The Economic Data Global Express (e-EDGE)

v.5 n.6       Released Feb. 5, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

IT'S OFFICIAL:  U.S. ECONOMY SLOWED LAST QUARTER

     Last week, the Bureau of Economic Analysis released its initial estimate of U.S. economic growth during the 4th quarter, and the news wasn't particularly good, nor was it especially surprising.  Economic growth slowed to just 1.4% last quarter compared to 2.2% during the 3rd quarter and 5.6% in the 2nd quarter.  The 4th quarter pace was the slowest since spring 1995.  [All figures are annual rates and have been adjusted for normal seasonality and inflation.]
     A marked slowdown in demand was evident throughout the report.  Most important, consumer spending for durable goods actually declined last quarter, while spending for nondurable goods (including a variety of typical holiday purchases) barely grew at all.  Business investments in new equipment and software also fell into negative territory.  These had been growing at double-digit rates in the first half of 2000.  Finally, exports dropped during the fourth quarter.  While import growth decelerated, the trade balance sank further.  A few positives were present in the BEA report.  Government spending increased last quarter after declining during the 3rd quarter, and consumer spending for services accelerated from 3.7% to 5.3%.  Residential investment was down by 2.5%, an improvement from the autumn quarter's negative 10.6%.
     Finally, nonfarm inventories increased by $67.1 billion in the 4th quarter, somewhat less than the 3rd quarter increase of $72.5 billion.  In their financial reports, many manufacturers and retailers complained of 4th quarter sales "below plan"; so the increase in inventories was not unexpected.  Nonetheless, stocks of many companies now are likely greater than planned or desired.  Business efforts to reduce those inventories are a primary cause of the current economic slowdown.  The only way to bring stocks down to desired levels is to cut the rate of production below the rate of sales.  The impact of these cuts is already being felt in manufacturing.  [See the NAPM Index article below.]  (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/gdp400a.htm
 

NAPM INDICATOR SIGNALS A SLOWING ECONOMY

     The Purchasing Managers' Index (PMI) compiled by the National Association of Purchasing Management (NAPM) dropped to 41.2% in January, its lowest level since the last recession in 1991.  The PMI has been below 50.0% since August, indicating that the manufacturing sector has been in its own recession for about six months.  As the backlog of orders continued to shrink due to declines in new orders, manufacturers are managing their production schedules, inventories, and resource use (including workers) to reduce excessive inventories.  Manufacturers are also being squeezed by higher input costs, many of which are petroleum- or energy-related.
     Perhaps more importantly for observers, the index fell below the 42.7% breakeven point for the first time in nearly 10 years.  According to NAPM, a PMI level below 42.7% over a period of time usually indicates a contraction in the overall economy.  (George Huang)
PR: http://www.napm.org/NAPMReport/ROB022001.cfm
 

JANUARY LABOR MARKET REPORT: MIXED

     The Bureau of Labor Statistics released its first Employment Situation report for the year 2001 last Friday.  The data presented a somewhat mixed picture of labor market activity.  According to the Bureau's survey of households, the nation's unemployment rate rose to 4.2% in January following two months at 4.0%, and the highest rate since September 1999.  Unemployment rates for all the major worker groups increased last month.  College graduates, whose unemployment rate was 1.6%, were the only group showing no increase.  January's 4.2% rate is still relatively low.  However, more increases are in store in the months ahead if the economy continues to slow.
    Looking at the hiring side of the labor market, the BLS survey revealed that total nonfarm payrolls increased by a greater-than-expected 268,000 workers.  However, the November and December increases were revised down to only 53,000 and 19,000 respectively.  Abnormal seasonal hiring by the Post Office and very cold weather in December accounted for some of the perceived strength in January hiring.  In both cases, employment was actually lower than normal in December and so did not decline as much as usual in January, causing seasonally adjusted employment to increase by a total of 145,000 jobs in the two industries (!).
     Manufacturing payrolls exhibited the expected weakness in January, falling by 65,000 jobs, the 6th consecutive month of decline.  On the upside, service-producing industries registered January's biggest gains, rising by 183,000 jobs, their best performance since last September.  However, job counts at temporary help supply firms, which have been a sturdy engine of growth in past years, declined for the 4th consecutive month.  Manufacturers who want to reduce production are cutting temporary workers, but most are still trying to retain their permanent employees in case sales turn up again soon.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

