The Economic Data Global Express (e-EDGE)

v.5 n.2       Released Jan. 8, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FED SURPRISE RATE CUT HELPS--BUT WHAT'S NEXT?

     Did economic conditions and the outlook change that much between December 19, 2000, when the FOMC last met and decided to keep interest rates unchanged, and January 3, 2001, when the Fed boldly cut the Fed Funds Rate by 50 basis points?  The situation deteriorated more than expected in the following areas: consumer confidence as measured by the Conference Board, the National Purchasing Managers' Index, stress in bank credit quality, announcements of worker layoffs, and the negative wealth effect of a falling stock market.  In this environment we are fortunate to have a Federal Reserve chief who cares more about doing what's best for the nation's economy than protecting his personal reputation.  In short, Greenspan should be applauded for having the courage to act on his convictions and worrying less about being accusations of waiting too long to ease monetary policy.
     Financial markets are already anticipating a follow-up cut in interest rates at the scheduled January 30-31 meeting of the FOMCand this is quite likely to occur.  What happens beyond this action will depend not only on the economic data that documents the degree of slowing in the national economy but also on the likelihood of a an early tax cut.  If  the Fed sees an early tax cut in the cards and one that would be simulative to economic growth, its interest rate cuts would be less aggressive.  On the other hand, if the tea leaves signal a modest tax cut late in 2001 and a modest one, then the Fed's burden to stimulate the economy becomes heavier.
     So, we anticipate the Fed Funds Rate to fall from today's 6.00% to a range of 5.50% to 5.00% during the first half of 2001. A recession or hard landing can still be avoided.  (Ken Ackbarali)
 

U.S. LABOR MARKETS:  SLOWDOWN UNDER WAY

     The Bureau of Labor Statistics released its final Employment Situation report for the year 2000 last Friday.  In general, the data indicated the supply of labor in this country is still very tight while demand for labor is weakening somewhat.  According to the Bureau's survey of households, the nation's unemployment rate was 4.0% in December, level with November's 4.0% and just below the 4.1% registered in December 1999.  The national jobless rate has zigged and zagged up and down in the same low, narrow band (3.9% to 4.1%) ever since October 1998.
     Little month-to-month variation was visible in December for the major worker groups, except for workers of Hispanic origin whose unemployment rate fell by 0.3 percentage points to 5.7%.
     Looking at the hiring side of the labor market, the BLS survey revealed that total nonfarm payrolls increased by only 105,000 workers in December, up slightly from monthly increases of 59,000 workers in November and 66,000 workers in October.  Hiring by the private sector has accounted for all of the new jobs created over the past several months, as government hiring has been negligible.  However, the pace of private job creation declined to a monthly average of 84,000 net new jobs in the fourth quarter, only one-half as the average of 167,000 new positions created during the first nine months of 2000.  Manufacturing payrolls exhibited the most weakness in December, declining by 62,000 jobs.  This drop was not unexpected given the auto industry's recent sales troubles.  Reduced vehicle assembly schedules for the first quarter mean that job counts at the Big Three and their suppliers will decline some more.  On the upside, service industries produced December's biggest gains, rising by 81,000 jobs.  However, job counts at business services firms, which have been a sturdy engine of growth in past years, declined for the 3rd consecutive month.  Employment at "personnel supply houses" led the dropoff.  This decline reflects reduced use of temporary workers by manufacturers who want to reduce production but still hope to retain their permanent employees until sales turn up again.
     Some other findings of December's payroll survey suggest that future reports on the U.S. economy for December and beyond may prove worrisome.  (1) The Bureau's measures of labor input, "aggregate hours of production," registered declines in December.  Total manufacturing hours dropped by 2.4%, suggesting that manufacturing output probably declined last month.  And the 0.7% decline in aggregate hours worked in all nonfarm industries means that growth in wages and salaries, the largest component of personal income, also was weak.  (2) Average hourly earnings of private nonfarm workers rose by 5 cents in December.  This increase sounds pretty innocuous, but it pushed the year-to-year gain up to 4.2%, the highest such increase since July 1998, and raises concerns about the impact of rising labor costs in a slowing economy.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

NEW HOMEBUILDING CONTINUES TO LAG

     New homebuilding in California continues to disappoint.  According to the Construction Industry Research Board, the total number of permits issued in November was up modestly over the year, and the year-to-date total is running just 5.0% ahead of the like 1999 period.  This points to a permit total for the year of 144,900 units, nowhere enough to meet demand.
     In Los Angeles County, the 11-month total was up by 20.3% over the like 1999 period, with the multiple unit sector running 33.4% ahead.  Orange County's 11-month total was up a modest 2.0%, with the most strength again in the multiple sector.  The Riverside-San Bernardino area's 11-month count was ahead a miniscule 0.9%, but at 20,130 units it still leads the state.  San Diego County continued to lag, down 6.0% from 1999.  Ventura County was up just 1.3% over the year.
     In the Bay Area, the San Francisco metropolitan area's 11-month housing unit total was up by 21.4%, with the multiple sector providing the punch.  San Jose's 11-month total, however, lagged, off by 3.1%.  And the Oakland area was ahead a modest 1.5%.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION MIXED IN NOVEMBER

