The Economic Data Global Express (e-EDGE)

v.5 n.39       Released Sept. 24, 2001
The LAEDC staff stands with all Americans in solidarity and prayer for those we have lost.  There are many relief efforts underway; please contribute.
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

REVISED ECONOMIC OUTLOOK

     The September 11th attack has had a huge impact on the national, state and local economies, with the travel and tourism industries being the most impacted in the state.  The LAEDC has revised its economic outlook for 2001-2002, with a recession being forecast for the last two quarters of 2001 and the first quarter of 2002.   For California, growth in total nonfarm employment is estimated at 1.9% or 277,600 jobs in 2001, with a projected increase of 1.4% or 214,100 jobs in 2002.  For Los Angeles County, growth in nonfarm employment in 2001 is estimated at 1.1% or 46,800 jobs, with the 2002 forecast calling for a gain of only 0.8% or 33,200.
     Industries in the Los Angeles area most likely to be impacted in the near term include airlines and support services, hotels, convention centers, and other travel services.  Cities that depend on hotel room tax revenue will also be hurt.  In addition, pain will be felt by suppliers to both Boeing, on the commercial side, and Airbus.
     Security services, both staff and equipment, will see an increase in demand, as will firms in the defense sector.  To finish with some good news, the local fashion industry is going ahead with their fall shows next week as retailers have said they will come. (Jack Kyser)
 

IMPACT OF 9/11 ATTACK:  WHAT WILL WE KNOW. . .  AND WHEN?

     Economists and businesspeople alike are anxious to know the economic impact of the World Trade Center Attack.  However, delays in the gathering and reporting of key statistics--plus the fact that the Attack's biggest impact came in the middle of September--means we will have to wait quite a while before we can get our hands on "clean" post-Attack measures of economic behavior.  Most of the statistics reported in the e-EDGE this month cover August, which is clearly the "pre-Attack" month.  However, most data releases for September will reflect blends of pre- and post-Attack behavior.  Thus, we will have to wait until data is released for October--beginning with the NAPM index on 11/1 and the U.S. Employment Situation report on 11/2--before we can make defensible impact calculations.
     What to do in the meantime?  (1) Study the weekly surveys.  For example, the Labor Department publishes on Thursdays the number of initial claims for unemployment insurance.  This survey will be a useful--though imperfect--measure of the timing and extent of layoffs in the weeks ahead.  Also, BTM, Redbook Research and others publish weekly surveys of retail sales.  NOTE: weekly survey data can be extremely volatile; so it's best to average or "smooth" the results over several weeks to detect changes in underlying trends.  (2) The Survey Research Center of the University of Michigan releases consumer sentiment indexes to subscribers twice each month.  The early September survey results, which showed considerable deterioration from August, deliberately excluded responses after September 10th and thus provide a pre-Attack benchmark.  The next release, expected by September 28th, will be a blend covering all of September but should implicitly reveal information about consumers' attitudes later in the month.  (Nancy D. Sidhu)
 

SOME POTENTIAL IMPACTS FROM THE 9-11 ATTACK

     Potential impacts on specific local projects also are worth noting:
     1. A high-speed rail system between L.A. and San Francisco -- this idea may get more attention.  The public's fear of flying may dampen air travel demand for months to come.  Furthermore, the new airport security measures add to the travel time between these two destinations and make a high-speed rail system a more acceptable alternative.
     2.  Airport expansions -- the new emphasis now will be on safety and suitable access (e.g., via mass transit) rather than capacity.  Opposition to commercialize El Toro will be even stronger now, and airlines are in no mood to expand service to another location.  LAX expansion is still needed, assuming that air travel and air cargo return to normal (though perhaps reduced) patterns in a couple of months.  But for now the resistance to expansion will likely have more sympathetic ears.
    3. Metro Green Line to LAX -- now perhaps more attention will be paid to correct this gross mistake made a few years ago.
     (Compiled by George Huang)
 

SOME GOOD & NOT-SO-GOOD NEWS ABOUT THE U.S. ECONOMY

     The Conference Board announced that its Index of Leading Indicators (LEI) declined by 0.3% in August.  The LEI is a composite index, which combines information from several different parts of the economy.  Last month's drop in the index followed a string of three upticks that had seemed to presage an economic recovery from the early 2001 slowdown.  Seven of the LEI's ten components were negative in August, the highest number so far this year.  Thus, the August decline highlights the economy's precarious state prior to the September 11 Attack on the World Trade Center.  Based on what we know already, September's LEI will be just as bad as August, if not worse, pulled down by the crash in stock prices and consumer expectations about the economy.  (Nancy D. Sidhu)
PR: http://www.conference-board.org/search/dpress.cfm?pressid=LEI0901
 

TRADE DEFICIT CONTINUES TO SHRINK AS GLOBAL ECONOMY SLOWS

     The U.S. trade deficit on goods and services declined slightly in July to $28.8 billion from the prior month's $29.1 billion.  The size of the latest monthly deficit is significantly smaller than its recent high of $34 billion recorded last October, and is also off its March and April 2001 levels of $33.0 and $31.5 billion respectively.
     In July, total exports decreased by $2.2 billion while total imports decreased by a larger $2.4 billion over prior month levels.  U.S. exports of capital goods and industrial supplies and materials declined in July, while exports of consumer goods increased slightly, and food and beverage exports were unchanged.  U.S. imports in July, however, dropped across the board--capital goods, industrial supplies and materials, consumer goods, and automotive vehicles and parts.
     The events of September 11 will exacerbate the recent international trade trends.  With the U.S. economy now expected to experience a recession, U.S. demand for imports will soften further.  This will act as a drag on economic growth in East Asia, China, the Euro zone countries, Canada, Mexico, Latin America.  On the other side of the trade flow, the U.S. will find diminished markets for its exports to these countries for the remainder of this year and the early part of 2002.
     The big question is how long these conditions will last--and there is no credible answer until the nature of the U.S. response to terrorist attacks is known and until the extent of the damage to consumer confidence is known.  The crystal ball has just become a little more murky.  (Ken Ackbarali)
PR: http://www.census.gov/indicator/www/ustrade.html
 

