The Economic Data Global Express (e-EDGE)

v.5 n.30       Released July 23, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

IN THE AFTERMATH OF THE G8 SUMMIT, DO WE FEEL ANY BETTER?

     The short answer is: "Not Really."  The headlines coming from Genoa, Italy, covering the G8 meeting last week focused on the protesters in the streets bent on disrupting the proceedings.  Their causes included anti-globalization, the environment, human rights, and the gap between rich and poor countries.  Now that the circus-like atmosphere of the G8 talks is behind us, very few observers can take comfort in a stronger and more stable global economy.
     - The Locomotive:  The United States once again is being relied on to recover from its economic slump as quickly as possible and to resume its "locomotive" role of pulling Europe and Japan out of their chronic malaise.  This is not an unreasonable expectation, except for the timing.  More time (another 9 months?) is needed before the imbalances in the U.S. economy can be worked out and stimulative fiscal and monetary policies begin to take effect.  In the interim, no one knows for sure how much pain and suffering will strike the global economy or exactly where.
     - Poor Countries:  Debt relief for poor countries, discussed at G8 summits in 1999 and 2000, was again a major topic of debate.  However, there was no agreed upon program to deal with this issue.  President Bush's proposal to have the World Bank and other regional development banks make outright grants to the world's poorest countries, instead of loans, proved very controversial.  A major stumbling block is the high level of corruption in the governments of many of these highly-indebted poorer countries, which casts a long shadow over the effectiveness of this type of foreign aid in raising living standards.
     - U.S. Leadership:  In the tug-of-war over implementing the 1997 Kyoto Protocol on global warming, Europe has taken the leadership with the support of Japan, leaving the U.S. as the odd man out.  President Bush did not compromise on his opposition to Kyoto on the contention that it would damage American business and industry.  Some will argue that U.S. prestige around the world may have lost some of its "moral high ground" due to its staying out of the Kyoto Protocol.  Others will argue that the U.S. will adopt its own approach to the global warming issue.
     Hopefully, when the G8 Summit takes place in Canada one year from now, the global economy will be healthier and China will be a member of the WTO.  Don't hold your breath, however, over the rich countries deciding how to help the highly-indebted poor countries or the disunity over Kyoto.  (Ken Ackbarali)
 

SOME NEW NUMBERS FOR JUNE: OVERALL MESSAGE STILL THE SAME

     Two reports covering separate parts of the U.S. economy were released last week.  They contained quite dissimilar results, but neither changes our view of what's really happening.  Tuesday's report from the Federal Reserve Board revealed that industrial production dropped by 0.7% in June, for its ninth (!) consecutive month of decline.  June's production level was 3.6% below June 2000.  Industrial production during the second quarter declined by 5.6% (annualized) from the first quarter, which had fallen by an annualized rate of 6.8% from 4th quarter 2000.  This is dismal reading indeed.  Looking beneath the headline figures, production of consumer goods fell by 0.2% in June and by 1.7% (annualized) in the second quarter.  Still, this performance looked good compared to output of business equipment, which dropped by 1.4% in June alone and by an annualized 9.4% in the second quarter.  Both information processing and industrial equipment were very weak.  However, output of motor vehicles actually rose in the second quarter after three quarters of decline.
     On Wednesday, the Commerce Department released its June residential construction report and this reading was much better.  U.S. housing starts rose by 3.0% in June to 1.66 million units, the highest level since January and before that February 2000. Single-family housing starts increased by 1.4% last month, while multiple-family units, which tend to be quite volatile from one month to the next, bounced up by 9.3%.  For the first six months of 2001, total housing starts were barely above last year, rising by only 0.5%.  All of the increase has come in the single-unit market segment, with starts up by 2.1%.  Meanwhile, multi-family starts have declined by 5.4%.   Much of the difference between the two segments reflects changes in construction finance.  Fixed rate mortgages have fallen by more than a full percentage point from last year, though they've risen a little in the past few months.  Adjustable rate mortgage terms also are quite attractive as they partially reflect the downward trend of short-term interest rates engineered by the Federal Reserve.  On the other hand, would-be apartment builders must persuade REIT managers or bankers their projects will pay off.  Both are accepting fewer deals than in the past.
     So what have we learned from these reports?  Mostly, things didn't change much in June.  Troubles continued to plague the U.S. manufacturing sector.  Automotive looked a little better last month than it had earlier, but industrial machinery makers looked a little worse.  And nobody knows yet where the bottom is for technology equipment industries.  On the other hand, the stability in construction activity, especially in housing, has kept manufacturing from dragging the rest of the economy down with it.  This pattern is historically unusual.  In the past, housing and automotive sales have led the economy down into recession (and up in recovery periods), while business investment spending followed along afterwards.  This time around, automotive sales started the parade and were quickly joined by business equipment spending, while housing so far has declined to participate.  The economy has lost its sizzle, true, but things could be a lot worse.  (Nancy D. Sidhu)
Industrial production PR: http://www.federalreserve.gov/releases/G17/Current/
Housing starts PR: http://www.census.gov/indicator/www/newresconst.pdf
 

