The Economic Data Global Express (e-EDGE)

v.5 n.40       Released Oct. 1, 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.

FEDERAL RESERVE TO CUT INTEREST RATES AGAIN

     The Federal Open Market Committee (FOMC) will meet tomorrow to consider the state of the economy and determine its policy stance on interest rates.  Having cut the Federal Funds Rate (FFR) by 50 basis points to 3.00% one week after the 9/11 terrorist attack, monetary policy officials have had an additional two weeks to assess the damage to the economy.  The Fed cannot directly help or rescue the individual sectors/industries that are most immediately in distress due to the 9/11 event--airlines, tourism and travel, insurance, finance, and retail sales.  However, the Fed can raise liquidity levels in the overall economy and lower the cost of credit even more than it has already this year.
     The following factors will influence the FOMC to cut the FFR by another 50 basis points tomorrow:  (1) The national economy is slowing to "recession" levels and GDP growth for the just-ended third quarter was most likely negative.  (2) The sharp decline in consumer confidence since 9/11 may not be reversed until the middle of 2002.  (3) Corporate earnings reports have been dismal, leading to an escalation of worker layoffs and cutbacks in investment spending.  (4) Inflation has been benign in recent months, as price increases seem out of the question for many producers.
     Some members of the FOMC may not support lowering the FFR to 2.50%, contending that this will not have any immediate effect on the economy and, with a 9-12 month lag, higher inflation will result.  But, Fed Chairman Greenspan last week set the tone of policy choices under "wartime conditions" by supporting a $100 billion fiscal stimulus program.  So, the FOMC's mind-set is clearly in favor of monetary and fiscal stimulation now and putting the risk of higher inflation on the back burner.  (Ken Ackbarali)
 

EARLY NEWS ON CONSUMERS:  CHANGING ATTITUDES

     Consumer spending for goods, services, and housing has been the primary prop to the U.S. and California economies this year.  The outlook for the rest of 2001 and 2002 also rests on consumers' shoulders.  Several items of recent information revealed how consumers have been feeling and what they've been doing since the World Trade Center/Pentagon Attacks on September 11.
     U.S. consumers' attitudes about the economy and their own well being deteriorated significantly last month, as might be expected.  The Survey Research Center of the University of Michigan reported that its Consumer Sentiment Index declined by 10.6% between August and September.  Last month's index was 24% below the average for all of 2000.  This dreary result was actually a little better than expected.  Michigan's preliminary survey, which included only responses from the first 10 days of the month, had already dropped by 8.6%.  Thus, the final result implies that consumer sentiment did not fall as much after the Attack as had been feared.
     The Conference Board's Consumer Confidence Index dropped by 14.4% in September to a level that was almost 30% below its 2000 average.  This index tends to be more volatile that the Michigan index because of its heavier emphasis on labor market conditions.  Nonetheless, the August-to-September decrease in the Conference Board's index was the largest monthly dropoff since August 1990, when Iraq invaded Kuwait.  Moreover, the initial drop that year was followed in later months by significant declines in both confidence and consumer spending, contributing to the 1990-91 recession.  As layoffs are expected to surge in coming weeks, most economists expect consumer attitudes to worsen.  And like LAEDC, many now say a recession is under way.  (Nancy D. Sidhu)
UMich: http://cbs.marketwatch.com/news/story.asp?print=1&guid={5665A32D-4E20-4BAF-B939-B72D5887D1AD}&siteid=mktw
Conference Board PR: http://www.conference-board.org/search/dpress.cfm?pressid=4662
 

MORE NEWS: RETAIL SALES A LITTLE BETTER BUT STILL WEAK

     Two weekly surveys of retailers reported that sales were a little better during the week ended September 22 but still remained weak.  The BTM-UBS Warburg survey of chain store sales reported that last week's sales fell by 0.8% from the previous week--which included September 11when sales dropped by 1.4%.  The latest Redbook Instinet survey, which covered  a different group of retailers, estimated that retail sales actually grew in the September 22 week after falling the previous week.  Both surveys noted that weakness was concentrated among sales of department stores and broadline retailers, while other stores--especially discount chains--were beginning to see their sales return to normal.  Retailers have reacted quickly to their precarious situation by putting on some of the best sales we've seen in ages.  (Nancy D. Sidhu)
 

STILL MORE NEWS: MORTGAGE DEMAND STILL STRONG

     The Mortgage Bankers Association (MBA) reported its index of applications for new mortgages plunged during the week ending September 14 but bounced right back up during the following week.  Indeed, using four-week averages to smooth out weekly volatility, the MBA index on September 21 (after the Attacks) was almost 5% higher than it had been on September 7 (before).  A surge in refinancing activity accounted for almost all of the increase as the MBA's Refi index surged by over 10% in just two weeks.  The MBA's Purchase index has been trending down since June and is unlikely to turn around any time soon.  Still, people who refinance their mortgages gain additional flexibility--to spend more, save more, or pay down more debt.  Not such a bad thing these days.  (Nancy D. Sidhu)
PR: http://www.mbaa.org/news/2001/wk0926.html
 

MANUFACTURING: UNCERTAINTY AHEAD

     The Purchasing Managers' Index (PMI) compiled by the National Association of Purchasing Management (NAPM) showed that the manufacturing sector weakened a bit more in September.  The PMI declined from 47.9 to 47.0% in September, the 14th consecutive month of contraction for the manufacturing sector (indicated by a PMI<50%).  Until September, the sector had seemed to be on a path of slow recovery.  The August index of 47.9% was the highest reading since last November.  The PMI had bottomed out in January with a 41.2% reading.  The production index and the new orders index were both above 50% in August and September.  Now analysts expect this positive trend to come to an end.  Still, after 14 months of contraction, it is too early to see how much more negative impact will come from the 9-11 attack.  (George Huang)
PR: http://www.napm.org/NAPMReport/ROB102001.cfm
 

