The Economic Data Global Express (e-EDGE)

v.4 n.40       Released Oct. 2, 2000 
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FED IS LIKELY TO SIT ON THE SIDELINES--FOR GOOD REASON

     The policy-making arm of the Federal Reserve, the Federal Open Market Committee (FOMC), will meet tomorrow, its 6th meeting of the year.  This is likely to be a yawn and their decision to leave interest rates unchanged, which we (and the financial markets) expect, will stir very little interest.  In fact, it is rather unlikely that the Fed will raise  interest rates at its last two meetings of the year, scheduled for November 15th and December 19th.
     First, although Chairman Greenspan is securely ensconced in his job for four more years, he and his colleagues are not likely to break with tradition by changing interest rates before a Presidential election.  Second, the recent spike in oil prices is helping to dampen economic growth and, fortuitously, taking pressure off the Fed with regard to additional rate hikes.  Third, some evidence is coming on to indicate some softening in consumer spending, especially in the housing sector.  Fourth, declines in the stock market during most of September are beginning to take the edge off investors' enthusiasm.  Overall, U.S. economic growth could slow in the months ahead and preclude the need for more monetary tightening.
     Apart from the foregoing considerations, the Fed has put itself in a box last week with its decision to join the European Central Bank, the Bank of Japan, and the Bank of England in rescuing the euro.  Voting to raise interest rates tomorrow would contradict this action as the result would likely be a stronger dollar/weaker euro.  So, for the moment, the international currency markets are having a greater influence on Federal Reserve policy than in previous periods.  We will watch Tuesday's action and announcement, but there is no need to become excited!  (Ken Ackbarali)
 

INCOME & SPENDING GREW IN AUGUST

     Personal income in the United States rose by 0.4% in August, in line with July's increase of 0.3% and June's growth of 0.5%.  After the IRS took its cut, disposable personal income increased by a more moderate 0.3% in August and July and 0.4% in June.  Meanwhile, consumer spending grew by 0.6% during August following similar increases in June and July.  Disposable personal income has grown by 5.2% over the past 12 months, while consumer spending has expanded faster, by 8.0%.
     As we expected, personal consumption spending recovered some bounce this summer from its slowdown in the second quarter.   However, spending growth has not--and will not--match the torrid pace of the first quarter.  Nonetheless, consumer spending constitutes about two-thirds of the economy, measured by GDP.  Thus, its healthy performance during July-August provides a solid foundation for economic growth in the U.S. over the near term.  (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/pi0800.htm
 

MANUFACTURING SECTOR SLOWDOWN CONTINUES

     The National Association of Purchasing Management's (NAPM) monthly manufacturing report shows that the manufacturing sector has contracted for the second consecutive month in September.  Prices paid by manufacturers for supplies continue to climb, and the increases have spread beyond petroleum-related industries, a worrisome development.  Old economy activities aren't dead yet, and energy prices do matter.  (George Huang)
PR: http://www.napm.org/NAPMReport/ROB102000.cfm
 

DURABLE GOODS ORDERS ROSE IN AUGUST

     The Census Bureau announced last week that U.S. manufacturers' new orders for durable goods advanced by 2.9% after a record 13.1% decline in July (which followed two months of increases in the high single digits).  Large month-to-month changes in orders for big-ticket items account for the current volatility of new orders.  Civilian aircraft orders, for example, soared by 50.1% in August following a downdraft of 48.9% in July.  And orders for defense capital goods surged by 18.2% in August after plunging by 70.5% in July.
     Durable goods orders are an important indicator to monitor because they often lead changes in the U.S. economic cycle.  The key trends are easier to spot by downplaying their monthly swoops and dives and concentrating on longer-term trends.  Year-to-date orders for high technology machinery and equipment have been growing at healthy, double-digit rates.  Meanwhile, commercial aircraft orders were up by over 18%, and orders for defense capital goods escalated by 39%.  (Nancy D. Sidhu)
PR: http://www.census.gov/indicator/www/m3/index.htm
 

