The Economic Data Global Express (e-EDGE)

v.4 n.36       Released Sept. 5, 2000 
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FRANCE UNVEILS TAX CUTS FOR 2001--IN MIDST OF GOV'T SHUFFLE

     Last week Prime Minister Lionel Jospin's left-leaning government announced a wide range of tax reduction measures for France in 2001.  In the midst of  a major shakeup of the French Cabinet, ultra-nationalist Interior Minister Jean Pierre Chevenement resigned, paving the way for Finance Minister Laurent Fabius to rise to prominence.  Mr. Jospin and Mr. Fabius are now likely to be more supportive and cooperate with Germany on the framing of a "closer federal union" of European Union member countries--the next phase of EU integration.
     Key elements of the French tax reduction plan are:
     (1) The corporate tax rate will be reduced to 33.3%, bringing it closer to Germany's planned 25% in 2001.  Next year, French and German corporate tax rates will be lower than those in the United States (41%) and Canada (45%).  This change could help boost foreign direct investment in the French economy.
     (2) Personal income tax rates are to be cut for all income tax brackets in 2001.  However, the top rate, 54%, will likely be reduced only modestly and will remain much higher than Germany's 42%, the U.K.'s 40%, and America's 39.6%.  This change will have positive effects on the attractiveness of France to foreign workers as well as stimulating work beyond the mandated 35-hour work week.
     (3) The Value Added Tax (VAT) will be drastically cut for restaurant dining to roughly 5.5% from 19.6%--a big plus for the French tourist and restaurant industries.
     (4) Social Security tax withholdings will be reduced for the lowest income groups--an egalitarian move.
     In a rather ironic twist, it appears that Socialist Party leaders in France are becoming more free-market oriented and less nationalistic in their attitude towards EU integration. France's economic situation is conducive to these changes in its political views as well as its fiscal regime.  In terms of GDP growth (3.7% estimated for this year), France has outpaced the EU average in the past 3 years. Its inflation rate has remained under control at 1.7% in the latest 12 months, and its unemployment rate has fallen below 10% this year.  We expect our California economy to become increasingly international trade and investment oriented, so we welcome the brighter prospects for a stronger and more stable French economy.  (Ken Ackbarali)
 

U.S. LABOR MARKETS STILL TIGHT IN AUGUST, BUT DEMAND IS SLOWING

     The federal government released its Employment Situation report for August last week.  The results indicate that labor demand may be slowing but the supply of labor is still tight.  Beginning with the Labor Department's survey of households, the nation's unemployment rate inched up to 4.1% in August from 4.0% in July and June.  The jobless rate thus spent another month in the low range (3.9%-4.1%) it's occupied since last October.  Unemployment rates for most categories of workers showed little change month-to-month except the jobless rate for teenagers, which increased from 13.4% in July to 14.4% in August.
     The unemployment rate, already near a 30-year low, may not be able to go much lower.  Most of August's unemployed were jobless for reasons having little to do with overall economic trends.  Only 29% of those currently unemployed had "lost" their jobs, or been let go by their former employers.  Who are the others?  (1) Almost 43% of jobless persons in August were new entrants into the labor market or had just re-entered the work force following a spell out of the market.  (2) About 13% of the unemployed had quit their previous jobs and were searching for another, a sign of confidence in the economy.  (3) The remaining 16% were on temporary layoff status.
     Looking at the hiring side of the labor market, the government's survey of nonfarm employers revealed that payrolls declined by 105,000 in August, much more than expected, following a smaller dropoff in July.  Two special factors pushed the August payroll count drop into negative territory.  The first is very familiar by now: about 158,000 temporary Census workers completed their tasks and left the U.S. government's employ during August.  (Census employment peaked at 618,000 in May.  Only 41,000 are still on the job.)  The second special factor was a strike at Verizon, which involved 85,000 workers and has since been settled.  Adjusting for these two factors, private payrolls actually increased in August by 102,000 jobs, somewhat below July's increase of 164,000 jobs.  Manufacturing and retail trade were weaker in August, with payrolls falling by 79,000 and 35,000 jobs respectively. The services sector was the strongest as usual, up by 160,000 jobs.  Nonfarm hiring has slowed significantly this year, no matter how one juggles the numbers in the reports on nonfarm payrolls, to an average of 182,000 more jobs per month from 1999's average of 229,000 per month.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

MANUFACTURERS REPORTED SLOWER BUSINESS

     The Purchasing Managers' Index from the National Association of Purchasing Management (NAPM) dipped below 50% for the first time in 19 months.  For the month of August, the index was 49.5%, compared to 51.8% in July.  An index below 50% indicates contraction in the manufacturing sector.  This reversal is not totally unexpected because the index has been declining since February.  Contractions in production, new orders, backlog of orders, and even employment were indications of this trend.  Faster supplier deliveries showed that the strain on industrial capacity is lessening.  Firms continue to liquidate their inventories due to a slowdown in new orders and to reduce storage costs in the face of higher capital costs (i.e., interest rates).  The rate of price increases had slowed, thanks to steadier, though still high, energy prices.  It seems that the manufacturing sector is adjusting to the changing environment rather well.  The question is, retrospectively, whether the Federal Reserve had to throw in so many rate hikes to slowdown the economic engine.  (George Huang)
PR: http://www.napm.org/NewsAndResources/ROB092000.cfm
 

