The Economic Data Global Express (e-EDGE)

v.5 n.25       Released June 18, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

IN CASE YOU HAVEN'T HEARD: CALIFORNIA IS THE 5TH LARGEST ECONOMY ON EARTH

     That California is the largest State in the Union is no surprise, but being the fifth largest economy on Earth might be a shocker to some.  Due to the weak euro last year, countries using the euro as their official currency saw their GDP shrink after being converted to US$ for comparison.  As a result, both the U.K. and California (if it were a separate country) surpassed France to take the 4th and 5th spots, respectively,  in total output.  The L.A. 5-county area (L.A., Orange, Riverside, San Bernardino, and Ventura Counties) surpassed Spain to become the 10th largest economy on Earth (if it were a separate country).  It's now just slightly smaller than Brazil.  Los Angeles County remained number 16.
     Make no mistake about it, though: California's GDP is estimated to have grown by a stunning 13.6% last year (9.9% after adjusting for inflation).  These rankings are based on currently available data from OECD and DRI, and LAEDC's estimates of the GDP for the State and local areas.  The euro will likely rebound this year and the rankings may change, but let's enjoy our year in the sun while it lasts...  (George Huang)
PR: http://www.laedc.org/pressreleases/PR41.html
Data: http://www.laedc.org/ee-v5n25/GDP-2000.txt (includes estimates for other SoCal counties as well)
* Please note: due to limited staff availability, we cannot answer your questions individually.  Please utilize the press release and the data sheet.  Thank you.
 

INFLATION WORRIES RISE AGAIN IN EUROPE

     The European Central Bank's (ECB) chief economist, Otmar Issing, sounded a worrisome note about inflation in the Euro-zone countries at a press conference last week in Frankfurt.  Mr. Issing indicated that the consumer price index is estimated to rise at an annual rate of 3.4% in May, following an increase of 2.9% in April.  In this context, Mr. Issing hinted that the ECB's current monetary policy is "appropriate", i.e. no more cuts in interest rates in the months ahead.  In fact, this trend calls into question the wisdom of the interest rate cut in May, which many observers viewed as a reluctant reaction of the ECB to financial market pressures.
     One of the dangers facing ECB policymakers is the impact of these bad April and May "headline" inflation numbers on wage trends.  So far this year, moderation in wage demands has helped to restrain price increases, but this could quickly reverse course.  Consequently, the average increase in the consumer price index is likely to be near the upper band of the ECB's 1.8% to 2.8% increase for 2001, and well above the official 2.0% target.  The weak euro has not done much to help the situation in terms of high import prices.
     It is now fairly evident that, with slowdowns in economic growth in the large EU countries and deterioration globally, the overall EU will barely attain the lower band of its June 2001 growth forecast of 2.2% to 2.8% (revised from the ECB's December 2000 forecast of 2.6% to 3.6%).  The likely outcome is an increase in GDP of 2.2% for the year.  This puts the ECB in a very unpleasant and frustrating boxit cannot lower interest rates further for fear of worsening the prospects for inflation and therefore must accept the trade-off of lower economic growth.  Are there object lessons here for the Federal Reserve?  Let's hope central bankers from the U.S. and EU really keep up a running dialogue.  (Ken Ackbarali)
 

INFLATION NUDGES UP

     The U.S. Consumer Price Index (CPI) rose by 0.4% in May, following a 0.3% increase in April.  It was 3.6% above the year-ago level.  Of course, the main culprit in May was the 3.1% increase in energy prices.  Gasoline prices rose by 6.0% last month, and household fuel (heating oil, natural gas, and electricity) prices rose by 0.6%.  Food prices rose by 0.3%.  Excluding food and energy prices, the core CPI rose just 0.1% last month and was 2.5% above the year-ago level.
     Locally, the L.A. area CPI rose by 0.5% last month, following a 0.2% increase in April.  (Local CPI changes are not seasonally adjusted.)  Over the past year, the CPI rose by 3.7% (2.4% if food and energy prices are excluded).  Gasoline prices jumped by 13.9% last month, the fourth consecutive month of large increases.  Gasoline prices were 23.4% higher than the year-ago level.  But gasoline was not the only item scoring big increases.  Shelter costs rose by 0.8% last month.  Natural gas costs rose by 30.5% over the past year.  Electricity prices increased by 8.0% from a year ago as a result of the Emergency Procurement Surcharge (EPS).  (Keep in mind that the May numbers do not include the latest big increases in retail rates.  Get ready for a shocker next month.)  Excluding food and energy prices, the L.A. area core CPI was unchanged last month but was 2.4% higher compared to the year-ago level.  (George Huang)
US PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA PR: http://www.bls.gov/special.requests/sanfrancisco/ro9cpila.htm
 

