404 5,214 6,034 8,829 10,141 9,665 11,800 14,700

2,485 2,394 2,852 2,824 1,781 710 792 921 1,040 1,343 1,942 1,910 2,160 2,386

Column4 8.6% 7.1% 7.4% 4.2% 2.1% -3.0% 2.1% 5.7% 3.4% 3.0% 4.8% 6.0% 5.5% 6.3%

Column5 4.8% 3.8% 4.5% 2.1% 0.9% -4.1% 0.1% 4.2% 2.3% 2.0% 3.6% 5.5% 4.0% 4.4%

Column6 16.1% 12.7% 5.4% -2.7% -9.6% -14.7% 4.3% 10.7% 8.8% 6.3% 5.8% 4.7% 7.6% 7.2%

Column7 22.5% -3.6% -23.1% -47.7% -55.5% -26.5% -4.2% -18.6% 15.7% 46.3% 14.9% -4.7% 22.1% 24.6%

Column8 44.5% -3.7% 19.1% -1.0% -37.0% -60.1% 11.5% 16.3% 12.9% 29.1% 44.6% -1.6% 13.1% 10.5%

Housing Unit Perm its Issued

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce Construction Industry Research Board; estimates and forecasts b y the LAEDC

LAEDC Kyser Center for Economic Research

51

Economic Forecast, February 2016

Riverside and San Bernardino Counties

Table 17: Inland Empire Nonfarm Employment Annual averages, thousands, March 2014 benchmark Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Total Nonfarm Em ploym ent

1,173.3 1,236.2 1,282.4 1,286.2 1,243.1 1,163.2 1,144.7 1,148.0 1,180.3 1,231.9 1,285.1 1,333.5 1,374.9 1,410.6

Natural Resources

1.2 1.4 1.4 1.3 1.2 1.1 1.0 1.0 1.2 1.2 1.3 1.2 1.2 1.2

Construction

111.8 123.3 127.5 112.5 90.7 68.0 59.7 59.1 62.6 70.0 77.0 82.2 86.0 93.3

Manufacturing

M fg. -Durable

120.1 121.0 123.4 118.5 106.9 88.8 85.2 85.1 86.7 87.3 90.2 93.7 95.3 97.6

85.5 86.1 86.9 82.1 72.5 58.2 55.4 55.8 56.9 57.3 59.8 62.0 63.0 64.4

M fg .-Nondurable

34.6 35.0 36.5 36.5 34.3 30.6 29.8 29.3 29.8 30.1 30.4 31.7 32.4 33.2

Wholesale Trade

45.7 50.0 54.3 56.9 54.2 49.0 48.7 49.2 52.2 56.4 59.0 62.6 64.9 66.6

Retail Trade

153.6 165.3 172.5 175.6 168.6 156.2 155.5 158.5 162.4 164.8 168.7 169.6 173.0 174.4

Transport. & Utilities

Inform ation

56.3 61.6 65.7 69.5 70.2 66.8 66.6 68.8 73.9 79.4 87.3 93.7 97.8 100.8

14.0 14.5 15.3 15.4 14.8 14.1 14.0 12.2 11.7 11.5 11.2 11.2 11.4 11.7

Finance & Insurance

Real Estate, Rental & Leasing

Prof, Sci & Tech Services

Mgm t. of Enterprises

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

Leisure & Hospitality

Other Services

Governm ent

28.0 30.1 31.6 30.3 27.4 26.0 25.5 25.3 26.0 26.5 26.5 27.6 27.9 27.7

17.7 18.9 19.9 19.5 18.7 16.6 15.5 14.6 14.9 15.6 16.2 16.9 17.1 17.0

31.0 35.1 39.9 40.5 40.5 37.8 34.9 35.7 36.8 37.9 40.5 43.5 46.1 48.5

11.6 12.0 10.8 9.8 9.7 8.9 8.5 8.6 8.5 8.8 8.9 9.2 9.6 10.0

83.1 86.3 91.8 95.2 88.1 78.7 80.1 81.8 82.3 85.7 88.4 96.7 101.6 106.1

13.4 13.6 14.1 15.0 15.7 16.3 15.6 15.8 16.3 17.6 18.6 19.6 20.3 20.8

118.0 120.3 122.5 127.2 133.6 138.7 138.5 141.8 150.9 166.9 175.0 177.9 185.3 189.7

116.7 122.6 128.1 132.6 131.0 123.8 122.8 124.0 129.4 135.9 144.3 151.7 155.8 158.8

38.8 39.9 41.2 41.2 40.8 37.3 38.2 39.1 40.1 41.1 43.2 43.7 43.7 43.7

212.5 220.4 222.5 225.3 231.0 235.2 234.3 227.5 224.6 225.2 228.8 232.7 237.7 242.7

Sources: California Employment Development Department, LMID; forecasts b y LAEDC

LAEDC Kyser Center for Economic Research

52

Economic Forecast, February 2016

San Diego County

SAN DIEGO COUNTY INTRODUCTION With 3.3 million residents, San Diego County is the second largest in California in terms of population. The City of San Diego is the largest of the county’s 18 cities, and is second in population in the state after the City of Los Angeles. With several companies engaged in life sciences and technology as well as a number of higher education institutions, the county’s residents have higher levels of educational attainment compared to the state as a whole. The county added 41,400 wage and salary (nonfarm) jobs, increasing its job base from 1.35 million in 2014 to 1.39 million in 2015. This corresponded to a 3.1% annual growth rate, which outpaced the nation (2.1%) and edged out the state (3.0%). In turn, the county’s unemployment rate fell from 6.4% a year ago to 5.1% in 2015, well below the long run rate of 6.0%. The county will see continued job gains this year and next, with a 2.5% gain expected this year followed by a more modest 1.8% increase next year. Job gains will contribute to a lower unemployment rate, which will fall to 4.2% this year and 3.9% next year. Economic gains and increases in population tend to go hand in hand, so it is no surprise that population growth in San Diego County will accelerate from 0.9% in 2015 to 1.2% both this year and next. Ninety percent of the county’s population growth last year came from natural increases (births outnumbering deaths), markedly higher than in previous years. Migration’s (mostly international) contribution to population growth will likely increase this year and next, Along with job and population gains, the county will also see increases in per capita income (mid-four percent this year and next), which in turn will trigger higher consumer spending as measured by total taxable sales. Last year was a good one for San Diego’s housing market. The median price for all homes was $475,000 in December, up 8.0% from a year earlier but still shy of the January 2006 peak of $510,000. Sales for all of 2015 rose by 9.0% over the previous year, consistent with the trend for California as a whole. New home construction rose sharply in 2015 after a drop the year before. Building permits rose by 52.2% from 6,603 units in 2014 to 10,049 units in 2015. Significant increases are expected this year and next, supported by increases in income, demographics, and an urgency to beat higher rates in the future. For a more detailed discussion of the region’s housing market, see the Real Estate and Construction section of this report.

TRENDS IN MAJOR INDUSTRIES Every industry in the county added jobs last year except for mining and logging, which was flat. The biggest percentage gains showed up in professional, scientific, and technical services (6.6%), construction (6.5%), and real estate, rental, and leasing (4.9%). In absolute terms, professional, scientific and technical services added the largest number of jobs (8,600), followed by health care and social assistance (7,000), and

LAEDC Kyser Center for Economic Research

53

Economic Forecast, February 2016

San Diego County leisure and hospitality (6,500 jobs). Job gains in the government sector accelerated in response to the improved fiscal circumstances of state and local jurisdictions. Most industries are expected to add jobs in 2016, led once again by professional, scientific, and technical services, health care and social services, and leisure and hospitality. Aerospace and Defense: San Diego County’s transportation equipment industry has close ties to the local defense sector. It includes both aerospace and ship building. Transportation equipment manufacturing jobs edged up from 14,400 jobs in 2014 to 15,400 jobs in 2015, mainly because of increases in ship building. The Pentagon budget outlook remains uncertain, but much of the work being done by local contractors is related to work on systems should continue in the near future regardless of the overall budget picture: cyber security, intelligence surveillance, defense-related electronics and software and unmanned aerial systems. Agriculture: San Diego County farm employment rose 3.0% last year from 10,000 jobs in 2014 to 10,300 in 2015. County crop sales totaled $1.82 billion in 2014 (the latest 20 available), just shy of the $1.85 billion record from 2013. The largest commercial crops were ornamental trees and shrubs, followed by indoor flowering and foliage plants. San Diego growers do face challenges in the coming years, the most significant being high land costs and uncertainty about the cost and supply of water. Biotechnology and Health Care: San Diego’s life sciences sector benefits from its close ties to the area’s research institutions and from the county’s long-standing efforts to support and grow the industry. During the fourth quarter of 2015, San Diego County 21 ranked third in the nation in the total amount of life sciences venture capital received. The county’s health care and social assistance industry is expanding, similar to the trend elsewhere in the state. The industry employed 163,500 workers in 2015, up 7,000 jobs (4.5%) from a year earlier. Job gains were distributed across ambulatory and health care services, hospitals, and nursing and residential care facilities. With its advanced treatment and diagnostic facilities, San Diego is a center for both medical research and medical services. Tourism and Hospitality: Last year was expected to be another record year for San Diego’s travel and tourism industry, with estimated visitor expenditures increasing by seven percent to $9.9 billion. The number of visitors hit a record high of 34.2 million in 22 2015, and is expected to hit record high levels again this year and next. Hotel occupancy rates and average daily rates will continue to rise over this year and next. With demand for hotel rooms outpacing new supply, several new hotels are being built across the county while existing hotels are undergoing extensive renovations.

20

San Diego Farm Bureau, San Diego Crop Statistics and Annual Report, 2014

21

PwC MoneyTree

22

San Diego Tourism Authority

LAEDC Kyser Center for Economic Research

54

Economic Forecast, February 2016

San Diego County With continued growth in tourism and in the local economy as a whole, leisure and hospitality employment will grow through 2016. Leisure and hospitality is expected to increase by 2.7%, from 183,300 jobs in 2015 to 188,200 this year, followed by a 1.5% (2,900 jobs) gain expected next year.

LOOKING AHEAD In the near future, San Diego’s economy is expected to match or exceed the state’s pace of job growth and experience job gains across most of its industries. This will cut the county’s unemployment rate from 5.1% in 2015 to 4.2% in 2016, with the rate dropping below 4% in 2017. The region will continue to benefit from its role as an innovation hub for telecommunications, medical devices and life sciences, and high-tech manufacturing. Moreover, San Diego will remain a popular travel destination.

LAEDC Kyser Center for Economic Research

55

Economic Forecast, February 2016

San Diego County

San Diego County Snapshot San Diego County Employment Growth, 2016

San Diego County Employment Growth, 2016 Total nonfarm job growth forecast for 2016, percent change: +2.5%

Total nonfarm job growth forecast for 2016 (thousands): +34.7 jobs

Annual Percent Change Prof, Sci & Tech Srvs Health Care & Social Asst Leisure & Hospitality Retail Trade Admin. & Support Srvs Government Construction Real Estate, Rental & Leasing Educational Services Wholesale Trade Mgmt. of Enterprises Transport. & Utilities Manufacturing Finance & Insurance Information Other Services

7.1 5.8 4.9 3.3 3.0 2.6 2.2 1.3 1.0 0.9 0.8 0.8 0.8 0.6 0.3 -0.4 -1

0

1

2

3

4

5

6

7

8

3.7% 3.6% 3.5% 3.3% 3.1% 2.8% 2.7% 2.5% 2.3% 2.1% 1.3% 1.1% 1.0% 0.8% -0.8% -2.0% -1.0%

Source: CA EDD, Labor Market Information Division; forecast by LAEDC

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Prof, Sci & Tech Srvs Real Estate, Rental & Leasing Admin. & Support Srvs Mgmt. of Enterprises Health Care & Social Asst Construction Educational Services Transport. & Utilities Leisure & Hospitality Total Nonfarm Employment Retail Trade Wholesale Trade Finance & Insurance Government Information Manufacturing Other Services

6.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

San Diego County Employment Annual average in thousands, 2015 benchmark Total Nonfarm Employment

