The Economic Data Global Express (e-EDGE)

v.5 n.13       Released Mar. 26, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FEDERAL BUDGET OUTLOOK:  O.K. SO FAR, BUT . . .

     Last week the Treasury Department released its regular monthly report on federal government outlays and receipts.  The budget ran a deficit of $48.2 billion in February, somewhat worse than expected and below the $41.2 billion deficit of February 2000.  Receipts increased by only 1.7% year over year.  However, February this year had one fewer workday than last year, which reduced receipts by about $3 billion.  Meanwhile, outlays grew by 5.5% compared to last February, led by higher Social Security payments and increases in a variety of other programs.
     The figures for the first five months of fiscal year 2001 (October 2000 through February 2001) give a better picture of underlying budget trends.  Receipts increased by 6.6% during this period, a healthy growth rate, but well below the 10.8% increase registered in fiscal year 2000 (October 1999 through September 2000).  Lower growth in income tax receipts accounted for most of the slowdown in total revenues.  This trend is likely to continue, as the weakening U.S. economy causes employment and profitability growth to ease.  As well, sliding stock prices mean lower taxable capital gains realizations.
     On the spending side, the federal government's October-February outlays rose by 3.2% (or more appropriately, 4.0% adjusted for some salary payments made in late September instead of October 1st).  Three large federal entitlement programs registered significantly faster growth:  Medicaid (up by 10.7%), Social Security (up by 6.9%), and Medicare, which rose by 5.8%.  Growth in Medicare outlays is set to accelerate even more, as higher payments to Medicare providers kicked in beginning March 1st.  On the down side, federal interest payments declined by $3 billion during the first five months of the fiscal year.  The government's interest costs will continue to decline as long as the federal budget is in surplus and the national debt shrinks.  Lower interest rates on newly issued government debt are another factor in reduced interest payments.
     The federal budget surplus for the first five months of fiscal year 2001 came to $25.9 billion, an increase of $25.7 billion from the same period a year ago (the government barely broke even through February last year).  The government estimates the surplus will grow to about $280 billion for the full fiscal year, and so far it's on target.  However, slower growth in revenues and accelerating outlays suggest there is substantial risk the actual surplus will come in below forecast for the first time in several years.  In this regard, April (the personal income tax payment deadline) will be the most important month to watch.  Note also that expected revenues will fall even more if Congress promptly enacts a quick tax cut that takes effect immediately.  (Nancy D. Sidhu)
 

INFLATION A SERIOUS CONCERN IN SAN FRANCISCO; SOMEWHAT LESS IN L.A.

     The U.S. Consumer Price Index (CPI) rose 0.3% in February, after a strong 0.6% increase in January.  Food prices rose by 0.5%.  Energy prices declined by 0.2% after a large 3.9% increase in January.  Excluding food and energy prices, the core CPI rose by 0.3%.  In the past 12 months, the CPI has risen by 3.5%, and February was the 13th consecutive month of  3%+ year-over-year increases.  The core CPI has risen 2.7% in the past 12 months and has been inching up in recent months on a year-over-year basis.  The 2.7% annual increase is the largest since April 1997, right before the Asian economic crisis which ushered in a period of low inflation.  Nowadays, inflationary pressures are mainly coming from non-manufacturing activities such as medical care (+4.7% over a year ago) and shelter (+3.5%).  Manufacturers facing higher energy costs are unable or reluctant to raise prices in the current economic environment.
     Locally, the L.A. area CPI rose by 0.7% last month.  Local CPIs are not seasonally adjusted.  Food prices rose 1.1% and energy prices rose by 2.2%.  The 3.5% increase in gasoline prices was the main headline. The 3.8% increase in apparel prices is likely a seasonal or temporary phenomenon.  For the past 12 months, the L.A. CPI rose by 3.6%.  Over that same period, gasoline prices rose by 13.7% and utility natural gas prices increased by 48.3%.  Expect higher gasoline costs as the summer driving season approaches.  Also there will be another rate increase for electricity for SCE customers.  Energy conservation is now a necessity, not just an advertising slogan or a fad.
     Up north, the San Francisco Bay Area's CPI rose by 2.1% in the past two months.  Over the past 12 months, the CPI has risen by 6.5%, much higher than the national all-city average (+3.5%) and L.A.'s rate (+3.6%).  Energy costs were the main culprit--up 27.6% over the year.  Gasoline prices rose by 12.9%, but that's nothing compared to the 133.8% increase in utility natural gas prices.  Furthermore, shelter costs rose by 9.3% over the year, more than 2.5 times the national rate of 3.5%.  (George Huang)
US PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA PR: http://www.bls.gov/special.requests/sanfrancisco/ro9cpila.htm
Bay Area PR: http://www.bls.gov/special.requests/sanfrancisco/ro9cpisanf.htm
 

