The Economic Data Global Express (e-EDGE)

v.4 n.44       Released Oct. 30, 2000 
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

ANOTHER OPEC OIL SUPPLY HIKE--ANY IMPACT?

     OPEC's President announced today that the cartel will increase oil production by 500,000 barrels per day (bpd) starting on October 31st.  This is the 4th increase this year, in recognition of oil prices soaring above the upper band of OPEC's target, $28/barrrel. In the past week, oil prices in global markets have been close to $32/barrel, a respectable decline from the peak $37/barrel earlier in the year.
     So, are OPEC oil ministers just being "Nice Guys?"  At the risk of showing our cynicism, we believe they are acting "rationally", and in their own self interest by adopting a realistic long-term strategy.  These worldly and sophisticated officials realize that the spike in oil prices this year has raised inflation rates and inflationary expectations around the world and therefore poses a risk to many oil-importing economies.  Significant weakening of the global economy would lead to reduced demand for oil and thus lower oil prices. Consequently, this scenario would go against the interest of OPEC's voracious appetite for revenues from its oil exports.
     The actual impact of this additional oil supply, on top of the previous 800,000 bpd effective October 1st and the U.S. release of oil from the Strategic Petroleum Reserve, will be minimal.  We could see an oil price close to $30/barrel over the next 30 to 60 days and gasoline prices 2 to 3 cents per gallon lower than today.  However, it may be too late to avoid shortages of home heating oil as refineries are already operating at capacity.  Tanker capacity constraints will also limit any decline in gasoline and diesel oil prices this winter.  So, while there may be some improvement in consumer and investor psychology as a result of OPEC's decision, only a small real impact will be felt.  (Ken Ackbarali)
 

ECONOMIC GROWTH SLOWED IN THIRD QUARTER

     The U.S. Bureau of Economic Analysis just reported that Gross Domestic Product (GDP) grew by 2.7% (seasonally adjusted annual rate) during the third quarter.  This rate of economic progress was a good deal lower than previous quarters and the slowest rate of growth since the second quarter of 1999 and, before that, the third quarter of 1996.  Stock and bond traders breathed a collective sigh of relief at the news, believing the Federal Reserve is sure to leave well enough alone and NOT raise interest rates any time soon.   [Optimists think the Fed may even reduce them.]
     Not so fast.  A look beneath the surface uncovers a picture of considerably more complexity.  (1) Personal Consumption Expenditures rose at a 4.5% annual rate last quarter, faster than its 3.1% pace during the second quarter, though below the first quarter's sparkling 7.6% pace.   Consumer spending is the most important part of GDP, accounting for over 2/3s of the total.  (2) On the other hand, business investment spending for new plant and equipment, which had been surging at double-digit rates, grew by only 6.9% during the third quarter, the slowest pace in the past 2 years.  (3) Residential investment in new and remodeled homes declined sharply, reflecting the slowdown in housing construction caused by higher interest and mortgage rates.  (4) Government spending, which usually rises, went down.  (5) And business inventories, which were expected to decline, didn't.  (6) Finally, the negative foreign trade balance (exports minus imports), which was expected to subtract from GDP, had almost no impact one way or the other.  So much for expectations!
     Cutting through the statistical clutter, it looks like the economy is indeed slowing but unlikely to fade out altogether.  Consumer spending is strong, and business investment is still healthy.  These two together provide a firm foundation for the economy near term.  And with unemployment rates so low, the Fed is unlikely to reduce rates any time soon. (Nancy D. Sidhu)
GDP PR: http://www.bea.doc.gov/bea/newsrel/gdp300a.htm
 

SEPTEMBER BUDGET: A ROUSING FINISH TO THE FISCAL YEAR

     The U.S. government's budget registered another big surplus in September, $65.8 billion, compared to the August deficit of $10.4 billion and a surplus of $58.0 billion in September 1999.  Revenues rose by 9.5% year over year, led by surging personal and corporate income tax receipts, while outlays increased by 7.9%.
     September is the final month of the U.S. government's fiscal year; so we now have results for fiscal year 2000.  The annual budget surplus came to $237.0 billion, almost twice the fiscal 1999 surplus of $124.4 billion and over three times the fiscal 1998 surplus of $69.2 billion.  This is the first time in 50 years (!) the government has registered budget surpluses three years in a row.  These surpluses were mostly due to surging income tax revenues brought on by the strong U.S. economy and rising stock market.  Last year alone, government receipts rose by 10.8%, while spending increased by 5.0%.  Among the major categories, spending for Medicaid increased by 9.1%, defense spending rose by 7.6%, and Social Security payments increased by 5.0%.  Meanwhile, interest payments rose by only 2.4% as the national debt declined.
     NOTE:  A 5% rise in spending looks low compared to the double-digit increase in revenues last year but nonetheless warrants attention.  This rate of increase in federal expenditures was the fastest since 1991.  Furthermore, it was faster than inflation.  The huge budget surpluses forecasted for the next decade assume spending growth will stay at or below the inflation rate.  If Congress and the President won't stick to their own budget rules--and this fall's race to add goodies to the fiscal 2001 budget doesn't inspire confidence--there won't be as much available to fund the candidates' plans for higher spending or reduced taxes.  (Nancy D. Sidhu)
 