ENERGY PRICES FELL, BUT NOT ENOUGH TO SAVE THE DAY

     The US Consumer Price Index (CPI) rose by 0.2% last month.  The 0.9% decline in energy prices was not enough to offset the 0.4% increase in food prices and the 0.3% advance of the core CPI, which includes all items except food and energy.  Gasoline prices dropped 2.6% last month and were just 2.2% higher than a year ago.  The June CPI was 3.2% higher than the year-ago level, and the core CPI, which is what most analysts look at when evaluating the inflation situation, was 2.7% higher than a year ago.  Energy prices were 8.4% higher than a year ago.
     The Greater L.A. area CPI rose by 0.8% last month, following a 0.5% increase in May.  (Local CPIs are not adjusted for normal seasonal fluctuations.)  Gasoline prices declined by 1.1%.  The cost of utility natural gas service declined by 9.2% last month.  However, electricity prices soared by 32.9% after the California Public Utilities Commission (CPUC) approved the rate increase for customers of Southern California Edison.  The local CPI was 4.6% higher than the year-ago level, but the year-over-year increase for the core CPI was much smaller: 2.9%.  Energy prices were 27.1% higher than a year ago with the increase coming from multiple fronts: gasoline (+23.6%), electricity (+43.9%), and utility natural gas service (+12.0%).  Looking ahead to the July CPI report, we already know that we'll have a large decline in gasoline prices, a smaller decline in natural gas prices, and no change in electricity prices.  The July CPI should be much more benign...
     The San Francisco Bay Area CPI rose by 1.0% over the past two months and was 6.6% higher than a year ago.  The Bay Area also saw a major increase in electricity prices between May and June, 35.6%, but it experienced a much larger decline in utility natural gas prices: 24.3%.  Gasoline prices declined by 1.6% between May and June.  The core CPI advanced by 6.1% as compared with the year-ago level.  A major contributor to the Bay Area's inflation is the cost of housing, which rose by 11.5% from a year ago.  In contrast, L.A. area's housing costs rose by just 6.5% over the past 12 months.  (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/cpisanf.htm
 

CONTAINER TRAFFIC UP IN JUNE

     Thanks to a strong performance at the Port of Los Angeles, the total number of containers moved through San Pedro Bay in June was up by 2.6 percent over the year.  Los Angeles recorded a10.0% increase in the number of loaded import containers and an 11.4% gain in the number of loaded export containers.  Over at the Port of Long Beach, the news wasn't as good.  The number of import containers was flat compared with last year, while the loaded export container count was down by 5.9%, the 8th decline in a row.
     Weakness in container counts is evident up and down the Pacific Coast, with Los Angeles running counter to the overall trend.  Most people in the shipping industry expect a very weak "peak" shipping season this year.  (Jack Kyser)
 

