The Economic Data Global Express (e-EDGE)

v.4 n.38       Released Sept. 18, 2000 
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

U.S. AND GLOBAL ECONOMY AT RISK FROM HIGH OIL PRICES?

     OPEC oil ministers met last week in Vienna and agreed to increase output by 800,000 barrels per day (bpd), the third increase this year.  Oil prices have risen to $35 per barrel in recent weeks, more than triple the price near the end of 1998.  The official price range of OPEC is $22 to $28/barrel, but it is quite unlikely that prices will drop to these levels in the months ahead.  In fact, there is a serious risk that prices will hold at their current 10-year highs; any decline will still keep them above $30/barrel.
     The factors pointing to little relief from high oil prices are:  (a) global demand is likely to rise next year as oil-importing nations such as the U.S. and the European Union continue to experience strong economic growth. Japan, a fairly large oil-importer, is also expected to see its economic pace pick up;  (b) OPEC's quotas, a total of 25.4 million bpd, are already being exceeded by 500,000 barrels.  Consequently, the recent increase means that only 300,000 bpd of "new oil" will reach the market and not before at least 60 days--not enough to turn the tide; (3) Most OPEC countries are at or close to capacity. The exception is Saudi Arabia which can produce an additional 1.6 million bpd, if the Saudis want to risk angering the rest of the cartel.
     Several factors complicate the situation.  First, predictions of a mild winter in North America and Europe could prove wrong and the demand for home-heating oil would rise.  Second, the U.S., Japan, and the rest of the G-7 club may not have the political clout to influence the Saudis to raise output.  Third, domestic refinery capacity is already  constrained and this limits how quickly additional crude can reach the market in the form of gasoline (automobile and aviation), diesel fuel, home-heating oil, and other oil-based products.
     Who are the winners and losers in this somewhat treacherous game of oil politics?  According to the Economist (London) and J.P. Morgan, Saudi Arabia, Nigeria, Russia, and Mexico (none of whom are in the rich-country OECD club) are the biggest beneficiaries.  An increase of $15/barrel raises their trade surpluses by 2% to 31% of GDP.  The biggest losers are Thailand and South Korea, whose trade deficits are enlarged by almost 3% of GDP.  The impact on the U.S. and Japan is estimated to be less dramatic, a jump in trade deficits of less than 1% of GDP.  We can only hope that OPEC will take the longer view in realizing that their policies can backfire on them.  Unless oil prices drop significantly, oil demand will eventually fall and non-OPEC production will increase.  In 2001 or later, prices will be forced down resulting in less revenue to OPEC  producers. In this eyeball-to-eyeball contest, OPEC will sooner or later blink first.  (Ken Ackbarali)
 

YOU MUST BE KIDDING!

