The Economic Data Global Express (e-EDGE)

v.5 n.29       Released July 16, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

STATE/LOCAL UNEMPLOYMENT RATES ROSE IN JUNE

     California's unemployment rate rose to 5.1% in June from 4.9% in both May and April.  Joblessness in the state was equal to the 5.1% rate of June 2000.  By way of comparison, the national unemployment rate has risen from 4.0% in June 2000 to 4.5% over the past year.  (These figures are all adjusted for normal seasonal variation.)
     Jobless rates at the county level are not seasonally adjusted.  State and local level unemployment rates normally rise in June, and this year was no exception.  However, except for Orange County, all Southern California county jobless rates were still below their levels of June 2000.  Here are the details:  Los Angeles County's unemployment rate rose to 5.3% from 4.9% in May.  June's rate was down by 0.1 percentage points from June 2000.  Orange County's jobless rate was 3.0% last month, 0.4 percentage point above May and 0.2 percentage points above last year's rate.  Riverside County's 5.0% unemployment rate was well above May's 4.3% but was still 0.7 percentage points below June 2000.  San Bernardino and Ventura counties' jobless rates, at 5.1% and 4.1% respectively, also were 0.7 percentage points above their May level.  The former was still 0.5 percentage points below last year, while Ventura was still down by 0.3 percentage points.  Finally, San Diego's unemployment rate was 3.2% last month, compared to 2.8% in May and 3.4% in June 2000.
     The Bay Area continued to struggle with rising joblessness in June.  The 8-county area's combined unemployment rate reached 3.9% last month, up from 3.2% in May and a full 1.1% above June 2000.  (During the same period the 5-county Los Angeles area still registered a small decline in joblessness, from 4.9% last year to 4.8% in June.)  The unemployment rate in tech-heavy San Jose registered the biggest month-to-month increase, jumping by 0.9 percentage points to 4.2%.  Jobless rates in metropolitan San Francisco (which consists of Marin, San Francisco, and San Mateo counties) and Alameda/Contra Costa counties rose by 0.5 and 0.6 percentage points respectively, to 3.7% and 3.9%.  In the City and County of San Francisco, June's unemployment rate was 5.0%, the highest since July 1996.
     The Sacramento metro area's jobless rate hit 4.0% last month, up from 3.6% in May but still down from 4.5% in June 2000.  Jobless rates rose in much of the Central Valley last month and continued relatively high.  Among the larger counties, San Joaquin County registered a rate of 8.1%.  Most of the other Valley counties had jobless rates in double-digits.  Typical examples include Fresno MSA at 13.1%, Tulare County at 14.3%, Kern County back in double digits at 10.5%, and Imperial County with a 21.4% unemployment rate, highest in the state.  (Nancy D. Sidhu)
PR: http://www.edd.ca.gov/nwsrel07.htm
PR: http://www.calmis.cahwnet.gov/file/lfmonth/cal1$pr.txt
 

NONFARM EMPLOYMENT UP IN JUNE

     While California's unemployment rate did go up in June, the state still managed to add jobs, both over the month and year.  However, the latter increase was 1.8% or 258,100, one of the smallest in quite some time.  Job losses in the manufacturing sector picked up momentum (-32,400 over the year), while service sector employment growth continued its rather dramatic slowing.  The culprit here was business services, which includes computer programming and temporary help firms.  Both sectors have been noticeably weaker this year.
     This trend of slower nonfarm job growth was also evident around Southern California.  Los Angeles County posted a 1.3% or 54,100 year/year job increase in June, with job losses picking up in manufacturing (-12,400).  Aerospace employment was down by 4,900 jobs and apparel/textiles was off 3,800.  Service employment growth eased noticeably, with just a 26,800 job increase over the year.  Business services slumped sharply, while motion picture production was down over the year by 900 jobs.  While the threatened strikes in this industry were averted, we are in a "de facto strike" mode due to the production rush early in the year.
     Nonfarm employment growth in Orange County came in at 2.7% in June or 37,400 jobs.  Its manufacturing sector was still up over the year, but the momentum is easing.  This trend was also evident in business services.  The Riverside-San Bernardino area recorded nonfarm growth of 3.1% or 30,500 jobs.  Job growth in both manufacturing and services continued to ease.  In San Diego County, nonfarm job growth in June came in at 2.8% or 33,600.  The County's manufacturing sector was down modestly over the year, and the service sector eased sharply.  Ventura County registered a 1.2% or 3,400 job gain in June.  Its manufacturing sector has also stalled out, while services posted a modest gain.
     To the north, the San Francisco metro area came in with a 1.7% or 18,600 job growth in June.  Manufacturing (relatively small) was down over the year, while services posted a modest increase.   However, in the San Jose area the picture was not pretty, with total nonfarm employment down by 0.4% or 3,900 jobs over the year.  High-tech manufacturing was off by 700 jobs, while business services were down by 4,500 jobs.  (Jack Kyser)
 

