The Economic Data Global Express (e-EDGE)

v.4 n.28       Released July 10, 2000
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

OPEC CARTEL CORRODING?  OR HOW "CRUDE" WILL THE QUARREL OVER OIL BECOME?

     Last week's announcement by Saudi Arabia that it would increase its oil production by 500,000 barrels per day (bpd) surprised global energy markets, financial markets, and especially other OPEC members.  The news came on the heels of 708,000 bpd of new OPEC production officially added to global supply as of July 1st, and amid escalating concerns that rising global oil demand will keep prices close to recent highs.  Following the Saudi announcement, spot market prices as well as oil futures fell in London, New  York, and Chicago, by as much as $2/barrel.
     Why did the "Big Daddy" of the OPEC group take this bold step, and unilaterally?  First, the U.S. government applied some pressure on the Saudis, using the American military defense umbrella, which helps to contain Iraq, as the hammer.  The Saudis, evidently, would prefer to risk a quarrel with its OPEC brethren than with the United States.  Second, Saudi geo-political power rests on its status as the biggest oil producer in the world next to the U.S., and its huge unused capacity of 2 million bpd which it can unleash on global markets whenever circumstances are conducive.  Within OPEC, only Kuwait has a significant unused capacity, 800,000 bpd. Outside OPEC, Mexico could open the spigot wider and raise its output by 300,000 bpd.  Third, the Saudis are insightful enough to take the longer view, i.e. if the U.S. falls into recession next year (or whenever?) its huge demand for oil imports, 11 million bpd out of total consumption of 19 million bpd will decline.  This will hurt Saudi Arabia's economy as well as all OPEC and non-OPEC countries.
     By the time all of this new oil hits the market, the summer driving season will be over and winter home-heating oil demand will be revving up.  We are likely to see  oil prices remain close to $25/barrel in the second half of this year.  Gasoline prices (regular) will remain high, close to $1.60-$1.80 in most regions of the nation.  As for the cartel, Iran, Libya, and Venezuela (none of whom has any spare production capacity) are likely to be more vocal about maintaining existing quotas and higher prices-and more intense family quarrels will break out.  If we can stand all the political posturing, this spat could provide much needed fun and entertainment during a rather dull season of American election campaigning this summer and fall.  (Ken Ackbarali)
Comments from Saudi Arabia: http://saudiembassy.net/press_release/00_spa/07-03-oil.html
 

U.S. LABOR MARKETS STILL TIGHT IN JUNE, GROWTH SLOWER

     The federal government released its all-important monthly Employment Situation report for June last week.  Here are the most important findings:
     1. According to the Labor Department's survey of households, the nation's unemployment rate edged down to 4.0% from 4.1% in May but was above April's 3.9%.  June marks the ninth consecutive month in this low (3.9%-4.1%) range.  Jobless rates for most categories of workers showed little change month-to-month.  However, following 12 months of very strong economic growth, year-to-year declines were widespread, especially for teenagers (down 2.0 percentage points to 11.6%) and Hispanics (down 1.0 point to 5.6%).
     2. On the surface, the government's survey of nonfarm employers looked much weaker in June.  Total nonfarm payroll employment increased by only 11,000 workers last month (seasonally adjusted), well below May's 171,000 new jobs and an exceptionally strong 410,000 increase in April.  However, the Federal government discharged 190,000 temporary Census takers last month, who had completed their survey work.  [More will be let go in upcoming months; over 600,000 such workers were hired in the first 5 months of the year.]  Excluding these jobs, hiring by private industry rose by 206,000 jobs in June, following an abnormal decline of 165,000 in May.  The services and retail trade industries accounted for the lion's share of hiring in June.
     What to make of this information?  (1) The low unemployment rate means that U.S. labor markets remain very tight.  It's still hard to find and hire experienced workers.  One key measure of the labor supply, and a favorite of Alan Greenspan, is the "pool of available workers" (the unemployed plus non-workers who aren't looking but would accept a job if it were offered), which hit a record low in June.  (2) At the same time, employment growth has slowed markedly in the second quarter.  Some of the slowdown is undoubtedly due to tight labor supply, but some also reflects lower demand for labor in interest-sensitive industries like construction.  Both reasons mean the economy is slowing.  Whether that slowing is permanent or temporary, as happened in 1998 and 1999, is still an open question.(Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