FED INTEREST RATE CUTS ARE WELCOME--MORE IS NEEDED

     We applaud last week's decision of the Federal Reserve to lower interest rates by another 50 basis points, following up on its surprise action of January 3rd.  Like Oliver Twist, financial markets are asking for more, as evidenced by their muted reaction to the news.  One has to ask why so much gloom and doom have crept into the economy so abruptly.  First, the negative wealth effect resulting from last year's correction in the stock market did severe damage to the confidence and security of over 50% of the nation's households.  Second, retail sales have sagged and softer demand for automobiles and trucks have led to worker layoffs in many supplier industries.  Third, business investment in computer hardware and software has been cut back, as corporate earnings have fallen short of expectations.  Fourth, the higher cost of energy has hit consumer budgets and has constrained spending on other goods and services.
     While it is premature to declare that the U.S. economy has entered a period of recession, we have to be aware that the risk of such an outcome is now higher than it was in the closing months of 2000.  Given this scenario, has the Federal Reserve's recent aggressive policy stance come too late?  The answer depends on whether the Fed is gutsy enough to slash rates by another 100 basis points over the next two months.  This would reverse two-thirds of the rate increases that were imposed in the 1999-2000 and accommodate the lag of 6 to 9 months before lower interest rates begin to impact the real economy.
     Turning around consumer confidence is the Fed's biggest challenge, and this can be partially accomplished by further easing monetary conditions.  Let's hope the Fed is motivated by additional evidence of the economy's slowdown to cut rates again at its next scheduled meeting on March 20th or earlier.  (Ken Ackbarali)
 

TRADE VALUES SOFTEN IN NOVEMBER

     The November 2000 report from the Bureau of the Census on trade values revealed an easing in the pace of growth.  At the Los Angeles Customs District, export values increased by 11.7%, the slowest pace since February 2000.  Import values posted a 10.8% gain, the slowest rate of growth since June of 1999.  The November total two-way trade value for Los Angeles was $19.5 billion, up 8.1% over the year.  Again, this is the slowest growth since June 1999.
     At the San Francisco District, export growth eased to a still solid 33.7% increase.  Imports, however, softened quite notably to an 8.7% gain, the lowest rate since December 1999.  The November two-way trade total for San Francisco was $11.1 billion, up 19.0% over the year.  For 11 months, the total trade value is $116.1 billion, up 23.0% over the comparable 1999 figure.  The San Diego Customs District posted a 7.0% increase in export values in November, while imports were up by 8.2%.  Total trade value for the month was not quite $3 billion, an increase over the year of 7.8%.  For 11 months of 2000, San Diego's trade value is at $32.2 billion, up 17.7%.
     How is Los Angeles doing compared with New York at the 11-month mark of 2000?  Los Angeles' total is $209.5 billion, while New York is at $206.5 billion.  And a note on international trade rankings.  In terms of total containers moved during 2000, Hong Kong is still number one in the world at 17.8 million TEUs, while Singapore's total was just over 17.0 million.  The Los Angeles-Long Beach port complex  checks in at 9.48 million TEUs, handily ahead of Pusan, South Korea's 7.54 million.  (Jack Kyser)
 

NEW HOMEBUILDING MIXED IN DECEMBER--AND IN 2000 TOO

     The Construction Industry Research Board's report for December and the year 2000 continued to point to a mixed residential performance.  Permits issued in December for new housing units were up modestly over December 1999, with the multi-unit sector carrying all the water.  For the year 2000, the total number of units permitted in the state increased by 5.3% to 147,586.  The multi-family count was up 10.5%, while the number of single family units increased by 3.3%.
     While posting a modest 1.6% increase, the Riverside-San Bernardino area led the state in new homebuilding in 2000, with a total of 21,993 units.  The strength was in the multi-family sector.  Los Angeles County ranked 2nd in the state, with a total of 16,944 units, up 17.8% over 1999.  A big boost came from multiple units, with a 31.5% gain.  The number of housing permits issued in San Diego County dropped by 3.0% in 2000, but the 15,932 unit total was still good for a third place ranking.  Orange County posted a 5.7% increase in housing permits to a relatively modest total of 9,618 units.  Ventura County experienced a 10.6% decline in housing permits  to 3,971 units in 2000.
     In the Bay Area, the San Francisco metropolitan area posted  a 12.2% gain in permits, to a total of 6,115 units last year.  The Oakland area saw a 5.7% increase to 9,618 units.  However, the San Jose area was flat, gaining just  0.5% to 7,044 units.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION IN 2000 MIXED TAMBIEN