REVISION TO CPI

     The Bureau of Labor Statistics (BLS) revised Consumer Price Indexes covering the period from Jan. 2000 to Aug. 2000.  Problems were found in CPI's housing cost and quality change calculations.  The resulting correction shows that the annualized rate of inflation during the first eight months of this year was 3.5% instead of 3.4%.  The difference is small but may affect some contracts using the CPI for cost-of-living adjustment (COLA).  A spreadsheet with both the old and revised data for the Greater Los Angeles area is provided for your convenience.  Please check your contract to see which CPI to use (CPI-U or CPI-W).  BLS has the revision for major subcategories.  (George Huang)
BLS PR: http://www.bls.gov/cpirev01.htm
Data spreadsheet: http://www.laedc.org/CPI-LA5.xls (Excel 97 spreadsheet, data on separate worksheets)
 

AUGUST RESALE HOUSING MARKET STRONG

     After a somewhat lackluster July, the California resale housing market bounced back in August, according to the latest data from the California Association of Realtors (CAR).   Statewide, unit sales advanced 4.7% over the year, while the median price increased 14.0% to $255,580.   The CAR's unsold inventory index was 3.4 months compared with 3.7 months a year ago.  August's good news was attributed to a stable interest rate environment, low inventory levels throughout the state, and of course the strong California economy.
     In Los Angeles County, August unit sales were up 5.5% over the year, while the median price advanced 12.4% to $229,200.  Orange County recorded a 7.6% increase in unit sales, while the median price increased 11.9% to $323,440.  In the Inland Empire, August unit sales increased 1.4% over the year, breaking a 7- month trend of year-to-year declines.  The median price advanced 3.2% to $138,740.  San Diego County recorded a 3.4% increase in unit sales, while the median price jumped 13.7% to $276,980.  Unit sales in Ventura County, however, were down a sharp 10.4% from last year.  But the median price increased 9.5% to $297,400.
     In the immortal words of Ralph Kramden, in the San Francisco area it was "to the moon."  Unit sales in August were up over the year by 9.5%, while the median price surged 21.7% to $454,470.  In Santa Clara County, unit sales advanced 8.3%, while the median price jumped 26.2% to $522,500.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/sep00-5.html
 

JULY AIR TRAFFIC UP

     July was another strong month at Los Angeles International Airport.  Total traffic was up over the year by 6.0%, while international passenger volume jumped 12.7% (Asian visitors are on the move again).  Burbank-Glendale-Pasadena, however, was down 1.9% over the year, after a positive bounce in June.  At John Wayne Orange County Airport, July passenger volume was up a modest 1.3%.  Data for July and August are available for Palm Springs, but the news here was disappointing, with 12-month declines of 9.4% and 6.3% respectively.
     On the international air cargo front, July was a wild and wooly month, with export tonnage at LAX up 24.3% and import volume ahead 19.9%.  Total international air cargo tonnage for the month was up 21.7% to 88,697.  (Jack Kyser)
 

AND INTERNATIONAL TRADE VALUES TAMBIEN

     The value of exports and imports at California's 3 customs districts continued to post strong gains in July.  At Los Angeles, export values during the month advanced 17.4%, while imports moved ahead 15.4%.  Total two-way trade value during the month was $19.59 billion, up 16.0% over the year.  The 7-month total was $126.53 billion, up 17.9%.
     At the San Francisco district, exports jumped 33.7% to $4.76 billion, while imports moved ahead 21.0% to $5.98 billion.  The July total value was $10.74 billion, up by 26.4%, and the 7-month total hit $69.63 billion, which was a 20.4% gain.  At the San Diego district, exports surged 24.7% to $1.15 billion, but imports were up a rather restrained 9.3% to $1.75 billion.  The month's total value was $2.89 billion, up by 14.9% over the year.  San Diego's 7-month total was $19.59 billion, a 20.6% increase.
     And what's the latest standing in the Los Angeles/New York trade derby?  At the 7-month marker, it's Los Angeles in the lead at $126.53 billion, with New York in hot pursuit with $125.84 billion.  (Jack Kyser)
 