5.1% 4.5%

Unemployment Rate

1,500

12%

1,450

San Diego County Personal Income & Taxable Sales Growth $Billions 250

Total Personal Income

Taxable Sales Growth

10%

10% 200

5%

150

0%

100

-5%

2%

50

-10%

0%

0

1,400 8%

1,350 1,300

6%

1,250

4%

1,200 1,150 1,100 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f

-15% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

Source: EDD Labor Market Information Division; forecast by LAEDC

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC

Home Sales & Median Prices San Diego County

Residential Building Permits Issued in San Diego County

New and existing, single-family homes and condos 5,000

Sales

Price, Thousands

$600

20

$500

16

4,000

14

3,500

12

$400

3,000 2,500

500

6

$200 Home Sales Median Home Price

0

7.4

8

2,000 1,000

Multi-Family Single-Family

7.8

10

$300

1,500

Permits issued, thousands

18

4,500

4

6.0 9.6

7.9

2

$100

3.9 2.8

4.8

3.5

'06

'07

0 '04

$0

'05

2.4

1.2 1.8

1.1 2.3

'08

'09

'10

3.0 2.3 '11

4.1

5.8

6.9

7.8

8.4

4.3 4.0

5.2

2.1

2.6

2.3

3.1

'12

'13

'14

'15 '16f '17f

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: California Real Estate Research Council; DataQuick/CoreLogic

LAEDC Kyser Center for Economic Research

Source: CIRB, California Home Building Foundation, forecast by LAEDC

56

Economic Forecast, February 2016

San Diego County

Table 18: San Diego County Economic Indicators Year

Population on July 1 (Thousands)

Nonfarm Em ploym ent (Ave., Thousands)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

2,963.4 2,970.1 2,982.8 3,014.2 3,051.3 3,077.6 3,102.9 3,137.3 3,174.8 3,209.2 3,247.5 3,275.5 3,314.8 3,353.6

1,269.1 1,291.9 1,312.1 1,320.1 1,311.9 1,245.9 1,237.1 1,247.0 1,280.5 1,317.8 1,348.0 1,389.4 1,424.1 1,449.7

% Change Colum n1

04/03 05/04 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14/13 15/14 16/15 17/16

0.7% 0.2% 0.4% 1.1% 1.2% 0.9% 0.8% 1.1% 1.2% 1.1% 1.2% 0.9% 1.2% 1.2%

Colum n2

Unem ploym ent Rate (Ave., %)

4.7 4.3 4.0 4.6 6.0 9.4 10.7 10.3 9.1 7.8 6.4 5.1 4.2 3.9 Colum n3

1.7% 1.8% 1.6% 0.6% -0.6% -5.0% -0.7% 0.8% 2.7% 2.9% 2.3% 3.1% 2.5% 1.8%

Total Personal Incom e ($Billions)

Per Capita Personal Incom e ($)

Total Taxable Sales ($Billions)

Value of Tw ow ay Trade ($Billions)

Total Overnight & Day Visitors (Millions)

116.7 121.5 128.1 133.0 138.7 134.1 138.3 148.0 156.0 160.8 167.9 177.3 186.9 198.1

39,839 41,365 43,457 44,680 45,886 43,819 44,563 47,095 48,990 49,907 51,459 54,100 56,400 59,100

44.5 46.7 47.8 47.5 45.3 39.7 41.6 45.1 47.9 50.3 52.5 54.4 57.8 61.5

39.4 43.2 50.5 53.9 53.4 43.9 48.4 52.6 56.4 58.8 63.9 69.6 69.9 76.8

31.8 31.8 32.2 31.6 31.1 29.6 29.9 31.1 32.3 33.1 33.8 34.2 35.0 35.7

Colum n4

6.8% 4.1% 5.4% 3.8% 4.3% -3.3% 3.1% 6.9% 5.4% 3.1% 4.4% 5.6% 5.4% 6.0%

Colum n5

Colum n6

6.2% 3.8% 5.1% 2.8% 2.7% -4.5% 1.7% 5.7% 4.0% 1.9% 3.1% 5.1% 4.3% 4.8%

8.8% 5.0% 2.5% -0.7% -4.5% -12.4% 4.8% 8.3% 6.3% 4.9% 4.4% 3.6% 6.3% 6.4%

Colum n7

10.7% 9.6% 17.0% 6.6% -0.8% -17.8% 10.2% 8.6% 7.3% 4.2% 8.7% 8.9% 0.4% 10.0%

Colum n8

-0.8% -0.2% 1.3% -2.0% -1.5% -4.8% 0.9% 4.3% 3.7% 2.5% 2.1% 1.2% 2.3% 2.0%

Housing Unit Perm its Issued

17,306 15,258 10,777 7,445 5,154 2,990 3,346 5,223 6,193 8,447 6,603 10,049 11,800 13,600 Colum n9

-5.5% -11.8% -29.4% -30.9% -30.8% -42.0% 11.9% 56.1% 18.6% 36.4% -21.8% 52.2% 17.4% 15.3%

Nonresidential Chg. In CPI Building (%) Perm its ($Millions)

1,288 1,382 1,622 1,417 1,062 584 659 1,072 1,095 1,282 1,921 1,857 1,944 2,095

3.7 3.7 3.4 2.3 3.9 0.0 1.3 3.0 1.6 1.3 1.9 1.6 1.5 2.6

Colum n10

10.2% 7.3% 17.4% -12.6% -25.1% -45.0% 12.8% 62.7% 2.1% 17.1% 49.8% -3.3% 4.7% 7.8%

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce, CIC Research, Inc., Construction Industry Research Board; California Homeb uilding Foundation; estimates and forecasts b y the LAEDC

LAEDC Kyser Center for Economic Research

57

Economic Forecast, February 2016

San Diego County

Table 19: San Diego County Nonfarm Employment Annual averages in thousands, March 2014 benchmark Year

Total Nonfarm Em ploym ent

Natural Resources

Construction

Manufacturing

M fg. -Durable

M fg .-Nondurable

Wholesale Trade

Retail Trade

Transport. & Utilities

Inform ation

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

1,269.1 1,291.9 1,312.1 1,320.1 1,311.9 1,245.9 1,237.1 1,247.0 1,280.5 1,317.8 1,348.0 1,389.4 1,424.1 1,449.7

0.4 0.4 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4

87.7 90.8 92.7 87.0 76.1 61.1 55.4 55.2 57.0 60.9 63.5 67.7 69.9 74.3

104.4 104.6 104.0 102.6 102.9 95.4 93.1 93.4 94.5 95.2 96.4 98.2 99.0 100.4

78.2 79.2 78.5 77.4 78.2 73.3 71.2 71.1 71.4 71.1 71.4 73.3 73.9 75.1

26.2 25.4 25.5 25.2 24.7 22.2 21.9 22.2 23.1 24.1 24.9 25.0 25.1 25.4

42.0 43.7 45.2 45.6 45.0 40.6 40.2 41.5 43.5 43.9 43.9 45.4 46.3 46.4

145.0 147.5 148.4 148.1 142.0 131.7 130.7 133.4 137.2 141.3 144.2 146.9 150.2 150.9

28.4 28.4 28.7 28.8 29.0 27.3 26.5 26.1 27.3 27.2 26.8 27.0 27.7 28.0

32.5 32.6 31.7 31.3 31.4 28.2 25.1 24.2 24.5 24.3 24.6 25.2 25.5 25.8

Year

Finance & Insurance

Mgm t. of Enterprises

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

Leisure & Hospitality

Other Services

Governm ent

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

52.8 53.5 53.2 50.2 46.1 43.3 41.3 42.0 44.1 44.5 42.9 43.1 43.7 42.6

18.2 17.4 16.9 16.1 15.9 16.0 17.1 17.5 19.0 20.9 21.4 21.7 22.5 23.2

86.7 87.3 87.2 88.5 86.0 74.2 73.3 73.9 76.7 79.3 79.4 81.0 84.0 86.8

20.1 21.1 21.3 22.0 24.4 26.7 25.4 27.1 29.0 29.9 30.4 31.4 32.4 32.9

145.7 149.6 156.5 161.8 164.0 154.8 154.5 155.6 161.7 168.6 176.8 183.3 188.2 191.1

47.9 48.8 48.4 48.3 48.4 46.8 46.1 47.7 49.2 49.3 52.3 52.7 52.3 52.1

214.3 215.1 217.9 222.4 225.1 224.5 230.5 229.0 227.8 229.5 231.9 235.3 237.9 240.3

Real Estate, Prof, Sci & Tech Rental & Leasing Services

29.1 29.7 30.5 30.1 29.2 26.5 25.9 25.7 26.1 26.9 27.6 29.0 30.3 30.5

104.0 110.9 115.4 118.7 120.5 116.8 117.5 118.8 121.0 124.6 129.2 137.8 144.8 151.5

109.8 110.7 113.8 118.5 125.6 131.5 134.2 135.7 141.5 151.2 156.5 163.5 169.3 172.6

Sources: California Employment Development Department, LMID; estimates and forecasts b y LAEDC

LAEDC Kyser Center for Economic Research

58

Economic Forecast, February 2016

Ventura County

VENTURA COUNTY INTRODUCTION Ventura County is the smallest of the counties in the Los Angeles five-county area based on population, but it is home to a broad array of industries, including agriculture, professional business services, technology and tourism. Proximity to one of the world’s leading wine growing regions and 43 miles of coastline attracts large numbers of visitors, many of whom make the quick trip up from Southern California for a weekend getaway. Ventura County is not only a port of call for travelers, but also a shipping hub for automobiles and agricultural goods. Port Hueneme serves as a distribution hub for automobile manufacturers and is a collection point for many agricultural goods that are shipped throughout the nation. Port Hueneme handled 5.3 million tons of cargo in 2015, up by 0.7% from 2014. In 2015, two-way trade was valued at $9.9 billion, an increase of 7.5% from a year earlier. On an annual basis, Ventura County’s unemployment rate continued to decline, dropping over a full percentage point from 6.7% in 2014 to 5.5% in 2015. However, within the TriCounties area, Ventura lags behind both San Louis Obispo County (4.6%) and Santa Barbara County (5.1%). While 5.5% is the lowest unemployment rate recorded in Ventura since 2008, it is still just shy of prerecession levels. The LAEDC expects that the unemployment rate will fall to 4.8% in 2016 and to 4.6% in 2017, levels not seen since the mid-2000s. In 2015, nonfarm employment grew by 1.7% (5,000 jobs) averaging 298,000 jobs over the year. Despite adding jobs over the last five years, nonfarm employment in 2015 was still 900 jobs short of the peak in 2006. The LAEDC forecasts Ventura County will surpass its prerecession peak in 2016, with projected growth of 1.6% this year and 1.5% in 2017. The increase in hiring has been led by a surge in professional, scientific and technical services (up by 10.8%), where many tech-related occupations tend to show up. The industry accounted for roughly one out of every three net new jobs added in 2015 following a flat performance in 2014. Health care and social assistance also accounted for one-third of net job gains, expanding by 5.0% last year, up from 1.7% in 2014. Leisure and hospitality continued to be a major contributor to local job growth, with growth in the three percent range for the third year in a row. Slow and steady improvement in other major industries such as construction, retail trade and government services offset declining employment in the manufacturing sector.

TRENDS IN MAJOR INDUSTRIES Tourism: Ventura is an ideal destination for tourists looking for an alternative to the higher-priced Santa Barbara area. Benefits include the short distance from Los Angeles County and more affordable lodging. LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Ventura County Occupancy rates reached 73.7% in 2015, compared with 72.3% a year earlier. Average daily room rates also edged up, rising to $118.26 in 2015 from $109.43 in 2014. Further gains are expected in 2016. The number of occupied rooms is expected to remain flat this year, while market occupancy rates should reach 74.5%. Average daily room rates are expected to rise by 5.3%,while revenue per available room should increase by 6.5% to $92.81. Hotel supply has remained largely unchanged since 2013 and while several projects are in the pipeline through 2016, they were not recorded into 2015 estimates and the 2016 forecast for room supply and their effects on occupancy rates because these projects are 23 not scheduled to actually open until possibly 2017. Housing and Consumer Spending: Ventura County’s housing market continues to improve. Sales of existing homes were strong in 2015, with double-digit growth. With increasing demand, median prices have been steadily growing on a year-over-year basis for much of the last four years. The median price of an existing single-family home in Ventura County was $491,000 in December 2015, up by 2.9% compared with a year ago. New home building has slowed in 2015 as permits issued for new construction fell 3.9% below 2014 levels. With steady gains in the housing market expected over the next two years, new home construction should gain momentum, with a 19.3% increase in permits expected in 2016 and a 25.0% jump in 2016.

