TRI-COUNTY ECONOMIC FORECAST CONFERENCE California Economic Outlook Nancy D. Sidhu, Ph.D. VP & Senior Economist January 11, 2007.

TRI-COUNTY ECONOMIC FORECAST CONFERENCE

California Economic Outlook

Nancy D. Sidhu, Ph.D. VP & Senior Economist

January 11, 2007

THEMES FOR 2007THEMES FOR 2007

Slower economic growthSlower economic growth

Housing activity declinesHousing activity declines

Still Strength elsewhereStill Strength elsewhere

33

U.S. ECONOMIC GROWTHU.S. ECONOMIC GROWTH

3.7

4.5

0.9

2.6

4.2

2.5

3.6

4.5

1.5

3.7

4.4

3.3

0.0

1.0

2.0

3.0

4.0

5.0

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06e '07f

% Change in Real GDP, Year-Over-Year

Sources: BEA, estimate & forecasts by LAEDC

44

GDP COMPARISONSGDP COMPARISONS

4.53.7 3.6

6.3

7.9 7.6

5.2

2.6

4.4 4.2

1.50.9

-0.4

4.3

3.2

1.3

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

'98 '99 '00 '01 '02 '03 '04 '05

U.S.

California

% Change in Real GDP, Year-Over-Year

Source: BEA

CONSUMER INFLATION RATECONSUMER INFLATION RATE

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06YTD

San Francisco CMSALos Angeles CMSAU.S.

Year/Year % Change

Source: Bureau of Labor Statistics

SPOT ENERGY PRICESSPOT ENERGY PRICES

0

2

4

6

8

10

12

14

16Ja

n-9

8

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

0

10

20

30

40

50

60

70

80West TX Intermediate -->

<-- Natural Gas (Henry Hub)

$/Mcf $/Barrel

Sources: EIA, Natural Gas Weekly

CALIFORNIA WHOLESALE ELECTICITY PRICE

0

50

100

150

200

250

300

350

Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06

CA-OR Border

Source: Wall Street Journal

Average $ per Megawatt-Hour

Dec 2000$410

PRICE/COST PRESSURESPRICE/COST PRESSURES

-10

0

10

20

30

40

50

60

70

Lumber Energy FarmPrices

Textiles &Fibers

Metals

2003

2004

2005

2006 YTD

% Change vs. Previous December

Sources: BLS, USDA, Bridge/Commodity Research Bureau

LABOR COMPENSATION -- WESTLABOR COMPENSATION -- WEST

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

90:1 91:3 93:1 94:3 96:1 97:3 99:1 00:3 02:1 03:3 05:1 06:3Year: Quarter

Year/Year % Change

Source: BLS

UNEMPLOYMENT HAS COME DOWNUNEMPLOYMENT HAS COME DOWN

3

4

5

6

7

8

9

10

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

U.S.

CA

Source: BLS, CA EDD

% (SA)

Latest4.5%

4.6%

AFTER-TAX CORPORATE PROFITSAFTER-TAX CORPORATE PROFITS

-20-15-10-505

10152025303540

88:1 90:1 92:1 94:1 96:1 98:1 00:1 02:1 04:1 06:1

Unadjusted, Yr/Yr % Change

Latest QuarterPlotted: 3Q 2006

Year: Quarter

Source: Bureau of Economic Analysis

U.S. EQUITY PRICES

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

96:12 97:12 98:12 99:12 00:12 01:12 02:12 03:12 04:12 05:12 06:12Year: Month

S& P Index

1,000

1,400

1,800

2,200

2,600

3,000

3,400

3,800

4,200

4,600

5,000NASDAQ Index

S&P 500

NASDAQ Composite

BUSINESS SPENDING -- EQUIPMENTBUSINESS SPENDING -- EQUIPMENT

0

40

80

120

160

200

94:1 95:1 96:1 97:1 98:1 99:1 00:1 01:1 02:1 03:1 04:1 05:1 06:1Year: Quarter

0

100

200

300

400

500

600

Information Processing [--->]Transportation [<---]Industrial [<---]Other [<---]

Billions of $ 2000

Source: Bureau of Economic Analysis

Sources: BLS, CA EDD

NONFARM EMPLOYMENT GROWTH

-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.5

90:1 91:3 93:1 94:3 96:1 97:3 99:1 00:3 02:1 03:3 05:1 06:3Year: Quarter

-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.5

Rest of U.S.

