‘Perfect Pairings’ | The 2016 Financial Forum

Concerned about the state of economic affairs at home and abroad?  There’s nothing to worry about – we’re doing just fine.  That’s the message that attendees of Perfect Pairings, the 13th Annual Financial Forum, received in a lively presentation from acclaimed leading economist and keynote speaker Dr. Christopher Thornberg.

Perfect Pairings is co-sponsored by Petrinovich, Pugh & Company, LLP, Legacy Capital Group, and Harrell Remodeling.  A capacity crowd of Silicon Valley business and community leaders was treated to cocktails and appetizers while eagerly anticipating an economic forecast from one of the nation’s preeminent experts.  Dr. Thornberg did not disappoint as he employed his characteristic wit and no-nonsense candor to address real issues – and progress – facing the local, national, and global economy.

The Real Story

Hype in the headlines sells.  And it contradicts the facts of economy.  Dr. Thornberg was quick to reject misguided notions of economic doom with a more optimistic outlook.  His prediction firmly indicated: “No recession in the next two years. Real incomes have been rising.  Labor markets remain strong.  Housing is still in recovery.  Inflation is slow.  Commodities are cheap.  There is no financial bubble.”  His main concern?  That the public is too distracted by the hype to pay attention to the real issues.

Consumer Spending

Consumer spending is up and “from a forecaster’s perspective, they’re spending for the right reasons.” Thornberg compared today’s trends with consumer spending habits a decade ago that drew on borrowed money from overvalued homes.   “Now they’re spending more because they’re earning more,” he said.  “Real disposable income is growing at 2 to 2½ percent year on year.”

Labor Market

Thornberg indicated that the labor market continues to move forward solidly and that unemployment overall is hovering at around 5%.  Though indicators are strong for growth, Thornberg reported concerns with job matching: “The biggest problem employers are having is that they can’t find the right worker to fit the particular spot they have.”  From an economic standpoint, that’s good news.


Oil was a topic of good news in commodities with Thornberg commenting that oil and gas field drilling has functionally hit bottom.  “We’re still going to have cheap gas.”  

Real Estate

Class A space is a major component in commercial real estate coming online, while workforce housing remains tight.

Home Sales

Thornberg reported no significant change in existing home sales, which are steady at about 5.5 million units a year.  He indicated that, overall, housing prices are growing at an estimated 5%.  “Adjusting for real income, affordability is still very, very good.”   Referring to housing statewide, he remarked that overall, single family housing is below $800,000 – a figure that Thornberg says is far from recovery.

Bubbles and Balance

“We’re not in a financial bubble.  Asset prices are high because interest rates are low, and interest rates are low because there’s a glut of savings in the global economy.  The real economy is in balance.”

Golden State Update

Overview Despite California’s continued industry ranking among the worst places to do business, Thornberg pointed to the state’s positive economic indicators for 2016: 2.3% job growth, an unemployment rate near the national average of 5%, and “our share of the national income has never been higher.  There is more money being made here than ever before.  Simple as that.”

Sand Jose and Silicon Valley

OverviewThornberg reported 3% growth for the valley, calling it “a little bit of a slowdown” year over year attributed to manufacturing, professional services, and slowed business investments.  “Things aren’t as hot as they were, but they’re still incredibly hot relative to almost any part of the nation right now.”

Labor and Wages  – “Incomes are close to $120,000 average and the labor force continues to grow, a lot.”

Tech Sector“The tech industry continues to expand.  This is a nice, steady increase based on real demand.” Thornberg also noted positive trajectory for shared patents produced in the valley.

Robust Backing – “There was slowdown in venture capital for a couple of quarters because of financial panic, but it bounced back.  We see big solid numbers across the board.”

Commercial Occupancy – “Retail space and rental space continue to go up.  Vacancy rates have stabilized.” Thornberg noted a record for new permits in the area overall, and significant growth in office space.

Barriers to Growth – “The Bay Area has been the slowest growing part of the state’s economy over the last 20 years. Do you want to know why?  Housing.  Growth in the long run is about bodies, and bodies is driven by housing.  Tech has been a phenomenal source of growth in the Bay Area; growth that has displaced other parts of the economy because of the resistance to housing.”

HousingTo piggyback on housing as a barrier to growth in the Bay Area, Chris noted: “Inventory is basically non-existent and median prices are getting close to $1 million.”  He further noted San Jose’s surge under previous leadership in permits for multi-family space, remarking that all cities need to contribute to housing stock.  “I would argue that there’s been a ferocity of local nimbyism coming to place that is the single largest threat to the on-going growth of the entire California economy.”

Looking Ahead

In an amusing approach to balance, Thornberg summarized his economic outlook with tips for moving forward.  A few of note:

  • Don’t worry about the short term; worry about the medium term.
  • Don’t worry about drought; worry about water policy.
  • Don’t worry about California business; worry about California housing.
  • Don’t worry about acid bubbles; worry about bad financial regulations.

Participate for Change

Dr. Thornberg concluded the evening with an earnest appeal to the audience concerning political leadership.  “There are a lot of conversations being had that are completely wrong.  Why are they wrong?  Because you’re not in the room.  Worry about a lack of engagement.  Folks, get involved,” he advised.  “If they’re not talking about what you need to hear, it’s because you’re not involved.”

This recap and full color photos can also be found in the November 18th issue of the Silicon Valley Business Journal.