Highlights of Dr. Adibi’s January 27, 2016 Presentation

The Director of the Gary Anderson Center for Economic Research, economist Dr. Esmael Adibi was the entertaining and educational speaker for our Year in Review/ Year in Preview client breakfast on January 27. He shared his comments on market conditions with his inimitable sense of humor to liven up what can potentially be a dry topic.

There are around 50 different companies that report economic data, of which 30 have been around for more than 11 years. Of these 30 reporting companies, the Chapman University Anderson Center is ranked #1 in terms of the accuracy of their projections. (UCLA is ranked #2.)

Listed below are a few of the key points Dr. Adibi expanded upon during his lively presentation.

Overall US economy:

Strengths

• Wages are starting to increase.
• We have almost reached or have reached full employment.
• Home prices are on the rise. The U.S Housing market is expected to appreciate 3.7% next year.
• The equity market outlook is strong.
• Consumer spending is increasing.
• Gas prices are lower.*
• Dr. Adibi and the rest of his research team at the Anderson Center do not see another recession in the making.

*Californians paying less at the pump leaves more money in their pockets to spend on other goods and services, generally within California. Whereas increases in gas prices, sends money to large oil companies not domiciled in California.

Weaknesses

• Anemic wage growth has hurt the overall growth of the U.S. economy up to this point. This means that while jobs have been on the rebound and have grown steadily in the past few years, the wages have not increased proportionally. The U.S. has seen this trend start to change and Dr. Adibi expects that in 2016 there will be an increase in the rate of wage growth.
• The labor participation rate remain weak which means many people, especially those in their prime working years, have dropped out of the labor force since the recession.
• Exports are down and will continue to be a weakness of the U.S. economy as long as the dollar keeps increasing in value compared to other currencies.

A word on the U.S. government

• Government spending is increasing at all levels: federal, state, and local.
• The U.S. budget deficit is increasing from the current level of $450 billion because of our aging population.
•  Government debt has almost reached 19 trillion dollars and is increasing. To reduce debt, the government first has to get rid of the annual budget deficit. The national debt is not an immediate danger because of our solid economy and because we can continue to borrow at a 2% interest level without risk of default.

California’s Economic Outlook:

• California’s economy was hit proportionally harder by the recession than the rest of the United States, but has since recovered and expanded. San Diego, for example, is up 80,000 jobs from the previous peak before the recession. Job growth can be seen across California.
• The median single family home price in San Diego is $548,100. This is continuing to increase.
• California’s fiscal reserve is projected to rise from $4 billion to over $11 billion at the end of 2016.
• CALPERS – retirement system for California state government workers – estimated rate of return was recently adjusted down from 7.5% to 6.5%, resulting in unfunded liabilities of over $178 billion.
• Good News – California is ranked #1 for access to capital, #2 for technology and innovation, and #27 for business.
• Bad News – California is ranked #50 (of all states) for business friendliness, #49 for cost of doing business and #46 for cost of living. Cost of living in the state of California is continuing to increase.
  Although the above statistics may have been the cause for 1.3 million people leaving the state of California over the past year, population has grown due to a higher number of immigrants and higher fertility rates.

Bottom Line for 2016

• Steady job growth.
• Gain in real income.
• Pick-up in consumer spending.
• Slower home price appreciation.
• Growth in health care sector.
• Risks to Dr. Adibi’s economic forecast accuracy:
  – Unforeseen action in China.
  – Geopolitical events/terrorism.
  – Policy missteps.

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