California

Latest MonthPlotted: Nov 2006

Year/Year % Change

108,30023,800

0

-10,200

-1,100

-200

2,000

33,600

38,600Government

Business Services

Health Services

Other Manufs.

Leisure & Hospitality

Motion Picture/TV

Aerospace/Defense

Hi-Tech

Construction

Source: California Employment Development Dept.

CHANGE IN NONFARM EMPLOYMENT -- CHANGE IN NONFARM EMPLOYMENT -- MAJOR INDUSTRIES IN CALIFORNIAMAJOR INDUSTRIES IN CALIFORNIA

(Nov ‘06 / Nov ‘05)(Nov ‘06 / Nov ‘05)0

1616

REGIONAL GROWTH PATTERNREGIONAL GROWTH PATTERN

-8

-6

-4

-2

0

2

4

6

8

94:1 95:1 96:1 97:1 98:1 99:1 00:1 01:1 02:1 03:1 04:1 05:1 06:1Year: Quarter

Los Angeles

Central Valley

Southern CA Outside L.A.

Bay Area

Year/Year % Change (Smoothed)

Source: CA Employment Development Dept.

Latest month: November 2006

PERSONAL INCOME GROWTH

0%

2%

4%

6%

8%

10%

12%

1990 1992 1994 1996 1998 2000 2002 2004 2006f

Y/Y % Chg

United States

California

TAXABLE SALES BY REGION

-15%

-10%

-5%

0%

5%

10%

15%

20%

92:1 93:2 94:3 95:4 97:1 98:2 99:3 00:4 02:1 03:2 04:3 05:4Year: Quarter

California

Southern California

Bay Area

Year/Year % Change

Source: CA BOE

CALIFORNIA VEHICLE REGISTRATIONSCALIFORNIA VEHICLE REGISTRATIONS

0200400600800

1,0001,2001,4001,6001,8002,000

66 69 72 75 78 81 84 87 90 93 96 99 02 05

000s of Passenger-type Vehicles

Source: CA DOF

CALIFORNIA HOUSING MARKET

0

100

200

300

400

500

600

700

90:1 91:3 93:1 94:3 96:1 97:3 99:1 00:3 02:1 03:3 05:1 06:3Year: Quarter

0

40

80

120

160

200

240

280New Home Permits [--->]

Existing Home Resales [<---]

000s of Units, Annual Rate

Latest MonthPlotted: Nov 2006

Sources: U.S. Census Bureau, California Association of Realtors

000s of Units, Last 12 Mos

MEDIAN HOME PRICE IN MEDIAN HOME PRICE IN CALIFORNIACALIFORNIA

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

Jan-

98M

ay-9

8S

ep-9

8Ja

n-99

May

-99

Sep

-99

Jan-

00M

ay-0

0S

ep-0

0Ja

n-01

May

-01

Sep

-01

Jan-

02M

ay-0

2S

ep-0

2Ja

n-03

May

-03

Sep

-03

Jan-

04M

ay-0

4S

ep-0

4Ja

n-05

May

-05

Sep

-05

Jan-

06M

ay-0

6S

ep-0

6

$ Thousands Nov ‘06$555,290

Source: California Association of REALTORS®

CALIFORNIA NONRESIDENTIAL CALIFORNIA NONRESIDENTIAL BUILDING PERMITSBUILDING PERMITS

0

5

10

15

20

25

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06f

Additions/Alterations

New Buildings

Billions of $ 2006

Source: Construction Industry Research Board

PUBLIC CONSTRUCTIONPUBLIC CONSTRUCTION

0

2

4

6

8

1012

14

16

18

20

22

1994 1996 1998 2000 2002 2004 2006f

Government Buildings

Heavy Construction

Billions of $2005

Source: Construction Industry Research Board

AGRICULTURE: BETTER(Gross Cash Income in CA)

27.6 27.8 28.6 28.8 30.0 31.7

26.023.9

25.727.7

31.7

0

5

10

15

20

25

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Billions of $

Sources: CA Dept. of Agriculture

DoD PRIME CONTRACT AWARDSDoD PRIME CONTRACT AWARDS

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

L.A. 5-Co.