LOOKING AHEAD The LAEDC forecasts total personal income will rise by 4.7% this year and by 5.4% in 2015. As long as job growth continues at its current pace, per capita income will grow by 4.0% this year and by 4.6% in 2017. Consumer spending is expected to see strong gains this year and next as the labor market continues to strengthen and personal income rises. The Ventura County economy will advance unevenly over the next two years. The LAEDC forecasts job growth in professional, scientific and technical services, and administration, waste and support services to lead the way. These two sectors make up a large part of the professional and business services sector, which is expected to produce one-third of net job gains in both 2016 and 2017. Construction, health care and social assistance, and government should continue to be steady contributors. A mixed performance is expected for the remaining industries.

23

“2016 Southern California Lodging Forecast”, PKF Consulting

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Economic Forecast, February 2016

Ventura County

Ventura County Snapshot Ventura County Employment Growth, 2016

Ventura County Employment Growth, 2016

Total nonfarm job growth forecast for 2016 (thousands): +4.5 jobs

Total nonfarm job growth forecast for 2016, percent change: +1.6%

0.8 0.8 0.6 0.4 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.0 -0.1 -0.6 -1.0

-0.5

0.0

0.5

1.0

Annual Percent Change

Health Care & Social Asst Admin. & Support Srvs Retail Trade Prof, Sci & Tech Srvs Government Wholesale Trade Construction Transport. & Utilities Educational Services Mgmt. of Enterprises Finance & Insurance Real Estate, Rental & Leasing Information Other Services Manufacturing Leisure & Hospitality

1.4

1.5

4.6% 4.0% 3.5% 3.3% 2.7% 2.6% 2.5% 2.1% 1.6% 1.4% 1.2% 1.0% 1.0% -0.1% -0.3% -1.7%

2.0

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

Ventura County Employment

Ventura County Personal Income & Taxable Sales Growth

Annual average in thousands, 2015 benchmark Total Nonfarm Employment

Admin. & Support Srvs Health Care & Social Asst Prof, Sci & Tech Srvs Educational Services Real Estate, Rental & Leasing Transport. & Utilities Wholesale Trade Retail Trade Total Nonfarm Employment Construction Information Finance & Insurance Government Other Services Manufacturing Leisure & Hospitality

Unemployment Rate

310

12%

300

10%

290

8%

$Billions 60

Total Personal Income

Taxable Sales Growth 10%

50

5%

40 280

0%

6%

30 -5%

270

4%

260

2%

10

0%

0

250

20 -10% -15% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15e '16f '17f

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16f '17f

Source: California Board of Equalization, Dept. of Commerce; estimate & forecast by the LAEDC

Source: EDD Labor Market Information Division; forecast by LAEDC

Home Sales & Median Prices Ventura County

Residential Building Permits Issued in Ventura County

New and existing, single-family homes and condos 1,400

Sales

Price, Thousands

5.0

$700

Permits issued, thousands Multi-Family Single-Family

4.5 1,200

$600

1,000

$500

4.0 1.90

3.5 3.0

800

$400

600

$300

2.5 2.0

0.90

1.5 400 200

$200 Home Sales

Median Home Price 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

1.0 0.5

$100

0.90 2.60

1.70

1.11 1.56

0.59 0.40 0.48 0.90 0.20 0.63 0.77 0.17 0.21 0.20 0.60 0.49 0.23 0.19 0.91 0.74 0.33 0.45 0.57 0.71 0.35

'06

'07

0.0 '04

$0

'05

'08

'09

'10

'11

'12

'13

'14

'15 '16f '17f

Source: Construction Industry Research Board, forecast by LAEDC Source: California Real Estate Research Council; DataQuick/CoreLogic

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Economic Forecast, February 2016

Ventura County

Table 20: Ventura County Economic Indicators Year

Population on July 1 (Thousands)

Nonfarm Em ploym ent (Ave., Thousands)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

795.0 796.9 801.2 805.9 812.0 818.5 824.9 831.8 836.8 842.8 848.0 853.0 859.3 865.7

287.0 292.0 298.9 297.8 292.4 276.9 274.7 276.6 281.6 287.9 293.0 298.0 302.8 307.3

% Change Column1

Column2 0.7% 1.7% 2.4% -0.4% -1.8% -5.3% -0.8% 0.7% 1.8% 2.2% 1.8% 1.7% 1.6% 1.5%

04/03 05/04 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14/13 15/14 16/15 17/16

0.7% 0.2% 0.5% 0.6% 0.8% 0.8% 0.8% 0.8% 0.6% 0.7% 0.6% 0.6% 0.7% 0.7%

Unem ploym ent Rate (Ave., %)

5.3 4.7 4.3 4.9 6.3 9.6 10.8 10.2 9.1 7.9 6.7 5.5 4.8 4.6 Column3

Total Personal Incom e ($Billions)

Per Capita Personal Incom e ($)

31.5 33.4 35.6 37.1 36.7 35.1 36.0 38.2 40.4 40.9 42.7 44.5 46.6 49.2

39,665 42,002 44,582 46,350 45,475 43,090 43,657 45,964 48,345 48,683 50,405 52,200 54,300 56,800

Column4 7.5% 5.9% 6.7% 4.2% -1.1% -4.2% 2.6% 6.0% 5.7% 1.4% 4.2% 4.4% 4.7% 5.4%

Column5 6.9% 5.9% 6.1% 4.0% -1.9% -5.2% 1.3% 5.3% 5.2% 0.7% 3.5% 3.6% 4.0% 4.6%

Total Housing Unit Nonresidential TaxableSales Perm its Building Perm its ($Billions) Issued ($Millions)

11.2 11.9 12.3 12.2 11.3 9.9 10.2 11.0 12.0 12.8 13.3 13.6 14.3 15.1 Column6 7.7% 6.6% 3.4% -0.7% -7.4% -12.7% 3.5% 7.8% 8.5% 7.2% 3.3% 2.6% 5.3% 5.2%

2,603 4,516 2,461 1,847 842 404 590 640 410 777 1,082 1,006 1,200 1,500 Column7 -28.4% 73.5% -45.5% -24.9% -54.4% -52.0% 46.0% 8.5% -35.9% 89.5% 39.3% -7.0% 19.3% 25.0%

353 372 326 346 345 153 160 147 109 102 250 182 243 291 Column8 -6.9% 5.4% -12.4% 6.1% -0.3% -55.7% 4.6% -8.1% -25.9% -6.4% 145.1% -27.2% 33.5% 19.8%

Sources: State of California: Dept. of Finance, Employment Development Department, Board of Equalization; U.S. Dept of Commerce Construction Industry Research Board; estimates and forecasts b y the LAEDC

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Economic Forecast, February 2016

Ventura County

Table 21: Ventura County Nonfarm Employment Annual averages in thousands, March 2014 benchmark Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Total Nonfarm Em ploym ent

287.0 292.0 298.9 297.8 292.4 276.9 274.7 276.6 281.6 287.9 293.0 298.0 302.8 307.3 Finance & Insurance

19.8 20.0 19.6 17.9 16.4 16.1 16.0 16.2 15.4 14.5 14.2 13.9 14.1 13.9

Natural Resources

0.7 0.8 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.2 1.3 1.2 1.2 1.2 Real Estate, Rental & Leasing

4.4 4.4 4.5 4.8 4.7 4.4 4.3 4.2 4.2 4.4 4.5 4.8 4.9 4.9

Construction

16.9 18.8 20.5 18.8 16.7 13.2 11.3 11.3 11.8 12.6 13.7 14.1 14.3 15.2 Prof, Sci & Tech Services

14.2 15.1 16.0 16.2 16.7 16.2 15.3 15.1 15.7 16.1 16.1 17.8 18.5 19.0

Manufacturing

38.3 37.7 38.4 38.0 35.9 32.6 31.5 30.6 29.9 29.9 30.5 29.7 29.6 30.0 Mgm t. of Enterprises

3.6 3.5 3.3 3.2 3.1 2.9 2.6 2.1 1.9 1.8 1.8 1.9 2.0 2.2

Mfg. -Durable

Mfg. -Nondurable

Wholesale Trade

24.2 23.9 24.1 23.9 23.2 20.4 19.5 18.8 18.2 18.2 18.5 18.1 18.1 18.3

14.1 13.9 14.3 14.1 12.7 12.2 12.0 11.8 11.7 11.8 12.0 11.6 11.5 11.7

12.2 12.5 12.6 13.0 12.8 12.1 12.3 12.5 12.6 12.9 13.0 13.2 13.5 13.6

Adm in. & Support Srvs

Educational Services

Health Care & Social Asst

19.5 19.8 20.1 18.8 18.0 16.1 15.8 16.1 17.3 18.3 17.6 18.2 19.0 19.8

3.6 3.7 3.7 4.1 4.6 4.7 4.7 4.7 5.3 4.9 5.0 4.7 4.8 4.9

24.7 25.5 26.3 27.5 28.8 29.6 30.0 30.8 32.2 34.1 34.7 36.4 37.9 38.5

Retail Trade

35.3 36.5 37.6 37.6 37.3 35.1 35.5 36.3 37.3 38.5 39.0 39.5 40.4 40.5 Leisure & Hospitality

28.5 29.2 30.5 32.0 31.5 29.8 30.3 31.4 32.8 33.8 35.0 36.0 35.4 36.0

Transport. & Utilities

5.7 5.8 6.1 6.1 6.0 5.4 5.3 5.5 5.7 5.9 6.2 6.5 6.7 6.7

Inform ation

6.8 6.2 6.0 5.8 5.6 5.3 5.1 4.9 5.2 5.2 5.5 5.6 5.7 5.7

Other Services Governm ent

10.3 10.4 10.2 9.9 10.0 9.3 9.2 9.2 9.4 9.7 9.9 9.9 9.9 9.9

42.5 42.2 42.5 43.0 43.1 42.9 44.2 44.4 43.6 43.6 43.8 44.5 44.9 45.3

Sources: California Employment Development Department, LMID; estimates and forecasts b y LAEDC

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

MAJOR INDUSTRIES OF THE SOUTHERN CALIFORNIA ECONOMY Southern California has experienced four consecutive years (2012-2015) of solid employment gains. Every county in the region has seen consistent increases in nonfarm jobs, contributing to the decline in unemployment rates across the region. While most of the major industries have added jobs, rates of growth have varied across industries. Indeed, two thirds of the absolute job gains occurred in just a half-dozen major industries, while others saw more modest gains and a few lost jobs. Growth is in the picture for local industries in 2016 and 2017 as the U.S. economy continues to expand. However, the pace of job gains will become more tempered this year and next as the overall economy reaches “cruising altitude”.

L.A. 5-County Employment Growth, 2016

L.A. 5-County Employment Growth, 2016

Total nonfarm job growth forecast for 2016 (thousands): +158.2 jobs

Total nonfarm job growth forecast for 2016, percent change: +2.1% Annual Percent Change

35.6 22.3 19.8 16.0 15.4 9.9 9.6 7.7 7.4 5.5 3.9 2.5 1.7 0.9 0.5 -0.1 -5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Health Care & Social Asst Prof, Sci & Tech Srvs Admin. & Support Srvs Retail Trade Leisure & Hospitality Government Construction Transport. & Utilities Wholesale Trade Educational Services Mgmt. of Enterprises Information Real Estate, Rental & Leasing Other Services Manufacturing Finance & Insurance

40.0

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

4.7% 3.9% 3.9% 3.4% 3.1% 3.1% 2.6% 2.1% 2.0% 1.9% 1.8% 1.2% 1.1% 1.0% 0.4% 0.1% 0.0% -1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Prof, Sci & Tech Srvs Mgmt. of Enterprises Admin. & Support Srvs Health Care & Social Asst Construction Educational Services Transport. & Utilities Total Nonfarm Employment Retail Trade Wholesale Trade Leisure & Hospitality Real Estate, Rental & Leasing Information Government Other Services Manufacturing Finance & Insurance 6.0%

Source: CA EDD, Labor Market Information Division, forecast by LAEDC

AEROSPACE AND DEFENSE The aerospace and defense industry has been a cornerstone of the Southern California economy for over a century, and has played a role in shaping the region’s landscape, culture and economy. The aerospace industry in Southern California may employ fewer people than in the past, but it continues to be on the forefront of industry developments and remains a center of aerospace activity for the nation. Southern California’s aerospace industry contributes to the regional economy on a number of levels. First, it employs a large number of highly skilled and well-paid workers. Second, its exports make a positive contribution to the nation’s trade balance. Finally, new technologies with roots in aerospace have spilled over into other areas of the economy. In 2015, the aerospace products and parts manufacturing sector employed approximately 24 61,600 workers across Southern California, up from 57,200 in 2014. Industry

