The Economic Data Global Express (e-EDGE)

v.4 n.35       Released Aug. 28, 2000 
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

CANADA'S ECONOMY STILL SOLID--BUT WARNING SHOTS?

     Last week, the Conference Board of Canada (a private think tank) fired warning shots across the country's bow that surprised some observers.  The widely-respected research group lowered its forecast of Canada's GDP growth from 3.0% to 2.6% for 2001, following an estimated increase of 4.5% this year.
     This somewhat gloomy prediction was surprising in light of the many positive trends in the Canadian economic environment:
* Core inflation has stabilized around 1.5% since the middle of 1999, close to the lower band of the 1 to 3% target range set by the Bank of Canada.
* The national unemployment rate has dropped below 7%, the lowest level in 30 years and 2 percentage points below the recent 1997 high.
* The general government budget ran a surplus equal to 2.8%of GDP last year, with this year estimated at 2.5%.
* The trade surplus has jumped from $12.7 billion in 1998 (year following the East Asian crisis) to an estimated $31 billion in 2000.
* The Canadian dollar has appreciated to C$1.49/US$1.00 in recent weeks from its low of C$1.5770/US$1.00 in August 1998, and is predicted by many to rise further in value in 2001.
     Given these good marks, one has to ask what would make the forecast for Canada next year so gloomy?  First, productivity gains through technological advances have come mainly in the electronic equipment and industrial machinery industries and are not as broad-based as in the United States.  If productivity growth decelerates, inflation could flare up and require more monetary restraint.  Second, high corporate taxes are a disincentive to foreign direct investment.  Among the advanced industrialized countries, Canada has the second highest tax rate on business retained earnings, 45%, compared to Germany's 52% and America's 41%.  Third, a "hard landing" in the U.S. would be devastating to Canada's exports, since about 80% of its exports are sold in the U.S.
     Our View:  A "soft landing" which we forecast for the U.S. next year, high prices for commodities (lumber, minerals, agricultural, and energy), and prudent monetary policy give Canada a good chance of achieving a GDP growth rate of 3.0% or better in 2001. By the way, a higher "loonie" (C$) would be positive for the motion picture business in Los Angeles, by slowing down runaway production to Canada.  (Ken Ackbarali)
 
 

DURABLE GOODS ORDERS FELL IN JULY, BUT NOT TO WORRY

     The Census Bureau announced last week that U.S. manufacturers' new orders for durable goods dropped by a record 12.4% in July.  New orders were expected to fall off in July since the previous two months had been so strong.  Durable goods orders gained 9.5% in June (the largest increase in 9 years) and 7.2% in May.  Declining orders for transportation equipment and electronic and electrical equipment, down by 31.7% and 16.8% respectively, were the primary reasons for last month's decline.  New orders for industrial machinery and equipment rose by 4.3% while orders for primary metals slipped by 1.4%.  Orders for all categories except electronics had risen in June.
     Such extreme month-to-month volatility obscures the underlying trends in durable goods orders this year.  On a seven-month-year-to-date basis, total durable goods orders were up by 10.1%, led by a 20.4% increase in electronic/electrical equipment and 17.5% growth in nondefense capital goods.  More important to Southern California, new orders for defense equipment have risen by a thumping 37.2% in the first seven months of 2000, and commercial aircraft orders also were up solidly by 17.8%.  (Nancy D. Sidhu)
PR: http://www.census.gov/indicator/www/m3/index.htm
 

JUNE TRADE VALUES SURGE

     International trade through California's customs districts continues to rumble forward.  At Los Angeles, export values in June were up 18.6% over the year, while imports were ahead by 18.0%.  Total trade value in June increased 18.2% to $19.45 billion, a new record monthly level.  For the first 6 months of the year, two-way trade values at Los Angeles are up 18.3%.  On an annualized basis, this points to a hefty 2000 total of $233 billion.
     At the San Francisco district, June export values jumped 39.3% (a lot of high value electronic items, no doubt) while imports moved ahead by a more reserved but still healthy 14.1%.  June's total trade value increased 24.5%, to $11.01 billion, also a new record level.  The San Diego district saw export values jump 28.3%, while import values moved up by 20.3%.  Total trade value for San Diego in June was up 23.1% to $3.18 billion, a record monthly level here as well.
     How are the nation's top customs district doing at the half-way point of the year?  Extremely well as a whole, though there are some interesting races.  For 6 months of 2000, the New York District edged ahead of Los Angeles, with a total trade value of $107.60 billion, up 21.8% over the year.  Los Angeles has a 6-month value of $106.94 billion, an 18.3% increase.  Detroit remains solidly in third place, with a value of $92.30 billion, up 14.5%.  San Francisco is holding on to the 4th spot, with a total of $58.90 billion, up 19.4%.  However, Laredo is right behind, with a 6-month total of $58.21 billion, for a 30.0% gain.  (Jack Kyser)
 

