The Economic Data Global Express (e-EDGE)

v.4 n.31       Released July 31, 2000
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

2ND QUARTER GDP:  SURPRISE!

     The Commerce Department just released its first, or "advance," estimate of U.S. economic growth during the 2nd quarter.  As in the past, the economy grew briskly, this time rising by 5.2% (seasonally adjusted annual rate) compared to the first quarter.  And as in past quarters, this growth rate was a good deal higher than anticipated.  Watch for economists' forecasts for economic growth this year to move up into the 5% range as a result of this quarter's stellar performance.
     Consensus estimates for 2nd quarter growth had been in the 3.5% to 4.0% range.  What explains this discrepancy?  Not consumers.  Growth in consumer spending subsided last quarter, rising by only 3.0% compared to the unsustainable first quarter pace of 7.6%.  However, business investment in new plant and equipment continued to grow at breakneck speed, soaring by 21.0% compared to 19.7% in the 1st quarter.  In addition, defense spending-which is difficult for most economists to track and often reflects large, one-time events-increased last quarter after falling earlier in the year.
     The Commerce Department still lacks information on June's construction spending, inventories, and foreign trade.  It currently believes that increased building activity and higher inventory stocking during the 2nd quarter approximately offset the deterioration in the foreign trade balance.  Any surprises in the June reports will mean significant changes to our understanding of the 2nd quarter economy.  Stay tuned. (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/gdp200a.htm
 

COMMERCE DEPARTMENT REVISES HISTORY

     Last week the Commerce Department released revisions to the national income statistics for the years 1997 through 1999.  An annual event, the new data incorporate information that wasn't available when the figures were originally released.  Virtually all of the detailed items included in GDP have changed as a result of the revision process.  However, the overall story line remains pretty much the same.  The U.S. economy expanded at a rapid pace, led by hefty spending by consumers and businesses.
     Most importantly, these revisions show the U.S. economy grew at a somewhat faster pace than previously estimated.  We now know that real GDP increased by 4.4% in 1997 and 1998, revised up by 0.2 and 0.1 percentage points respectively.  Growth in 1999 was revised up by 0.1 percentage point to 4.2%.  Small revisions were made in almost every line of the GDP accounts.  However, the biggest changes occurred in business investment, with significant upward revisions to spending for business-related software, nonresidential buildings, and utility construction projects.
     The annual revision process also changed the quarter-to-quarter growth rates.  However, the new growth rates still show the same general contour.  Economic growth was moderate during the first half of 1999 and built up to a huge 8.3% pace (seasonally adjusted annual rate) in the 4th quarter before subsiding to a lower but still brisk 4.8% in the 1st quarter of this year. (Nancy D. Sidhu)
Revised real GDP growth data: +4.2% (1999), +4.4% (1998), +4.4% (1997)
 

U.S. TRADING PARTNERS TO THE RESCUE IN 2001? - WE HOPE SO

     Given the strong pace of U.S. economic growth in the 1st half of this year, 5.0% annual rate of increase in GDP, Federal Reserve Chairman Greenspan's policy actions are being closely watched around the world.  Let us hope that Mr. Greenspan has the foresight and the tools to bring about the hoped-for "soft landing" that we need for the longer term.  Many economies throughout the world would be affected by the end of the U.S. boom.  But, what about their impact on us in 2001?   Scenarios other than an American soft landing seem to be considered implausible by foreign observers.  Let us turn the "locomotive theory" on its head and see how our trading partners might pull us along, instead of our more traditional role of being in front.
     If we assume that U.S. economic expansion must slow down in order to sustain  long-term growth without inflation, it would be nice if other countries would  compensate for the potential loss of  momentum.  The huge trade deficit is evidence of America's increasing globalization, which is headed for a record $350 billion in 2000.  Looking at the export side, almost 77% of the $692 billion in U.S. exports of goods in 1999 went to its top 15 importers. The "Big 3" markets for U.S. exports accounted for almost 45% of total exports in 1999.  Japan, the world's 2nd largest economy (measured by GDP) is barely holding its head above recessionary waters.  And uncertainty surrounds the new prime minister, Mori, who is not very popular and may not be able to effect change.  Both Canada and Mexico are forecast to grow more slowly in 2001 than in 2000, as the American slowdown will dampen their prospects.
     The "second tier" markets were the U.K, Germany, the Netherlands, France and Belgium in Europe; South Korea, Taiwan, Singapore and Hong Kong (the Four Asian Tigers); Brazil, China and Australia.  The Euro-11 countries, despite lack of confidence in their currency and slow progress in reforming their labor and industrial structure, are forecast to register fairly good growth in 2001.  The United Kingdom's situation, however, is similar to that of the U.S., as the Bank of England is using "aggressive" interest rate hikes to moderate its overheated expansion.
     If our top 15 trading partners do not pick up the reins from the U.S., the world economy and international trade are destined for a fairly big hit.  On the other hand, if our top 15 trading partners are able to sustain their demand for U.S. exports through 2001, the U.S. should be in a more secure position for a "soft landing."  If all goes well, which appears possible, the world can experience the least disruptive economic slowdown since the end of World War Two.  We applaud Mr. Greenspan for his part in containing inflation, but we remain concerned that too severe an economic slowdown next year can trigger lots of havoc throughout the world.  Concerned and worried on the U.S. West Coast... (Ken Ackbarali & Vatche Shirikjian, protégé of Ken Ackbarali)
 