INVENTORY ADJUSTMENT NOT YET OVER

     The Commerce Department also reported that business inventories barely moved in April, reaching $1,198.9 billion compared to  $1,198.5 billion in March.  Retailers' inventories declined for the 3rd consecutive month in April.  However, stocks of manufacturers and wholesalers both increased.  Firms' efforts to rid themselves of excess inventories are among the primary causes of the current economic slowdown.  Production is falling and won't increase until inventories are back in line with sales.  The monthly inventory report, which comes out later than the others and tends to get very little press coverage, is therefore an important gauge in assessing the near-term economic outlook.
     So is the nation's inventory adjustment process, as the Federal Reserve calls it, over? The quick answer is not yet, though some progress has been made.  The best way to measure such progress is with inventory-to-sales (I-S) ratios, defined as the number of months required to sell out current stocks at the current month's sales rate.  For the whole business sector, the picture is one of slow but steady deterioration over the last eight months of 2000 and the first four months of 2001.  The April 2001 I-S ratio was 1.44, a little higher than December's 1.42, which in turn was up from 1.39 in April 2000.  However, retailers are pretty much over the hump:  their I-S ratio increased from 1.57 last April to 1.62 in December before falling back to 1.57 in April 2001.  Meanwhile, the wholesale sector I-S ratio edged up from 1.29 last April to 1.30 in December to 1.31 in April 2001.
     Manufacturing is the problem sector.  A year ago, manufacturers' stocks represented only 1.32 months of sales.  By December that figure had increased to 1.36 months and was up to 1.42 months in April 2001.  Within manufacturing, the automotive situation appears to be improving gradually.  But the jury is still out on high tech manufacturing, adding uncertainty to California's economic outlook.  (Nancy D. Sidhu)
PR: http://www.census.gov/mtis/www/current.html
 

RETAIL SALES ROSE -- BARELY -- IN MAY

     The Commerce Department reported that U.S. retail sales edged up by 0.1% in May, considerably less than their1.4% increase in April but better than March's 0.4% decline.  Motor vehicle sales contributed to this volatile pattern, as May auto sales fell by 0.7% after surging by 2.3% in April and dropping by 0.7% in March.  However, retail sales excluding automotive retained the same basic pattern:  down by 0.3% in March, up by 1.1% in April, and up by 0.3% in May.
     Several major retail sectors beside motor vehicles saw declining month-to-month sales in May. Chain store sales were the weakest, dropping by 1.5% last month.  Sales of clothing & accessory stores fell by 1.0%, while building materials & garden supply centers saw a decline of 0.6%.  On the plus side, sales of sporting goods, hobby, book & music stores, a new category, advanced by 1.5% while gasoline dealers saw their revenues rise by 1.4% (due mostly to price increases). Strong home sales were reflected in a 1.2% increase at furniture & home furnishings stores.  In addition, sales at health & personal care stores rose by 1.1%, while restaurant & bar sales were up by 0.6%.  Finally, sales of nonstore retailers rose by 0.5%.  This new category includes online retailers and catalog houses and will certainly be interesting to track in the future.
     Retail sales comprise about one-third of the nation's GDP (in nominal dollar terms).  Their performance in April & May suggests total consumer spending in the second quarter should grow at least as much as in the first quarter.  U.S. consumers are certainly doing their best to keep the economy out of recession.  Now if only the rest of the players would cooperate!  (Nancy D. Sidhu)
PR: http://www.census.gov/svsd/www/retail.html
 

CALIFORNIA'S Q1 2001 RETAIL SALES WEAK

     The State Board of Equalization has just released their estimate of 1st quarter 2001 taxable retail sales, which at 2.5% over the year represents a sharp slowdown in activity.  For the first 3 quarters of 2000, the year-to-year increases were at double-digit rates, with the 4th quarter easing down to an estimated 6.1% gain.  California consumers have evidently pulled in their horns, even though there have been solid gains in nonfarm employment in 2001.  Or is it terminal boredom with what the stores are offering?   (Jack Kyser)
 