JUNE HOTEL BIZ HOT IN LA

     According to PKF Consulting, the average hotel occupancy rate for Los Angeles County in June was 82.0%, compared with 74.4% a year ago.  (Rule of thumb -- anything over 70% is good business.)  Eight sub-markets were over 80%, with the South Bay at an astounding 89.8%, while Marina del Rey came in at 88.5%.  The average daily room rate in the County climbed 5.6% in June to $119.27.  For the first 6 months of 2000, the County's hotel occupancy rate has averaged 77.0%, while the room rate is up 5.1%.  Talk about no room at the inn!  (Jack Kyser)
 
 

2ND QUARTER NONRESIDENTIAL VACANCY RATES

     Second quarter nonresidential vacancy rates have just been made available, courtesy of Grubb & Ellis.  The tightest office market in Southern California is San Diego County, with a 5.6% reading, followed by Ventura County at 7.6% and Orange County at 8.2%.  All were down from the first quarter of the year.  The office vacancy rate in the Inland Empire was 15.0%, also down from the first quarter.  This number is always qualified by the fact that the amount of Class A space available is small.
     In Los Angeles County, the second quarter office vacancy rate inched up from 12.7% to 13.0%.  The rate in Central Los Angeles climbed to 22.1% from 20.0%, reflecting corporate mergers.  The San Fernando Valley also posted a 1.0 percentage point increase to 11.7%.  The Westside remained quite popular, with the vacancy rate easing to 5.8%.
     The performance of industrial vacancy rates for the second quarter of 2000 was more varied.  Moving down were the Inland Empire to 7.2%, Ventura County to 6.7%, and San Diego County to 8.0%.  Orange County's industrial vacancy rate moved up from 7.7% to 8.3% in the second quarter.  Los Angeles County's industrial vacancy rate also increased, from 4.1% to 5.2%.  The culprit was an increase in "central" Los Angeles from 2.1% to 3.5%.  This reflects both some new construction, as well as an exodus of business seeking expansion space.  The South Bay held steady during the second quarter at 3.8%, the San Gabriel Valley eased a little to 3.9%, the San Fernando Valley took a big drop to 5.2%, while the "mid-cities" or southeast County moved down to 5.0%.  (Jack Kyser)
 

RESALE HOUSING MARKET SCHIZOPHRENIC IN JULY

     The California Association of Realtors (CAR) July report on the resale housing market seems contradictory.  Unit sales were down over the year in the state, by 14.9%.  However, the median price increased 10.3% to $243,240.  This was the result of a combination of rising interest rates, and low levels of inventory.  When you get a note slipped under your garage door asking if you want to sell, you know the market is tight.
     In Los Angeles County, unit sales fell 14.6% over the year, while the median price increased 5.0% to $211,150.  Orange County saw unit sales drop 13.9%, while the median price increased 9.7% to $315,730.  In the Riverside-San Bernardino area, unit sales declined 17.3% over the year (a continuation of a trend that started back in December 1999), while the median price increased 2.0% to $138,600.   San Diego County saw unit sales drop 10.2%, while the median price jumped 16.3% to $271,760.   Unit sales declined a stout 24.7% in Ventura County, but the median price advanced 11.4% to $297,540.
     The trend was more exaggerated in the Bay area, with the greater San Francisco area posting a 19.4% decline in unit sales, while the median price advanced 22.2% to $459,920.  In Santa Clara County, unit sales dropped 19.7% over the year, but the median price shot up 33.4% to $547,000.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/aug00-5.html
 

QUICK STATS:

* BEA: US Gross Domestic Product (preliminary, annual rate) for 2Q00: +5.3% (1Q00: +4.8%)
* BEA: US implicit GDP deflator (preliminary, annual rate) for 2Q00: +2.6% (1Q00: +3.3%)
* BEA: US personal income for 7/00: +0.3% (6/00: +0.4%)
* BEA: US disposable personal income for 7/00: +0.3% (6/00: +0.3%)
* BEA: US personal consumption expenditures for 7/00: +0.6% (6/00: +0.4%)
* Census: US durable goods orders for 7/00: -12.4% (6/00: +9.5%)--largest decrease on record!
* Census: US durable goods shipments for 7/00: -1.9% (6/00: +4.6%)
* Natl Assn of Realtors: US existing home sales for 7/00: -9.8% to 4.79mil. annualized units (6/00: +4.3% to 5.31mil.a.u.)

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