NEW HOMEBUILDING UP IN MAY

     The number of housing units permitted in California was up in May, both over the year and from the preceding month.  For the first 5 months of 2000, the total number of units was ahead 5.9%, with most of the strength in the multi-family sector.  There was a similar pattern in Los Angeles County.  However, its 5- month total was ahead of last year by 34.2%.  Again, most of the punch came from the apartment sector.  The Riverside-San Bernardino area was also up over the year and month in May, with the 5-month total running 10.2% ahead of last year.  And this area is leading the state in total units permitted so far.  Single family permits were up only 2.4%, with the strength again in apartments.
     It was a different picture in San Diego County, where total permits were down over the month and year.  In fact, the 5-month permit total lagged 1999 by 12.4%, with weakness in both singles and apartments.  In Orange County, permits climbed from April to May, but the latter was off a little from May 1999.  For the first 5 months of 2000, Orange County was behind last year's total by 4.1%.  Housing unit permits in Ventura County were down over both the month and year.  Its 5-month permit total was 18.9% below the 1999 count.
     To the north, the San Francisco metro area's May housing permit total was up over the year, but its 5-month total was 28.2% behind 1999.  The May permit count in San Jose was flat from April to May, and was down from a year ago.  However, for the first 5 months of 2000, the area was running 17.4% ahead of last year.
     The state's homebuilders are on the horns of a dilemma.  With a growing population, there is plenty of demand.  But with recent interest rate increases, will homebuyers start to hold back?  Also, the development process is still costly and time consuming.  No fun.  (Jack Kyser)
 

NONRESIDENTIAL ACTIVITY MIXED IN MAY

     For the first 5 months of 2000, new industrial permit values in Los Angeles County continued to lag the year ago, but the gap seems to be narrowing, down just 2.3%.  Office construction was well behind, by a stout 56.2%.  However, retail development is picking up, with the 5-month total 12.6% ahead of last year.  Imagine, more places to buy the same old stuff!   Industrial activity in Orange County was running 65.1% behind last year, but new office activity was up 91.0% so far, while retail was ahead 64.0%.
     Things remain hot in the Riverside-San Bernardino area.  Industrial permit valuations through May were up 32.0% despite the large base.  Office valuations were up 63.0%, but on a small base, while retail activity was up 81.3% on a large base.  In San Diego County, industrial construction lagged, down 16.8%, but office and retail were running ahead of the 1999 pace, by 69.4% and 119.6%, respectively.  In Ventura County, industrial permit valuations were up 58.7%, and office was ahead 201.4% (small base), but retail continues to lag, off 84.3% from 1999.
     In the San Francisco Bay Region, the 5 month value of industrial permits was up 15.7%, thanks to a surge in Alameda County.  Office permit valuations were up 212.9%, with the hot spots being San Francisco and Santa Clara Counties.  However, retail activity lagged, down 21.0% from last year.
     And a quick note on vacancy rates.  Grubb & Ellis reports that in the first quarter of 2000 office vacancy rates were 12.7% in Los Angeles County, 9.5% in Orange County, 16.6% in Riverside-San Bernardino, 7.2% in San Diego County, and 7.7% in Ventura County.  Industrial vacancy rates were 4.1% in Los Angeles County (with the central area at 2.1%), 7.7% in Orange County, 7.8% in Riverside-San Bernardino (its ability to soak up space is awesome), 9.1% in San Diego and 7.0% in Ventura County.  (Jack Kyser)
 

THE LATEST NEWS FROM HOLLYWOOD

     The Entertainment Industry Development Corporation has released location production days through June.  Overall activity was up 7.4% despite the SAG strike against commercial producers.  Feature production days were down just 0.1%, or 47 days, from last year, while TV activity was ahead 5.6%.  The latter two categories are job rich.  Commercial production days through June were off 4.2%, while "miscellaneous" was down 25.3%.
     Stunning year-over-year increases were posted by "photo", up 81.3%, and music with a 21.0% gain.  SAG and the commercial producers are slated to talk again later this month.  (Jack Kyser)
 

QUICK STATS:

* BLS: US unemployment rate for 6/00: 4.0% (5/00: 4.1%)
* BLS: US nonfarm employment for 6/00: +11,000 (5/00: +171,000)
* Census: US new factory orders for 5/00: +4.1% (4/00: -3.8%)
* Census: US factory shipments for 5/00: +1.9% (4/00: -1.2%)
* Census: US unfilled factory orders for 5/00: +1.0% (4/00: -0.5%)
* Conference Board: US Leading Economic Indicators for 5/00: -0.1% (4/00: +0.0%)
* Federal Reserve: US consumer credit for 5/00: +9.8% (4/00: +7.4%)

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