RESALE HOUSING MARKET BIFURCATED IN SEPTEMBER

     Median price up, sales down.  It sounds like a broken record.  Demand for housing in California remains strong, but the inventory of unsold homes continues to scrape bottom.  According to the California Association of Realtors (CAR), sales of existing homes in the state dropped 0.6% over the year, while the median price rose by 13.4% to $248,020.
     In Los Angeles County, the median price advanced 11.1% to $223,230, while unit sales dropped 5.6% over the year.  In the Riverside-San Bernardino area, prices moved up 4.8% to $140,870, while unit sales dipped 2.6%.  Ventura County saw the median price jump 15.1% to $297,090, while unit sales declined by 2.4%.
     However, there were exceptions to the trend.  Orange County saw its median home price increase by 13.6%, while unit sales surged 10.4% over the year.  In San Diego County, the median price moved up 12.5% to $268,360, while unit sales increased by 1.1%.
     In Northern California, the San Francisco area recorded a 21.5% increase in its median price over the year, while unit sales slipped by 5.1%.  The median price in San Jose advanced 22.2% to $505,000, while unit sales were off just 0.5%.  The hottest resale housing market in the state in September was found in San Luis Obispo County, where the median price surged by 26.2% to a surprisingly lofty $265,710, while unit sales moved ahead 7.1%.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/oct00-4.html
 

AUGUST HOTEL ACTIVITY STRONG

     August, of course, was DNC time, and according to PKF Consulting, the County's hotel occupancy was 81.3%, compared with last year's reading of 78.8%.  More importantly, the average daily room rate jumped by 14.8% to $131.38.  Downtown Los Angeles, however, saw its occupancy rate dip to 62.5% versus 68.9% a year-ago (rooms were blocked for the Convention but not used).  The room rate increased 28.6% to $134.87.  Elsewhere around Los Angeles County, the hotel business was extremely strong.  Valencia's occupancy rate was 94.5%, Santa Monica's was at 92.1% and Marina del Rey came in at 90.6%.  Six areas were over the 80% level, including the South Bay (89.4%), Hollywood (89.3%), LAX (88.2%), the San Fernando Valley (87.7%), the I-5 Corridor/Whittier (82.8%), and Beverly Hills (81.8%).  This type of market is an owner's dream but a manager's nightmare.
     Orange County's hotel industry also enjoyed a booming August, with the overall occupancy rate at 84.9%, compared with 75.7% last year.  The average daily room rate increased 7.8% to $111.56.  All four sub-markets were over the 80% level, with South Orange County leading the parade at 86.8%.  Anaheim was close behind at 85.3%.  (Jack Kyser)
 

AUGUST TRADE VALUES STRONG

     International trade activity measured by dollar value was strong in August.  At the Los Angeles Customs District, export values jumped 24.9% over the year, while imports were up by 17.3%.  Total two-way trade value during the month increased 19.0% to $20.7 billion.  For 8 months, Los Angeles is at $147.3 billion, up over the year by 18.1%.  Activity at the San Francisco district sizzled in August, with export values up 39.5% (high-value electronics items), while import values  moved ahead by 24.9%.  For the month, the San Francisco district's total was up 31.1% to $11.8 billion.  For 8 months, its total is $81.4 billion, an increase of 21.9%.  At the San Diego district, export values during August advanced 27.8%, while imports were up 19.5%.  For the month, San Diego's total was $22.9 billion, up 20.9%.
     And the Los Angeles/New York international trade race?  At the 8-month pole, Los Angeles is ahead with $147.3 billion to the Big Apple's $145.1 billion.  (Jack Kyser)
 

HOLIDAY SHOPPING 2000--START EARLY, FIND DISCOUNTS

     Given some horrific experiences last year, many online consumers are starting their shopping early.  Online retailers have taken notice and some have are holding sales to attract customers and avoid last-minute crunch.  Interestingly, some of the stores you purchased from last year may not be there now, and others may have been acquired by bigger names (e.g., Amazon).  All are struggling to show their investors they can generate positive cash flow.  Thus there are plenty of good deals to entice your business.  Just type in the store name and the words "coupon" or "discount" into a search engine--you may be surprised at what you find.  (George Huang)
 

QUICK STATS:

* BEA: US Gross Domestic Product for 3Q00: +2.7% (2Q00: +5.6%)
* BEA: US implicit GDP deflator for 3Q00: +2.0% (2Q00: +2.4%)
* BEA: US personal income for 9/00: +1.1% (8/00: +0.4%)
* BEA: US personal consumption expenditure for 9/00: +0.8% (8/00: +0.5%)
* BLS: US Employment Cost Index for 9/00: +% from 6/00 (6/00: +% from 3/00)
* Cal Assn of Realtors: California home sales for 9/00: +1.5% to 566,630 seasonally adjusted annual units (8/00: +17.7% to 558,060 s.a.a.u.)
* Cal Assn of Realtors: California median home sale price for 9/00: -2.7% to $248,020 (8/00: +5.1% to $255,580)
* Cal Assn of Realtors: LA County home sales for 9/00: -2.9% (8/00: +24.5%)
* Cal Assn of Realtors: LA County median home sale price for 9/00: -2.6% to $223,230 (8/00: +8.5% to $229,220)
* Census: US new durable goods orders for 9/00: +1.8% (8/00: +3.5%)
* Census: US durable goods shipments for 9/00: +0.2% (8/00: +0.9%)
* Census: US homeownership rate for 3Q00: 67.7% (2Q00: 67.2%)
* Census: US homeowner vacancy rate for 3Q00: 1.6% (2Q00: 1.5%)
* Census: US rental vacancy rate for 3Q00: 8.2% (2Q00: 8.0%)
* Conference Board: US Help-Wanted Advertisement Index for 9/00: 78 (8/00: 77)
* Natl Assn of Realtors: US existing home sales for 9/00: -2.7% to 5.14mil. annual units (8/00: +9.5% to 5.28mil.a.u.)
* Treasury Dept.:  US budget surplus for FY2000:  $237.0 billion (FY1999: $124.4 billion)

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