INFLATION NOT A CONCERN

     The US Consumer Price Index (CPI) rose by 0.1% in August, following a 0.3% decline in July.  Energy prices declined by 1.9%, the third consecutive month-to-month decline.  Food prices rose by 0.2%.  The core CPI, which excludes food and energy prices, increased by 0.2%.  The August CPI was 2.7% higher than the year-ago level.  Gasoline prices dropped by 2.4% over the month, and were 5.1% below the year-ago level.  They are also down by 17.0% from the peak in May.
     Locally, the LA area CPI rose by 0.1% last month, following a 0.3% decline in July.  It was 3.6% above the year-ago level.  Local CPIs are not seasonally adjusted and thus should not be compared directly to the national numbers.  Energy prices declined by 6.0% last month, led by a 13.0% drop in gasoline prices.  However, electricity prices rose by 2.1% and utility natural gas service by 2.0%.  Also rising in prices were food (+0.6%), shelter (+0.7%), apparel (+1.7%), and medical products and services (+2.1%).
     Up north, the Bay Area CPI rose by 0.1% between June and August (Bay Area CPIs are calculated every two months).  A 15.6% drop in gasoline prices partially offset the strong increases in shelter (+1.3%), recreation (+1.3%), and education/communication costs (+1.7%).  The Bay Area CPI was 5.1% higher than the year-ago level.
     We can expect a huge drop in consumer prices for the coming months.  The decline in air travel and hotel stays has led to heavy discounting in tourism-related industries.  Nowadays you can get rooms in Las Vegas for around $60/night.  The sharp drop in consumer spending will lead to significant discounts for many products and services in the weeks ahead.  (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
 

AUGUST CONTAINER TRAFFIC LACKLUSTER

     The August container numbers from the San Pedro Bay ports were not encouraging.  Long Beach saw the number of loaded import containers fall by 6.5% over the year, but Los Angeles posted an increase of 7.0%.  The total loaded import container count for August was up a tiny 0.2%.  The loaded export container count fell by 3.2% at Long Beach, while Los Angeles eked out a 0.7% increase.  The total number of loaded export containers moved out of the two ports was down by 1.2% over the year.  The total number of containers handled at the two ports in August was 882,921, down by 1.8% over the year.
     There was weakness at other West Coast ports in August as well, with Los Angeles bucking the overall trend due to its strength in the China trade.  Shippers are now expecting a very short "peak" shipping season in September and October.  (Jack Kyser)
 

CHINA AND TAIWAN TO JOIN WTO

     China has been cleared to formally join the WTO in November, and Taiwan received the same approval one day later.  Taiwan is allowed to join because it is a separate customs territory, a status also enjoyed by Hong Kong and Macau.  While many multinational corporations and businesses are rejoicing, Chinese citizens are worried about an increase in unemployment from the possible closure of state-owned enterprises (SOEs) that are uncompetitive and surviving only by government subsidies.  Chinese industries on the "watch list" include: SOEs involved in manufacturing and financial services, exporters receiving government subsidies, auto industry (currently heavily protected by high tariffs), agriculture, and telecommunications.  There may also be a crackdown on intellectual property rights violations, which is a major concern of US media and software companies.
     Taiwan, on the other hand, already has record unemployment and more job losses are feared.  Taiwan's high-tech (computer) industries will benefit from the further reduction in tariffs.  Taiwanese industries on the "watch list" include agriculture (already battered by weather and foot-and-mouth disease) and financial services.  Taiwan is already a relatively open market in many other industries.  An export powerhouse, it is expected to gain much from the WTO.  Many Taiwanese firms also want to move their production lines to China to take advantage of lower labor costs and looser environmental regulations, especially since China will be under WTO rules also.  The tension between business and political needs is currently the subject of many government debates (or fist fights, literally).
     On the political front, WTO membership may force many changes in the relationship of these two long-time enemies.  WTO rules will allow (and perhaps force) a closer economic relationship between the two states, and may have a major impact on the political relationship of the two.  They are both sailing into uncharted waters.  (George Huang)
PR: http://www.wto.org/english/news_e/news_e.htm#taip
 

QUICK STATS:

* BLS: US Consumer Price Index for 8/01: +0.1% (7/01: -0.3%)
* BLS: LA Area Consumer Price Index for 8/01: +0.1% (7/01: -0.3%)
* Census: US exports for 7/01: -2.5% (6/01: -1.9%)
* Census: US imports for 7/01: -2.1% (6/01: -0.9%)
* Census: US trade deficit for 7/01: US$28.8 billion (6/01: $29.1 bil.)
* Census: US construction spending for 8/01: -0.7% (7/01: -1.0%)
* Conference Board: US Index of Leading Economic Indicators for 8/01: -0.3% (7/01: +0.4%)


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