Ventura Economic Outlook

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Ventura Economic Outlook
Bill Watkins
June, 2009
2
(No Transcript)
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Outline

• United States
• California
• Ventura

4
United StatesEconomy
5
What Happened?
6
Nash EquilibriumandMultiple Equilibria
7
We had panic. We switched to a bad equilibrium.
8
Recessions accompanied by financial panic are
different.
9
Robert Barro says
We have a 20 percent chance of going into a
depression.
10
Financial Panics Since the Civil War

• 1873 65 months
• 1893 17 months
• 1907 13 months
• 1929 43 months

11
J.P. Morgan and the 1907 Financial Panic
12
1907 Sequence

• October 19, Morgan enters scene
• October 21, does not intervene in Knickerbocker
  Trust
• October 23, 8.25 million to Trust Company of
  America
• October 24, 25 million to N.Y. Banks
• October 24, Rockefeller 10 million in National
  City Bank.

13
Principles of Responding to Financial Panics

• Act Promptly
• Provide liquidity
• Let bad institutions fail
• Send a credible signal on good institutions
• Avoid dumb

14
Forecasting after a regime shift
15
Henning Bohn says
Equilibria may be very close right now.
16
So, what is the forecast?
17
Economic Activity Will Decline Dramatically
4.8
4.8
2.8
0.9
0.2
0.0
-0.2
-0.3
-0.5
-1.3
-2.4
-3.9
-6.1
-6.1
Real GDP Growth
-6.3
-6.9
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2007
2008
2009
2010
18
Job Losses Will Accelerate
1.4
1.0
0.9
0.8
0.5
0.0
-0.3
-1.5
-1.5
-2.2
-2.6
-2.6
Job Growth
-3.1
-3.7
-4.0
-4.0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2007
2008
2009
2010
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Unemployment Will Reach Double Digits
11.7
10.8
10.7
10.3
10.1
10.0
9.3
9.3
Unemployment Rate, NSA
6.6
6.0
5.3
5.2
4.8
4.7
4.6
4.4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2007
2008
2009
2010
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Comparing Recessions - Real GDP Growth
-
0.2
-
0.5
-
0.7
-
0.7
-
1.0
-
2.2
-
3.4
-
8.6
-
13.1
-
29.3
1930
-
1938
1945
-
1949
1954
1958
1974
1980,
1991
2009
1933
1947
-
1975
1982
-
2010
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Why Are Other Forecasts So Optimistic? Part 1

• The dont fully understand the regime switch
• They underweight the international nature of the
  recession
• They think the stimulus will work

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Why Are Other Forecasts So Optimistic? Part 2

• They underestimate the difficulty in
  resuscitating the financial sector
• They underweight the foreclosure problem
• They are using an average recession scenario

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What About Housing?
U.S. Home Ownership Rates
1968
1980
1984
1988
1992
1996
2004
2008
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What About Inflation?
Surplus of GDP
Inflation percent
20.0
10.0
5.0
15.0
0.0
10.0
-5.0
5.0
-10.0
-15.0
0.0
1901
1910
1919
1928
1937
1946
1955
1964
1973
1982
1991
2000
2009
-20.0
-5.0
-25.0
-10.0
-30.0
-15.0
-35.0
Inflation
Surplus of GDP
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(No Transcript)
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What to Do?

• Monetary Policy
• Fiscal Policy
• Something Else

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Monetary Policy

• Inflation is Good
• Zero Rates Plus
• The multiplier
• Interest on Reserves
• Traps

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Fiscal Policy

• Crowding Out and Ricardian Equivalence
• When might fiscal policy (stimulus) work?
• Size and Composition

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Something ElseWhat Weve Been Doing

• Bailing out financial institutions
• Bailing out auto manufacturers
• Bailing out bad borrowers

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Whats wrong with government ownership of
financial institutions businesses?
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Then, There is the Toxic Asset Plan

• Underpriced assets
• Becker and Sachs
• Interest on Reserves
• Convert TARP to Equity
• Ergo.

