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The Kyser Center for Economic Research

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v.13 n. 26 - Released June 29, 2009    [Printer-friendly version]

THIS WEEK'S HEADLINES:

Personal Income Rose in May But…..

Personal income grew by +1.4% in May following an increase of +0.7% in April and back-to-back declines of -0.3% in March and February.  In dollar terms, May’s increase came to $167.1 billion (annual rate).  Almost all of the improvement ($157.6 billion, to be precise) was due to one-time payments of $250 made by the federal government to recipients of Social Security, supplemental social insurance, veterans’ benefits, and railroad retirement benefits under the American Recovery and Reinvestment Act of 2009 (ARRA, a.k.a. the federal stimulus program).  Changes in the other, non-governmental income sources were small, ranging from a -$5.3 billion decline in employee compensation (fewer workers on private payrolls) to a +$7.6 billion increase in interest received.

Net of income taxes (which were reduced by ARRA tax credits), disposable personal income increased by +$178.1 billion or 1.6% in May, after growth of +1.3% in April.  Without the ARRA changes, May’s increase would have been just +0.2%.

Consumer spending was listless in April and May despite the growth of personal income.  Real personal consumption expenditure increased by just +0.2% in May after edging down by +0.1% the previous month.  This placed the April-May average -0.4% (annual rate) below the first quarter pace.  As consumer spending accounts for roughly 70% of GDP, continued sluggishness in June could dampen the economic picture of the second quarter.  Not a happy prospect.   (Nancy D. Sidhu)

PR:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

First Quarter Corporate Profit Details

The Bureau of Economic Analysis revised its previous estimates of corporate profits in the first quarter 2009 and provided some details by industry.  Seasonally adjusted, total pre-tax profits from “current production” (which exclude inventory profits and include other adjustments) grew by +$48.1 billion (or +3.8%) during 1st quarter 2009 after plunging by -$250.3 billion (-16.5%) during 4th quarter 2008.  First-quarter 2009 profits were down by -17.6% compared to 1q2008. 

U.S. financial industries accounted for most of the action in both quarters.  Financial profits plunged by -57.6% (or -$177.9 billion annual rate) during the 4th quarter and then soared by +90.8% (or +$118.8 billion) in 1q2009.  Domestic financial industries’ profits were still down by -39.5% from 1q2008.

Meanwhile, U.S. nonfinancial industries’ profitability was virtually unchanged during the first quarter, up by just +$1.6 billion or + 0.2%.  Among industry sectors, first quarter profits increased in the information and retail trade sectors, by +31.2% and +17.5% respectively.  However, substantial declines were recorded by U.S. manufacturers (down by -7.0% over the quarter), transportation & warehousing (-29.5%), and wholesale trade (off by a whopping -42.2%).   (Nancy D. Sidhu)

PR:  http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp109f.pdf

Resale Housing Market in May – Unit Sales Up But Prices Still Declining Over the Year

The California Association of Realtors (CAR) recently released their May 2009 report.  While there wasn’t much change in the overall trend, there were some interesting details.  For the state, unit sales rose by +35.2% over the year, while the median price declined by -30.4% to $267,570.  The median price has recorded month-to-month gains since March.  The CAR reported that the unsold inventory index was 4.2 months in May, compared with 8.7 months a year ago.  The long-run average is seven months according to the Association.

In Los Angeles County, unit sales during May rose by +24.6% over the year, a noticeable moderation from the increases of recent months.  The median price dropped by -26.2% to $313,270.  In Orange County, unit sales during May increased by +17.9% over the year, while the median price declined by -17.4% to $474,110.  In the Riverside-San Bernardino area, unit sales moved up by +43.1%, which was a significant slowing from the gains recorded early in the year.  The median price fell by -37.6% to $160,880.

Unit sales in San Diego County during May increased by +89.1% over the year, while the median price fell by -19.6% to $358,380.  Prices have here risen month-to-month since March.  Ventura County saw unit sales rise by +35.0% in May, while the median price dropped by -14.8% to $415,580.

In the San Francisco Bay area, unit sales rose by a modest +5.1% over the year, while the median price dropped by -33.0% to $459,980.  The median price has recorded month-to-month gains since March.  In the San Jose area, unit sales increased by +12.7% over the year, while the median price moved down by -36.3% to $490,000.  Again, prices have been moving up since March.  (Jack Kyser)

PR:  http://www.car.org/newsstand/newsreleases/maysalesandpricereport/

Residential Construction:  New Housing Permits Decline Again

The total number of housing permits issued in California declined by -58.4% to 32,300 units during May 2009 from 77,600 units a year earlier (Seasonally adjusted annual rate or SAAR).  Single-family home permits were down by -37.8% to 24,000 units.  Multi-family permits fell by -78.7% from a year ago to 8,300 units in May.  The May 2009 multi-family rate was the lowest since January 1995’s rate of 7,862 units.  Year to date, housing permits have been issued at an average annual rate of 33,720 units.