RESALE HOUSING MARKET MIXED IN FEBRUARY

     According to the California Association of Realtors, California's resale housing market was a two-faced affair in February.  Unit sales fell 13.3% over the year, but the median price moved ahead 8.1% to $245,560.  Interestingly, the Unsold Inventory Index (the number of months needed to deplete the supply at current sales rates) moved up to 5.1 months, versus 4.3 months a year-ago.  The recent trend has been for this Index to be below the year-ago level.
     Los Angeles County saw the unit sales rate dip 9.4%, while the average price climbed 8.7% to $224,700.  In Orange County, unit sales were off by 12.1%, while the median price moved up by 7.5% to $329,150.  The Riverside-San Bernardino area saw unit sales slide by 6.9%, while the median price was up 6.0% to $141,720.  In San Diego County, unit sales dropped 19.4%, but the median price advanced 16.3% to $285,920.  Ventura County had a matched set of numbers; unit sales down by 6.9%, and the median price up 6.9% to $289,500.
     In the Bay Area, it seems to be reality time, with fewer multiple offers on homes.  The San Francisco area saw unit sales drop by 28.1%, while the median price moved ahead 19.4% to $485,980.  In Santa Clara County, unit sales were down by 33.9%, while the median price was up 15.7% to $555,000.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/mar01-3.html

JANUARY HOTEL BIZ GOOD

     According to PKF Consulting, the hotel occupancy rate in Los Angeles County moved up to 69.9% in January, compared with last year's 66.9% reading.  The average daily room rate increased by 3.5% to $124.77.  No region in the County cracked the 80% occupancy level, with the strongest markets being the South Bay at 79.6% and the Airport at 77.9%.  In Orange County, there was a more dramatic increase in hotel occupancy rates, with a February reading of 64.4% compared with last year's 59.5%.  The average daily room rate also advanced, up a healthy 6.4% to $116.27.  This reflected the opening of Disney's California Adventure and the end of construction disruptions in the Anaheim area.
     According to the PKF data, San Diego County did extremely well in January, with the occupancy rate at 70.4%, compared with 61.9% a year-ago.  And the average daily room rate advanced 9.5% to $136.19.   And one sub-market was over the magic 80% occupancy level, Sports Arena/Old Town at 82.1%  (Jack Kyser)
 

FEBRUARY CONTAINER TRAFFIC SOFT

     A week ago, the Port of Long Beach reported declines in the number of loaded export and import containers handled in February.  The Port of Los Angeles also saw its import container count ease during the month, down over the year by 8.2%.  However, Los Angeles did manage a 4.9% increase in loaded export containers.  For the month, the two ports moved a total of 642,143 TEUs, down 4.5% from last year.  Loaded export containers were down 1.9%, while the import container count was off 10.4%.  Inventory reduction efforts in the U.S. and weakening Asian economies will definitely take the edge off Southern California's international trade industry this year.  (Jack Kyser)
 