     The Construction Industry Research Board's November report pointed to some interesting shifts in development activity.  In Los Angeles County, the 11-month total for new industrial permit valuations was ahead of last year by a modest 4.4%.  New office permit valuations were still running behind by 33.3%, but retail was up 12.9%.  The pending shut-down of Wards puts an interesting spin on this sector, especially for a Wards location in a regional mall.  Existing anchor stores have veto rights, so it will be very hard to find a large replacement.
     In Orange County industrial permits were off 34.1%, while office valuations were up by 30.2% and retail 7.7%.  In the Riverside-San Bernardino area, new industrial permit valuations were up 9.6%, but the rate of growth has definitely eased over the year.  The office sector was running ahead of 1999 by 8.0%, again with a shrinkage of the growth rate.  Retail activity was still charging ahead (irrational exuberance?), with an increase of 43.0%.  There are a Ward or two in the Inland Empire as well.  In San Diego County, industrial and office permit valuations continued to lag (-16.5% and 20.9%, respectively) but retail was up 17.2%.  In Ventura County, new office permit valuations for 11 months were up by 140.1%, but the base is small, just $32.1 million so far this year.
     In the 9-county Bay Area, industrial permits for 11 months were down by 6.0%, while retail was off 5.7%.  However, office permit valuations are now up 249.3%, due to the same culprits, San Francisco and San Jose.  (Jack Kyser)
 

TRADE VALUES STRONG IN OCTOBER

     The value of exports and imports through California's three customs districts continued to run at a strong pace in October.  The Los Angeles District saw export values increase by 20.6% over the year, while import values advanced 20.9% to hit a new monthly high of $15.2 billion.  The total value of trade for the month was up by 20.8% to $22.5 billion.
     Growth was even more dramatic at the San Francisco District.  Exports shot ahead 39.0%, while imports increased by 25.2%.  For the month, total trade values increased 31.1% to $11.9 billion.  San Francisco's 10-month total was at $105.0 billion, up by 23.4% over the year.  At the San Diego District, imports were up 14.3%, while export values increased by 15.0%.  Total trade value for October was $$3.2 billion, an increase over the year of 14.7%, and the 10-month total was at $29.2 billion, up by 18.8%.
     And now, the update on the Los Angeles versus New York total trade value race.  The latter's total was at $186.8 billion, while Los Angeles is up to $190.0 billion (this exceeded the like 1999 total by 18.1%).  (Jack Kyser)
 

NOVEMBER AIRPORT TRAFFIC SO-SO

     Total passenger traffic at Los Angeles International in November was up a modest 1.9% in November.  The weakness was in domestic traffic, while international activity was up 6.5% over the year.  At Ontario International, November traffic was up 2.4%.  John Wayne Orange County Airport saw passenger traffic advance 1.6% over the year.  There had been declines in the 3 previous months.  Palm Springs posted a decline of 0.4% for the month, the sixth consecutive month of weak activity.
     On the air cargo front, LAX posted a 2.3% increase over the year, while Ontario was off 19.6% (reflecting the end of service by an air freight firm).  On the international air cargo front at LAX, departure tonnage in November was down 2.4%, while arrivals were off 1.5%.  Total international cargo tonnage was down over the year by 1.9%, yielding two months of weak activity out of the last three.  We watch this indicator because it reflects movement of time-sensitive, high-value shipments, and could be indicative of the mood of business.  (Jack Kyser)
 

LOCATION PRODUCTION DAYS ZOOM IN DECEMBER, BUT DOWN FOR YEAR

     According to the Entertainment Industry Development Corporation (EIDC), location production activity picked up in December, with a 10.7% increase over the year.  The biggest increases came in TV (+20.9%) and features (+10.2%).  While up from November, the number of commercial location days was still 1.6% behind last year.  For the year 2000, the number of location production days was down by 5.7%.  Features were down by 9.9%, but TV climbed 8.2%.  Location production days for commercials dropped 24.6% from 1999 to 2000, reflecting the SAG strike against commercial producers.
     According to the Hollywood Reporter, box office receipts for 2000 were up 3.1% over 1999, a decent revival thanks in part to a Grinch and a Castaway (but don't forget a Titan or the parent from hell).  And the status of labor negotiations?  Still quite iffy.  (Jack Kyser)
 

QUICK STATS:

* Bank of Tokyo-Mitsubishi/Shroders Wertheim: US chain-store sales for 12/00 (% change from 12/99): +0.7% (11/00 from 11/99: +4.0%)
* BEA: US vehicle sales for 12/00: -6.6% to 15.5 mil. seasonally adjusted annual rate (11/00: -1.8% to 16.6mil. s.a.a.r.)
* BLS: US unemployment rate for 12/00: 4.0% (11/00: 4.0%)
* BLS: US nonfarm employment for 12/00: +105,000 (11/00: +59,000)
* Census: US new home sales for 11/00: -2.2% to 909,000 annual units (10/00: -1.1% to 929K a.u.)
* Census: US for construction spending 11/00: -0.6% (10/00: +0.8%)
* Census: US new factory orders for 11/00: +1.7% (10/00: -4.0%)
* Census: US factory shipments for 11/00: -0.4% (10/00: -1.2%)
* Census: US unfilled factory orders for 11/00: +0.6% (10/00: -0.7%)
* Census: US factory inventories for 11/00: +0.5% (10/00: +0.7%)
* Federal Reserve: US consumer credit for 11/00: +10.2% (10/00: +7.5%)
 

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