WORLD'S TOP CONTAINER PORTS

     The Journal of Commerce has just released a listing of the world's top 50 container ports.   Number one was Hong Kong with a volume of 18.10 million TEUs, while Singapore was second with 17.09 million.  The Port of Los Angeles was 7th with 4.88 million TEUs while Long Beach was 8th at 4.60 million.  Combining the two yields a count of 9.48 million TEUs, well ahead of third-ranked Pusan's 7.54 million.
     In 15th position was New York/New Jersey at 3.05 million TEUs.  Oakland was 28th with 1.78 million TEUs, while Seattle was 33rd at 1.49 million, and Tacoma was 37th with 1.37 million TEUs.  (Jack Kyser)
 

WEEKLY ENERGY NOTES

  Financial/Prices:

     - The State Senate approved SB 78xx to let Southern California Edison (SCE) issue $2.5 billion in revenue bonds to help pay down its $3.5 billion debt to its creditors.  The $2.5 billion will cover SCE's debt to alternative energy producers ($1.3) and lenders ($1.2), but not the $1.0 billion to traditional energy companies which are accused by the State of price gouging.  The Assembly is considering a bill where the burden of paying down the bond issue is placed on big business users, and that the State has a 5-year option to buy SCE's power grid.  Gov. Davis had proposed to buy SCE's power grid for $2.76 billion.  Even if the Assembly passes a bill, a conference committee will have to work out the two chambers' differences.  If an acceptable deal is not reached by Aug. 15, SCE may follow the footsteps of Pacific Gas & Electric (PG&E) to the bankruptcy court.
     - The CPUC proposed to effectively cede the control of future electricity rates to the Dept. of Water Resources (DWR), which has been buying power on behalf of the three investor-owned utilities (PG&E, SCE, and San Diego Gas & Electric).  This step is intended to prevent another financial crisis in case the cost of power rises above the newly-instated retail rates.  (The frozen retail electricity rates under the earlier deregulation scheme were the reason that PG&E and SCE lost billions of dollars and led the State into the power-buying business.)  It will also help reassure the potential buyers of the State's revenue bond issues.  The $13.4-billion bond issue, expected this summer, will raise the money for power purchases, and California consumers will pay down the bonds over the coming years.  Without the assurance that DWR can raise rates to cover higher power costs, the State will have to offer higher yields on these bonds in order to attract enough buyers.
     - Citing lower electricity prices, DWR said the existing retail rates are sufficient to cover its future power purchases and thus there should not be another rate hike.
     - SCE expects to collect more money from customers than it spends on electricity costs this month, thanks to the hefty rate increases imposed by CPUC.  This is the first time since May 2000 that SCE has not lost money from power sales.  Still, it has billions of unpaid debt which is the subject of a fierce political battle in Sacramento.

  Supply:

     - The State has been selling excess power at prices significantly lower than what it paid under the long-term contracts.  Cooler-than-expected weather, combined with massive conservation efforts, mean that the State has purchased power under the long-term contracts that it does not need.  Since electricity cannot be stored, unsold power would be wasted anyway.  Thus every dollar earned from such power sales is better than nothing at all.  The cost of power will probably spike suddenly when the weather turns hot again.  In the meantime, keep praying for cool weather.
     LAEDC's special page on the electric power crisis: http://www.laedc.org/electricity
  (Compiled by Nancy D. Sidhu and 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 Consumer Price Index for 6/01: +0.2% (5/01: +0.4%)
* BLS: LA Area Consumer Price Index for 6/01: +0.8% (5/01: +0.5%)
* Census: US housing starts for 6/01: -3.3% to 1.568 million annual units (5/01: +2.1% to 1.621mil.a.u.)
* Census: US exports for 5/01: +0.9% (4/01: -2.0%)
* Census: US imports for 5/01: -2.4% (4/01: -2.4%)
* Census: US trade deficit for 5/01: US$28.3bil. (4/01: US$32.0bil.)
* Conference Board: US Index of Leading Economic Indicators for 6/01: +0.3% (5/01: +0.4%)
* Federal Reserve: US industrial production for 6/01: -0.7% (5/01: -0.5%)
* Federal Reserve: US industrial capacity utilization rate for 6/01: 77.0% (5/01: 77.6%)


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