RESALE HOUSING MARKET OK IN AUGUST

     The State's resale housing market continued to move ahead in August according to the California Association of Realtors.  Unit sales increased by 2.3% over the year, while the median price moved ahead 8.6% to $276,590.  The median number of days it took to sell a single-family home in California in August was 28 days, compared with 29 days a year ago.  There were, however, significant differences in trend around the State, despite the rosy headline.
     In Southern California, the August news was good.  In Los Angeles County, unit sales were up by 15.0% over the year, while the median price moved up by 8.9% to $249,590.  In Orange County, unit sales rose by 8.2% over the year, while the median price increased by 15.6% to $373,780.  The Riverside-San Bernardino area saw unit sales move ahead by 13.9%, while the median price advanced 13.7% to $157,700.  San Diego County also posted double digit gains in both measures in August, with unit sales up by 14.3% and the median price ahead by 13.1% to $313,390.  In Ventura County, unit sales increased by a stunning 39.5% over the year, while the median price moved up a more modest 4.3% to $310,260.
     In the Bay Area, the August news was quite different.  In the "San Francisco Bay" area, unit sales dropped by 21.8% over the year, though the median price increased by 4.7% to $475,830.  In the San Jose area, unit sales plunged by 26.7%, while the median price declined by 1.2% to $516,000.  This is the lowest median price recorded for the area since September of last year.
     And where was the highest median price found in California in August?  It was in "Santa Barbara-South Coast" at $595,590.  (Jack Kyser)
PR: http://www.car.org/newsstand/news/sep01-4.html
 

JULY TRADE VALUE NUMBERS DOWN

     The July report from the U.S. Department of Commerce on trade values was not good.  At the Los Angeles Customs District, export values were down over the year by 13.2%, while import values slipped 5.1%.  The total two-way trade value for Los Angeles in July was down 7.7% to $18.1 billion.  For 7 months, the total was off by 2.3% to $123.6 billion.  The news at the San Francisco District was even more distressing.  Export values fell by 29.0%, while import values dropped by 35.4%.  The July total trade value for San Francisco was off by 32.6% to $7.2 billion.  For 7 months, total trade value at San Francisco was down by 12.0% to $61.3 billion.  The August numbers at San Diego were a tad brighter, with export values down over the year by 12.6%, while imports were up by 1.8%.  For the month, total two-way trade values were off by 3.9% to $2.8 billion, while the 7 month total was down by 1.7% to $19.2 billion.  (Jack Kyser)
 

HOW Y2K HELPED RESCUED THE U.S. FINANCIAL SECTOR ON SEPT. 11TH

     Many companies had invested heavily in backup data systems due to their concerns over the Y2K system failures.  Some went as far as having real-time remote data-mirroring systems installed.  When the WTC towers were destroyed, millions of financial records could have been lost, causing chaos in the U.S. financial sector.  But the backup systems allowed the market to open less than one week later.  Thus far there have been no reports of anyone losing their retirement funds or stock portfolios due to the attack.  As for the drop in equity value, that's a different story.  (George Huang)
 

QUICK STATS:

* BEA: US Gross Domestic Product for 2Q01 (final): +0.3% (1Q01: +1.3%)
* BEA: US implicit GDP deflator for 2Q01 (final): +2.1% (1Q01: +3.3%)
* BEA: US personal consumption expenditure for 2Q01 (final): +2.5% (1Q01: +3.0%)
* BEA: US total personal income for 8/01: +0.0% (7/01: +0.5%)
* BEA: US disposable personal income for 8/01: +1.9% (7/01: +1.7%)
* BEA: US personal consumption expenditures for 8/01: +0.2% (7/01: +0.3%)
* Cal Assn of Realtors: California home sales for 8/01: +13.5% to 571,070 annual units (7/01: -4.5% to 503,150)
* Cal Assn of Realtors: California median home sale price for 8/01: +3.5% to $276,590 (7/01: +0.1% to $267,240)
* Cal Assn of Realtors: LA County home sales for 8/01: +18.3% (7/01: +1.7%)
* Cal Assn of Realtors: LA County median home sale price for 8/01: +2.1% to $249,590 (7/01: +0.8% to $244,460)
* Census: US new home sales for 8/01: +0.6% to 898,000 annual units (7/01: +0.8% to 893K a.u.)
* Census: US new durable goods orders for 8/01: -0.3% (7/01: -1.1%)
* Census: US durable goods shipments for 8/01: -1.2% (7/01: -0.2%)
* Census: US durable goods inventories for 8/01: -0.7% (7/01: -1.0%)
* Census: US unfilled durable goods orders for 8/01: -0.8% (7/01: -1.0%)
* Census: US construction spending for 8/01: -1.1% (7/01: -0.8%)
* Conference Board: US Consumer Confidence Index for 9/01: 97.6 (8/01: 114.0)
* Conference Board: US Help-wanted Advertising Index for 8/01: 53 (7/01: 58)
* Natl Assn of Realtors: US existing home sales for 8/01: +5.8% to 5.5mil. annual units (7/01: -2.4% to 5.2mil.a.u.)
* U Michigan: US consumer sentiment survey for 9/01: 81.8 (8/01: 91.5)--pre-9-11 attack September index: 83.63
* USDA: US agricultural prices for 9/01: -2.8% (8/01: +1.9%)


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