The Economic Data Global Express (e-EDGE)

v.5 n.33       Released August 13, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

STATE/LOCAL UNEMPLOYMENT RATES MIXED IN JULY

     First, a bit of good news.  California's unemployment rate returned to 4.9% last month after bumping up to 5.1% in June from 4.9% in both May and April.  Joblessness in the state was slightly lower than the 5.0% rate of July 2000.  By way of comparison, the national unemployment rate rose from 4.0% in July 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 quite a bit in July.  Most of the Southern California counties followed the expected pattern this year.  Los Angeles County's unemployment rate rose to 6.2% from a revised 5.5% in June.  July's rate was 0.2 percentage points above July 2000.  June and July registered the first year-to-year increases for L.A. since October 1998.  Orange County's jobless rate was 3.1% last month, just 0.1 percentage points above both June and last July.  Riverside County's 5.6% unemployment rate was well above June's 5.0% but was still a big improvement over July 2000 when the rate was 7.1%.  Meanwhile, Ventura County's unemployment rate was 4.8% last month, up from 4.1% in June but still down by a full percentage point from last July.  San Bernardino County did not follow the normal seasonal pattern in July.  Its jobless rate, at 4.9%, was 0.2 percentage points below the June level and also 0.8 percentage points below July 2000.  Finally, San Diego's unemployment rate was 3.3% last month, the same as June and below the 3.6% registered in July 2000.
     Unemployment continued to increase in the Bay Area in July.  The 8-county combined unemployment rate reached 4.2% last month, up from 4.0% in June and 1.3 percentage points higher than July 2000.  (The 5-county Los Angeles area still registered a small decline in joblessness over the same period, from 5.5% last year to 5.4% in July 2001.)  The unemployment rate in tech-heavy San Jose, which last year was among the lowest in the area at 2.2%, is now the highest at 4.7%.  This rate was the highest registered in San Jose since August 1995, before the Internet boom took off.  Jobless rates in metropolitan San Francisco (which consists of Marin, San Francisco, and San Mateo counties) and Alameda/Contra Costa counties have risen by 1.3 and 0.8 percentage points respectively over the past year, to 3.9% and 4.2%.
     The Sacramento metro area's jobless rate was 4.0% last month, down a tad from 4.1% in June and down several tads from 4.6% in July 2000.  Unemployment rates continued relatively high in the Central Valley last month, though joblessness was well below year-ago levels in the larger counties.  A sampling includes:  San Joaquin County with a July rate of 8.9%, down from 8.9% last year; Fresno MSA at 11.5% down from 13.9%; and Kern County at 9.2% versus 11.2% last July.  Even Imperial County, with a whopping 24.6% unemployment rate in July 2001, could take heart in the improvement from last July, when its rate was 34.0%.  (Nancy D. Sidhu)
PR: http://www.edd.ca.gov/nwsrel08.htm
PR: http://www.calmis.cahwnet.gov/FILE/LFMONTH/CAL1$PR.TXT
 

NONFARM EMPLOYMENT -- MIXED SIGNALS IN JULY?

     According to the State Employment Development Department (EDD), nonfarm employment in California in July was down from June, by a seasonally adjusted 7,100 jobs.  This set off some "recession alarm" bells, but the July total was still up over the year by 1.6% or 232,000 jobs.  Among the factors in the June to July slippage was the unseasonably cool weather which has delayed some agricultural processing, as well as a painters strike in San Francisco.  The slide in the State's manufacturing sector continued to pick up speed, with a loss of 35,400 jobs in July.  The aerospace-high tech sector was down by 10,800 jobs, while apparel-textiles posted a loss of 5,800.  Job gains in "business services" (which includes computer programming and temporary help) also continued to ease, with July up by a modest 35,700 jobs over last year.
     In Los Angeles County, nonfarm employment in July was up over the year by 1.3% or 51,000 jobs, about even with results in the 2 preceding months.  The manufacturing sector continued to see significant job losses, down by 13,900 during the month.  Apparel/textiles lost 4,300 jobs, while aerospace dropped by 4,000.  However, it does look like there is some moderation in the latter sector's losses.  In motion picture production, there was an increase of 900 jobs from June to July, but the current employment level was 4,000 below last year's count.  This reflects the industry's "de facto strike" and the normal lull in TV production.  In Orange County, nonfarm employment in July was up by 2.6% or 36,300 jobs over the year.  Year-over-year growth is easing down.  The County's manufacturing sector is continuing to inch upward, while tourism-related jobs increased by 3,900.
     In the Riverside-San Bernardino area, the year-to-year growth in nonfarm employment also continued to soften, with July up by 2.9% or 28,900 jobs.  The area's manufacturing sector is still adding jobs, but July's increase of 1,900 is a far cry from the 5,800 gain in January.  San Diego County posted a July gain of 2.4% or 29,200 jobs.  Growth in its manufacturing sector has leveled off.  In Ventura County, nonfarm employment growth in July came in at 1.6% or 4,400 jobs.  And its manufacturing sector has also flattened out.
     In the Bay Area, the July nonfarm employment report brought mixed news.  The San Francisco metro area posted a 1.8% or 19,600 job gain over the year.  However, in the San Jose area, nonfarm employment was down by 0.9% or 8,800 jobs, a marked contrast from January's gain of 51,600 jobs.  Worse yet, the job loss trend here seems to be picking up speed.  (Jack Kyser)
Cal PR: http://www.calmis.cahwnet.gov/file/lfmonth/cal$pr.txt
LA PR: http://www.calmis.cahwnet.gov/file/lfmonth/la$pr.txt
 