24

These figures are based on data from the Quarterly Census of Employment and Wages (U.S. Bureau of Labor Statistics) for Los Angeles, Orange and San Diego Counties. Other Southern California counties have much smaller

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Economic Forecast, February 2016

Major Industries of the Southern California Economy employment last year was about 70% below the 1990 level, with most of the decline occurring in the early 1990s. More recently, regional employment in the industry has stabilized at between 55,000 and 59,000 workers. Capital is increasingly replacing labor, while labor itself has become more productive. The result is that even as employment levels have fallen, the value of aerospace products manufactured in the region has increased. 25

Through the first three quarters of 2015, the Aerospace Industries Association estimates shipments of aerospace products at $230 billion, up 9.0% over the same period a year earlier. Foreign orders comprise a significant portion of the industry’s business, with exports over the same period at $92 billion, up 5.8% from a year earlier. Moreover, backlogs were 6.8% higher than a year earlier with a monthly average of $732 billion. Civil Aviation: Commercial jetliners are no longer manufactured in Southern California, but the region is home to thousands of subcontractors who produce parts for Boeing, 26 Airbus and other aircraft manufacturers. The latest U.S. Department of Commerce data suggest that 2015 was a good year, but the next couple of years could see a pullback in activity. Shipments of nondefense aircraft and parts rose by 10.3% from $153.0 billion in 2014 to $168.8 billion in 2015. However, unfilled orders were down 1.0% at $606.1 billion while new orders fell by 32.7% to $162.5 billion. Defense: Federal budget cuts pose an ongoing challenge to Southern California’s aerospace and defense firms. However, federal spending on defense-related R&D should be buoyed in the next few years by demand for cyber security, intelligence, surveillance and defense electronics. Moreover, as a leader in the development and manufacture of unmanned aircraft systems (UAS), the region’s aerospace industry will greatly benefit from growing demand for UAS for military and civilian uses in the years ahead. Looking Ahead: Southern California is home to one out of eight aerospace workers nationally. With its deep pool of skilled labor, its extensive array of test fields, numerous universities and other educational and research centers, and a strong electronics industry, the region will be a center for the aerospace and defense industries for many years to come. The region is home to a wide selection of research, development and testing operations, as well as aerospace contractor and sub-contractor facilities. Commercial satellites manufactured in Southern California orbit the earth, providing GPS, cell phone and radio/television communications. More recently, Southern California companies such as SpaceX, Scaled Composites and Virgin Galactic have engaged in private commercial space activities, once the sole domain of NASA.

numbers of workers in the industry and are excluded to maintain comparability with previous LAEDC research on the industry. 25

Aerospace Industries Association US Aerospace Manufacturing Update, 1Q-3Q 2015

26

http://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

APPAREL DESIGN AND MANUFACTURING The fashion industry is one of Southern California’s signature industries. Apparel design, manufacturing and wholesaling continue to make significant contributions to the Southern California economy even as the industry adapts to the shifting forces of globalization and technological change. The industry is characterized by short product life cycles, fickle consumers, almost unimaginable product variety and complex supply chains. While the local industry is dominated by activity in Los Angeles County, Orange County has carved out a distinct identity of its own. In addition to apparel, Southern California’s fashion industry includes textiles, jewelry, footwear, handbags and cosmetics. The region is also home to a number of highly-regarded fashion design and merchandizing schools such as FIDM, Otis College of Art and Design, and Los Angeles Trade Tech. Los Angeles and Orange counties employ the largest number of apparel workers in the United States and together, are one of the few regions in the U.S. where apparel continues to be manufactured on a large scale. Although production of most apparel 27 items has largely shifted to lower-cost countries in Latin America and Asia, high-end garments and accessories that require strict quality control and specialized skills or processing are often manufactured locally. There is also a small but vigorous community of designer-owned boutiques that specialize in locally designed and manufactured fashions that emphasize well-made, local and sustainably sourced apparel. On the opposite end of the apparel spectrum, the local industry is a leader in “fastfashion” apparel production – a term used to describe the high-volume production of inexpensive clothing that reflects current fashion trends and can go from sketch to store shelves in as little as four weeks, with retailers sometimes receiving daily shipments. The fast-fashion segment of the apparel market, which primarily targets young women and teens, depends on such rapid turnaround times that a trend may come and go by the time a container makes the voyage from Asia to Los Angeles. Design-related activity also contributes to maintaining the apparel industry’s presence in Southern California. One the of great strengths of the local fashion industry is the community of designers responsible for the global appeal of the “Made in L.A.” label. In 28 2014, there were 4,650 fashion designers working in Los Angeles and Orange counties. Los Angeles may not receive the same level of attention as New York due to a lack of highly publicized fashion shows, but L.A. designers are noted for their more wearable (and saleable) designs. The many apparel design and merchandising schools that are located in the region attract talented students from all over the world. Fashion is also closely linked with the entertainment industry and the region’s flourishing art scene. Much of the apparel manufacturing and wholesaling workforce in Southern California is located

27

Africa may be the final frontier for low-cost apparel manufacturing. According to the International Labor Organization, Ethiopia’s garment sector has no minimum wage (garment workers start at $21 per month), while in Bangladesh, workers earn at least $67 per month. Search for Even Cheaper Garment Factories Leads to Africa, Wall Street Journal, July 12, 2015

28

There were 5,750 fashion designers in California in 2015, compared with 7,190 in New York.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy in Los Angeles County, although a significant number of workers may be found in Orange County as well. In 2015, apparel manufacturing employment in Los Angeles County averaged 45,100 workers, while wholesaling employed 26,400 for total industry employment of 71,600 workers. Compared with 70,100 the previous year, this represented an increase of 2.1%. Both apparel manufacturing and wholesaling added jobs over the year, 675 and 775, respectively. The apparel industry also employs a large number of independent contractors, significantly boosting total employment numbers. In 2013 (latest data available), there were nearly 8,000 independent contractors working in Los Angeles and Orange counties manufacturing and wholesaling textiles, apparel, footwear, leather goods and jewelry. Although the number of independent contractors has generally been trending up, the number slipped slightly in 2013, falling by 1.1%.

Apparel Manufacturing Employment in Los Angeles County 120,000 100,000 80,000 60,000 40,000 20,000 0 1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: EDD Labor Market Information Division

In addition to employment directly related to the local manufacture and distribution of apparel, accessories and textiles, a large number of jobs in ancillary industries depend on local fashion-related activities: import/export agents; goods movement (to handle the large volume of apparel goods arriving from Asia); and equipment leasing and financing firms that specialize in servicing the fashion industry. In spite of numerous technological advances, apparel manufacturing remains one of the most labor-intensive industries in the world. This is what gives countries with lower wages and lower standards of living a competitive advantage. It is also why newly industrializing nations often begin with the manufacture of textiles and basic apparel. However, when strict quality control or fast turnaround times are required, apparel manufacturers in Southern California are competitive. With the rising cost of Chinese labor, some local apparel companies are experimenting with bringing more of their production back to Los Angeles, but this is necessarily a limited option. Local manufacturing employment is not likely to significantly reverse course, but creative design work, merchandizing and wholesaling will continue to do well.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

COMPUTER AND ELECTRONIC PRODUCT MANUFACTURING The computer and electronic product manufacturing industry is one of the largest manufacturing industries in Los Angeles County, surpassed only by transportation, apparel and fabricated metal product manufacturing, and roughly the same size as aerospace product and parts manufacturing, and food manufacturing. The industry employed 38,100 workers in Los Angeles County in 2015, with another 34,800 in Orange County and 5,000 in Ventura County. San Diego County also had 24,000 workers in the industry. Like many other manufacturing sectors, computer and electronic product manufacturing has experienced a trend decline in employment dating back over twenty years. Last year was the first time in a decade that employment growth entered positive territory, growing marginally by 0.6% across the six-county Southern California region. Employment declined in Los Angeles County by 2.1% in 2015, but this was offset by a gain of 4.5% in Orange County. Employment in San Diego County was essentially flat over the same period (up 0.6%). Even so, the industry continues to be a significant source of employment and an important part of the region’s manufacturing base. It employs a large number of skilled workers in both professional and production occupations, drawing from the deep pool of skilled labor in the region. Moreover, occupations in this industry generally earn aboveaverage wages.

PROFESSIONAL AND BUSINESS SERVICES The professional and business services supersector includes three major subsectors: professional, scientific and technical services; management of companies and enterprises; and administrative, support and waste services. Collectively, these industries employed more than 1.39 million workers in the six-county Southern California region in 2015. Los Angeles County was home to over 620,000 jobs, with over 283,000 in Orange County, 240,000 in San Diego County, over 149,000 in the Inland Empire and nearly 38,000 in Ventura County. Many occupations in these industries pay well and often require advanced education or training. These occupations include architects, engineers, IT consultants and other business consultants, accountants and lawyers. Professional and business services employment in the six-county Southern California region rose by 4.3% in 2015, an increase of 56,900 jobs from 2014. Most of the region has achieved record-high levels of industry employment during the last year. By major industry, regional employment in professional, scientific and technical services increased by 4.8% (29,400 jobs) in 2015, with the largest gains in management, scientific and technical consulting services; advertising and related services; architectural and engineering services; and scientific research and development services. Jobs in management of companies and enterprises rose by 3.8% (4,700 jobs), while administrative, support and waste services jobs also expanded by 3.8% (22,800 jobs), with a large number of jobs created in employment services.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

FINANCIAL SERVICES After peaking in 2005 at 544,300 jobs, employment in Southern California’s financial services industry was hit hard by the triple impact of the financial meltdown, the housing crisis and the Great Recession. By 2010, the industry had lost 103,000 jobs throughout Southern California. There are two major subsectors in this industry: finance and insurance, and real estate, rental and leasing. Most of the job losses over this five-year period were concentrated in finance and insurance. After struggling to regain ground during the early years of the recovery, the financial services industry recorded job gains in 2012 and 2013, but employment contracted again in 2014 and grew only marginally in 2015 (by 0.7%). The industry has seen a soft rebound, recovering approximately 15,000 jobs since 2011. However, employment growth is expected to slow moving forward. In Southern California, Orange County posted the largest financial services job gains in 2015, contributing over 1,900 jobs (or 1.7%), while the Inland Empire trailed closely with a gain of nearly 1,800 positions (or 4.2%). Los Angeles County, where nearly half of Southern California’s financial jobs are concentrated, experienced marginal growth. In fact, since 2008, the share of financial jobs in Los Angeles County has decreased by over two percent while Orange County has added two percent during the same time period. The real estate and rental and leasing sub-sector improved across Southern California, with gains of 1.8%, or 3,000 jobs. All counties in the region experienced strong gains since 2013. However, roughly two-thirds of jobs in financial activities are in the finance and insurance sector, which has generally struggled since the recession. Within finance and insurance, growth has been scattered across the region, with the Inland Empire recording the only notable employment growth, increasing by 4.3% from 2014 to 2015. Wage and salary jobs gains were flat across Southern California, registering a gain of 0.2% during the same time period. Overall, the Southern California area created over 15,00 financial services jobs last year, bringing the total to 465,300. While contributing to the recovery of jobs lost since the recession, employment is still a far cry from the 2006 peak of 544,300 jobs. Growth in financial activities is expected to be sluggish due to national economic factors. The Fed finally raised interest rates, the first of what is expected to be a series of rate hikes over the next two years. Higher interest rates will negatively impact housing demand. Furthermore, continued consolidation of the banking industry will slow employment in financial services. This will limit growth of the sector in Southern California to 0.7% in 2016, and employment will contract by 1.3% in 2017.