E-COMMERCE--A NEW TREND EMERGING

     The Census Bureau just reported its estimate for the second quarter e-commerce retail sales, which rose by 5.3% to $5.5 billion.  This growth rate is weaker than that of total retail sales, which rose by 9.1% in 2Q00.  The e-commerce share of total retail sales declined slightly from 0.70% in 1Q00 to 0.68% in 2Q00.  Yet e-commerce sales rose 0.8% while total retail sales dropped 8.9% during the first quarter.  A lot of Y2K-related factors were behind the strange numbers in retail sales for the past 3 quarters.
     What's going on in e-commerce?  First, there has been a lot of consolidations in some sectors.  Your favorite toy site may not be there this coming Christmas (e.g, Toysmart.com).  Second, some e-commerce powerhouses are expanding across industry lines (e.g., Amazon now sells beach chairs along with its books).  Third, consumers are discovering a new trend--"consumer-to-consumer" (C2C) or "peer-to-peer" (P2P) commerce, which goes beyond online auctions for rare items.  Now consumers can buy and sell used items without having to deal with auctions and billing details.  This trend capitalizes on one task in which the Internet excels--exchanging information easily in a large market place.  Since certain items are virtually uniform (and identifiable by UPCs and ISBNs) and quality of the commodity can be easily described, this market has much less risk of fraud than in auctions.  (George Huang)
PR: http://www.census.gov/mrts/www/current.html
 

HOMEBUILDING DISAPPOINTING IN JULY

     The July report from the Construction Industry Research Board was a tad disappointing.  The summer months should see high levels of new homebuilding, but the total number of permits issued in the state during July was down both over the year and from the preceding month.  The pattern was the same for both single-family units and apartments.  Year-to-date, the number of permits issued in California is up 4.2% to 86,462.
     The pattern was generally the same around Southern California.  Only Orange County managed to post a year-to-year increase.  For the first 7 months of the year, total housing permits in Los Angeles County were 23.2% ahead of the year-ago count, to 9,787.  Orange County was up 17.3% to 9,067,   The other metro areas, however, were running behind.  The Riverside-San Bernardino area was down 4.5% to 12,649 units (but this still leads the state).  San Diego County was down 4.8% to 10,077 units (still good for second place), while Ventura County was running 13.7% behind at 2,249 units.
     The 9-county San Francisco Bay area also is seeing a mixed performance, with 5 counties lagging last year, and 4 ahead.  Overall, its permit total was up 2.8%, with the juice provided by San Mateo County (+159.4%) and Santa Clara County (+19.3%).  (Jack Kyser)
 

NONRESIDENTIAL ACTIVITY MIXED IN JULY

     The nonresidential data from the Construction Industry Research Board's July report was also uneven.  In Los Angeles County, new industrial and office permit valuations for the first 7 months continued to lag 1999 numbers, declining by 27.9% and 39.4%, respectively.  But that old devil retail was running 13.9% ahead of last year.  The news is a little better in Orange County, with office permit valuations up by 96.2% and retail ahead 20.8%.  However, industrial permits were lagging here as well, off 53.7%.
     In San Diego County, industrial permits were up a modest 3.1%, office was essentially flat at -0.5%, and retail was up 58.6%.  In Ventura County, industrial permit values were up by 2.4%, office was ahead a hefty 83.0%, but retail still trailed, down 77.9%.  If you want big numbers, the Riverside-San Bernardino area never disappoints.  Industrial permit values for 7 months of 2000 were up 39.3% to $324.9 million, office was ahead 21.8%, while retail was up 53.8% to $259.5 million.
     In the 9-Bay Area counties, new industrial permit values were essentially flat (-0.2%), while office was up a stout 141.9%.  Activity was especially strong in Contra Costa, San Mateo and Santa Clara counties.  Retail, however, was down by 21.4%.
     A further note on retail development is in order.  The financial woes of the motion picture exhibition business have put the brakes on some proposed developments around Southern California, and is also causing problems for retail centers where theaters have been shuttered.  What do you do with an old fashioned movie house?  (Jack Kyser)
 

AND SPEAKING OF MOVIES

    

The Entertainment Industry Development Corporation has just released location production days for August.  During the month, there were only 215 commercial shoots, versus 549 last year.  For the first 8 months of 2000, total location production days were down 4.5% from a year ago, with features off 10.6%, and commercials down 18.3%.  However, TV was running 8.7% ahead, and music was up by 13.1%.  Since Hollywood is paranoid about a possible strike in mid-2001, movie and TV work should run at high levels over the balance of 2000 and into next year.  (Jack Kyser)

 

QUICK STATS:

* BEA: US corporate profits for 2Q00: +3.0% (1Q00: +4.8%)
* BLS: US unemployment rate for 8/00: 4.1% (7/00: 4.0%)
* BLS: US nonfarm employment for 8/00: -105,000 (7/00: -51,000)
* Census: US new home sales for 7/00: +14.7% to 944,000 annual units (6/00: -7.1% to 823K a.u.)
* Census: US Internet sales for 2Q00: +5.3% to 0.63% of total retail sales (1Q00: +0.8% to 0.70% of total retail sales)
* Census: US construction spending for 7/00: -1.6% (6/00: -1.3%)
* Conference Board: US Index of Leading Economic Indicators for 7/00: -0.1% (6/00: -0.1%)
* Conference Board: US Consumer Confidence Index for 8/00: 141.1 (6/00: 143.0)
* Conference Board: US Help-Wanted Advertising Index for 7/00:  (6/00: )
* Natl Assn of Purchasing Mgmt: US Purchasing Managers' Index for 8/00: 49.5% (7/00: 51.8%)
* USDA: US agricultural prices for 8/00: -1.0% (7/00: -1.0%)

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