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A Look at the Economy in San Diego IFMA San Diego January 13, 2010 Lynn Reaser, Ph.D. Chief Economist, Point Loma Nazarene University U.S Outlook 2 Real GDP Growth Forecast in 2010 Percent change, Q4/Q4 5 3.8 4 3 2.4 2.5 2 1 0 -0.1 -1 -2 -1.9 -3 2006 2007 2008 2009e 2010f “V”-shaped Recovery GDP, billions of chained 2005 dollars 13800 Actual Forecast 13600 13400 13200 13000 12800 12600 12400 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Weaker-than-normal Rebound Real GDP, % change 14 Trough to 6 qtrs later 12 10 8 6 4 2 0 -2 -4 Peak-to-trough -6 57-58 73-75 81-82 07-10 Job Growth to Slowly Resume Change in nonfarm employment, in thousands 6 Jobless Rate to Edge Lower by Year-end 2010 Percent 12.0 Actual 10.0 8.0 6.0 4.0 2.0 0.0 Forecast Profits to Rebound After-tax profits, percent annual changes 15 10 5 0 -5 -10 -15 2006 2007 2008 2009e 2010f Inflation Subdued Consumer prices, percent change, Q4/Q4 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009e 2010f Interest Rates to Slowly Rise Quarter-end, percent 6.0 5.0 4.0 10-year Treasury note 3.0 2.0 1.0 0.0 Fed Funds Target U.S. Forecast Summary • Recession over • Financial markets settle • “V” shaped recovery, but less robust than normal • Moderate inflation • Gradual rise in interest rates ME WORRY? Debt Shifts to the Public Sector Q3 2009, % change from prior quarter, annualized 25 20 15 10 5 0 -5 Households Business State & Local Govt. Federal 13 California’s Prospects 14 California Bottoming Out with Nation Nonfarm employment, percent change over prior years US 15 California Outperforms in Goods, Underperforms in Services and Government Jobs Percent change, Nov 2009 over prior year U.S. Goods Private Services Gov’t 16 17 California’s Problems • Dysfunctional government • Fiscal pressures • Infrastructure and schools • Regulatory burden • Expensive housing • Water usage 18 California’s Strengths • Entrepreneurial talent • Technology frontrunner • Environmental leader • International edge • Draw of our climate 19 San Diego 20 San Diego’s Jobs Decline Widespread Percent change December 2009 over prior year Total 21 San Diego’s Jobless Rate Rises Monthly, percent 22 Home Sales and Prices Recover Percent change, November 2009 over prior year Prices Sales 23 San Diego Home Price Trend Converges to the Nation’s S&P/Case Shiller Home Price Index, Jan. 2000=100 San Diego U. S. 24 San Diego Housing Permits to Rise Thousands of units 25 Commercial Real Estate • Distress across the board • Gap closing between lease and sublease rents • Market trough end of 2010 • Owners better capitalized than in early 1990s 26 Outlook for San Diego Risks/Constraints • Rising commercial real estate vacancies • Credit still tight • Fiscal problems for state and local governments 27 Positive Forces • • • • • • • Housing market improves International trade Technology Alternative energy Naval construction Tourism Health care and biotech San Diego Jobs to Return 28 Implications for Facilities Managers 29 Fastest Salary Growth Expected in 2010 30 Takeaways for Property Managers • • • • • Keep your tenants happy Earn a raise in 2010 Take care of your employees Re-examine your personal finances Character counts