     The US Consumer Price Index (CPI) posted a month-to-month decrease for the first time in 14 years, declining by 0.1% in August after seasonal adjustment.  (My first reaction is the title of this piece.)  This came after a spike in June (+0.6%) and a mild uptick in July (+0.2%).  A 2.9% drop in energy prices is responsible for the decline.  Food prices rose 0.2%, and the core CPI, which excludes the volatile food and energy prices, rose 0.2%.  Gasoline prices fell 6.0%.  Yet most consumers can testify that gasoline prices went up last month.  This discrepancy is the result of the timing of the price survey.  The survey was done in mid-August, before the gasoline price shock around Labor Day.  We'll see that increase in the September CPI report.  The overall CPI was 3.5% above the year-ago level.  Energy prices were 13.1% above the year-ago level, compared to 2.7% for food prices and 2.5% for the core CPI.
     Locally, Los Angeles metro area CPI rose 0.3% last month.  Local data are not seasonally adjusted.  Energy prices dropped 3.5% while food prices rose 0.6%.  The core CPI rose 0.6%.  Up north, the Bay Area CPI rose 1.5% over the past two months.  Housing costs rose 1.2% in two months thanks to a 1.5% increase in rents.  Another big jump came from medical care, up 4.6% in two months.  Energy prices rose 1.4% in two months while food prices rose 1.0%.
    We see more price volatility as we move further up in the production pipeline.  The Producer Price Index (PPI) for finished goods, a.k.a. the wholesale price index, declined by 0.2% in August.  Food prices dropped 0.7% while energy prices declined by 0.2%.  The PPI is now 3.3% above the year-ago level.  The PPI for intermediate goods also declined by 0.2%.  The food prices component dropped by 2.5% while energy prices rose 0.3%.  It's now 4.3% higher than a year ago.  The PPI for crude goods (i.e. raw materials) dropped by 1.5% in August, with food prices down 4.5% and energy prices up by 0.6%.  It's 15.6% higher than a year ago.
     The US Import Price Index rose 0.2% in August, thanks to a 0.6% increase in petroleum prices and price increases in other raw materials and industrial supplies.  Indexes for all of the finished import goods groups posted declines or no change.  While consumers are benefiting from lower import goods, our manufacturers are being squeezed.  The US Export Price Index posted a 0.3% decline in August, the 4th decline in 5 months.  Agricultural export prices continue to suffer--dropping 2.1% last month.  US exporters face severe price competition from foreign producers partly because of the strong US dollar.  (George Huang)
US Consumer Price Index PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA Consumer Price Index PR: http://www.bls.gov/special.requests/sanfrancisco/ro9cpila.htm
Producer Price Index PR: http://www.bls.gov/news.release/ppi.nr0.htm
Import/Export Price Indexes PR: http://www.bls.gov/news.release/ximpim.nr0.htm
 

RETAIL SALES UP AGAIN IN AUGUST

     U.S. retail sales edged up by 0.2% in August, following increases of 0.9% in July and 0.4% in June.  August is the fourth "up" month since retail sales dropped in April.  There were several winners and losers in August's retail sales report.  (1) Auto dealers reported a 0.4% drop-off in the dollar volume of sales last month (despite the fact that unit sales of new vehicles were higher).  (2) Sales of gasoline service stations were even weaker, down by 1.3% in August.  (Of course, this part of the story will reverse direction again next month...)  (3) On the plus side were sales of drug stores, which rose by 1.2%, their third gain above 1% in the past 4 months.  (4) Also, sales of furniture and appliance stores increased by 1.1% in August.
     For the first 8 months of 2000, owners of gasoline stations were the clear winners as their sales soared by 24% compared to the same period last year.  Though we're all driving a bit more, most of this increase is due to higher prices.  Several kinds of retailers occupied a second, much lower tier, with year-to-date sales up between 9% and 10%.  This group includes furniture, home furnishings and home equipment stores, automotive dealers, and drug stores.  Down just a notch from the second tier, with sales up between 8% and 9%, was a third group including restaurants and bars (The government calls them "eating and drinking places."  Lacks flavor, doesn't it?) and general merchandise or chain department stores.  Sales of building and hardware stores and apparel stores lagged the other groups, with 8-month increases of 4.1% and 4.6% respectively.
     Retail sales account for roughly one-third of the economy.  With two months in hand, it looks like sales growth picked up during the third quarter following a pronounced slowdown during the second.  This improvement suggests that higher consumer spending is putting a firm foundation under U.S. economic growth in the third quarter.  (Nancy D. Sidhu)
PR: http://www.census.gov/svsd/www/retail.html
 

HOTEL BUSINESS STURDY IN JULY

     The July report from PKF Consulting makes for good reading.  The overall hotel occupancy rate in Los Angeles County was 78.4%, just slightly ahead of 78.3% a year ago.  More importantly, operators continued to push up the average daily room rate, which increased 6.9% to $118.44.  There were 6 sub-markets in the County with occupancy rates above 80% in July: Marina del Rey (89.3%), Santa Monica (87.9%), South Bay (87.8%), LAX (86.5%), Hollywood (84.0%), and the San Fernando Valley (81.6%).  And Valencia came in at an amazing 92.7%.
     Business was also good in Orange County during July, as construction winds down in and around Anaheim (finally!).  The occupancy rate was 80.9%, compared with 77.2% last year.  And the average daily room rate was up 6.9% to $111.25.  Out of five sub-markets in the County, only one was below the 80% level, and that was Orange County Airport at 79.2%.
     PKF's next report (August) will give us an idea of what the Democratic National Convention meant to the Los Angeles hotel industry.  And don't forget.  Disneyland II is coming.  (Jack Kyser)
 

