The Economic Data Global Express (e-EDGE)

v.5 n.36       Released Sept. 4, 2001
This issue of e-EDGE is sponsored by the EDDY Awards, Wednesday, Nov. 14.  This year's honorees: Dr. David Baltimore (CalTech) and Hon. Michael D. Antonovich (LA County Supervisor and Mayor)
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

DEBT BURDEN PUTS LATIN AMERICA AT GREATER RISK THAN ASIA

     Estimates by Goldman Sachs of the external position of a selected group of emerging-market countries for 2001 indicate that Latin America is at greater risk than Asia to foreign investment outflows.  The authors base this conclusion on a key ratio, external-debt to exports, widely used in country risk analysis by banks and other financial institutions in analyzing lending and investment decisions. The ratio reflects a country's ability to service its foreign debt obligations from its export earnings and helps to assess the probability of default.
     Argentina, Brazil, and Peru top the list with the highest (weakest) external-debt-to-export ratios, 5.5%, 4.0%, and 3.9% respectively.  Columbia, at 3.0%, is also near the top of the list of the most debt-burdened countries.  By contrast, South Korea, Malaysia, China, and Taiwan have the lowest (strongest) external-debt-to-export ratios, under 1.0%.  Debt ratios are estimated on the low side for Thailand (1.0%), the Philippines (1.5%), and Indonesia (over 2.0%).
     How might this picture change in 2002?  The key to is how quickly the global economy recovers from the current slump in economic activity.  Exports of Latin American countries will benefit enormously from a pickup in economic growth in North America and Europe next year, and their debt ratios will improve.  Simultaneously, there is a good chance that Asian countries will not see their debt ratios deteriorate in 2002.
     Lest we become obsessed with the IMF's latest efforts to rescue Turkey and Argentina from their debt crises, we need to look at the broader context of global financial markets and hope that the U.S. and other industrial countries get healthier next year. (Ken Ackbarali)
 

CONSUMER WATCH I:  INCOME & SPENDING

     The Commerce Department released some interesting figures for household income and spending in July.  The report included the following key numbers:
     1.  Personal income rose by 0.5% in July, more than expected and higher than June's increase of 0.4% or the 0.1% rise in May.  One-time payments by the federal government to Social Security and related beneficiaries accounted for part of July's income increase.  These were to make up for errors in this year's inflation adjustment calculations (which apparently weren't close enough for government work).  More important was the 0.4% increase in wages and salaries, about in line with the first six months of the year despite the recent falloff in nonfarm employment.
     2.  Disposable personal income (which equals personal income after income taxes) soared by 1.7% in July, much faster that June's 0.3% increase.  Indeed, July saw the highest month-to-month increase in take-home pay since December 1993.  Lower income taxes, compliments of your President and Congress, were by far the most important reason behind July's surge in take-home pay.  The IRS mailed the first batch of tax rebate checks in July.  Also, lower tax rates became effective that month which reduced required withholding for regular wage- and salary-earners.
     3.  So what did U.S. households do with all that money?  They were unusually restrained in July.  Consumer spending rose by only 0.1%, lower than June (which was up by 0.5%) and May (up by 0.3%).  However, households saved a lot more than usual in July; the personal saving rose to 2.5%, the highest rate since June 1999.
     More rebate checks were to be mailed in August and September; so disposable income is expected to rise briskly in the next two report months.  Furthermore, lower gasoline prices are stretching household purchasing power.  The intriguing question is how consumers will behave.  Will households continue to increase saving and restrain their spending as they did in July?  Or will the pace of consumer spending pick up again and the saving rate drop back down?  We're inclined to believe the latter will occur.  But make no mistake, the outlook for the U.S. economy, perhaps even the global economy, rests on these decisions.  (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/pi0701.htm
 

CONSUMER WATCH II:  CONSUMER CONFIDENCE

     The August values of two well-known consumer confidence indexes were released last week.  Both reported that confidence dropped in August after falling in July.  The Conference Board's Consumer Confidence Index declined by 2.0 points to 114.3, while the University of Michigan's Index of Consumer Sentiment reportedly fell by 0.9 points to 91.5.  The media piled on at once with stories of how plunging consumer confidence will cause retail sales -- and the whole economy -- to sink into recession.
     Some perspective is definitely in order here.  First of all, it is true that consumer spending is statistically related to consumer confidence, largely because the confidence indexes themselves measure people's feelings about their own income and employment status, the real determinants of household spending.  However, significant month-to-month changes in these survey-based indexes are not at all unusual, so a longer-term view is warranted.  Both indexes peaked in 2000, the Michigan index at 112.0 in January, and the Conference Board index at 144.7 in January and May.  The Michigan index declined to 88.4 in April 2001, while the Conference Board index bottomed at 109.2 in February.  Since then, both indexes have been roughly stable, Michigan in the low 90's and the Conference Board at around 115 plus-or-minus.
     These confidence levels, while certainly lower than they were last year, are a good deal higher than usual during recession periods.   Both confidence indexes are correctly reflecting this year's slowdown in spending.  However, they are not portending any kind of recession-causing pullback in consumer spending, not yet anyhow.  (Nancy D. Sidhu)
Conference Board PR: http://www.conference-board.org/search/dpress.cfm?pressid=4655
 

MANUFACTURING: LIGHT AT THE END OF TUNNEL SEEN?