In Los Angeles County, a total of 599 permits were issued in March, falling by -54.5% during the first five months of 2009 compared with the same period in 2008. (Note:  data at the county level are not seasonally adjusted).  The decline was about the same for single-family homes (-53.2%) and multi-family residences (-55.0%).  The May decline in Orange County residential permits (-58.5%) moderated compared with April (-76.9%) and March (-74%), dropping by -58.5% over the year.  The total number of permits issued in Orange County during May was 166 units.  The largest drop for the county, by far, was in the multi-family segment (-74.6%) compared with a fall in single-family homes of -27.4%.

With 429 units permitted in May, the total number of housing units permitted in the Riverside-San Bernardino area declined by -45.3% over the year.  Single-family permits totaled 423 units (down by -36.0%), and permits issued for multi-family residences fell by -61.2% to a mere 6 units.  The May total permit count in Ventura County was only 36 units, a decline of -67.0% from May 2008.  San Diego once again posted the best (or least terrible) numbers in Southern California.  Housing permits slipped by -38.7% to 214 units for the month compared to a year ago.

Residential construction in the Bay Area showed no sign of escaping the black hole created by the implosion of the housing market.  The San Francisco metro area recorded only 20 (!) permits issued in May.  This represented a decline of -76.4% for the year.  In the Oakland metro area, a total of 155 permits were issued, down by -40.4% over the year and in the San Jose area, a scanty 75 housing permits were issued, a decline of -83.6%.  (Kimberly Ritter)

PR:  http://www.cirbdata.com/

Nonresidential Construction:  Downward Slide Continues in May

The Construction Industry Research Board has just released their nonresidential construction data for May, and the numbers make residential construction look almost robust.  In Los Angeles County, office permit values for the first five months of 2009 were down by -61.9% compared with the same period in 2008.  Retail dropped by -65.2%, while industrial permit values declined by -85.8% compared with May last year.

Orange County experienced declines across all nonresidential sectors as well.  The value of office permits fell by a staggering -93.9%.  Industrial construction was at a complete standstill, with no reported activity for the first five months of 2009.  Evidently home to the region’s most resilient shoppers (relatively speaking), retail permits declined by -46.7%, the strongest retail showing in the Southern California.

Riverside saw industrial permit values fall by -66.8%, while office collapsed by -94.6% and retail plunged by -83.7%.  In San Bernardino County, industrial and retail permit values fell at rates similar to Riverside, dropping by -69.2% and -82.0% respectively, though the office sector did considerably better, declining by -51.6%.

San Diego County recorded a -57.1% decline in industrial permits, while office permits fell by -95.1%.  Retail permit values for the first five months of 2009 dropped by -78.9% compared with last year.  In Ventura County, $9.4 million in industrial permits were issued, a marked improvement compared to the complete absence of activity over the same period in 2008.  Office activity, however, still showed no signs of life and remained at zero for the year to date.  Retail decreased by -78.9%.  (Kimberly Ritter)

PR:  http://www.cirbdata.com/

More Bad News for Japanese Exports

Japanese exports continue to plunge dramatically on a year-over basis. May’s year-on-year decline was worse than the drop in April. The value of Japan exports fell -41% year-on-year in May, while export volume was down by -36%. The drop was even worse than expected, though not as bad as February’s record plunge of -49.4%. The other significant development was that on a month-on-month basis exports worsened by -0.3% in May, after having expanded in both March and April. On the other hand, according to the Bank of Japan (BOJ), with inflation and currency changes accounted for, exports actually rose by +5.1% in May.

The world’s second largest economy experienced sluggish demand for its electronics and vehicles from the U.S., Europe and Asia. Exports to the U.S. dropped for the 21st consecutive month in May, falling by -45.5% on an annual basis. Car exports to the U.S. fell by almost -55.0% over the month. Goods and services to the European Union dropped by over -45.0% compared to a year ago. Japan’s biggest trading partner, China, also saw a very significant weakening. Exports plunged by nearly -30.0% from a year earlier as sales of electronic components, kerosene and steel slumped. Another slowdown came in exports of memory chips to Hong Kong, Taiwan and Singapore. Overall exports to Asia slid by -35.5% from a year earlier.