WHAT IF CONSUMERS TURN PESSIMISTIC AND STOP SPENDING?

     Then the "R" word would only mean one thing: RECESSION!  One of the most remarkable aspects of the ongoing malaise afflicting the American economy is the upbeat behavior of consumers.  In past business cycle downturns, consumers have led the decline by reducing spending on durable goods such as atypically followed by a pull back of spending on vacations, apparel, eating out, books, entertainment, and items that are considered discretionary.  Upon recognition of this trend over a lagged period, businesses respond to the drop off in sales by laying off workers and scaling back investment in inventories, equipment, and expansion plans.  Thus, the economic engine sputters and spins into a recession.
     This time around, the process has been turned on its head. Business executives turned pessimistic first, perhaps in response to the stock market plunge in 2000-2001 (dot.com meltdown), early recognition of weakness in export demand and the glut in information technology in the late 1990s. The decline in automobile sales in the fourth quarter of last year and subsequent buildup of inventories were also catalysts in the erosion of business confidence. Yet, in the face of worker layoffs and announcements of more layoffs to come, weak corporate earnings reports, and a slumping global economy, the American consumer has remained confident and continues to spend.  You have to ask: what are they smoking? Are they on another planet?
     Last week, the Federal Reserve Board reported a drop in consumer credit outstanding of $1.5 billion for June, following a "small" increase of $6.5 billion in May. We have noted in several editions of our weekly e-EDGE that consumer debt had been increasing at accelerating rates in recent years--5.3% in 1998, 7.1% in 1999, and 9.9% in 2000. For the first six months of 2001, consumer debt expansion has slowed a bit, to an annual rate of 7.6%. Significantly, as the U.S. Treasury mails out tax refund checks of $300 to $600 per taxpayer between July and September, surveys indicate that a large percentage of recipients plan to pay down existing debt with this windfall. We may be seeing the beginnings of concern on the part of consumers about their onerous debt burdens in this precarious economic environment.
     The serious risk is that a significant slowing of consumer borrowing and spending in the remaining months of 2001 could tip the economy off its current delicate balance.  We do not believe this will happen.  However, let's hope that the nation's malls will be bustling with back-to-school shoppers in September, and with Christmas shoppers later on. (Ken Ackbarali)
PR: http://www.federalreserve.gov/releases/G19/Current
 

JULY PRODUCER PRICE INDEX FELL, THANKS TO FALLING ENERGY PRICES

     The U.S. Producer Price Index (PPI) for finished goods dropped by 0.9% in July, following a 0.4% decrease in June.  The main contributor was the 5.8% drop in energy prices, but the 0.6% decline in food prices also helped.  The biggest energy price change was the 17.7% month-to-month decrease in gasoline prices, which were 11.8% lower than the year-ago level.  The high gasoline prices in late spring led to both a reduction in usage and an increase in supply.  Excluding food and energy prices, the core PPI for finished goods rose by 0.2%.  The PPI for finished goods was 1.5% above the year-ago level.
     The PPI for intermediate goods was down by 1.0% in July, following a 0.1% decline in June.  The index was unchanged from the year-ago level.  Once again declining energy prices (-3.8% month-to-month) led the way.  Prices of natural gas delivered to electric utilities continued to decline, reducing the production costs of gas-fired power plants.
     The PPI for crude goods (raw materials) posted a 5.3% decline, following a 6.0% decrease in June.  The PPI for crude goods was 5.4% lower than a year ago.  Energy prices fell by 11.5% in July, following an 11.9% decrease in June.  This is the third consecutive month where crude energy prices have fallen.  Natural gas was the main contributor, with prices having fallen to 22% below a year ago.  This is good news indeed for both natural gas consumers and electric power generators, many of whom rely on natural gas as their fuel.  (George Huang)
PR: http://www.bls.gov/news.release/ppi.nr0.htm
 

