The Economic Data Global Express (e-EDGE)

v.5 n.1       Released Jan. 2, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

THE ALTERNATE FORECAST--RISKS ARE ON THE DOWNSIDE

     As we enter the New Year, we are less confident than we were one year ago (or six months ago) about the stability and growth of the U.S. and global economies.  While our mainline forecast, released in December 2000, is for slower economic growth in 2001 from the sizzling pace of 2000, we remain alert to the risks that can diminish the outlook.
     The two major risks are (a) a prolonged U.S. stock market crash across all sectors, including the Dow-Jones Industrial Average, NASDAQ, and the S&P 500, and (b) an oil supply shock coming from a significant reduction in production quotas by OPEC.  The former risk would hurt consumer and business confidence causing spending and investment to be cut back.  With virtual 24-hour trading in global markets and closer linkages among stock exchanges across all regions of the world, the spillover effects would be difficult to contain.  The latter risk involves not only oil prices moving up to $40/barrel or higher, but a production cut of such magnitude that oil-importing countries would suffer shortages for an extended period.  Damage to supply-chain logistics and the transportation system would be such that the risk of a recession would be heightened.
     It is too early to tell whether the "bubble" in U.S. equity markets has been sufficiently deflated by higher interest rates and disappointing corporate earnings.  But, a real boost to investor confidence can be achieved by reductions in interest rates early in 2001, and hopefully, the Federal Reserve will deliver just such a dose of stimulus.  As to the oil supply situation, like it or not, the U.S. cannot influence the outcome.  We can only hope that the OPEC ministers will realize that it is in their best long-term interest to avoid "siege warfare" which eventually results in a lose-lose situation for oil exporters and importers alike. (Ken Ackbarali)
 

Y2K ENDS WITH SOME DISAPPOINTING NEWS

     The last few economic releases pointed to a slowing economy.  The Index of Leading Economic Indictors for November declined by 0.2%, the fifth decline in six months.  The Consumer Confidence Index fell from 132.6 in November to 128.3 in December, its lowest level in the year 2000.  Consumers are becoming less optimistic about the future and may adjust their spending habits according to their expectations.  Already sales of cars and light trucks are down, and firms in other consumer durable goods industries are worried--more bad news for businesses which are already fighting higher energy costs.  The Help-Wanted Advertising Index declined from 79 in October to 75 in November.  All these indicators are compiled by the Conference Board.
     The very first economic news release for 2001 simply followed the trend.  The Purchasing Managers' Index (PMI) from the National Association of Purchasing Management declined from 47.7% in November to 43.7% in December, the lowest level since April, 1991 (yes, at the bottom of last recession)  Manufacturers clearly are reducing orders and production to avoid getting caught with unnecessary inventories if their order books don't turn up soon.  (George Huang)
LEI PR: http://www.conference-board.org/search/dpress.cfm?pressid=LEI1200a
CCI PR: http://www.conference-board.org/search/dpress.cfm?pressid=4610
HWAI PR: http://www.conference-board.org/search/dpress.cfm?pressid=hw1200
NAPM PR: http://www.napm.org/NAPMReport/ROB012001.cfm
 

FRIDAY WAS A BUSY DAY IN BANKRUPTCY COURT

     What's going on?  Two large, well-known companies placed themselves into Chapter 11 bankruptcy on Friday.  LTV Corporation, the third largest steel producer in the U.S. with 18,000 employees, blamed the weakening economy and low prices caused by pressures from cheap foreign-made steel.  Montgomery Ward, which used to be second only to Sears Roebuck but now is mostly an also-ran with 25,000 employees, blamed weak holiday sales and a tough retail environment.  The firms took this action to shield themselves from their creditors so they can continue operating while they devise a plan to pay off their debts (LTV) or conduct an orderly closure of their business (Wards).  This is the second experience with bankruptcy for both companies.  LTV emerged from Chapter 11 status in 1993 but hasn't earned a profit since 1997.  Ward's came out of Chapter 11 in 1999 as a privately held company owned by GE Capital Services, the financial services arm of General Electric Corporation.
     The two companies and the industries in which they operate are vastly different.  But the fundamental problems each encountered, and failed to solve, were not.  (1) Competition, from foreign and domestic rivals, has intensified in a number of industries.  The world steel industry is widely acknowledged to have excess capacity, and the U.S. market is especially attractive because it is so large and open to most non-U.S. producers.  The number of retail chains serving U.S. consumers also has grown, and the middle price range is particularly congested.  (2) Such strong industry rivalry puts unremitting downward pressure on every competitor's top line, the ultimate source of cash flow and profitability.  LTV has reported declines in both its sales volumes and prices compared to last year.  Ward has not reported December sales, but they likely were down as well.  (3) The near-term outlook is for more of the same, possibly worse, because the U.S. economy is decelerating.  LTV's sales to domestic automakers are set to fall in line with their production schedules.  In addition, the first quarter is normally slow for retailers like Montgomery Ward.  (4) Unfortunately, now is not a good time to need money desperately.  Across the U.S., banks and nonfinancial lenders report that nonperforming loans (not paying interest or repaying principal on a current basis) are a growing problem.  With regulators breathing down their necks, lenders these days are much less patient and simply won't "throw good money after bad" if they can avoid it.
     LTV hopes to figure out a way to survive, but Montgomery Ward's statements are final.  Expect to see competitors, perhaps Sears or Kohl's or Best Buy, take over Ward's best mall locations.  We don't think the overall economy will turn down in 2001.  However, these fundamental problems at the industry level won't disappear any time soon.  You might see other well-known firms paying a visit to Bankruptcy Court.  (Nancy D. Sidhu)
 

