Transcript The Future of the California Economy

Economy Crashing:
Planning for the Future
Stephen Levy
Center for Continuing Study of the
California Economy
Annual Demographic Workshop
June 1, 2009
1
The Future Will Arrive
• It is REALLY hard to plan for the future even when
the economy is strong
• When the economy is crashing planning feels
NEARLY IMPOSSIBLE
• Yet the recession will end even if the economy is
weak for a long time
• In 2020 there will be more people—to educate,
to house, who want better daily travel options
and who want to live in great communities
2
When Will the Recession End?
•
•
•
•
Some economists say in 2010
Some economists say in 2011
A few economists say in 2012
But if we are planning for California’s future in
2020 or 2035, the difference between 2010
and 2012 doesn’t matter
• Some aspects of the current recession MAY
MATTER for planning and we will discuss these
during this session
3
The 90s’ Recession and Now
Lessons for the Future
• Both recessions are long and deep
• Both recessions have major housing slumps
• In the 90s CA had a major loss of job share in
aerospace and a longer recession
• In the current recession the CA economy is
only slightly worse than the national economy
based on CA’s greater exposure to housing
• The current recession has a financial sector
meltdown and substantial loss of wealth
4
CA Job Loss in the 90s’ Recession
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
-4.0%
-4.5%
Jul 90
Jan 91
Jul 91
Jan 92
Jul 92
Jan 93
Jul 93
Jan 94
Jiul 94
5
California Share of U.S, Jobs
11.8%
11.6%
11.4%
11.2%
11.0%
10.8%
10.6%
10.4%
1990
1991
1992
1993
1994
1995
1996
6
CA/US Ratio of Median Home Price
2.200
2.000
1.800
1.600
1.400
1.200
1.000
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
7
CA Residential Building Permits
350000
300000
250000
200000
150000
100000
50000
0
1986
1988
1990
1992
1994
1997
8
The Economy Recovered and Another
Growth Cycle Began
• CA outpaced the nation in job growth as the
Internet, foreign trade and venture capital led
the way
• Population growth surged again
• Housing construction and prices surged
• And our challenges in planning for the future
became apparent
• Until another housing bubble burst—Can we
maintain our focus to plan for the future?
9
California Share of U.S. Jobs
11.8%
11.6%
11.4%
11.2%
11.0%
10.8%
10.6%
10.4%
1990
1992
1994
1996
1998
2000
2002
2004
10
California Population and Housing Growth
800000
700000
600000
500000
400000
300000
200000
100000
0
1989
1995
Population Growth
2000
2005
2008
Housing Permits
11
CA/US Ratio of Median Home Price
2.800
2.600
2.400
2.200
2.000
1.800
1.600
1.400
1.200
1.000
1998
2000
2002
2004
2006
2008 Apr
09
12
CA Job Loss Then and Now
Months After Recession Started
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
-6.0%
1
7
13
19
90s
25
Now
31
37
43
49
13
California Share of U.S. Jobs
11.8%
11.6%
11.4%
11.2%
11.0%
10.8%
10.6%
10.4%
1990
1995
2000
2005
2008
14
The Current Recession: Implications
for California Economic Growth
• Larger job losses than in the 90s BUT
• Only a small loss in share, mainly from
housing
• This is a NATIONAL recession—Oregon,
Nevada and Arizona (our neighbors) all have
larger % job losses. Nine states have
unemployment rates over 10%.
• SO WHAT WILL THE FUTURE BRING
15
How to Think About Future CA Growth
• California’s job, population and household
growth depends on
--The amount of population and job growth in
the nation
--The attractiveness of California for
entrepreneurs, workers and their families
--The choices made by two fast-growing
groups—residents over 55 and the children
and grandchildren of immigrants
16
Be Prepared for Growth, Change and
Challenges
• U.S. population and jobs will continue to grow
• California has a relatively strong economic
base and our strengths are in the fastestgrowing sectors in the nation and world
• California is in the midst of a tidal wave of
demographic change in age, ethnic
composition and, possibly, behavior
• And we face difficult challenges but much of
our future is ours to plan for and create
17
Major Census Bureau U.S. Population
Projection Assumptions
• Population will grow by 3 million per year to
reach 341 million in 2020 and 390 million in
2035 up from 304 million in 2008
• Immigration will grow from 1.2 million now to
1.6 million by 2025 and 2 million by 2050
• Hispanic fertility rates will decline and overall
fertility rates will remain steady
• Population will surge in the 55+ age groups
18
U.S. Population (Millions)
Census Bureau Projections
420
390
400
378
380
360
340
341
336
320
300
2020
Last Projections
2035
Current Projections
19
U.S. Labor Force Participation Rates
80%
70%
60%
50%
40%
30%
20%
10%
0%
55-64
2000
65-74
2006
2016
75+
2020
2035
20
State Economic Base
Well Positioned
• California has strength in faster-growing
sectors
--Professional services and venture capital
--World trade --Tourism and entertainment
--Application of technology and design to the
creation of new products and services
• The federal agenda for the future is focused
on areas where the state can excel
21
California Share of U.S. Venture Capital
Funding
55%
50%
45%
40%
35%
30%
1995
1997
1999
2001
2003
2005
2007
Q1 2009
22
Will California Outpace the Nation in
Job Growth
• SCAG recently reviewed existing forecasts and
convened a panel to discuss the state and
region’s future growth
• The opinion of the panel with one dissent was
that the state CAN attract an increasing share
of new jobs in the nation
• Dowell’s and John’s presentation will focus on
some of the challenges we face to turn
opportunities into success
23
California Share Of U.S. Jobs
12.2%
11.7%
11.2%
10.7%
10.2%
1990
1995
2000
Baseline
2005
High
2020
2035
Low
24
Achieving Prosperity with Broad
Opportunity—One Economist’s Perspective
• Making California a great place to live and
work.
• Recognizing that we compete for workers and
families as well as for businesses
• Will require public investment—in people, in
infrastructure and in communities
• Will require that we make emission and traffic
reduction an opportunity, not a burden
25
Achieving Prosperity with Broad
Opportunity—One Economist’s Perspective
• Making California a great place to live and
work.
• Will need greater housing density on existing
infill sites to respond to market demand and
regional emission reduction targets
• Will require a budget and funding consensus
that allows the needed public investment to
occur
26
Demographic Issues in Achieving
Prosperity with Broad Opportunity
• California will join the nation in seeing baby
boomers age and eventually retire
• California’s new workforce will be increasingly
Latino and Asian—the children and
grandchildren of native-born and immigrants
• The SCAG panel expects these children and
grandchildren to have different (higher) labor
force and household forming behavior than
their parents.
27
A Word About Housing
• Household projections can vary for two
reasons—1) changes in job growth levels and
2) changes in household formation for any
given level of job growth
• Household formation can vary for financial
reasons—1) low income growth. 2) poor
housing affordability, or 3) lack of new
affordable units
• HH formation varies for cultural reasons too
• No time to discuss in panel meeting
28
Their Choices Matter
• What do California’s continuing demographic
shifts mean for our state and planning for the
future?
• We are joined by two experts, Dowell Myers
and John Pitkin, to explore the economic and
policy implications of California’s future
population changes and what is likely to occur
29