     The manufacturing Purchasing Managers' Index (PMI) compiled by the National Association of Purchasing Management (NAPM) rose to 47.9% in August, the highest level  since Nov. 2000.  While still showing a decline in manufacturing activity (PMI<50%), August was noticeably higher than the July index of 43.6%.  August marked the 13th consecutive month of decline in the manufacturing sector, but there jewels in the report are worth noting.  The new orders index rose to 53.1%, the first increase (PMI>50%) in 13 months.  The production index also rose to 52.2%, the first increase in 9 months.  The backlog of orders, inventories, and employment continued to decline, but at a slower rate.  (The inventories index has been under 50% for 19 consecutive months, indicating the enormous inventory liquidation underway.)  These trends suggest the manufacturing sector is rearing the bottom.  The slower rate of employment decline is particularly important in the current economic environment, because continuing large layoffs tends to weaken consumer confidence and hence reduce consumer spending.  Consumer spending has been one of the pillars of the current economy and many are counting on consumers to keep the U.S. economy out of a full recession.  (George Huang)
PR: http://www.napm.org/NAPMReport/ROB092001.cfm
 

HOMEBUILDING MIXED IN JULY

     The news in the Construction Industry Research Board's July report was unchanged -- mixed trends in new homebuilding around the State and Southern California.  The number of permits issued during the month in the State was down from both the previous month and over the year.  For the first 7 months, the number of units permitted was up just 0.7%.
     Los Angeles County followed the same pattern, except the 7-month permit total was up by 13.4% over the year-ago period.  But this percentage change keeps shrinking every new report.  Orange County's July permit number were also down/down, and the 7-month total lagged 2000's count by a whopping 43.8%.  The news was better in the Riverside-San Bernardino area, with July permits down from June but up over the year.  The 7-month total was up 23.7%, and was at a State-leading 15,746 units.  Ventura County saw permits issued move up over both the previous month and year, but its 7-month total lagged by 4.5%.  In San Diego County, the July permit total was down from June's but up over the year.  For 7 months, the total was down by 2.9%.
     And then there's the Bay Area.  At the 7-month mark,  the San Francisco metro area's housing permit total was down over the year by 39.0%, Oakland was off by 10.2%, and the San Jose area was down by 14.2%.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION ALSO LACKLUSTER IN JULY

     The nonresidential construction numbers in the Construction Industry Research Board's July report generally point to a restrained mood.  In Los Angeles County, industrial and retail permit valuations at the 7-month mark continued to lag (down by 38.4% and 2.1%, respectively).  While office permits continued to run above the year-ago levels (up by 173.7%), this advantage is diminishing with each monthly report.  In Orange County, industrial permit values were still ahead, by 81.9%, but again there is a pattern of shrinkage.  In the meantime, office permits were down by 57.9% and retail by 21.1%.
     In the Riverside-San Bernardino area, only office permit values were ahead, by 79.9% (on a small base) at the 7-month mark.  Industrial was off by 36.9% and retail was down by 31.2%.  San Diego County was in minus territory across the board, with industrial down 52.7%, office off by 18.9%, and retail down by 34.0%.   However, Ventura County was running ahead in these categories, by 18.9%, 85.3% and 92.8%, respectively.  (Remember the small bases.)
     In the 9-county Bay Area, industrial permit values at 7 months of 2001 were down by 14.0% (San Jose was about even, however).  But office permits were up 33.7%, with a lot of activity in San Jose.  Retail permit valuations for 7 months were ahead by 35.5%, and again much of the activity was in San Jose. Oh my.  (Jack Kyser)
 