HEALTH CARE SERVICES AND BIOMEDICAL Together, the Los Angeles five-county region and San Diego County have a population of nearly 22 million people, over 10 million of whom live in Los Angeles County. With such a large population, Southern California is able to support a number of important and influential medical centers and a thriving life sciences industry. The health care sector is also one of the largest employers in Southern California. In addition to serving the local population, a number of medical centers in the region are attracting growing numbers of foreign patients as well.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy In 2015, the health care industry employed over a million workers in Southern California. Los Angeles County alone was home to 647,100 jobs and accounted for over 60% of total industry employment in the region. Over the past year, health care employment has shown strong growth, increasing by 35,600 jobs (3.3%) compared with 2014. In Los Angeles County, health care jobs grew at an even faster pace (3.5%), adding 21,800 jobs. Both Orange County and San Diego County had growth rates over 4%, adding 5,900 and 7,000 jobs, respectively. Across the region, the subsector ambulatory health care services (offices of physicians and dentists) added over 18,000 jobs (3.4%), while employment at hospitals was up marginally. The health care services industry also includes social assistance (individual and family services and child day care services). The bulk of the jobs in this subsector are centered in Los Angeles County, which saw employment jump by 6,050 jobs in 2015, up 2.5% from 2014. Health care is a large industry in the U.S. In 2014, national health care expenditures increased by 5.3% to $9,523 per person ($3.0 trillion in total) and accounted for 17.5% of GDP. This relatively fast pace of annual growth was due to expansions of coverage under the Affordable Care Act. Between 2014 and 2024, health care expenditures are 29 projected to grow at an average rate of 5.8% per year. Efforts to contain costs are colliding with increased demand for health care services and more transparent pricing. Fiscal pressures, sweeping regulatory changes under the Affordable Care Act and more empowered consumers are creating a new health care economy.

INTERNATIONAL TRADE/GOODS MOVEMENT International trade is a vital part of the Southern California economy. The goods movement sector includes transportation and warehousing along with wholesale trade. Jobs in the region’s goods movement sector grew steadily in 2015, adding 24,200 jobs (3.8%) relative to 2014. Looking at the individual counties, Los Angeles experienced the largest employment gain, adding 10,800 jobs (2.9%). The Inland Empire (an important warehousing and distribution hub) was a close second, adding 10,000 positions (or 7.1%). Orange and Ventura counties also saw job gains in this sector, as well as San Diego County to the south. About forty percent of the nation’s imported containers enter the United States through the San Pedro Bay ports. Los Angeles and Long Beach rank number one and two, respectively, in total container volumes handled of any port in the U.S. In 2015, the Ports of Los Angeles and Long Beach handled a total of 15.4 million containers, an increase of 1.3% compared with 2014. On an individual port basis, total loaded cargo volume at the Port of Los Angeles was down by 2.2%, while total loaded volume at the Port of Long Beach was up by 5.4% in 2015.

29

Centers of Medicare and Medicaid Services; NHE Fact Sheet, CMS.gov

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

TEU Throughput San Pedro Bay Ports Millions of TEUs

15.8 15.7 14.2

14.1 14.0 14.1 14.6

14.3

13.1 11.8

15.2 15.4 15.6

11.8

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f Sources: Ports of Los Angeles and Long Beach; forecast by LAEDC

The Los Angeles Customs District (LACD) also maintained its top position in the U.S. in 2015, despite the fact that the value of two-way trade dropped to $393.4 billion, a decrease of 5.6% over the year. The LACD also includes international airport cargo passing through both LAX and Ontario International Airport, which generally consists of small, lightweight, high-value products that require quick delivery. Freight tonnage transiting through LAX increased markedly (6.0%) last year, while at Ontario freight tonnage increased by 5.1% over the same period. Given the weakness in global economic growth and the strength of the dollar, U.S. export growth could be weak or even negative in 2016 due to depressed foreign demand (especially from China, the LACD’s top trading partner). Meanwhile, U.S. import growth should continue to increase on the back of strong domestic demand. For the LACD, import growth should outweigh the weakness in exports, resulting in an overall increase in two-way trade and trade-related employment. Alameda Corridor: The 20-mile rail cargo line that connects both ports to the main intermodal yards near downtown Los Angeles is an integral part of the entire goods movement system. Until this past year, the number of trains running on the Alameda Corridor had been increasing steadily since 2010. In 2014, the total number of trains rose by 2.9% over the year, while the average number of trains per day increased to 47 from 45 in 2013 (the highest train per day figure since 2007). However, in 2015, total train counts plummeted by 23.7%, and the average number of trains per day dropped to 39. These declines reflect the overall weakness in global trade, and especially the decline in trade with China as that country undergoes an economic rebalancing.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

MOTION PICTURE AND VIDEO PRODUCTION Entertainment is probably the best-known industry in Los Angeles County. The focal point of this sector is the motion picture and sound recording industry, which also anchors the county’s broader creative economy, contributing more than a quarter of the county’s 417,000 creative industry jobs. Within the motion picture and sound recording industry, the largest employment subsector is motion picture and video production, but motion picture distribution, post production services and sound recording all have a significant presence in the county’s broader entertainment industry. The industry generates substantial economic benefits for the region. It is a major source of new income by virtue of the royalties that are earned by locally produced films and TV shows. Closely related to this industry is tourism, with people from all over the world drawn to Hollywood and the entertainment industry’s theme parks. 30

Los Angeles County was home to 119,400 wage and salary jobs in the motion picture and sound recording industry last year, down slightly (0.5%) from 120,000 jobs in 2014. Employment remains below the prerecession peak of 132,200 and the all-time high of 146,600 from 1999. Another indicator of local-industry activity is the number of permitted on-location shoot days, which reflected a mixed performance last year. The total number of shoot days rose 1.3% over 2014 to 37,289, and television shows experienced a substantial 9.5% increase, but shoot days for commercials were essentially flat (up 0.2%), and both feature films and other video (which includes student films, industrial films, and music videos) were down (4.2% and 5.5% respectively). Domestic box office receipts rose by nearly four percent from $10.4 billion in 2014 to an 31 estimated $11.1 billion last year. Worldwide receipts totaled an estimated $27.6 billion last year, an increase of 2.2% over 2014. Tickets sold rose from 1.27 billion in 2014 to 32 1.34 billion last year. At-home entertainment spending turned around in 2015, with a one percent increase from $17.9 billion in 2014 to $18.07 billion last year. At-home spending was $18.13 billion in 2013. Substantial revenue growth occurred last year in electronic sell-through 33 (+24.9%) and subscription streaming (+18.3%), while rentals uniformly fell.

30

Industry wage and salary job counts are subject to an annual benchmarking process in the first quarter of the year. It is expected that the 2015 job count for this industry will be revised upward once the benchmarking process is completed. 31

Estimated by the LAEDC based on data from www.boxofficemojo.com. Final numbers will be released by the MPAA later this year. 32

Estimate from www.the-numbers.com. Final numbers will be released by the MPAA later this year.

33

The Digital Entertainment Group, 2015 Annual Home Entertainment Report

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Economic Forecast, February 2016

Major Industries of the Southern California Economy The revamped California Film Tax Credit program should lure more productions back to the state and retain those that are already here. The program was modified to expand eligibility to big-budget feature films and one-hour television series, and funding was increased from $100 million to $330 million. The increase in local filming is should result in the creation of thousands of jobs and strengthen one of Los Angeles’ signature industries.

REAL ESTATE AND CONSTRUCTION Residential Real Estate Throughout 2015, Southern California’s housing markets made notable progress after pausing in 2014. This year, housing and new home construction are poised for stronger gains. Contributing to the improvements realized and anticipated for 2016 are:

    

Strong job growth, which creates a larger pool of qualified buyers Increases in home sales and new home construction Continued home price increases Increases in the number of homeowners with positive equity Low but rising mortgage interest rates that may prompt would-be buyers to get off the fence.

Notwithstanding progress made in 2015, in the eight years that have passed since the onset of the housing crisis, Southern California’s housing markets have yet to make a full recovery. Mortgage availability and, increasingly affordability, have kept progress in check. Although mortgage lending standards have shown a slight but persistent easing, they remain tighter than historical norms. Lenders now require higher credit scores and larger down payments. This is not to say a return to the credit environment that existed in the years leading up to the housing collapse would be desirable, but it may be that lending standards have swung a bit too far the other way.

Mortgage Interest Rates 30-year Fixed Rate, Conventional Mortgage 20

Percentage Dec. 1981 18.45%

18 16 14 12 10 8 6 4 Dec. 2015 3.96%

0

Apr-71 Dec-72 Aug-74 Apr-76 Dec-77 Aug-79 Apr-81 Dec-82 Aug-84 Apr-86 Dec-87 Aug-89 Apr-91 Dec-92 Aug-94 Apr-96 Dec-97 Aug-99 Apr-01 Dec-02 Aug-04 Apr-06 Dec-07 Aug-09 Apr-11 Dec-12 Aug-14

2

Source: Federal Reserve

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Economic Forecast, February 2016

Major Industries of the Southern California Economy Following the Federal Reserve’s rate hike in December, mortgage interest rates are expected to rise moderately this year. In 2016, the Mortgage Bankers Association is projecting mortgage origination growth of 10% in the purchase market in spite of higher interest rates. However, total mortgage volume is expected to decline this year because of fewer refinances. In addition to stricter lending standards, another obstacle for many potential buyers is the sharp appreciation of home prices. Median home prices in California have greatly outpaced wage growth, especially in California’s coastal and large metro areas where job growth is concentrated. After four years of steadily rising prices, affordability is rapidly declining and many traditional and first-time buyers (already at historically low shares) have been priced out of the market. In 2015, the median price of an existing single-family home in California was $474,420, an increase of 6.2% over 2014. At that price, only about 30% of Californians could afford 34 to buy a median priced home. In some areas, affordability is even more problematic. In San Francisco for example, with a median home price of $1.2 million, only 10% of residents could afford to buy. In Southern California, affordability ranges from 20% in Orange County to 54% in San Bernardino County, with Los Angeles coming in at 24%. The national figure is 56%. Early in the recovery, price appreciation was driven by investor purchases of single-family homes that were converted to rentals. Now prices are rising in response to higher demand, the lack of new construction and low inventories of existing homes for sale. In addition to wage growth and credit availability, a sustained housing market recovery also requires rising rates of household formation and homeownership. In this respect, the outlook is encouraging. Job growth has improved to the point where U.S. household formation (the number of new housing units occupied) returned to its long-run average in 2015 with the addition of 1.4 million new households nationwide. California household formation also surpassed its long-run average with the addition of 145,000 households last year.

U.S. Household Formation Annual change number of households, millions

4.0

New HH Formations

Average since 1970

3.5 3.0 2.5 2.0 1.5 1.0 0.5

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

0.0

Source: U.S. Census Bureau, Wells Fargo Economics Group

34

California Association Realtors

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Economic Forecast, February 2016

Major Industries of the Southern California Economy 35

Although most Americans continue to have a positive view of homeownership, declining affordability and tight lending standards have resulted in most of the gains in household formation going to the rental markets. In the aftermath of the housing crisis and recession, Millennials are delaying the home-buying decision to a later point in life. The rate of homeownership peaked at 69% nationally in 2004 and then began a long decline that predated the onset of the recession. By the second quarter of 2015, it had fallen to 63.4%. During the third quarter there was a slight uptick to 63.7% but it is too soon to tell 36 if homeownership rates have turned the corner. In California, homeownership peaked in 2006 at 60.2% but dropped to 54.2% in 2014 (latest data available), the lowest rate since 1985. One reason for the decline is the slow pace of wage and salary growth over the last five years – homeownership tends to rise with income. Another reason may be that homeownership rates during peak years were unsustainable because of the easy lending practices that prevailed at the time.

Homeownership rates are declining in the U.S. and California 70 68 66 64 62 60 58 56 54 52 50

Percent, annual, not seasonally adjusted

U.S.

California

Source: Federal Reserve Bank of St. Louis

As of December 2015, home sales (single-family and condominiums) in Southern California had increased on a year-over-year basis for 11 consecutive months following a year and a half of nearly continuous year-over-year declines. With steady employment and anticipated wage gains, traditional buyers are slowly returning to the market. Additionally, now that eight years have passed since the housing bust, former homeowners caught up in the first wave of foreclosures can now contemplate returning to homeownership. Rental Market: The rental market in Southern California has been strong for several years and demand for rental units shows no sign of slowing. Vacancy rates are low and rental rates continue to rise. In spite of the local boom in new apartment construction and the increase in rentals of single-family homes, supply has not kept up with demand, especially in the market for more affordable units.