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What to Do?

• Banks, Swedish or Bankruptcy
• Unambiguously Expansionary Monetary Policy
• Stop retarding the reallocation of assets

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CaliforniasEconomy
Not What it Used to Be
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Jobs Are Falling Fast
1.6
1.2
0.8
0.4
0.0
-0.4
-0.8
-1.2
-1.6
-2.0
Year-on-year job growth
-2.4
-2.8
-3.2
-3.6
California
United States
-4.0
2007M01
2007M08
2008M03
2008M10
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Unemployment skyrocketing
11.5
11.0
10.6
9.1
7.9
7.6
7.0
6.5
6.5
6.4
5.7
5.4
5.4
4.8
2007 01
2007 07
2008 01
2008 07
Jan 09
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Retail Sales Continue To Decline
6.5
6.2
4.9
2.3
2.1
2.1
1.9
-0.7
-1.5
-4.1
-4.7
-5.2
Real Retail Sales per Capita Growth
1997
1999
2001
2003
2005
2007
1998
2000
2002
2004
2006
2008
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All Retail Sales Have Declined
Other Retail
Service Stations
Home Furnish./Appliances
General Merchandise
Food Stores
Eating and Drinking
Motor Vehicles Supplies
Bldg Mat'l and Farm
Apparel Sales
1-Year Real Retail Sales Growth - 2008
38
Tourism Revenue in Freefall
8.1
7.2
7.0
6.7
5.3
4.4
3.9
3.8
3.7
3.7
3.4
3.2
0.2
-0.2
-3.7
Real Hotel/Motel Room Y-O-Y Revenue Growth
-11.1
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2005
2006
2007
2008
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People Are Leaving
Thousands
500
400
300
200
100
0
-100
-200
Immigration
-300
Migration
-400
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1993
1994
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Then, there is the State budget
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CaliforniaForecast
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A Deep Extended Recession
7.9
7.6
5.8
5.2
4.5
4.0
3.8
3.7
3.6
3.0
1.5
1.3
1.2
-0.4
-0.7
-1.0
-3.7
Real Gross Domestic Product Growth
-6.7
1993
1996
1999
2002
2005
2008
2010
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Well Lose a Decades Job Gains
17.108
17.059
16.948
Total Employment (,000)
16.671
16,373
16.354
16.220
16.200
16.024
15.861
15.566
15.203
14.780
1997
1999
2001
2003
2005
2007
2009
1998
2000
2002
2004
2006
2008
2010
44
Unemployment Will Approach 15 Percent
14.7
13.7
13.7
13.2
12.8
12.5
11.6
Unemployment Rate
11.3
8.5
7.6
6.5
6.4
5.6
5.5
5.3
5.0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2006
2008
2009
2010
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Retail Sales Will Continue Historic Decline
-0.4
-2.2
-3.6
-3.8
-4.2
-4.2
-4.3
-4.3
-4.5
-4.7
-4.7
-5.0
-5.6
-5.7
-6.0
Real Taxable Sales Growth
-6.1
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2006
2008
2009
2010
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(No Transcript)
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Comparing Recessions Real GDP Growth
U.S.
California
1970
1974
-
75
1980-82
1991
-
93
2001
2008
-
2010
48
What to Do?