GREENSPAN'S TESTIMONY LIKELY TO SUPPORT ANOTHER RATE CUT

     When Federal Reserve Chairman Greenspan testifies in Congress Wednesday on the central bank's conduct of monetary policy and the outlook for the U.S. economy, the financial community will once again attempt to decipher his "Fedspeak."  This undertaking never gets any easier, but diehard Fed watchers cannot resist the challenge.  So, after six interest rate cuts this year and rising dissent within the Fed over whether enough has been done, what's next?
     We expect the Chairman to underscore the following points to Congress:  (a) weakness in the global economy has worsened since his February testimony and now engulfs EU countries as well as East Asia;  (b) business investment in the U.S. has eroded more than had been expected, and corporate earnings continue to disappoint;  (c) the national economy may drag along the bottom of the downturn for another 6 to 9 months, before momentum picks up enough to achieve GDP growth of 3.0%+;  (d) inflation does not appear to be an imminent threat.
     There could be some surprises on the upside in the economic indicators to be released before the FOMC meets on August 21, but they are not likely to be convincing enough to lessen the Fed's worry about the economy's weakness.  Greenspan's "Fedspeak" this time around will likely be the usual masterful exercise in obfuscation, but breaking the code will show that still another interest rate cut is in the offing.  (Ken Ackbarali)
 

WHOLESALE PRICES DROP

     The US Producer Price Index (PPI) for finished goods declined by 0.4% in June, thanks to a 2.5% drop in energy prices.  Food prices rose by 0.1%.  The finished-goods PPI was 2.5% higher than a year ago.  This was an improvement from January when the PPI was 4.8% higher than the January 2000 level.  The core PPI, which excludes food and energy prices, rose by 0.1%.  The PPI for intermediate goods declined by 0.1% last month and was 1.2% higher than a year ago.  Energy prices declined by 0.1% while food prices rose by 1.3%.  The core PPI for intermediate goods was 0.3% lower than in May.  The PPI for crude goods (i.e. raw materials) dropped by 6.0%, thanks to an 11.9% decline in energy prices, and was 2.2% lower than a year ago.  Natural gas prices dropped by 19.1%, after a 7.2% decline in May.  Coal prices fell by 6.6%, while petroleum prices rose by 1.2%.  Rising inventories and a slowing economy are the main causes of the decline in energy prices.  Over the past six months, crude energy prices have declined by 43.0% on a seasonally adjusted basis, compared to a 56.0% increase between June and December 2000.  The core PPI for crude goods declined by 0.2% since May.
     In LAEDC's report on the electricity crisis, we pointed out that the rise in natural gas prices is one of the causes of the rise in electricity prices.  Recent trends seem to back up our conjecture.  The PPI for natural gas to be delivered to electric utilities began to rise significantly starting in June of 2000 and finally reached its peak in January of this year.  The sudden rise in electricity prices also began in June of 2000.  During those seven-month period, the natural gas price index jumped by 151.7%.  Then natural gas prices for electric utilities started on their downward journey.  By June 2001, the natural gas index was 51.8% below its January 2001 level.  January and February of this year were also the months when we had the spikes in electricity prices.  Those who accuse power generators of price gouging should study the relationship between natural gas prices and electricity generation costs before rushing to judgment.
     How can we explain the skyrocketing electricity prices on certain days during periods of peak electricity demand?  Can the marginal cost of producing electricity truly be that high?  Although natural gas can be stored (in old natural gas or oil fields), the cost is high and storage is not available in many areas in California.  Therefore, power generators end up having to pay high spot market prices for their fuel during times of peak electricity demand when natural gas is also sought by all other gas-fired power plants.  That's how we could theoretically end up with a price quote of $3,900/MW this January.  If members of the two industries can expand the storage capacity of natural gas, this would go a long way in reducing the peak price of natural gas and thus the price of electricity.  The question is, are there economic incentives out there to induce such decisions?  (George Huang)
PR: http://www.bls.gov/news.release/ppi.nr0.htm
 