35

Fannie Mae National Housing Survey (December 2015)

36

These numbers are not seasonally adjusted and there have been a number of quarterly increases since 2004 that have not affected the overall trend.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy A number of economic and demographic factors are driving demand for rental housing. Stronger job growth has enabled more young people to form separate households and many are choosing to rent. In some cases, the decision to rent is due to preference, but other factors such as student loan debt may also influence this decision. This trend has kept younger people out of the housing market and may also be preventing their parents from downsizing their homes and relocating to neighborhoods with amenities geared to older adults. The difficulties of qualifying for a mortgage loan or coming up with a down payment have also pushed many would-be buyers to the rental market. Rents in Southern California are soaring even faster than home prices. In Los Angeles County, a household earning median income and paying median rent will spend about half their monthly income in rent. A household spending more than 30% of their income on rent is considered “cost burdened” and when that ratio rises to over 50%, households are considered “severely cost burdened”. In many areas, it is now more expensive to rent than to own. With such a large share of income needed for rent, many households cannot save for a down payment on a home. Since housing typically constitutes the largest share of average annual household expenditures, increases in housing costs can have a detrimental effect on other areas of consumer spending like food, healthcare, clothing and transportation.

Apartment rents continue to climb in Southern California Los Angeles

Orange

Riverside

San Bernardino

Ventura

$2,500

$2,000

$1,500

$1,000

$500

$0 1q07

1q08

1q09

1q10

1q11

1q12

1q13

1q14

1q15

Note: For apartments with more than 100 units Source: Real Facts/California Real Estate Research Council

Since the end of the recession, multi-family (mostly apartments) has been the most active area of new residential construction. The increased ratio of multi- to single-family new home construction is clearly visible in many metro areas in California, including Los Angeles. So far, improvement in underlying fundamentals (household formation, employment and income growth) suggest that current demand can absorb supply. Looking ahead, as more apartment units become available, the added supply should push vacancy rates higher and check the rate at which rental rates have been rising. The big question is when. New Home Construction: New home construction is still at low levels but the next two years should bring a long anticipated surge in new home building. Contributing to the sluggish turn-around has been a lack of construction and development lending. The lending environment has improved, but the time it takes to develop new residential land in California is lengthy and, with the exception of the Inland Empire, the supply of available land for single-family tract housing is limited throughout much of Southern California. LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Major Industries of the Southern California Economy Inventories of unsold new homes have been on the rise throughout much of Southern California but remain very lean. In Los Angeles County, the inventory of new unsold housing edged up by 0.3% over the year in the third quarter of 2015 to 620 units. By way of comparison, at the peak of the housing boom in 2007, there were 4,320 unsold units in Los Angeles County. The supply of new homes in Orange County was up by 7.2% (to 850 units) over the year (3q15). In Riverside County, the number of unsold new homes increased by 4.9% (to 1,184 units), while in San Bernardino the increase was 66.5% (to 571 units). Ventura County was the only area in Southern California to see the inventory of new homes decline, sliding 10.8% to just 91 units available in the third quarter. With inventories of completed new single-family homes still near record lows, any increase in sales should pull construction higher. Why do such low inventories persist? On the existing home front, sales of distressed properties have slowed to a trickle, investors are holding (as rentals in many cases) rather than flipping and many would-be owner-occupant sellers still have insufficient equity to trade up. Although after two years of continuous year-over-year price increases, this problem should be fading. On the other hand, even as existing homeowners recover their equity, they may still be constrained by tight credit conditions. Since 2011, the inventory of existing homes for sale across the state has been under six months, the traditional measure of a balanced market. On the new home side, there has been little new construction other than apartments for the last several years. With limited inventory, potential buyers have had little opportunity to take advantage of low interest rates, especially when prices were still relatively low.

Southern California Unsold New Housing Unsold Units 16,000 14,000 12,000

Los Angeles County Orange County Riverside County San Bernardino County Ventura County

10,000 8,000 6,000 4,000 2,000 0 07q1 07q4 08q3 09q2 10q1 10q4 11q3 12q2 13q1 13q4 14q3 15q2 Source: California Real Estate Research Council

With little new inventory, the stronger economy and rising rates of household formation imply increased demand for new housing in the near future. Permits for new home construction in Southern California increased moderately in 2015, rising by 10.8% to 44,930 units. The LAEDC forecasts that homebuilders will pull permits for 50,100 units in the Los Angeles five-county region this year, an increase of 11.5% compared with 2015. New home construction is expected to continue on a slightly faster trajectory in 2017, with a projected increase of 14.2% to 57,200 units permitted. In addition to rising home prices, employment, income, population growth and rising rates of household formation will drive new home construction. This is likely to be a process that will stretch out over many LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Major Industries of the Southern California Economy years. Heavily skewed to multi-family construction in recent years, the mix is expected to shift to a greater share of single-family homes as older Millennials enter their mid-thirties, begin to have families and look to buy a home. Conclusion: The demand for housing is largely derived from the underlying growth of the U.S. economy. The housing market is one of the last sectors of the economy to recover from the Great Recession, but a number of forward-looking indicators such as pending home sales and mortgage applications remain solidly positive, suggesting that housing will gain additional momentum through the end of this year and into 2017. New programs introduced by the FHA and the Department of Housing and Urban Development seek to expand credit access to underserved borrowers. While there has been considerable overall improvement in Southern California’s housing markets, the strength of the rebound is divided between regions where employment and population are growing the fastest: coastal versus inland regions; central city areas versus distant suburbs. This bifurcation is also manifested in the demand for apartments and rentals versus owner-occupied single-family homes. Southern California’s housing market is steadily working its way back to something that might be considered normal. Housing should once again be a bright spot for the region’s economy, but the strongest rebound will be in the areas where job growth is the strongest, while foreign purchases will continue to influence recovery in certain local markets.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

Table 22: Median Existing Single-Family Home Prices Year

L.A. County

Orange County

Inland Empire

Ventura County

Annual % Change L.A. Year County

Orange County

Inland Empire

Ventura County

2004

435,954

642,577

295,173

599,282

2004

25.1%

31.6%

35.4%

29.6%

2005

517,853

706,555

364,407

668,138

2005

18.8%

10.0%

23.5%

11.5%

2006

577,147

732,517

383,580

685,957

2006

11.4%

3.7%

5.3%

2.7%

2007 2008

589,166 382,714

727,570 540,650

367,248 230,710

673,940 463,560

2007

2.1%

-0.7%

-4.3%

-1.8%

2008

-35.0%

-25.7%

-37.2%

-31.2%

2009

299,268

505,589

161,114

416,770

2009

-21.8%

-6.5%

-30.2%

-10.1%

2010

323,290

546,385

179,268

442,820

2010

8.0%

8.1%

11.3%

6.3%

2011

307,660

512,500

172,280

418,270

2011

-4.8%

-6.2%

-3.9%

-5.5%

2012

327,470

542,700

189,300

427,000

2012

6.4%

5.9%

9.9%

2.1%

2013

405,630

651,640

241,410

516,470

2013

23.9%

20.1%

27.5%

21.0%

2014

449,510

687,930

273,890

573,560

2014

10.8%

5.6%

13.5%

11.1%

2015

476,830

707,460

290,700

609,410

2015

6.1%

2.8%

6.1%

6.3%

Source: California Association of Realtors

Table 23: Total Housing Permits Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

L.A. County 26,935 25,647 26,348 20,363 13,704 5,653 7,468 10,403 10,709 16,200 18,707 22,831 26,000 29,600

Orange County 9,322 7,206 8,371 7,072 3,159 2,200 3,091 4,807 6,862 9,936 10,636 11,428 13,600 15,800

Inland Empire 52,696 50,818 39,083 20,457 9,101 6,685 6,404 5,214 6,034 8,829 10,141 9,665 11,800 14,700

Ventura County 2,603 4,516 2,461 1,847 842 404 590 640 410 777 1,082 1,006 1,200 1,500

% Annual Change

LA-5 91,556 88,187 76,263 49,739 26,806 14,942 17,553 21,064 24,015 35,742 40,566 44,930 52,600 61,600

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

L.A. County 26.4% -4.8% 2.7% -22.7% -32.7% -58.7% 32.1% 39.3% 2.9% 51.3% 15.5% 22.0% 13.9% 13.8%

Orange County 0.1% -22.7% 16.2% -15.5% -55.3% -30.4% 40.5% 55.5% 42.8% 44.8% 7.0% 7.4% 19.0% 16.2%

Inland Empire 22.5% -3.6% -23.1% -47.7% -55.5% -26.5% -4.2% -18.6% 15.7% 46.3% 14.9% -4.7% 22.1% 24.6%

Ventura County -28.4% 73.5% -45.5% -24.9% -54.4% -52.0% 46.0% 8.5% -35.9% 89.5% 39.3% -7.0% 19.3% 25.0%

LA-5 18.5% -3.7% -13.5% -34.8% -46.1% -44.3% 17.5% 20.0% 14.0% 48.8% 13.5% 10.8% 17.1% 17.1%

Sources: Construction Industry Research Board, California Homebuilding Foundation; forecasts by LAEDC

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Major Industries of the Southern California Economy

Nonresidential Real Estate37 The fundamentals of commercial (offices, retail and hotel) and industrial real estate are strong, supported by employment growth and stronger economic activity. Delinquency rates on commercial and industrial loans, and default rates on CMBS are near all-time lows. Nationally, investment in nonresidential structures took a step back in 2015, declining by an estimated 1.2% over the year after increasing by 8.1% in 2014, but is expected rise by 2.0% or more this year and next. Meanwhile, the value of nonresidential structures put in place increased by 11.4% in 2015 and is projected to rise by 8.8% in 2016. Overall, businesses are feeling more comfortable with the idea of investing in long-term projects. In Southern California, vacancy rates continue to decline, rental rates are up and interest from foreign investors is on the rise. A recent survey (January 2016) of foreign investors from the Association of Foreign Investors in Real Estate (AFIRE) listed Los Angeles as the third most desirable city globally (up from #10 in 2015) and the second nationally for real estate investment.

Office Space Office employment growth across the Southern California region is healthy and in some submarkets vacancy rates are approaching or have crossed their long-run average, an indication that new office construction may start to ramp up in the near future. In the fourth quarter of 2015, the overall vacancy rate in Southern California declined by 1.7 percentage points (pps.) to 13.7%. Leasing activity in 2015 totaled 22.9 million square feet, little changed from 2014. Net absorption (occupancy gains) was 5.5 million square feet, also on par with 2014. Across the region, the average direct class A asking rent increased by 6.0% compared with the final quarter of 2014 to $3.04/square foot. Los Angeles County: The Los Angeles County office market picked up momentum in the final quarter of 2015. Rents are returning to prerecession highs and the countywide vacancy rate is now below 15%. In 2016, with additional gains in office employment expected, vacancy rates should continue to trend lower. During the fourth quarter of 2015, the overall vacancy rate declined over the year by 1.7 pps. to 14.4%, the lowest since the first quarter of 2009, when it stood at 14.3%. Total leasing activity for the year was 14.3 million square feet, up from 13.6 million square feet in 2014. Occupancy gains of 3.9 million square feet were about even with 2014. The steady decline in vacancy rates is placing upward pressure on lease rates. Direct class A asking rents increased by 8.9% to $3.15/square foot in the fourth quarter of 2015, compared with year ago rates. During 2015, 770,400 square feet of new office space was completed and the year closed with 1.8 million square feet of additional new office space under construction.

37

The LAEDC thanks CBRE and Cushman and Wakefield for providing office and industrial vacancy rates, rental rates and the figures for leasing activity that are cited in this section.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy At 10.8% (10% is considered a balanced market), the Westside submarket had the lowest vacancy rate during the final quarter of 2015. It also had the highest average rental rate at $4.07/square foot, an increase of 11.5% over the year. Although leasing activity was strong (4.3 million square feet), it was down by 2.6% compared with 2014. The Westside also accounts for about 30% of the new office construction currently in the pipeline for Los Angeles County. Vacancy rates were highest in the South Bay (20.1%) but were lower by 2.1 pps. points compared with a year ago. The average class A rental rate was $2.49/square foot, an 38 increase of 5.1% from the final quarter of 2014. Vacancy rates in the Central submarket remain relatively high, averaging 18.1% during the fourth quarter of 2015, but are also trending down. Meanwhile, the class A asking rent rose by 5.1% to $3.10/square foot. In spite of an average vacancy rate still north of 15%, 54% of new office construction in Los Angeles is occurring downtown. The area’s influx of residents, restaurants, retail and entertainment options are attracting a growing number of office-space using tenants, and developers are responding. Orange County: The Orange County office market is characterized by low availability and rising lease rates. Strong employment growth has been the primary force behind improving fundamentals. Meanwhile, the mix of tenants driving demand for office space has changed. Traditionally (before the recession), the office market in Orange County was dominated by the finance, insurance and real estate industries. Today, the primary movers are education, healthcare and technical services. This new diversity will help provide stability to the market as education and healthcare tend to be less cyclical. Having performed well over the last year, momentum is expected to build through 2016. The Orange County overall vacancy rate decreased by 2.1 pps. to 11.5% during the last quarter of 2015, compared with the year ago rate. Leasing activity declined by 11.0% over the year to 7.8 million square feet in 2015, while occupancy gains expanded by 26.6% to 1.7 million square feet of positive absorption. Direct class A asking rents increased by 6.3% to $2.70/square foot during the final quarter of 2015 from the same period in 2014. The year closed with 477,387 square feet of new office space under construction, but no new product was added during the year. Looking ahead, there are over a dozen proposed projects that, if built, would add significant new square footage to the region’s office market. Strong demand is providing lift for asking rents in the most desirable areas where large blocks of space are hard to come by. The strongest submarket was South Orange County, which posted a vacancy rate of 8.2% (4q15), down by 2.0 pps. compared with 4q14. The direct class A asking rent averaged $2.86/square foot, an increase of 19.2% compared with the year ago rate. The South County market includes the Irvine Spectrum, which is where 90% of new office construction currently in the pipeline is located. Elsewhere, submarket vacancy rates ranged from 10.7% in the Greater Airport Area to 15.5% in Central County.