MTA STRIKE, DAY 17

     Gov. Davis signed into law Senate Bill 1101 guaranteeing the same salaries and benefits for workers who are given the option to work at new transit agencies in case of an MTA breakup.  This action makes the contemplated break up of MTA less appealing by reducing potential labor cost savings.  Unions claim that the passage of this bill would greatly facilitate the negotiation process.  It sounds very much like a self-preservation effort to the rest of us.
     The San Fernando Valley has been pushing for a separate transit agency to serve its residents (similar to San Gabriel Valley's Foothill Transit), and cost savings is not the only factor on their minds.  MTA's reputation for poor service (punctuality, cleanliness, and driver attitude) is also of concern to the riders.  Sadly these things are not part of their negotiations...
     Meanwhile, bus riders are losing their patience.  If you see a car dealership offering special discounts to bus riders, please let us know.  Also if the benefits of a breakup are reduced, some may think seriously about the dreaded "p" word--privatization (full or competitive bidding of public contracts).  (George Huang)
 

DANISH "NO" VOTE MEANS MORE BAD NEWS FOR THE EURO

     Last week, the Danes voted against giving up their currency, the kroner, in favor of the euro by a margin of 53% to 47%.  Even more significant is the very high turnout of 85% of registered voters.  Denmark's rejection of the euro came at a bad time for the fledgling currency which is struggling to win credibility.  It had to be propped up two weeks ago by the intervention of G-7 countries.
     Although Denmark is one of the smaller members of the European Union, 4 million voters, its anti-euro policy has important implications for European integration prospects.  The message of  Danish voters is that they do not want their economy or financial system run by the two dominant countries, Germany and France.  This attitude could also affect the outcome of referenda in the United Kingdom and Sweden which may take place as early as 2002.  In fact, the British Conservative Party (the opposition to Prime Minister Tony Blair) is euphoric about the Danish decision, as they see this issue as critical to winning the next election.  While the euro may be "undervalued" at $0.88/euro, the Danish vote makes its appreciation somewhat more difficult.  (Ken Ackbarali)
 

COMBINING METRO AREAS

     The Metropolitan Area Standards Review Committee has recommended new standards for defining metropolitan areas.  One result would be the proposed merger of the Los Angeles County metro area with the Orange County metro area.  For reasons too numerous to go into, this is a BAD idea.  The nation's statistics gathering agencies are woefully underfunded at a time when the "new economy" is growing rapidly and needs better measurement.  This problem is especially acute in the two counties.  Please send your comments on this proposal to Katherine K. Wallman, Chief Statistician, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10201, New Executive Office Building, 725 17th Street, NW, Washington DC 20503.

QUICK STATS:

* BEA: US Gross Domestic Product for 2Q00 (final): +5.6% annual rate (1Q00: +4.8% a.r.)
* BEA: US implicit GDP deflator for 2Q00 (final): +2.4% (1Q00: +3.3%)
* BEA: US personal income for 8/00: +0.4% (7/00: +0.3%)
* BEA: US personal consumption expenditures for 8/00: +0.6% (7/00: +0.6%)
* Census: US new durable goods orders for 8/00: +2.9% (7/00: -13.1%)
* Census: US durable goods shipments for 8/00: +1.1% (7/00: -2.4%)
* Census: US new construction spending for 8/00: +1.4% (7/00: -1.9%)
* Conference Board: US consumer confidence index for 9/00: 141.9 (8/00: 140.8)
* Conference Board: US help-wanted advertisement index for 8/00: 78 (7/00: 82)
* Natl Assn of Purchasing Mgmt: US Purchasing Managers' Index for manufacturing for 9/00: 49.9% (8/00: 49.5%)

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