RESALE HOUSING PEPPY IN JULY

     The July data from the California Association of Realtors (CAR) made for good reading.  Unit sales of single family homes were up 6.1% over the year, while the median price advanced 10.6% to $267,810.  The median number of days it took to sell a home during the month was 28, compared with 29 a year ago.
     Southern California counties were standouts.  In Los Angeles County, unit sales advanced a stunning 21.0% over the year, while the median price moved up by 15.8% to $244,510.  In Orange County, unit sales in July were up 12.4%, while the median price increased by 13.9% to $359,510.  In the Riverside-San Bernardino area, unit sales were up by 25.2%, while the median price was up by 15.3% to $159,760.  In San Diego County, unit sales over the year advanced by 13.1%, while the median price increased 13.6% to $308,700.  In Ventura County, the median price moved up by a modest 8.3% to $322,270, but unit sales jumped by a whopping 37.6%.
     To the north, the July numbers weren't so bright.  The San Francisco Bay area saw unit sales slide by 11.6% over the year, while the median price rose 4.6% to $481,280.  In Santa Clara County (Silicon Valley), unit sales dropped 22.0%, while the median price was down by 3.4% to $528,500.
     One interesting feature of the resale housing market in Los Angeles County is the activity in more urban communities with lower priced homes.  For example, in the July CAR report, one of the cities with the greatest median home price increase was Bell Gardens, up by 52.6%.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/aug01-5.html
 

E-COMMERCE RETAIL SALES DISAPPOINTING

     The Commerce Dept.'s 2nd quarter estimate of e-commerce retail sales fell by 1.0% to $7.46 billion from $7.59bil. in 1Q01.  E-commerce retail sales accounted for 0.92% of the total retail sales, down from 1.04% in 1Q01 and 1.09% in 4Q00.  Although sales was 24.7% higher than the 2Q00 level, the quarter-to-quarter decline surprised many.  E-commerce sales had declined between 4Q00 and 1Q01, but that was expected because of holidays sales.  (E-commerce retail sales seem to get a larger share of the holiday sales partly because people can avoid trips to the post office by ordering online and shipping the products directly to the intended recipients.)  A few factors may have contributed to this decline.  First of all, the closure of some "e-tailers" (e-commerce retailers) means less competition for surviving ones, and less discounting is offered to customers.  Many large e-tailers have reduced their coupon offerings and discounts now they have achieved enough name recognition.  Secondly, many investors are now paying attention to the bottom line, and e-tailers could no longer pursue a growth-over-profits strategy backed by unlimited venture capital.  Many online shoppers are extremely price-conscious and may just postpone purchases in the absence of a "good deal."  (We would appreciate some good estimates of price-elasticity of online commerce here...)  Finally, some customers may have recognized their propensity to overspend online, partly because an online shopping cart doesn't feel "heavy" when you pile on that extra pair of sneakers.
     Other statistical issues may be at play here also.  For instance, firms with both stores and websites often do not know the percentage of their store customers who came in because of their web operations.  Also, the exclusion of online travel, financial, and ticket services means a large chunk of e-commerce sales is not included in this report.  These "services" (rather than "sales") are some of the most popular web transactions.  Some of the latest e-commerce novelties are seen as services rather than retail sales, such as DVD rentals or credit reporting.  (George Huang)
PR: http://www.census.gov/mrts/www/current.html
 

QUICK STATS:

* BEA: US Gross Domestic Product (revised) for 2Q01: +0.2% (1Q01: +1.3%)
* BEA: US implicit GDP deflator (revised) for 2Q01: +2.2% (1Q01: +3.3%)
* BEA: US personal income for 7/01: +0.5% (6/01: +0.4%)
* BEA: US disposable personal income for 7/01: +0.4% (6/01: +0.3%)
* BEA: US personal consumption expenditures for 7/01: +1.7% (6/01: +0.3%)
* Cal Assn of Realtors: California home sales for 7/01: -4.5% to to 503,030 annual units (6/01: +4.2% to 526,570 a.u.)
* Cal Assn of Realtors: California median home sale price for 7/01: +0.3% to $267,810 (6/01: +5.1% to $267,000)
* Cal Assn of Realtors: LA County home sales for 7/01: +1.7% (6/01: -8.7%)
* Cal Assn of Realtors: LA County median home sale price for 7/01: +0.8% to $244,510 (6/01: +4.3% to $242,570)
* Census: US e-commerce sales for 2Q01: -1.7% (1Q01: -14.5%)
* Census: US new factory orders for 7/01: +0.2% (6/01: -2.9%)
* Census: US factory shipments for 7/01: +0.5% (6/01: -2.9%)
* Census: US factory inventories for 7/01: -0.6% (6/01: -1.0%)
* Census: US unfilled factory orders for 7/01: -1.0% (6/01: -0.8%)
* Census: US construction spending for 7/01: -0.1% (6/01: -1.0%)
* Conference Board: US Consumer Confidence Index for 7/01: 114.3 (6/01: 116.3)
* Conference Board: US Help-Wanted Advertising Index for 7/01: 58 (6/01: 58)
* Natl Assn of Purchasing Mgmt: US manufacturing Purchasing Managers' Index for 8/01: 47.9% (7/01: 43.6%)
* Natl Assn of Realtors: US existing home sales for 7/01: -3.0% to 5.17 mil. annual units (6/01: -0.6% to 5.33mil.a.u.)
* USDA: US agricultural prices for 8/01: +1.9% (7/01: +0.0%)


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