• The budget
• The regulatory environment
• The future

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Ventura
50
Unemployment has doubled in two years.
10.7
10.1
10.0
6.7
6.3
5.8
5.8
5.6
5.4
4.9
4.9
4.8
4.8
4.5
4.3
1997
1999
2001
2003
2005
2007
2009
2011
San Luis Obispo County Unemployment
Ventura County Unemployment Rate
51
Were in for a couple of rough years.
7.0
6.5
3.8
3.7
2.7
2.3
1.8
1.6
1.4
1.2
-0.9
-1.2
-1.9
-3.9
-4.0
1997
1999
2001
2003
2005
2007
2009
2011
Ventura Metro Real Gross Regional Product
52
Ventura has been doing better than much of
Ventura County.
-1.0
-1.2
-1.3
-1.6
-2.5
-3.9
Camarillo
Oxnard
Santa
Simi
Thousand
Ventura
Paula
Valley
Oaks
City
2008 1-Year Real Gross Regional Product Growth
53
Job losses will probably peak in 2009.
5.2
4.2
3.4
2.7
2.3
1.9
1.4
1.3
0.9
0.5
0.2
-1.4
-1.8
-2.8
-3.0
1997
1999
2001
2003
2005
2007
2009
2011
Ventura Metro Job Growth
54
The public and service sectors are potentially
weak.
Agriculture
1.8
Mining
0.6
7.5
Construction
4.3
Durable Manufacturing
Non-Durable Manufacturing
2.8
Trans., Comm. Utilities
3.5
Wholesale Trade
3.3
Retail Trade
20.3
Finance, Ins. Real Estate
4.9
28.7
Other Services
Public Sector
22.1
Ventura Metro Job Distribution
55
Retail Sales may actually pick up within the
forecast horizon.
9.1
8.1
4.9
4.9
1.9
0.8
0.0
-1.1
-1.1
-2.2
-2.4
-3.9
-4.8
-5.5
-7.5
1997
1999
2001
2003
2005
2007
2009
2011
Ventura City Per-Capita Retail Sales Growth
56
Ventura has been hit pretty hard by the retail
sales decline.
-3.3
-3.4
-4.1
-4.3
-4.4
-5.2
-5.5
-5.5
-7.4
Cama-
Fill-
Moor-
Oxnard
Port
Santa
Simi
Thousand
Ventura
rillo
more
park
Hueneme
Paula
Valley
Oaks
City
2008 1-Year Real Retail Sales Per Capita Growth
57
Little strength in the housing market through the
forecast horizon.
561.3
thousands
538.9
479.4
373.5
373.3
371.4
358.8
343.8
322.1
260.5
236.6
205.8
183.1
176.4
1997
1999
2001
2003
2005
2007
2009
2011
Ventura City Median Home Price
58
The worst of the home-price decline is probably
past.
24.2
20.3
13.0
12.1
11.3
9.8
6.5
2.3
2.0
0.5
0.2
-5.2
-5.9
-7.9
-33.1
1997
1999
2001
2003
2005
2007
2009
2011
Ventura City Real Median Home Price Growth Rate
59
Ventura is relatively affordable.
519,287
510,852
468,757
423,779
373,307
337,216
337,564
287,323
249,363
Cama-
Fill-
Moor-
Oxnard
Port
Santa
Simi
Thousand
Ventura
rillo
more
park
Hueneme
Paula
Valley
Oaks
City
2008 Nominal Median Home Prices
60
Construction has pretty much stopped in Ventura
County.
12.4
10.5
8.4
8.1
7.7
6.8
6.0
5.3
5.0
4.6
4.4
4.2
3.9
3.5
3.3
3.3
3.2
3.2
3.2
3.1
2.5
2.3
2.0
1.9
0.9
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Ventura County Residential Permits Per 1,000
61
Ventura is has seen more construction than many
County cities.
2.3
2.3
1.4
1.2
0.6
0.5
0.4
0.4
0.0
Camarillo
Fillmore
Moor-
Oxnard
Port
Santa
Simi
Thousand
Ventura
park
Hueneme
Paula
Valley
Oaks
City
2008 Housing Unit Permits per 1,000 people
62
Tourism is the bright spot!
millions
16
14
12
10
8
6
4
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Ventura City Hotel Room Sales
63
(No Transcript)
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Dan says
Try to keep your

• spouse
• job
• house

65
Individuals

• Listen to Dan
• Increase human capital
• Cautious and flexible

66
Businesses

• Gain market share
• Keep your best people
• Cut fat
• Cautious and flexible

67
Government
68
Nietzsche said
That which does not kill you will make you
stronger.
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Thank you for not shooting the messenger. Visit
us at www.ucsb-efp.com