OFFICE AND INDUSTRIAL VACANCY RATES PUSH UP IN Q 1

     Data from the Real Estate Research Council of Southern California indicate a throttling back in the region's nonresidential real estate market in the 1st quarter of 2001.  In the office sector, Los Angeles County saw overall office rates inch up to 12.9% from the previous quarter's 12.2%.  The biggest jump came in the South Bay, up to 12.6% from the previous quarter's 10.9%.  The San Fernando Valley saw office vacancy rates move up from 10.1% to 12.1% in the 1st quarter of 2001.  And there is a definite upward trend in the West LA. market, which now is at 8.8%, compared with a recent low of 5.8% in the 2nd quarter of 2000.  Elsewhere around Southern California, Orange County's office vacancy rate advanced to 10.5% from 8.3% in the previous quarter, while Ventura County went from 7.4% to 8.1%.  However, the office vacancy rate in San Diego County inched down to 4.0% from 4.1%, while the Riverside-San Bernardino area saw rates move down from 13.0% to 12.3%.
     In the industrial real estate market, trends during the 1st quarter of 2001 were more mixed.  In Los Angeles County, the vacancy rate moved up from 3.3% in the 4th quarter 2000 to a still low 4.0%.  The San Fernando Valley held steady at 4.1%, but there were increases elsewhere around the County.  Central L.A. moved from 3.3% to 4.0%, Mid-cities went from 5.4% to 5.7%, the South Bay from 3.6% to 4.0%, while the biggest jump came in the San Gabriel Valley, from 2.8% to 4.0%.  Ironically, the largest amount of new space is being developed in the South Bay.  Elsewhere in Southern California, the Inland Empire's industrial vacancy rate increased, from 7.7% to 8.2%, while Ventura County recorded an increase from 6.2% to 7.5%.  However, Orange County's industrial vacancy rate inched down from 6.1% to 5.9%, as did San Diego County's, from 7.3% to 7.0%.  (Jack Kyser)
 

CONTAINER TRAFFIC -- NOT SO HOT IN MAY

     The May container numbers at the 2 local ports were not too hot.  The number of loaded export containers fell over the year at both Long Beach (-10.0%) and Los Angeles (-0.5%).  And May is the 7th month in a row of declines in the number of export containers moved out of local ports.  On the loaded import container front, Long Beach posted another decline (-17.0%), but Los Angeles posted a 7.0% increase over the year.  The total number of containers handled during May at the 2 local ports dropped by 5.8% from last year to 767,583.  Is it the inventory correction, or the tech crash, or a combination of both?  Yes, yes, yes.  (Jack Kyser)
 

KYOTO PACT: DO YOU REALLY, REALLY SUPPORT IT?

     There's much fuss about President Bush's declaration that the U.S. will not support the Kyoto Pact to cut U.S. greenhouse gas emission to 1990 levels.  Europeans are up in arms over his statement.  Is President Bush standing up for the American interests or being a puppet of big energy companies?
     When the Kyoto Pact was negotiated in 1997, President Clinton said he supported it but never sent it to the Senate for ratification.  Nevertheless, the Senate on its own unanimously rejected the treaty in a symbolic vote.  Europeans claim they support the Kyoto Pact.  Yet not one European nation has ratified the treaty.  The host country, Japan, hasn't either.  In fact, no major industrialized countries has ratified the treaty.  If the Kyoto Pact were truly highly desirable, why hasn't any of the big boys signed up?  Could it be that President Bush's concern of excessive costs to be true?!
     Do you support the Kyoto Pact?  If you have complained about the electricity price hikes and high gasoline prices and not changed your living habits significantly, you probably don't really support the Kyoto Pact.  Even environmentally conscious California is now trying to escape the oxygen requirement for gasoline because it would add additional costs to gas prices.  California also has tried to get price caps imposed on electricity prices.  When it hurts our wallet, our ideologies seem to be the first lamb to be sacrificed.  (George Huang)
Wash Post article: http://www.washingtonpost.com/wp-srv/aponline/20010614/aponline184440_000.htm
 

TAX REFUNDS: COMING TO A MAILBOX NEAR YOU...

     The IRS will start issuing retroactive tax refunds in mid-July.  The exact date of mailing is based on the last two digits of the primary filer's Social Security number.  The tax refund is the result of the new lower tax bracket (10% for the first $6,000 of taxable income).  Most married couples filing jointly will get $600; heads of household, $500; and single taxpayers, $300.  In additional to their rebate checks, taxpayers in tax brackets above 15% will see their payroll tax withholding decrease starting in July.  Uncle Sam hopes that you'll spend the refund and help boost the economy.  (George Huang)
IRS PR & dates for mailing: http://www.irs.gov/ind_info/apinfo/index.html
 
 

QUICK STATS:

* BLS: US Producer Price Index for finished goods for 5/01: +0.1% (4/01: +0.3%)
* BLS: US Producer Price Index for intermediate goods for 5/01: +0.1% (4/01: -0.2%)
* BLS: US Producer Price Index for crude goods for 5/01: -2.3% (4/01: +0.9%)
* BLS: US Consumer Price Index for 5/01: +0.4% (4/01: +0.3%)
* BLS: LA Area Consumer Price Index for 5/01: +0.5% (4/01: +0.2%)
* BLS: US export prices for 5/01: -0.3% (4/01: -0.1%)
* BLS: US import prices for 5/01: +0.3% (4/01: -0.6%)
* Federal Reserve: US industrial production for 5/01: -0.8% (4/01: -0.6%)
* Federal Reserve: US industrial capacity utilization for 5/01: 77.4% (4/01: 78.2%)
* Census: US business sales for 4/01: -0.5% (3/01: -0.6%)
* Census: US business inventories for 4/01: +0.0% (3/01: -0.4%)
* Census: US retail sales for 5/01: +0.1% (4/01: +1.4%)

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