HOTEL BUSINESS MIXED IN JUNE

     According to the latest data from PKF Consulting, Southern California's hotel industry saw mixed results in June.  In Los Angeles County, hotel occupancies came in at a still healthy 74.3%.  However, this was down from last year's 81.5% level.  The average daily room rate advanced a modest 1.5% to $123.86.  Only 3 areas in the County enjoyed an occupancy rate of over 80% during June, including Valencia (88.8%), LAX (83.8%) and the South Bay (81.3%).
     Down the I-5 in Orange County, the trend was somewhat better, with July occupancy  at 78.5% versus last year's 77.2%.  The average daily room rate was up 6.9% to $117.53.  And two areas in the County were over the magic 80% occupancy level, Anaheim (81.5%) and North Orange County (80.1%).  (Jack Kyser)
 

AIRLINE TRAFFIC WEAK IN JUNE

     The June news from Southern California's airports was not awe-inspiring.  LAX saw traffic drop by 0.5% over the year, the second decline in a row.  International passenger traffic was down by 1.6%, again for the second month in a row.  The Burbank-Glendale-Pasadena Airport saw a 0.8% slippage during the month, while the John Wayne-Orange County Airport posted a 2.2% decline over the year, the 5th decline in a row.
     In the plus column last month were Ontario International, up by 6.0%, and Palm Springs, with a 0.9% gain.
     And what do the international air cargo data from LAX tell us?  Things are still weak with export tonnage down by 2.2% over the year, while import tonnage is off by 17.7%.  Total international air cargo tonnage in July was 11.1% behind July 2000's total, for the 8th decline in a row.  (Jack Kyser)
 

WEEKLY ENERGY NOTES

     (We skipped this sector for the past two weeks because there were few major developments.  That might change now that the weather is less cooperative and attention is back on the crisis.)
  Politics/Government:
     - FERC Chairman Curtis Hebert will resign his post at the end of August.  Chairman Hebert has been frequently criticized by Gov. Davis for not adopting a more activist approach in solving California's energy crisis.  Hebert has repeatedly rejected the use of price control measures, at least until June when FERC imposed a "price mitigation" system.  That system has barely been needed because of the cooler-than-usual weather.
     - The State's new Power Authority, approved by the Legislature in May, has the authority to issue $5 billion in revenue bonds to build power plants and perform other functions to ensure a stable and reliable power supply for the State.  Its chairman will be S. David Freeman, former head of City of LA's Dept. of Water & Power (LADWP) and the Tennessee Valley Authority.
  Supply:
     - On the surface, the long-term contracts signed earlier this year cost the State $46 million in July.  The causes of this "financial fiasco" are mostly beneficial: cooler weather, conservation, and an economic slowdown.  The resulting reduction in demand means the State must resell surplus power on the open market (because power can't be stored).  Paradoxically, this operation makes the State's "losses" (defined as the contracted price minus current spot prices) look even bigger by driving down the spot market prices.  Therefore, it's a bit unfair to say that the State could have purchased the same power at currently lower price levels on the spot market.  Furthermore, given the State's "take-or-pay" contracts, it makes sense for the State to take the power (it will have to pay, no matter what) and resell it for whatever the market brings.  Realistically, the State is now stuck with these contracts (made at a very inopportune time) and should just focus on making the best of it by minimizing its "losses."
  Weather:
     - The cooler-than-usual weather that has spared the State from blackouts is not likely to be the norm for the next two months.  The heat wave last Tuesday pushed the State dangerously close to a power emergency.  (You can monitor the current electric power system status at http://www.caiso.com/outlook.html )
     (Compiled by George Huang and Nancy D. Sidhu from various sources)
 

QUICK STATS:

* BLS: US Producer Price Index for finished goods for 7/01: -0.9% (6/01: -0.4%)
* BLS: US export prices for 7/01: -0.4% (6/01: -0.2%)
* BLS: US import prices for 7/01: -1.6% (6/01: -0.4%)
* BLS: US nonfarm labor productivity for 2Q01: +2.5% (1Q01: +0.1%)
* BLS: US nonfarm work hours for 2Q01: -2.4% (1Q01: +1.3%)
* BLS: US nonfarm unit labor costs for 2Q01: +2.5% (1Q01: +0.1%)
* BTM/Shroeders: US chain-store sales for 7/01: +3.4% (6/01: +2.8%)
* Cal EDD: California unemployment for 7/01: 4.9% (6/01: 5.1%)
* Cal EDD: California nonfarm employment for 7/01: -117,400 (6/01: +40,700)
* Cal EDD: LA County unemployment for 7/01: 5.6% (6/01: 5.5%)
* Cal EDD: LA County nonfarm employment for 7/01: -29,600 (6/01: -2,900)
* Census: US wholesale trade for 6/01: -0.9% (5/01: -0.5%)
* Census: US wholesale inventories for 6/01: -0.2% (5/01: +0.3%)
* Federal Reserve: US consumer credit for 6/01: -0.9% (5/01: +6.5%)

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