38

The Central submarket consists of the Central Business District, South Park, Little Tokyo/Chinatown, the Historic District and Mid-Wilshire.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy Inland Empire: The Inland Empire office market has improved significantly over the past five years, maintaining a slow but steady pace. Benefiting from the strongest employment growth in the Los Angeles five-county region, vacancy rates drifted downward though 2015. It is still a renter’s market, however. The vacancy rate averaged 16.1% during the last quarter of 2015, down by just 0.9 pp over the year. Leasing activity totaled 816,335 square feet, an increase of 10.9% compared with 2014. Because of occupancy losses, however, positive aborption was only 157,489 square feet for the year, down from 466,407 square feet in 2014. Still, the Inland Empire has now seen four consecutive years of positive absorption. Direct class A asking rents increased by 1.5% to $2.04/square foot in the final quarter of last year compared with the same period in 2014. No new office space was delivered to the market in 2015 and the year closed with no construction in the pipeline. There are three primary submarkets in the Inland Empire. Inland Empire West had the lowest vacancy rate in the fourth quarter of 2015 (14.5%). This region includes Ontario, Rancho Cucamonga, Fontana, Chino and Upland. Next was Inland Empire East (16.9%), followed by Inland Empire South (17.5%). Primary among tenants leasing space in the Inland Empire are payroll and staffing firms, government agencies and health care firms. These are industries either bound by geography (they serve local clients) or are not client-facing and so do not require space in more desirable, and thus more expensive, areas. Strong population growth has also fueled demand for office space in a variety of industries. With the lack of new development activity and increasing tenant demand, existing office space in the Inland Empire is steadily being absorbed. Vacancy rates should continue to trend down this year, driving lease rates up.

Industrial Space As a major gateway market for consumer and business goods, Southern California’s industrial real estate markets have seen several years of steady improvement. The region is a hub for manufacturing, international trade and logistics, and entertainment, all of which are users of industrial space. Los Angeles County is the nation’s largest manufacturing center and is home to its biggest port complex. Right now, the primary concern for the region’s industrial market is not demand, but supply. Fundamentals for all of Southern California’s major industrial product types are healthy and continue to strengthen. Los Angeles County: The Los Angeles industrial market tilted further into landlords’ favor in 2015. Overall vacancy rates continue to decline and average asking lease rates have steadily increased. Availability levels are at record lows, constricting activity in the face of rising demand. Lease rates are expected to continue to rise over the next 12 months as developers push to deliver new product to the market During the fourth quarter of 2015, the overall vacancy rate declined by 0.6 pps. over the year to 1.3%. Total leasing activity reached 42.2 million square feet, slightly surpassing the total for 2014. Nearly half of that activity was generated in the South Bay and Central Los Angeles. Net absorbtion for the year was 5.8 million square feet, which was slightly below the 2014 level. The average class A asking rent was $0.70/square foot in the final quarter of 2015, an increase of 9.4% over the final quarter of 2014. In 2015, over 3.6 LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Major Industries of the Southern California Economy million square feet of new industrial space was delivered to the market. In addition, the Greater Los Angeles region currently has over 2.8 million square feet of new industrial space under construction. Most of this new development is concentrated in the South Bay and the San Gabriel Valley (1.9 million square feet). The Los Angeles County industrial market closed 2015 on a high note. All of the county’s submarkets experienced a decline in vacancy rates and an increase in lease rates. With demand expected to hold steady, vacancy rates will continue to fall well into 2016 and then moderate as a substantial amount of new space becomes available. Orange County: Like Los Angeles, Orange County has one of the tightest industrial real estate markets in the country. Declines in vacancy rates are expected to continue through 2016, creating additional upward pressure on rents. The major challenge for Orange County is a lack of development activity. Because vacancy rates are so tight, there were no major move-ins or move-outs in 2015. Tenants are choosing to remain where they are. CBRE reported that there were over 60 lease renewals totaling 3.9 million square feet last year and since 2014, there have been 142 lease renewals totaling more than 8.5 million square feet. The Orange County overall vacancy rate decreased by 0.9 pps to 2.8% during the last quarter of 2015 compared with the year ago rate. Total leasing activity reached 12.5 million square feet, 12.9% higher than it was in 2014. Occupancy gains were 2.4 million square feet, the highest level of absorption in nine years and the fifth consecutive year of growth. The average class A asking rent increased by 6.7% to $0.80/square foot. Over 1.1 million square feet of new industrial space was added to the market in 2015, with an additional 625,000 square feet still under construction at year end. Orange County’s industrial real estate market performed well in 2015. It was a year marked by increasing rental rates and historically low vacancy rates. It was also a year in which the market moved solidly into the landlord’s favor. Fierce competition for space has allowed many landlords to increase rents and cut concessions on new deals. On the other hand, additional progress was constrained by a lack of new development. In many cases, particularly near the airport, industrial buildings have been replaced by other kinds of commercial development and apartments. Critical to future growth are new construction and development projects. Inland Empire: The Inland Empire industrial market can, without exaggeration, be described as outstanding. In 2015, tenant demand broke multiple records, propelling the market to highs last seen in the early 2000s. Port activity and the growing importance of e-commerce continue to drive improvement in the Inland Empire’s industrial real estate market. The stronger overall economy also provided a boost – since the second half of 2015, the Inland Empire has been one of the faster-growing metro regions in California. In addition to undiminished demand for large warehouse/distribution facilities (over 500,000 square feet), demand for product under 250,000 square feet has been also robust. The Inland Empire overall vacancy rate decreased by 0.6 pp to 5.7% during the fourth quarter of 2015 compared with the year ago rate. Leasing activity reached 43.7 million square feet last year, blowing by the previous record of 34.0 million square feet reached in 2005. Occupancy gains totaled 22.4 million square feet for the year, the second best LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Major Industries of the Southern California Economy year on record. The Inland Empire has now posted 26 consecutive quarters of positive absorption. Low vacancy rates and strong demand pushed the overall average asking rent in the final quarter to $0.48/square foot, an increase of 11.6% from the year ago rate and a new record high. Strong demand has also kept development levels high with 20.8 million square feet of newly completed inventory added to the market in 2015 and another 16.7 million square feet in the pipeline. The Inland Empire is one of the strongest and most dynamic industrial markets in the nation, benefiting from logistics advantages, high demand, growing lease rates and a substantial amount of available land for future industrial projects. The outlook for the market continues to be positive through 2016. Alone among the Los Angeles five-county region, new development and construction is expected to be strong with demand easily absorbing new supply.

FORECAST FOR PRIVATE NONRESIDENTIAL CONSTRUCTION New office space development will continue to proceed at a cautious rate in all five counties of the Southern California region. Vacancy rates in the most desirable areas are just beginning to cross below their long-run averages while remaining elevated (above 15%) in the Inland Empire. Office vacancy rates will continue to decline through 2016 but how fast will depend on job growth and the strength of the overall economy. Average asking rents are firming and in some cases, approaching previous peak levels. Although changes in work force organization have resulted in less space needed per employee, the lack of new construction and continuing employment growth this year and next will help expand and strengthen the region’s office market recovery. Growth in health care, entertainment, technology and business services employment will propel improvements in the office market. The outlook for industrial development is much more optimistic, especially for warehouse and distribution facilities, data centers and R&D centers. Additional improvements in vacancy rates and asking rents will depend on increases in international trade and industrial production (both question marks in early 2016), and ecommerce. The value of total nonresidential construction in the Los Angeles five-county region is reached $9.5 billion in 2015, a decline of 11.8% compared with 2014. In 2016, building on continuing economic growth and additional employment gains, the LAEDC forecasts nonresidential construction in the region will reverse course and increase by 9.2% to $10.4 billion.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

Table 24: Private Nonresidential Construction Permits (By valuation, $millions)

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

L.A. County 2,920 2,932 3,174 3,824 3,896 4,739 4,491 2,674 2,677 3,119 1,803 3,585 6,658 5,464 5,967 6,431

Orange County 1,209 1,006 1,133 1,495 2,401 2,005 1,439 952 1,152 1,300 1,227 1,301 1,945 1,965 2,025 2,124

Inland Empire 1,473 1,720 2,485 2,394 2,852 2,824 1,781 710 792 921 1,040 1,343 1,942 1,910 2,160 2,386

Ventura County 289 379 353 372 326 346 345 153 160 147 109 102 250 182 243 291

L.A. 5County 5,891 6,037 7,145 8,085 9,475 9,915 8,055 4,489 4,782 5,487 4,179 6,331 10,795 9,520 10,395 11,233

Annual % Change L.A. Year County 2002 -17.5% 2003 0.4% 2004 8.3% 2005 20.5% 2006 1.9% 2007 21.6% 2008 -5.2% 2009 -40.5% 2010 0.1% 2011 16.5% 2012 -42.2% 2013 98.8% 2014 85.7% 2015 -17.9% 2016f 9.2% 2017f 7.8%

Orange Inland County Empire -10.4% 3.5% -16.8% 16.8% 12.6% 44.5% 32.0% -3.7% 60.6% 19.1% -16.5% -1.0% -28.2% -37.0% -33.8% -60.1% 20.9% 11.7% 12.9% 16.2% -5.6% 12.9% 6.0% 29.1% 49.5% 44.6% 1.0% -1.6% 3.1% 13.1% 4.9% 10.5%

Ventura County -6.5% 31.1% -6.9% 5.4% -12.4% 6.1% -0.4% -55.5% 4.7% -8.4% -25.9% -6.4% 145.2% -27.3% 33.6% 19.8%

L.A. 5County -11.0% 2.5% 18.4% 13.2% 17.2% 4.6% -18.8% -44.3% 6.5% 14.8% -23.8% 51.5% 70.5% -11.8% 9.2% 8.1%

Sources: Construction Industry Research Board, California Homebuilding Foundation; RERC California Department of Finance, Economic Research Unit; forecasts by LAEDC

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Economic Forecast, February 2016

Major Industries of the Southern California Economy

RETAIL TRADE The retail sector occupies a prominent place in the economy at both the national and local levels. Because such a large portion of U.S. economic activity depends on consumer spending, sales of retail goods and services is an important economic indicator. While primarily serving the local population, visitors from outside the Los Angeles region who purchase souvenirs or shop in the area’s unique boutiques and upscale shops bring new money into the economy, boosting the region’s wealth. Retailers also generate an enormous number of jobs that provide employment for individuals across a wide range of skill and income levels. Nationwide, retail is one of the largest private sector employers. In 2015, there were 782,100 retail workers in the Los Angeles five-county area, an increase of 1.5% over 2014. Add in San Diego, and the total job count increases to over 929,000. This equates to 10.5% of all nonfarm payroll jobs in Southern California. In 2015, total U.S. retail sales were up by 2.1% compared with 2014. The best performing sectors were food services and drinking places (up by 8.1%); motor vehicles and parts (7.0%); nonstore retailers (6.3%); and furniture and home furnishings stores (5.8%). Ecommerce sales increased by an estimated 11.3% over the year and accounted for about 7.8% of total retail sales. Although the growth of e-commerce is one of the more significant trends reshaping the retail industry, there are a handful of sectors that still command a larger share of total retail sales, the largest being motor vehicles and parts with a 20% share.

