Download ECONOMIC PERSPECTIVE State Board of Equalization A Review of the Economy:

State Board of Equalization
ECONOMIC PERSPECTIVE
Discussion of Recent Economic Developments
December 2015
Volume XXI, Number 4
A Review of the Economy:
Fiscal Year 2014-15
Chart 1
Growth in Real GDP
4.0%
3.1%
3.0%
National Economy
2.7%
2.3%
2.1%
2.0%
1.9%
2.0%
This edition of the Economic Perspective reviews important
economic developments that occurred in fiscal year 2014-15.
1.5%
1.4%
1.0%
• The U.S. economy in 2014-15 was characterized by
stronger than average economic growth, very low
interest rates, increasing employment, declining
unemployment rates, and extremely low inflation.
0.2%
0.0%
-1.0%
• World crude oil prices declined over 30 percent in
fiscal year 2014-15, resulting in correspondingly
lower gasoline prices. With the low gas prices, the
U.S. consumer price index (CPI) increased just 0.7
percent, the smallest increase in 60 years.
-2.0%
-2.6%
-3.0%
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Chart 2
2014-15 Growth in Real GDP and Major Components
• By many important measures, the California economy
outpaced national growth in fiscal year 2014-15.
Federal Government
-0.7%
• California payroll employment rose 3.1 percent, much
faster than its historical average, and one percent
faster than U.S. payroll employment.
State and Local Government
1.0%
Personal Consumption
Expenditures
• California car sales, construction activity, and home
prices increased, while consumer price inflation was
below its long-term average.
Real GDP
In fiscal year 2014-15, real U.S. gross domestic product
(GDP) grew 2.7 percent, well above the 2.1 percent
growth of the previous year. With the improving economy,
employment increased and the unemployment rate
declined.
Exports
2.5%
2.7%
Imports
3.2%
4.9%
5.3%
Fixed Investment
-6.0%
The unemployment rate declined from 6.8 percent in fiscal
year 2013-14 to 5.7 percent in 2014-15.
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Real GDP by Sector
8.0%
As shown in Chart 2, real fixed investment spending
increased by 5.3 percent, leading economic growth. Real
personal consumption expenditures, which accounted for
68 percent of GDP, rose 2.5 percent, slower than overall real
GDP. Federal government spending declined 0.7 percent,
while state and local government spending increased 1.0
percent.
Gross Domestic Product
Real gross domestic product – the broadest measure of the
nation’s output of goods and services – rose 2.7 percent in
fiscal year 2014-15. As shown in Chart 1, this growth was the
fastest since fiscal year 2005-06.
Corporate Profits
U.S. corporate profits before taxes were up 4.8 percent
in 2014-15. Profits grew much faster than the 1.9 percent
growth of the previous fiscal year.
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Economic Perspective December 2015
Volume XXI, Number 4
Nonagricultural Employment
Employment
With the growth in overall real GDP and corporate profits,
nonagricultural employment rose 2.1 percent. This was the
fastest growth since fiscal year 1999-00.
Chart 4 shows that California nonagricultural employment
strengthened to 3.1 percent in fiscal year 2014-15, as
payrolls rose by 470,000 jobs. Annual growth in California
jobs has been over three percent for three consecutive
years. The last time jobs growth was this strong for this
length of time was in the late 1990s.
Interest Rates
The U.S. Federal Reserve Board (Fed) maintained extremely
low interest rates in 2014-15, continuing its monetary policy
instituted during the recession. The Fed kept the federal
funds rate within a target range of zero to 0.25 percent.
Three-month U.S. Treasury bill rates averaged 0.02 percent
in fiscal year 2014-15, while ten-year U.S. Treasury bond
yields averaged 2.23 percent. Short-term interest rates were
generally at historic lows.
Chart 4
Growth in CA and U.S. Nonagricultural Employment
CA
U.S.
4.0%
3.0%
2.0%
Consumer Prices
1.0%
With falling crude oil prices, the U.S. consumer price
index rose only 0.7 percent in 2014-15, the smallest
increase since 1955-56.
0.0%
-1.0%
-2.0%
Housing Starts
-3.0%
Over a million housing units were started in 2014-15, the
highest number since before the Great Recession.
-4.0%
Federal Budget Deficit
-5.0%
2005-06
As the economy expanded and incomes increased, the
federal budget deficit improved, from $483 billion in 201314 to $439 billion in 2014-15. The deficit is the lowest it has
been since 2007.
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
The professional and business services sector led the gains
in jobs in 2014-15, as shown in Chart 5. Other sectors with
strong job gains included trade, transportation and utilities,
education and health services, and leisure and hospitality.
