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8.B. - Page 12 of 122 When this happens for more than two quarters, economists agree that the country is in a recession. Based on the current yield curve and when it is expected to become inverted, many economists agree that a recession is likely somewhere in late 2020 or early 2021. In addition, the negative effects of the recent federal government shutdown are being realized. Standard and Poor's (S&P) reported that the economy lost at least $6 billion as a result of the shutdown. S&P also reported that both direct costs (lost productivity from furloughed government workers) and indirect costs (lost economic activity to outside businesses because of the shutdown) amplified with each week the government remained closed. Fitch Ratings warned that an extended shutdown might lead to a downgrade in the nation's Triple -A credit rating if lawmakers were unable to pass a budget or manage the debt ceiling. That in turn would make borrowing more costly for companies and American households, because it is the benchmark for many other lines of credit. Some economists believed that an extended shutdown would weaken consumer confidence and heighten the risk of pushing the U.S. economy into a recession. Approximately 800,000 federal government employees and 4 million federal contractors were furloughed. In fact, the shutdown directly affected nearly 3 percent of the labor force of the United States; in a typical recession, unemployment increases 2 to 4 percent. The reduction in spending by those households combined with the reduction of government services could have results similar to a typical recession. All of these factors tend to worsen the volatility of the stock market, as investors try to predict not only the timing of the next recession, but the factors that will signal the coming of the recession. Ultimately, these factors and the looming recession will affect consumer behavior and the performance of some of the key revenue sources for local government agencies. State The State's economic conditions remain positive, yet some sectors of the economy have weakened, causing the outlook for continued healthy revenue growth to soften. The State of California's Legislative Analyst's Office has created a State Fiscal Health Index (Index) to track the strength of the economic conditions relevant to the State's fiscal health. As of December 2018, the State Fiscal Health Index remained near historic highs; however, it slightly declined from November 2018. This is the first month - over -month decline in the Index in two years. This decline is the continuation of a trend of slowing growth that started in June 2018. While it is too soon to draw any firm conclusions about the decline, the likelihood of continued revenue growth over the next year appears to be diminishing. Local The regional economy (San Francisco Bay Area) is very robust. According to the California Employment Development Department, as of December 2018, the unemployment rate in this area was 3.1 percent, while the unemployment rate in Redwood City was 1.9 percent. The 12 -month change in wages and salaries for the San Francisco area was an increase of 4.5 percent, as compared to 3 percent for the nation. Between December 2017 and December 2018, the total number of jobs in the area increased by 2.1 percent, or 24,500 jobs. The Bay Area economy is ranked 19th in the world with a GDP of $748 billion as of July 2018. City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 238