U.S. Retail Sales 15%

Y/Y % Change

10% 5% 0% -5% -10%

Jul-15

Jul-14

Jan-15

Jul-13

Jan-14

Jul-12

Jan-13

Jul-11

Jan-12

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jan-07

-15%

Source: U.S. Census Bureau

While the rise of e-commerce has had a profound impact on the retail industry, technological change has transformed the face and the underlying structure of retail in other ways as well. In-store innovations include self-checkout, payment via a mobile device in the hands of a sales associate, and kiosks that allow consumers to browse product catalogs. Retailers are also expanding social media channels to engage with and grow their customer base. This entails the collection of large amounts of data (raising privacy and security concerns in the process) in order to provide a more personal LAEDC Kyser Center for Economic Research

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Economic Forecast, February 2016

Major Industries of the Southern California Economy shopping experience. In turn, consumers are increasing their use of shopping apps on mobile devices to find coupons, research products, locate stores, post reviews and pay for purchases. Consumers today are better informed, more discerning and more interactive. Changes in consumer shopping habits are also reshaping the composition of retail employment and impacting supply chains and commercial real estate. As more sales have migrated online, some brick and mortar stores have responded with smaller footprints and fewer sales people. In an effort to attract shoppers, mall developers are creating inviting open air “town squares” that mix traditional retail outlets with experiential opportunities like restaurants, gyms and entertainment venues. Huge warehouse and distribution facilities are springing up to accommodate the massive growth in online shopping. Amazon alone has three large facilities in the Inland Empire. The increase in online shopping has also led to innovations in product distribution and tracking technology to keep up with the rapidly increasing volume of shipments and consumer demand for speedy deliveries. On the demand side, consumers continue to exhibit caution but households report feeling more secure about their financial footing. Unemployment is at a seven-year low and household wealth is at record-high levels. The slow rate of wage growth has constrained some households, but wage and salary gains are expected to accelerate in 2016 as the local labor markets near full employment. Although consumers have been using credit cards sparingly, low interest rates have made it more affordable for American shoppers to finance the purchase of automobiles (sales hit a record high level in 2015) and other big ticket household goods. Even so, increases in the cost of housing, healthcare and education are demanding a larger share of consumers’ disposable income. Additionally, savings from lower fuel prices appeared to have remained just that – savings. In 2015, the national saving rate increased to 5.2% versus 4.9% in 2014. In 2015, personal consumption expenditures increased by an estimated 3.4% (3.1% after inflation) compared with 2014. Nominal consumer spending is expected to rise by 4.0% in 2016 and accelerate to 5.2% in 2017. Southern California, one of the nation’s largest consumer markets, should closely track national trends. The LAEDC forecasts total taxable sales, of which retail sales make up about two-thirds, to increase throughout the region in 2016, ranging from 7.6% in the Inland Empire to 5.3% in Ventura County. San Diego County, Orange County and Los Angeles County should see increases of 6.3%, 6.2% and 5.5%, respectively.

TRAVEL AND TOURISM Hospitality and tourism is one of Southern California’s largest, most visible and valuable industry sectors, employing thousands of people and generating billions of dollars in economic activity. The region boasts numerous natural and built attractions within a relatively compact area: beaches, amusement parks, art museums, architectural landmarks, outdoor activities, shopping districts and some of the nation’s most highly rated restaurants. And, of course, L.A.’s iconic entertainment industry and Hollywood draw millions of visitors here every year.

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Economic Forecast, February 2016

Major Industries of the Southern California Economy In 2015, Los Angeles County alone hosted a record 45.5 million visitors (day and overnight), an increase of 2.8% over the previous year and the fifth consecutive year in 39 which Los Angeles County achieved record breakering visitor volume. While still on track to reach Mayor Garcetti’s goal of 50 million visitors by 2020, visitor growth is expected to slow in 2016, coming in at just over 46.5 million. This is due to the strong dollar and the expectation that U.S. monetary policy is expected to diverge even more widely from that of other countries. Orange County also hosted nearly 46 million vistors, including four million international travelers, and visitor counts are expected to increase at 40 a moderate pace this year and next. San Diego County hosted a record high 34.2 million visitors in 2015, a number that is also expected to increase again this year and 41 next.

Visitors to Los Angeles County reach record highs 50 Day Visits

Overnight Visits

45 40 35 30 25 20 15 2007

2008

2009

2010

2001

2012

2013

2014

2015

Source: L.A. Tourism and Convention Board

International visitation is especially strong in Los Angeles County. In 2015, 6.7 million international visitors arrived in Los Angeles, nearly 15% of total visitation, and a 3.4% uptick over 2014. To put this in context, for California overall, international visitors comprise only 6.5% of total state visitation. While Mexico sent the largest number of international visitors, China (excluding Hong Kong) was Los Angeles County’s number one overseas market, surpassing Canada in overall visitation to become the second largest international market in 2015. China is also the region’s fastest-growing market, with 13.6% more visitors in 2015 than in 2014. Rounding out the top five international visitor markets for Los Angeles County are Australia and the United Kingdom.

39

Los Angeles County Tourism by Numbers 2015 Quick Facts, (February 2015). The LAEDC thanks Los Angeles Tourism and Convention Board for providing the visitation figures that are cited in this section. Estimates and forecasts by the LAEDC.

40

Orange County Visitor and Convention Bureau

41

San Diego Tourism Authority

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Economic Forecast, February 2016

Major Industries of the Southern California Economy Of the 85% of Los Angeles County overnight visitors who are U.S. residents, 20% originate from the Los Angeles five-county region, followed by the San Francisco Bay 42 area (12.0%), the New York City area (7.7%), San Diego (7.2%) and Phoenix (4.3%). The Los Angeles Tourism and Convention Board reports that all Los Angeles County business and leisure travelers spent $19.6 billion in 2014 (latest available data), up 6.8% from 2013, a new record. Of this, U.S. origin visitors spent $13.2 billion or 67%, while international visitors spent $6.4 billion, or 33% of the total. This was more than double the corresponding 15% international share of visitor volume, showing the importance of 43 international visitors to the market. Driving domestic demand for travel-related goods and services were gains in the U.S. labor markets and stronger personal income growth, both of which point to an increase in consumer spending. While the global economy still looks lackluster, overseas markets are expected to outperform the overall visitor market in terms of percentage gains again in 2016. Southern California lodging markets are doing very well. Lodging fundamentals–room demand, occupancy rates and average daily room rates as reported by PKF Consulting— are strong and continue to trend up. In 2015, the number of occupied hotel rooms in Los Angeles County increased by 1.2%. At the same time, hotel room supply edged up by just 0.6%. As a result, the Los Angeles County average occupancy rate rose slightly to 81.6%, compared with 81.2% in 2014. With several submarkets experiencing occupancy rates well above their long-run averages. The Los Angeles County average daily room 44 rate grew by a healthy 7.4% in 2015 to $187.58.

Orange and San Diego County Hotel Occupancy Rates

Los Angeles County Hotel Occupancy Rates

Orange County 77.3%

77.0%

74.4% 67.7%

2006

2007

2008

2009

71.7%

2010

75.1%

78.1%

80.0%

81.2%

81.6%

64.8% 66.3%

2011

2012

2013

2014

2015e

Source: PKF Consulting

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San Diego County

81.5%

2016f

2009

69.0% 69.8%

2010

71.4% 72.2%

76.7% 76.2% 77.8% 78.3% 77.2% 77.7% 73.4% 73.6% 75.0% 74.1%

2011

2012

2013

2014

2015e

2016f

Source: PKF Consulting

Based on 2014 data as latest available.

43

2015 Tourism spending figures will be available from the Los Angeles Tourism ad Convention Board in June 2016. 44

2016 Southern California Lodging Forecast, PKF Consulting USA | CBRE Hotels

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Economic Forecast, February 2016

Major Industries of the Southern California Economy Looking ahead to 2016, the lodging sector will continue to benefit from personal income growth, international visitation and healthier corporate travel and retreat budgets. Transient-occupancy taxes, an important revenue source for local governments, will also increase. 45

While a significant part of leisure and hospitality activity is associated with tourism, many of these jobs fundamentally serve the local population more so than the region’s leisure and business travelers. Restaurants and bars employ over 70% of all workers in the leisure and hospitality sector. In 2015, leisure and hospitality jobs in the Los Angeles five-county region increased by 34,000 jobs to 871,400. In 2016 and 2017, job growth is expected to continue as local consumption solidifies, but the stronger dollar may dampen the rate of that growth somewhat to the extent that it discourages tourism.

Leisure and hospitality job counts reach new record high 1,200

Thousands of jobs Ventura County

1,000 800

San Diego County Inland Empire

600

Orange County

400

Los Angeles County

200 0

Source: California EDD

In 2015, Los Angeles County had 98,135 hotel rooms at 997 properties—the sixth largest 46 supply of hotel rooms in the U.S. After several years of limited new hotel construction following the recession, multiple hotel projects are underway in Southern California, including the Wilshire Grand in downtown Los Angeles that will house the largest InterContinental Hotel property in the Americas, the J.W. Marriott/Ritz-Carlton hotel expansion at L.A. Live, the 18-story Hotel Indigo that will be part of the Metropolis project and several new boutique hotels. Orange County projects include the 466-room J.W. Marriott in Anaheim and the 250room Pasea Hotel and Spa in Huntington Beach. San Diego County projects include the 317-room Pendry Hotel as well as a proposed 831-room waterfront hotel at the convention center. In addition to expansion, several prominent hotel properties have undergone extensive renovations in an effort to keep guests coming back and to attract new customers. A number of cultural venues and amusement parks have also invested

45

Leisure and hospitality (NAICS 72) includes lodging, food services, the performing arts, museums, amusement parks and gambling establishments. 46

Los Angeles County Tourism by Numbers 2015 Quick Facts, (February 2015) Los Angeles Tourism and Convention Board

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Economic Forecast, February 2016

Major Industries of the Southern California Economy heavily in improvements to attract both local and out-of-area visitors, the largest being Disneyland’s plans to add a 14-acre Star Wars-themed land to their Anaheim park. Transportation and infrastructure projects to maintain Southern California’s position as a premier travel destination include an $8.5 billion modernization project at LAX, an additional $5 billion in projects to connect LAX via rail and continued expansion of the county rail system. San Diego International and Orange County’s John Wayne Airport have also recently completed major upgrades.

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Economic Forecast, February 2016

Index of Statistical Tables

INDEX OF STATISTICAL TABLES Table 1: U.S. Economic Indicators .................................................................................................. 7 Table 2: U.S. Interest Rates ............................................................................................................ 7 Table 3: Foreign Exchange Rates of Major U.S. Trading Partners…………………… ............. …18 Table 4: Gross Product Comparisons, 2015 ................................................................................. 25 Table 5: California Economic Indicators ....................................................................................... 27 Table 6: California Nonfarm Employment ..................................................................................... 28 Table 7: California Regional Nonfarm Employment ...................................................................... 29 Table 8: Total Nonfarm Employment in Southern California ........................................................ 30 Table 9: California Technology Employment ................................................................................ 31 Table 10: Population Trends in California and the Los Angeles Five-County Area....................... 32 Table 11: Components of Population Change in California and SoCal Counties.......................... 33 Table 12: Los Angeles County Economic Indicators ..................................................................... 38 Table 13: Los Angeles County Nonfarm Employment ................................................................... 39 Table 14: Orange County Economic Indicators ............................................................................. 44 Table 15: Orange County Nonfarm Employment ........................................................................... 45 Table 16: Inland Empire Economic Indicators ............................................................................... 51 Table 17: Inland Empire Nonfarm Employment ............................................................................. 52 Table 18: San Diego County Economic Indicators ........................................................................ 57 Table 19: San Diego County Nonfarm Employment ...................................................................... 58 Table 20: Ventura County Economic Indicators............................................................................. 62 Table 21: Ventura County Nonfarm Employment .......................................................................... 63 Table 22: Median Existing Single-Family Home Prices ................................................................. 79 Table 23: Total Housing Permits .................................................................................................... 79 Table 24: Private Nonresidential Construction Permits ................................................................. 85

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Economic Forecast, February 2016

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economic forecast & industry outlook - laedc

2016-2017 ECONOMIC FORECAST & INDUSTRY OUTLOOK LAEDC KYSER CENTER FOR ECONOMIC RESEARCH 10th Annual International Trade Outlook S P O N S O R E D B...

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