Inland Empire Economic Report 2019 The Inland Empire Center for Economics and Public Policy provides independent expertise and in-depth analysis to promote economic prosperity and good governance in the Inland Empire. Tuesday,Thursday, March September 12th 24, 2015 2017 Palm Springs Economic Report Inland Empire Economic Report 2019 March 2019 Lowe Institute of Political Economy and Public Policy Robert Day School of Economics and Finance Claremont McKenna College 500 E. Ninth Street Claremont, CA 91711 manfred w. keil, ph. d. Copyright © 2019 by Claremont McKenna College Reproduction of this publication or any portion therein is prohibited without the expressed written permission of the Inland Empire Center at Claremont McKenna College. Cover photo used with permission from The Greater Palm Springs Convention and Visitors Bureau 2 2 CMC Inland Empire Report Palm Springs Economic Report 2017 CMC Inland Empire Economic Report table of contents The National Economy 4 Consumer Sentiment 18 The Comparative Economic Performance of the IE 28 Employment 31 Housing 48 CMC PalmCMC Springs Inland Economic Empire ReportReport 3 2019 CMC Inland Empire Report “But, Darlin’ Can’t You See My SIgnals Turn From Green to ...” By Manfred Keil, Ph.D., G.u. Kreuger, and CAmeron SHelton Photo Credit: driversedguru.co There is a lot of talk going around about breaking temporary government shutdown, the “Recession of 2020” or the “Recession and (iv) the Conference Board’s Index of of 2021.” To make matters worse, (i) the Leading Economic Indicators having fallen volatility in the stock market starting in in October and December (two out of three February 2018 but receiving more attention months) seem to have moved up the starting during the latter half of 2018, (ii) the decline date for the next recession to as early as 2019 in consumer confidence in three of the last in the mind of many analysts. An imminent four months (fall in October and November economic downturn, which seemed somewhat 2018, slight recovery in December, seriously implausible even last summer is now turning south in January), (iii) the record increasingly on people’s minds. The National Economy Figure 1 shows the Google Trend graph it clear that it is more likely to see fewer for “Recession” over the last year: clearly increases in the federal funds rate in 2019 there has been an uptick in the general than signaled previously, ranging from zero to public interest regarding the possibility of two following the statement after the January a recession in the near future. Interestingly 2019 meeting. The minutes of the latest enough, the highest number of searches were meeting indicate that the Federal Reserve in Washington D.C. looks at the economy as being “solid,” rather Even the Federal Reserve has made than “strong,” which is the wording they 4 CMC Inland Empire Report CMC Inland Empire Report 2019 Figure 1: “Recession,” Google Trends, February 2014- February 2015 (5 Years) used in December. Having taught university the recovery from the disease does not display courses to many students, I typically classified a uniform pattern for most of the patients. an individual’s performance as “solid” when I To make matters worse, there is only a short was not particularly impressed or happy with period before the onset of the disease during what the person had demonstrated in an exam. which you can forecast with some confidence A notch below would be an upward of “most that the illness will actually occur with a improved” from the previous evaluation. The high probability. Yet recessions are important Fed is clearly more concerned now than it was economic events, especially if the subsequent even a month ago. upswing, or as we called it previously, the “Not Given the severity of the Great Recession So Great Recovery,” is less than spectacular. of 2007-2009, and especially the devastating Certain socio-economic sub-groups, such effect it had on some regional economies, as some minority groups, younger people, we will spend some time talking about what etc. experience unemployment rates that are type of data you should look at to judge the masked by the lower average. While aggregate probability of an imminent recession. unemployment rates reached 10% following Economists have done a notoriously the Great Recession; the unemployment rate poor job in forecasting recessions. Part of the for male teenage African Americans peaked problem is that the U.S. has only experienced at 49.5%. There are also important regional a small number of these episodes during the differences: the greater Detroit area had an post-World War II period when data became unemployment rate of 17.2%, (the city of) available at a higher frequency: there have Coachella and Adelanto in Victor Valley in only been eleven recessions in the U.S. since the Inland Empire reached 22% peaks, and 1946. Statisticians