RECORD AUGUST CONTAINER TRAFFIC AT POLA

     The port of Los Angeles (POLA) saw a continuing traffic boom in August.  The number of loaded inbound containers jumped 30.3% to 235,529, while loaded export containers advanced 26.8% to 87,338.  Including empties, the total number of containers handled at the port in August was up 33.3% to 464,045.  And so far, congestion has been minimal (keep your fingers crossed).  (Jack Kyser)
 

Q2 TAXABLE SALES ESTIMATE FOR CALIFORNIA

     The State Board of Equalization has just released their estimate for total taxable sales in California during the second quarter of 2000.  The year-to-year increase was placed at a hearty 11.9%, though down from the 13.4% estimated gain for the first quarter.  The state has racked up 3 quarters in a row of double digit gains.  (Jack Kyser)
 

WHERE THERE'S A WILL THERE'S A WAY, BUT NO BUSES!

Drivers, clerks, and mechanics of the LA County Metropolitan Transportation Authority (MTA) are on strike, stranding roughly half a million bus riders.  All MTA buses and light rail (Red, Blue, and Green lines) are shut down, with the exception of certain "emergency" services such as the Red Line replacement shuttles.  Public opinion seems to be leaning in favor of the MTA after the salary figures of bus drivers were publicized.
     As a regular bus rider, I was actually lucky enough to get a ride to a key bus station and take Foothill Transit, a privately-run bus company serving the San Gabriel Valley.  Hundreds of thousands of low-income families are not so lucky, however.  The impact is hitting the poorest disproportionally--roughly 2/3s of bus riders make less than $15,000 per year.  Some workers may see their jobs at risk if they cannot show up on time, if at all.
     Although all other municipal bus lines (e.g., LADOT, Dash, Santa Monica, and Montebello) are running and many do honor MTA passes and tokens, their service coverage and capacity are limited.  Freeway commutes will take longer as some bus riders drive their own vehicles.  If you are experiencing longer commute time, consider picking up extra passengers at the bus stops and use the carpool lane.  You'll be doing a good deed and save money and gas at the same time!
     I once saw a bumper stick that says "Real men ride the bus to work."  Well, today some real men really wished they had cars instead.  (George Huang)
MTA website and info on commuting alternatives: http://www.mta.net
Union's website: http://www.utu.org

 

QUICK STATS:

* BEA: US current account deficit for 2Q00: +4.5% to $106.1 billion (1Q00: +5.5% to $101.5bil.)
* BLS: US Producer Price Index for finished goods for 8/00: -0.2% (7/00: +0.0%)
* BLS: US Consumer Price Index for 8/00: -0.1% (7/00: +0.2%)
* BLS: LA Area Consumer Price Index for 8/00: +0.3% (7/00: +0.5%)
* BLS: Bay Area Consumer Price Index for 8/00: +1.5% from 6/00 (6/00: +0.2% from 4/00)
* BLS: US Import Price Index for 8/00: +0.2% (7/00: +0.0%)
* BLS: US Export Price Index for 8/00: -0.3% (7/00: -0.1%)
* Census: US retail sales for 8/00: +0.2% (7/00: +0.9%)
* Census: US business inventories for 7/00: -0.4% (6/00: +0.8%)
* Census: US business sales for 7/00: +0.2% (6/00: +0.9%)
* Fed: US industrial production for 8/00: +0.3% (7/00: +0.0%)
* Fed: US industrial capacity utilization rate for 8/00: 82.3% (7/00: 82.2%)
 

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