RESALE HOUSING STRONG IN NOVEMBER

     According to the California Association of Realtors (CAR), the state's resale housing market turned in a strong performance in November.  Unit sales were up both over the year and from the previous month.  The median price advanced over the year by 15.2% to $251,760.  The supply of homes available for sale stood at only 3.5 months.  The CAR points out that 10 to 12 months of supply is normal.
     Los Angeles County saw unit sales increase by 1.1% over the year, while the median price advanced 13.2% to $228,800.  Orange County saw unit sales jump 16.7%, while the median price moved ahead 12.4% to $322,670.  The Riverside-San Bernardino area posted a 13.7% gain over the year in unit sales, while the median price moved ahead by 10.7% to $145,180.  San Diego County posted an 8.5% increase in unit sales, while the median price jumped 18.6% to $280,490.  No data was available for Ventura County.
     In the Bay Area, November resale trends were mixed.  In "San Francisco Bay," unit sales dropped from both the previous month and over the year, the latter decreasing by 9.8%.  However, the median price shot up by 29.6% to $477,360.  It was almost a carbon copy in Santa Clara, with unit sales off over the year by 7.4%, while the median price jumped 30.7% to a state-leading $550,000.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/dec00-3.html
 

TAXABLE SALES ESTIMATES

     The State Board of Equalization has just released its estimate for total taxable sales in California during the 3rd quarter of 2000.  The increase over the year was placed at 10.3%, following increases of 11.9% in the 2nd quarter and 14.6% in 2000's first quarter.  This can only be called a blistering pace.  The question is what happened in the 4th quarter?  We will have to wait about 3 months for the estimate, but anecdotal evidence points to an easing to a single-digit gain.  (Jack Kyser)
 

PRELIMINARY CENSUS 2000 DATA RELEASED

     The Census Bureau released the preliminary state-level population data from the April 2000 decennial Census, which determines the Congressional apportionment for the new decade.  California will gain one additional House seat.  California's population increased by 13.8% (4.1 million) to 33.9 million.  The only state that came close to matching California's numerical gain is Texas, which grew by 3.9 million and will gain 2 House seats.  Five Southwest/Mountain states scored the largest percentage increases: Nevada (+66.3%), Arizona (+40.0%), Colorado (+30.6%), Utah (+29.6%), and Idaho (+28.5%).  No wonder they can't sell us their surplus electricity as before...  (Jack Kyser)
PR & data: http://www.census.gov/population/www/cen2000/respop.html#t2
 

QUICK STATS:

* Cal Assn of Realtors: California home sales for 11/00: +2.8% to  563,800 seasonally adj. annual rate (10/00: -3.2% to 548,230 s.a.a.r.)
* Cal Assn of Realtors: California median home sale price for 11/00: -0.4% to $251,760 (10/00: +2.1% to $252,510)
* Cal Assn of Realtors: LA County home sales for 11/00: +1.1% (10/00: -18.9%)
* Cal Assn of Realtors: LA County median home sale price for 11/00: +4.1% to $228,800 (10/00: -1.5% to $219,830)
* Conference Board: US index of Leading Economic Indicators for 11/00: -0.2% (10/00: -0.3%)
* Conference Board: US Consumer Confidence Index for 12/00: 128.3 (11/00: 132.6)
* Conference Board: US Help-Wanted Advertising Index for 11/00:  75 (10/00: 79)
* Natl Assn of Purchasing Mgmt: US Purchasing Managers' Index for 12/00: 43.7% (11/00: 47.7%)
 

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