California Economy
Chart 5
2014-15 Employment Changes by Major California Industry
Mining and Logging
0
(Thousands of Jobs)
By some important measures, the California economy
outpaced national growth in fiscal year 2014-15. California
nonagricultural employment rose 3.1 percent, faster than the
2.1 percent U.S. increase. California personal income increased
5.2 percent, above U.S. income growth of 4.5 percent.
Manufacturing
Financial Activities
Information
With the strong growth in jobs, the California unemployment
rate declined from 8.2 percent in 2013-14 to 6.9 percent
in 2014-15. However, the rate remains well above the 5.0
percent rate in fiscal year 2006-07, the last year prior to the
start of the Great Recession (Chart 3).
Other Services
Government
Construction
Leisure & Hospitality
8
10
13
19
38
41
70
Educational & Health Services
Chart 3
California and U.S. Unemployment Rates
80
Trade, Transportation & Utilities
83
14.0%
Professional & Business Services
110
Thousands of Jobs
12.0%
Building Construction and Home Prices
10.0%
As shown in Chart 6, the value of all private building
construction permits issued in California rose by 8.5
percent in fiscal year 2014-15. Growth cooled off
compared to the strong gains the previous three years.
Residential growth outpaced nonresidential construction,
increasing 13 percent compared to four percent. Even
with several years of very strong growth, total construction
permit values are still only about 77 percent of their 200506 peak levels.
8.0%
6.0%
4.0%
2.0%
0.0%
2005-06
2006-07
2007-08
2008-09
2009-10
CA
2010-11
2011-12
2012-13
2013-14
2014-15
U.S.
2
Economic Perspective December 2015
Volume XXI, Number 4
Consumer Prices
Increases in commercial buildings, hotels, amusement
parks, and industrial structures led the gains in
nonresidential construction.
World crude oil prices fell dramatically in 2014-15 (see
Chart 8). Consequently, overall consumer prices rose very
little, as gasoline and other energy-related components of
consumer spending had large price declines. The average
price of gasoline fell from $3.92 in 2013-14 to $3.42 in
2014-15, the lowest level since 2009-10. As shown in Chart
9, California consumer prices for all urban consumers rose
1.5 percent in 2014-15, similar to 2013-14. Prices for the
nation as a whole rose even less. At the national level, the
consumer price index increased by 0.7 percent.
About 94,000 home building permits were issued in 2014-15,
up from 85,000 in 2013-14. Permits for both multifamily units
and single family homes increased.
Median home prices averaged $461,559 in 2014-15, a
6.1 percent increase over the prior fiscal year. The June
median price was the highest since November 2007.
Despite the higher value, June was 18 percent below the
May 2007 peak price of $594,530.
40.0%
Chart 6
California Building Construction Permits
(Annual Percent Change, by Fiscal Year)
Chart 8
Brent Crude Oil Prices (Dollars per Barrel)
31.9%
$120
30.0%
$112
18.8%
20.0%
13.0%
9.9%
10.0%
$109
$109
$100
$97
$96
8.5%
$80
3.5%
0.0%
$75
$74
$69
$60
-10.0%
-17.0%
-20.0%
$62
$64
-15.3%
-17.3%
$40
-30.0%
$20
-37.4%
-40.0%
-50.0%
$0
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2005-06
2014-15
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2012-13
2013-14
2014-15
Chart 9
Changes in California and U.S. Consumer Prices
Vehicle Registrations
4.5%
California new car and truck registrations rose 9.9 percent
in fiscal year 2014-15, to 1.9 million cars and light trucks
(see Chart 7). Car and truck sales were above the 1.7
million units sold in fiscal year 2006-07, the year before the
Great Recession started.
2.5
4.0%
3.5%
3.0%
2.5%
Chart 7
California New Vehicle Registrations by Fiscal Year
(Millions of Cars and Light Trucks)
2.0%
1.5%
2.0
1.9
1.8
1.7
1.0%
1.7
0.5%
1.6
1.6
1.5
0.0%
1.3
1.1
1.1
2008-09
2009-10
1.0
0.5
0.0
2005-06
2006-07
2007-08
2010-11
2005-06
2006-07
2007-08
2008-09
2009-10
CA
1.2
2011-12
2012-13
2013-14
2014-15
3
2010-11
US
2011-12
Economic Perspective December 2015
Volume XXI, Number 4
Contact Us
Please contact us if you have questions or comments.
Joe Fitz, Chief Economist, MIC:67
1-916-323-3802
[email protected]
Current and past issues of this publication are on our website:
www.boe.ca.gov/legdiv/legresearch.htm#Reports_Resources
Online Resources
For more information about topics covered in this
publication and previous issues, please visit any of the
websites listed below.
Construction Industry Research Board
www.mychf.org/go/cirb/
U.S. Bureau of Economic Analysis
www.bea.gov
U.S. Census Bureau
www.census.gov
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