refer to this as a small Imperial County in Southern California sample problem: trying to infer from a few saw aggregate unemployment rates of 30%. observations what a much larger population Meanwhile, the unemployment rate for looks like. It is as if you restricted yourself college graduates peaked at 5.3% and began to look at a small number of people with a to decline as soon as the economy started certain disease to figure out the underlying growing again. causes or forecast the next outbreak, where Another reason for the poor track record each one of the patients displays somewhat of forecasters is that recessions are most often different symptoms, and where the severity of the result of a “shock” that hits the economy. the illness varies across patients; beyond that, Since these are typically unpredictable, there CMC Inland Empire Report 5 2019 CMC INland Empire Report is little time to forecast economic downturns economic activity spread across the economy, once they occur (think of predicting an lasting more than a few months, normally earthquake or a tsunami). These shocks are visible in real GDP, real income, employment, typically the result of a monetary contraction, industrial production, and wholesale-retail e.g. the Volcker recession (1981/2), oil price sales.”. Accordingly recessions are dated by hikes (1973/5, 1980), or some sort of inventory month, not by quarter. For example, the Great problem such as a housing-mortgage crisis Recession lasted from December 2007 to June (2007/9). If we had to nominate candidates 2009. If we used the often cited definition for a future shock, it might be another of two consecutive quarters of declining real prolonged government shutdown, a lengthy GDP, then the Great Recession would not trade dispute with China, a renewed debt have started until July 2008 since there was crisis perhaps in Greece, Italy, Turkey, or a small positive economic growth during the Argentina, or a global economic slowdown second quarter of 2008, most likely as a result originating in lesser developed countries with of the Bush tax rebates. dollar denominated debt, etc. Anyone who The task for economic forecasters is can forecast these shocks is selling you snake then to find early symptoms for the onset oil. of a recession, preferably far enough in What is a recession? The financial press advance for policy countermeasures to be often refers to these episodes as a decline of put in place to avoid the onset the decline in at least two consecutive quarters in real GDP. economic activity. This is the equivalent of However, in the U.S., national recession the doctor administering medicine to prevent episodes are determined by a dating committee the outbreak of a disease. Let’s call these of the National Bureau of Economic Research symptoms “Leading Economic Indicators” (NBER), which is located in Cambridge, (LEI) while the spread of the disease itself can MA between Harvard University and the be observed through a set of variables labeled Massachusetts Institute of Technology (MIT). “Coincident Economic Indicators” (CEI). The NBER does not recognize a recession in Figure 2 displays the stylized relationship terms of two consecutive quarters of negative between the LEI and the CEI during a growth in real GDP. Instead, it defines business cycle. “a recession [as] a significant decline in Of course real life only weakly resembles Figure 2: Stylized Behavior of Leading Economic Indicators and Coincident Economics Indicators During the Business Cycle 6 CMC Inland Empire Report CMC Inland Empire Report 2019 this idealized behavior. The length of the variable policy lags”. recession is typically much shorter than the Perhaps there is a better metaphor for expansion, there is an underlying upward the business cycle using an aircraft carrier or growth trend in addition to the cyclical oil tanker. Assume that the aircraft carrier is behavior, leading indicators do not turn with entering a fog bank and that there may be regularity ahead of the coincident indicators obstacles lying within the fog bank, such as (“false positives”), there are semi-regular icebergs. The captain will use the radar and seasonal fluctuations (e.g. holiday shopping other technical devices to plot the future path and employment), etc. In addition, even if the of the ship. Even after an iceberg is spotted, it situation was as clear as depicted in Figure 2, takes a small lag before the rudder is turned there would be a time lag between the doctor (presumably not very long) but a much longer (policy maker) being aware of the onset of a lag before the aircraft carrier moves from its future disease and the time it takes for the previous path (the Titanic comes to mind, doctor to administer the medicine (fiscal and although the lookouts did not have the luxury monetary policy) in the hope of fixing the of a radar).