RESALE HOUSING MIXED IN JUNE

     The resale housing market in California continues to chug along, according to the latest data from the California Association of Realtors (CAR).  Unit sales activity in the state was up 0.4% in June over last year, while prices advanced 8.7% to a median of $244,230.  The CAR's unsold inventory index continued to run at low levels, at 3.8 months.  This represents the number of months needed to deplete the housing inventory at current sales rates.  The CAR noted that overall in June, the resale housing market was less frantic due to higher interest rates and higher home prices.
     In Los Angeles County, unit sales increased 1.0%, while the median price was up 8.8% to $197,640.  Orange County saw unit sales move up 8.9%, while the median price jumped 13.6% to $324,870.  In the Riverside-San Bernardino area, unit sales declined 9.5% over the year, a continuation of a recent trend.  However, prices increased 6.8% to $137,700.  The trend was the same in San Diego County, with unit sales down 15.3%, while the median price increased 14.5% to $271,920.  Ventura County saw unit sales in June drop 26.5% over the year, while the median price advanced 33.6% to $322,510.
     The Bay Area continues in nosebleed territory.  Unit sales in "San Francisco Bay" dropped 12.4% over the year, while the median price moved ahead 22.7% to $466,630.   In the San Jose area, unit sales declined 14.1%, while the median price shot ahead 34.7% to $554,550.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/jul00-4.html
 

EMPLOYMENT COST RISING

     With unemployment rate around 4%, no one expects wage pressures to be tame.  The Employment Cost Index released by the BLS shows that labor compensation costs for civilian workers rose 1.0% between March and June, or 4.4% from a year ago.  Wages and salaries rose 1.0% in 3 months, or 4.0% from a year ago.  Benefit costs rose 1.1% in 3 months but were 5.3% higher than a year ago.
     The rise in wages and salaries can come from two main sources: 1) high demand and/or low supply in labor markets and 2) higher inflation causing workers to demand higher cost-of-living adjustments.  Right now both factors are in play.  Since higher wages add more pressure to companies to raise prices (and hence cause more inflation), this index is carefully monitored by the Fed for signs of inflation.
     On the benefits side, the era of low medical care inflation has ended despite the efforts of managed care to suppress rising costs.  Benefit costs were 5.3% higher than in 6/99--more than double the 2.5% change between 6/98 and 6/99.  Even so, with labor markets tight, firms are unwilling to cut much from their employee benefits package. (George Huang)
PR: http://www.bls.gov/news.release/eci.nr0.htm
 
 

QUICK STATS:

* BEA: US real Gross Domestic Product for 2Q00 (advance report): +5.2% annual rate (1Q00: +4.8% a.r.)
* BEA: US implicit GDP deflator for 2Q00 (advance): +2.5% a.r. (1Q00: +3.3% a.r.)
* BLS: US Employment Cost Index for 6/00: +1.0% from 3/00 (3/00: +1.4% from 12/99)
* Census: US new durable goods orders for 6/00: +10.0% (5/00: +7.0%)
* Census: US durable goods shipments for 6/00: +1.5% (5/00: +2.6%)
* Census: US unfilled durable goods orders for 6/00: +4.7% (5/00: +1.2%)
* Cal Assn of Realtors: California median single-family home sale price for 6/00: +1.4% to $244,200 (5/00: -0.0% to $240,860)
* Cal Assn of Realtors: California single-family home sales for 6/00: -3.1% to 562,380 annual units (5/00: +17.7% to 580,540 a.u.)
* Cal Assn of Realtors: LA County median single-family home sale price for 6/00: -5.3% to $197,640 (5/00: -1.6% to $208,700)
* Cal Assn of Realtors: LA County single-family home sales for 6/00: -12.8% (5/00: +5.6%)
* Conference Board: US Consumer Confidence Index for 7/00: 141.7 (6/00: 139.2)
* Conference Board: US Help-wanted Advertising Index for 6/00: 81 (5/00: 82)
* Natl Assn of Realtors: US existing home sales for 6/00: +2.8% to 5.23 million annualized units (5/00: +4.3% to 5.09mil.a.u.)

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