     The Research Board also reported on nonresidential construction in 2000, and the performance by segment and by region was uneven.  In Los Angeles County, industrial permit valuations eased down by 0.4% to $359.6 million, while office permits slipped by 31.5% to $269,358.  However, retail permits increased by 9.4% to $446.2 million (providing more space in which stores might fail -- when will they learn?).  In Orange County, industrial permit values in 2000 were down 33.5%, but the office sector jumped 19.7% to $345.4 million.  Retail was almost flat, up just 1.9% to $221.1 million.
     The Riverside-San Bernardino area set a sizzling pace in 2000, with industrial permit values up 13.5% to a stout $503.2 million.  The retail sector posted a 27.0% advance to $445.6 million, while office rose 16.6% to a modest total of $46.4 million.  In San Diego County, new industrial activity declined by 14.7% to $165.0 million, while office values skidded 31.0% to $153.6 million.  However, retail permit values moved up 17.9% to $176.2 million.  In Ventura County in 2000, industrial permit values dropped 27.9%, while retail dipped 77.0%.  However, the office sector posted a 140.1% increase to $32.1 million (working off a small base).
     Activity in 2000 in the 9-county Bay Area was also mixed.  Industrial permit values moved up 2.3% to $566.5 million, with the bulk of the activity ($310.0 million) in San Jose.  Office permit values soared 212.9% to $1.9 billion, with big increases in both the San Francisco and San Jose areas.  Retail permit activity, however, eased by 10.2% to a comparatively modest $367.8 million.  (Jack Kyser)
 

AIRPORT TRAFFIC CLOSES OUT 2000 ON A MIXED NOTE

     Passenger traffic at LAX in December advanced 4.3% over the year, fueled by a 15.3% gain in international activity.  LAX handled 67.6 million passengers in 2000, up 5.2% over 1999.  International traffic was up 9.9% to nearly 17.4 million.  At Ontario International (ONT), December traffic was up 3.6% over the year.  ONT handled nearly 6.8 million passengers in 2000, an increase of 2.7%.  At John Wayne Orange County Airport, December traffic was down 3.2% over the year.  However, total traffic in 2000 was up 4.0% to nearly 7.8 million passengers.  At Palm Springs, December traffic dipped 3.0%, continuing a trend that emerged in June 2000.  December data for Burbank-Glendale-Pasadena is not yet available.
     On the air cargo front, both LAX and ONT posted declines in December, of 8.3% and 8.8%, respectively.  For the year 2000, air cargo activity at LAX was up 5.2% to over 2.2 million tons, while ONT recorded a 4.5% gain to 510,721 tons.   International air cargo flows at LAX continued soft in December.  Import tonnage was down 5.6% over the year, while exports were off 8.4%.  For all of 2000, LAX saw international air cargo traffic advance 8.0% to just over one million tons.  (Jack Kyser)
 

JANUARY FILM LOCATION PRODUCTION DAYS

     The film industry was in a production frenzy during January, with location (off-sound stage) production days up 38.7% over the year.  The January count of 2,974 days was also up over December, 2000's total of 2,391.   The big jump last month came in features, up 107.8% over the year, and up 32.9% over December.  Commercial location production days were up 25.0% over the year, and 65.6% from December.  TV activity was up 19.1% over the year, but down by 2.7% from December.   In the meantime, discussions between the studios and the writers and actors continue, but the mood is indecipherable.  (Jack Kyser)
 

QUICK STATS:

* BLS: US unemployment rate for 1/01: 4.2% (12/00: 4.0%)
* BLS: US nonfarm employment for 1/01: +268,000 (12/00: +19,000)
* BEA: US Gross Domestic Product (advance estimate) for 4Q00: +1.4% (3Q00: +2.2%)
* BEA: US implicit GDP deflator (adv. est.) for 4Q00: +2.1% (3Q00: +1.6%)
* BEA: US personal income for 12/00: +0.4% (11/00: +0.2%)
* BEA: US personal consumption expenditure for 12/00: +0.3% (11/00: +0.3%)
* BEA: US personal savings rate for 12/00: -0.8% (11/00: -0.9%)
* Census: US new home sales for 12/00: +13.3% (11/00: -0.7%)
* Census: US construction spending for 12/00: +0.6% (11/00: %)
* Census: US new factory orders for 12/00: +1.1% (11/00: +1.9%)
* Census: US factory shipments for 12/00: -0.2% (11/00: -0.5%)
* Census: US unfilled factory orders for 12/00: +1.6% (11/00: +0.8%)
* Census: US factory inventories for 12/00: +0.0% (11/00: +0.2%)
* Conference Board: US Consumer Confidence Index for 1/01: 114.4 (12/00: 128.6%)
* Dept. of Agriculture: US agricultural prices for 1/01: -2.0% (12/00: +0.0%)
* Natl Assn of Purchasing Mgmt: US Purchasing Managers' Index for 1/01: 41.2% (12/00: 44.3%)

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