WEEKLY ENERGY NOTES

  Overcharge Settlement:

     - FERC's settlement negotiations concluded last week without reaching an agreement.  Judge Wagner issued an opinion stating that California is due no more than $1 billion in refunds, and furthermore that this money should be used to offset some of the unpaid power bills the State and ISO owe to the power generators.  Basically, California will get no cash refunds.  The generators' offer of $716 in refunds was rejected by the State.  Gov. Davis has threatened to sue the FERC if California doesn't get the $8.9 billion refund it seeks.

  Supply:

     - Los Medanos Energy Center, a 555-MW power plant, went into operation last Monday.  It's the first power plant built in Northern California since 1965.  Northern California's energy shortage is more severe than in the South due to insufficient transmission capacity on Path 15, which channels surplus power from SoCal up north.
     - Documents released by the Dept. of Water Resources (DWR) show that private energy companies are not always the ones charging the most per unit of electricity.  Gov. Davis has been attacking these private power generators for "ripping off California."  Some of the public entities charging high prices include those in Canada, Sacramento (yes, the State's capitol!), and LADWP.
     - Recent declines in electricity prices have less to do with FERC's actions or California's long-term contracts and more to do with declining natural gas prices.  (See the PPI story above.)

  Demand:

     - Consumers seeking opportunities to save on energy can visit http://www.consumerenergycenter.org/rebate/index.php for a database on available cash rebates.
  Financial:
     - The state Legislature will vote next week on a revised plan to help pay down So. Cal. Edison's $3.5 billion debt, which is needed to prevent insolvency.  Options being discussed include: buying SCE's transmission lines, forcing generators to reduce the amounts they are owed, and shifting some of the burden to large businesses through still higher power rates than others are paying, thus make them pay for a larger portion of the package.  The Governor's agreement with SCE has a Aug. 15 deadline.
  (Compiled by Nancy D. Sidhu and George Huang)
 

COMMENTARY: THE ART OF SHIFTING BLAME

Governor Davis has been blaming everyone but himself for the energy woes, and in the process offended everyone from President Bush to L.A. Mayor James Hahn.  Some power producers are wondering why they should sell to California and be called a criminal when there are plenty of other buyers around who will pay and pay promptly.  This "it's-all-your-fault-not-mine" strategy may be politically expedient (after all, the election is only 16 months away).  However, it is hindering California's ability to buy power and to garner additional backing for its interests.  (George Huang)

 

*** MAJOR ERROR CORRECTION FOR LA STATS ***

     Table D-18 in LA Stats should be Industrial Vacancy Rates and Table D-19 in LA Stats should be Office Vacancy Rates.  We are terribly sorry for the mistake.
 

QUICK STATS:

* BLS: US export prices for 6/01: -0.3% (5/01: -0.2%)
* BLS: US import prices for 6/01: -0.5% (5/01: +0.2%)
* BLS: US Producer Price Index for finished goods for 6/01: +% (5/01: +%)
* Cal EDD: California employment for 6/01: 5.1% (5/01: 4.9%)
* Cal EDD: California nonfarm employment for 6/01: +37,000 (5/01: +52,600)
* Cal EDD: LA County employment for 6/01: 5.4% (5/01: 5.2%)
* Cal EDD: LA County nonfarm employment for 6/01: -4,000 (5/01: +1,600)
* Census: US wholesale trade for 5/01: -0.1% (4/01: +0.1%)
* Census: US wholesale inventories for 5/01: +0.2% (4/01: +0.1%)
* Census: US retail sales for 6/01: +0.2% (5/01: +0.4%)
* Census: US business sales for 5/01: +1.1% (4/01: -0.5%)
* Census: US business inventories for 5/01: +0.0% (4/01: -0.2%)


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