FUTURE WATCH: PORTS

     Just about one-third of all inbound and outbound container traffic in the United States moves through San Pedro Bay.  Together the Ports of Los Angeles and Long Beach are the third busiest cargo facility in the world, behind only Singapore and Hong Kong.  The local ports are growing faster than anticipated, which is good for the Southern California economy, yet their growth will pose some serious challenges for the region.
     The long-term trend in container traffic at the ports has been steady growth, though the pace has slowed sharply in recent months.  As recently as 1998, the Alameda Corridor Transportation Authority (ACTA) conservatively forecast year 2000 container traffic of 5.6 million TEU (twenty-foot equivalent units).  The actual total was 9.5 million TEU; no one, including the ports, anticipated that container traffic would grow so fast.  Last year's figure was almost double the number the ports handled just five years earlier.  Today, the ports expect container traffic to double again, or possibly triple, over the next twenty years.
     Enormous strides have been made in moving containers to and from the ports, but much remains to be done.  On-dock rail will help ensure that 40% of the cargo continues to leave the ports on trains.  The Alameda Corridor connecting the ports with the rail yards east of downtown Los Angeles eliminates conflicts between cars, trucks and trains and has the extra capacity to handle a rising number of trains.  Beyond the rail yards, however, similar projects will be needed to keep the trains moving through the San Gabriel Valley and northern Orange County.
     Cargo making its first stop within the five-county region usually leaves the port by truck.  Anyone who has been on the 710 Freeway recently knows that a dedicated car lane may soon be in order.  Consider that a single 6000 TEU ship carries enough containers to create a line of trucks stretching more than 20 miles.  Daily truck trips are anticipated to climb from an estimated 30,000 to more than 50,000 as early as 2006, which will snarl traffic along the freeway, as well as adjacent arterial and surface streets.  For the myriad businesses whose fortunes (and jobs) are tied to the ports, as well as the rest of us affected by train and truck traffic, progress in improving our trade corridors is imperative.  (Gregory Freeman)
 

MINORITY BUSINESS REPORT: HISPANICS

     The Census Bureau released its report of Hispanic-owned business enterprises (part of the 1997 Economic Census).  There were 1.2 million Hispanic-owned businesses in the U.S. in 1997.  Among the states, California topped the list with 336,400, followed by Texas at 240,400 and Florida at 193,900.  Hispanic-owned businesses represented 13.1% of all firms in California.  Locally, LA County topped the nation with 136,678 Hispanic-owned businesses (Miami was second at 120,605).  These firms generated $16 billion in sales.  Of these 136,678 firms, only 16,757 had paid employees but they employed 134,048 workers.  These firms, which were roughly 12% of the total, accounted for 81% of the sales.  Most Hispanic-owned businesses are family-run (with no reported employees) or single-person operations.  Roughly half of the Hispanic-owned businesses in LA County were in services.  The cities in LA County with the largest numbers of Hispanic-owned businesses were: Los Angeles (51,158), Long Beach (4,087), and Glendale (3,151).  In comparison, Orange County had 24,184 Hispanic-owned businesses.  (George Huang)
PR: http://www.census.gov/Press-Release/www/2001/cb01-53.html
 

QUICK STATS:

* BLS: US Consumer Price Index for 2/01: +0.3% (1/01: +0.6%)
* BLS: LA Area Consumer Price Index for 2/01: +0.7% (1/01: +0.4%)
* Census: US new home sales for 2/01: -2.4% to 911,000 annual units (1/01: -5.4% to 933K a.u.)
* Census: US exports for 1/01: +0.5% (12/00: -1.8%)
* Census: US imports for 1/01: +0.4% (12/00: -1.1%)
* Census: US trade deficit for 1/01: $33.3 billion (12/00: $33.2bil.)
* Conference Board: US Index of Leading Economic Indicators for 2/01: -0.2% (1/01: +0.5%)
* Natl Assn of Realtors: US existing home sales for 2/01: -0.4% to 5.18 mil. annual units (1/01: +5.3% to 5.20mil.a.u.)
 

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