Iconic Investments attended the UCLA Anderson Forecast presentation on December 6, 2016. The main theme of the 2017 forecast was “Trumponomics” - how Donald Trump's fiscal policy will affect the US economy, and the elements of his plan.
Post-Election, the financial markets have seen an immediate and sharp rise in the stock indices, with corresponding drops in bond prices driven by increasing bond yields, reflecting Wall Street sentiment towards the “regime change”. Indeed, Wall Street has responded positively to president-elect Donald Trump, anticipating that his policies will create huge tax benefits and reduced regulation for corporations and small businesses. Expectations are high for GDP growth at a rate greater than the currently anemic 2%. As it translates for real estate owners and borrowers, since the election, interest rates have increased by 75 basis points. The 10 year treasury is now at 2.34 percent.
Elements of Trumponomics
Fiscal Policy will dominate Monetary Policy: Donald Trump’s plan is to simplify and change tax rates while increasing the level of government spending to influence aggregate demand in the economy.
Tax Cuts: The Trump tax plan calls for an aggregate $500 million in tax cuts; $200 million to individuals; and $300 million to businesses. Tax cuts, combined with increased infrastructure and defense spending may increase the annual government deficit form $500 million to $1 Trillion.
Temporarily Faster Growth: Faster Growth may lead to increased inflation along with interest rates. The economy has little room to run with the current 5% unemployment rate. To create new infrastructure, there needs to be a relaxed regulatory environment. Unless waived, environmental reviews (EIR Reports) and Davis-Bacon Act Rules, can delay major projects for many years. No such thing as shovel ready projects.
UCLA Forecast Predictions
10 Year Treasury: 3.00 percent by the end of 2017 & 4.00 percent by the end of 2018.
Fed Rate Hikes: There are two vacancies on the Federal Open Market committee (FOMC) which Donald Trump will have the opportunity to fill. UCLA economists’ prediction is that the Fed will raise the interest rates 4 times in 2017 and 4 times in 2018.
GDP Growth: There will a short-lived uptick in GDP Growth in 2017 to 3%, then GDP will normalize back to 2%.
Unemployment: Job growth will remain solid; the unemployment rate will fall to 4.5%
Economic Landscape of Los Angeles
A Trade War with China could have adverse impacts on Los Angeles, as our city is heavily invested in direct international trade.
An example that the UCLA Anderson economists provided hypothesized that if the US were to impose a 40% tariff on imported goods from China, it could result in the loss of 8 to 32 percent of logistic jobs in metropolitan Los Angeles. On the flip-side, if the US were to secure a positive trade deal with China, Los Angeles could see a 6 percent growth in logistics-related jobs. All economists at the forecast believe that a trade war with China is highly unlikely.
Immigration
According to William Yu of the UCLA Anderson Forecast, there are at least 1 million undocumented immigrants currently in Los Angeles. He predicts that, in the near future, we will start to see a decline of low-skilled immigrants entering Los Angeles as a result of:
- Enforcement of immigration laws - Securing the borders
- High housing/rental prices in Los Angeles
- Minimum Wage increasing to $15 per/hour by 2020
Trump's immigration policy will mitigate the adverse effect of unemployment under the $15 minimum wage. The Forecast predicts that this will cause the demographics of Los Angeles to change, resulting in a larger percentage of residents having greater human capital (higher skill sets). With more human capital, there will be an increase in the demand for apartment units, resulting in higher rents.
Deportation of Illegal Immigrants
It can't happen right away, it's expensive, and requires hiring of new judges, border patrol agents, etc. Deportation will have a negative impact on exports of agriculture, meat production, and non-durable goods manufacturing, as 40 to 60 percent of the work force in these sectors are thought to be undocumented immigrants.
Defense Spending
Trump's proposed increases in defense spending may have a positive impact on California, as many of the defense contracts could be given to California companies. Human capital will be hired from other states to meet the demand of the defense contracts, further increasing demand for housing.
Iconic Investments
16530 Ventura Blvd
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Encino, CA 91436
T: 747-444-3303
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