Most observers believe that the Japanese economy is near bottom. After four straight quarters of economic decline, the economy is projected to actually expand by +0.4% from the period April to June. However, the BOJ remains very cautious about the prospects for growth as exports are still the main concern. No matter how you analyze or present the figures, the bottom line is that a healthy Japanese recovery will be dependent upon growing external demand. Japan’s ageing population along with its industrial structure present big challenges for domestic demand.  (Ferdinando Guerra)

OECD World Economic Outlook

The Organization for Economic Cooperation and Development (OECD) last week revised its global economic outlook in an upward direction for the first time in two years. The OECD had projected a -4.3% contraction in its March forecast, but is now forecasting a -4.1% reduction in growth for the OECD area of 30 nations. In addition, the report now assumes a +0.7% increase in global growth in 2010 rather than a +0.1% improvement.

The upward revision reflected the rising levels of government spending and the stabilization of financial markets over the past few months. As expected, the report highlighted the relative strength of the Chinese and Indian economies. Also, the report emphasized that the economic recovery would be stronger in the U.S. than in Europe or Japan. The forecast not only described how the outlook has improved for the U.S., China and India, but also that it has worsened for the Euro area and Japan.

The OECD stated that a recovery had already begun to take place in China (a non-member of the OECD), as the government’s stimulus spending has started to take effect along with aggressive bank lending.  The Chinese economy is now projected to grow by +7.7% rather than the initial +6.3% forecasted in March. China’s GDP is forecasted to expand by +9.3% in 2010 versus the original +8.5% expected in March. As a result, the prospects for the Chinese economy are extremely favorable when compared to the rest of the world.

The OECD also raised its projections for India, stating the Indian economy should expand by +5.9% in 2009 and +7.2% in 2010.

On the other hand, there are some noteworthy, discouraging revisions. First, Japan’s GDP is now expected to shrink by -6.8% in 2009. Second, the OECD cut its forecast for the 16-nation Euro-Area from -4.1% to -4.8%. The outlook for both Japan and the Euro-Area has improved in 2010. Still the Euro-Area continues to be a big concern, as unemployment might lead to stagnation.

The OECD’s semiannual global economic outlook explained that the global recession is nearing its bottom and a recovery should begin by the end of the year for the industrialized nations. The OECD stressed that the recovery would be weak and fragile for a long period of time and that many risks remain for the world economy, particularly in the financial system.   (Ferdinando Guerra)

OECD Economic Outlook

PR: http://www.oecd.org/document/41/0,3343,en_2649_34109_43123241_1_1_1_37443,00.html

May Airport Figures

Total passenger traffic at two of the three local airports (LAX, Ontario International Airport and John Wayne/Orange County) increased from April to May. LAX saw total passenger counts (domestic and international) move slightly upward rising by +0.8% (to about 4.6 million passengers). Domestic passengers jumped to 3.5 million passengers. International passenger totals fell to 1.1 million passengers in May.

All three local airports saw lower levels of passenger traffic and air cargo tonnage when compared to May 2008 as the global recession continues to linger. LAX experienced a drop of -11.5 percent in total passenger traffic. The year-to-date percentage change was equally disappointing, a decline of -11.2 percent.

Air cargo tonnage figures at LAX for May advanced relative to April by almost +4.0 percent. However, total air cargo fell by -16.9 percent from May 2008 to May 2009. The year-to-date figure was even more discouraging, as total tons plunged by -20.8 percent.

Ontario International Airport witnessed a weakening in May relative to April, as total passengers fell by -1.5 percent. Domestic passengers dipped by -1.3 percent over the same time period, while international passenger totals contracted by -15.3 percent. Air freight tonnage advanced by +2.2 percent in May relative to April.

Over the year, Ontario’s passenger traffic figures were troublesome, tumbling by -27.4 percent in May over the year and down by -30.0 percent year-to-date. Over the same period, air freight tonnage plummeted by -23.2 percent from May 2008 and was down by -19.3 percent year-to-date.

John Wayne/Orange County Airport reported climbing overall passenger traffic from April to May, as it served almost 16,000 additional people. However, total passenger counts in May dropped by -4.2 percent relative to May 2008.  Air cargo tonnage worsened, by -7.1 percent compared to May 2008.  (Ferdinando Guerra)

PR: http://www.lawa.org/welcomelax.aspx
http://www.ocair.com/

Events of Interest

Wednesday, July 22: 2009 Mid-Year Economic Forecast
7:00 a.m. - 8:00 a.m.: Breakfast and Networking. 8:00 a.m. -10:30 a.m.: Presentations followed by Q& A Session. Los Angeles Marriott Downtown.

The LAEDC Mid-Year Forecast Update will focus on our government finance deficit problem and will also examine the region's housing market and outlook for the five-county area along with the national economic outlook.

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