San Diego Co.

Bay Area 9-Co.

$ Billions

BOEING COMMERCIAL AIRCRAFT

0

200

400

600

800

1000

1200

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Deliveries

Orders

Number of Commercial Aircraft

(Fcst)Sources: Boeing, LAEDC

2727

LOCATION PRODUCTION DAYSLOCATION PRODUCTION DAYS

0

10,000

20,000

30,000

40,000

50,000

60,000

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '05YTD

'06YTD

26,698

33,982

43,982

47,66945,653 46,410 46,808

43,976 44,442 44,231

52,707

All Others

Features

Source: FilmLA Inc.

54,904

42,198 41,619

TECHNOLOGY JOB TRENDS TECHNOLOGY JOB TRENDS IN CALIFORNIAIN CALIFORNIA

0

100

200

300

400

500

600

700

800

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06YTD

InternetComputer Systems DesignComputer & Electronic Prod Mfg.

Thousands of Jobs

Source: California Employment Development Department

CA EXPORTS BY INDUSTRYCA EXPORTS BY INDUSTRY

-10

0

10

20

30

40

High Tech Transp'nEquip

Agribus'n Textiles/Apparel

OtherManuf'rs

2003200420052006 YTD

Year/Year % Change

Source: MISER

TOTAL CARGO HANDLED TOTAL CARGO HANDLED AT LA/LB PORTSAT LA/LB PORTS

0

200

400

600

800

1,000

1,200

1,400

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

TEU in Thousands

Sources: Ports of Los Angeles & Long Beach

Latest month plotted: November 2006

TOTAL CARGO HANDLED TOTAL CARGO HANDLED AT PORT OF OAKLANDAT PORT OF OAKLAND

0

25

50

75

100

125

150

175

200

225

250

Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06

TEUs (000)

Source: Port of Oakland

Latest month plotted: November 2006

HOTEL OCCUPANCY RATESHOTEL OCCUPANCY RATES

40

50

60

70

80

90

100

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06

Los Angeles San FranciscoSan Diego

Source: PKF Consulting

Occupancy rates (%)

HOTEL AVERAGE DAILY ROOM RATESHOTEL AVERAGE DAILY ROOM RATES

$90$100$110$120$130$140$150$160$170$180$190$200

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06

Los Angeles Co. San Diego Co.

San Francisco Area

Source: PKF Consulting

$

CALIFORNIA TAX REVENUESCALIFORNIA TAX REVENUES

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%A

ug-0

1O

ct-0

1D

ec-0

1Fe

b-02

Apr

-02

Jun-

02A

ug-0

2O

ct-0

2D

ec-0

2Fe

b-03

Apr

-03

Jun-

03A

ug-0

3O

ct-0

3D

ec-0

3Fe

b-04

Apr

-04

Jun-

04A

ug-0

4O

ct-0

4D

ec-0

4Fe

b-05

Apr

-05

Jun-

05A

ug-0

5O

ct-0

5D

ec-0

5Fe

b-06

Apr

-06

Jun-

06A

ug-0

6O

ct-0

6

Month: Year

Total

Personal Income

Sales & Use

Year/Year % Change

Source: CA Department of Finance

CALIFORNIACALIFORNIAECONOMIC FORECASTECONOMIC FORECAST

2004 2005 2006e 2007f

Nonfarm Jobs 1.0 1.4 1.5 0.9

Unemployment Rate 6.2 5.4 4.9 5.2

Total Personal Income 6.0 5.0 6.1 6.2

Taxable Retail Sales 9.4 7.5 6.0 5.9

Housing Unit Permits 212,960 208,972 164,900 157,000

Annual % change except housing permits, which are in units.

Forecast Source: LAEDC

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