The Economic Data Global Express (e-EDGE)

v.5 n.41       Released Oct. 9, 2001
Don't forget to fill out the 9-11 Impact & Recovery survey: http://www.laedc.org/911survey.htm
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

U.S. LABOR MARKET DISMAL IN SEPTEMBER

     The Bureau of Labor Statistics released its monthly labor market report for September last Friday and the results were pretty dismal.  Nonfarm employment plunged last month by 199,000 jobs, the largest monthly decline since February 1991, near the bottom of the 1990-91 recession.  Nonfarm jobs fell by a revised 84,000 jobs in August.  The nation's count was over 132 million in total last month, but only 120,000 positions higher than September 2000.  Most industries cut jobs in September, and many have reduced head counts since last year.  Private-sector employment dropped by 196,000 over the month and has fallen by 286,000 positions, or 2.5%, over the year.  As it has been all year, manufacturing is in much the worst shape, with a month-to-month decline of 93,000 jobs and a whopping year-to-year loss of 972,000 jobs, or 5.3%.
     The Bureau's survey of households showed the nation's unemployment rate was 4.9% last month, the same as in August though up a full percentage point from 3.9% in September 2000.  The number of unemployed persons has risen by almost 1.5 million over the past 12 months, while the ranks of the employed have decreased slightly.
     Neither of these surveys shed much light on labor market conditions since the September 11 Attacks on New York City and Washington.  The reason is the September survey period included time both before and after the Attacks.  The payroll survey covered nonfarm workers on employers' payrolls during the pay period (week/fortnight/month) including September 12.  Those who were working on Monday September 10 but were laid off later in the pay period were counted in last month's survey.  Similarly, the household survey week began September 9 and ran through the 15th.  Anyone working even one hour during that week also was counted as employed.
     This report's only clue that SOMETHING was going on last month is buried deep in the details.  Table A-4 reveals the number of persons working part-time for economic reasons--their hours had been reduced due to weaker sales, for instance--soared by 860,000 in September.  This result makes sense.  Many firms closed up shop for a day or so immediately after the Attacks and re-opened later in the week.  We'll simply have to wait another month to get the official reports.  Rising weekly claims for unemployment compensation suggest the news won't be pleasant.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
Job cuts resulting from 9-11: http://www.washingtonpost.com/wp-srv/aponline/20011005/aponline133638_000.htm
 

CONSUMERS PULL BACK ON BORROWING AS JOB CUTS MOUNT

     Consumers raised their use of credit in August by a relatively small amount and actually lowered their debt in the two previous months, reflecting their concerns about job cuts  and high debt-servicing burdens.  In August, consumer credit outstanding increased by only $2.3 billon or at an annualized rate of 1.7%.  This came on the heels of decreases in June and July, of $1.8 billion and $600 million respectively.  The trends of the latest three months represent a major shift from a frenzy of borrowing earlier in the year, when debt rose at annualized rates of 10.3% in the first quarter, 10.8% in April, and 5.1% in May.
     Consumers have become less enthusiastic about adding to their debt load for the following reasons:  (1) the continuous announcements of worker layoffs have dented feelings about job security;  (2) the "negative wealth effect" of the stock market downturn has impacted consumer optimism (3) debt ratios are at record highs;  (4) Federal Reserve interest rate cuts have had only a modest impact on many consumer lending rates.
     The September figures on consumer borrowing are likely to reflect the effects of the September 11th terrorist attack and the repayment of debt from tax refund checks.  So, over the immediate period ahead, with the nation at war in Afghanistan and the reality of recession sinking into consumers' consciousness, we can expect to see a more conservative attitude towards household finances.  Consumers seem to be answering a wake up call to change their somewhat profligate ways?  (Ken Ackbarali)
 

NEW HOMEBUILDING MIXED IN AUGUST

     New homebuilding activity in California was mixed in August, according to the latest report from the Construction Industry Research Board.  For the State, the number of permits issued during the month was up both over the year and from the previous month.  For 8 months of 2001, the unit count was ahead of last year by just 1.1%.
     Around Southern California, similar trends were evident in Los Angeles, Orange and Ventura counties, as well as the Riverside-San Bernardino area.  At the 8-month mark, the permit total in Los Angeles County was running 13.0% ahead of last year, while Riverside-San Bernardino was up by 23.3%.  However, the 8-month totals for Orange and Ventura counties continued to lag, by 37.3% and 2.6%, respectively.  In San Diego County, housing permit totals for August were down over both the month and year, while the 8-month total was off by 3.4%
     In the Bay Area, the Oakland area's 8-month housing unit total lagged last year by 11.9%, the San Francisco area was behind by 31.2%, while the San Jose area was down by 16.6%.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION LACKLUSTER IN AUGUST

     And that is probably good.  In Los Angeles County for the first 8 months, industrial permit values were down by 46.3%, while retail was off by 2.6%.  Office permit values at the 8-month mark, however, were above last year by 147.5%,  It should be noted that Los Angeles leads the state in retail permit valuations, with Home Depot, Target and Wal-Mart seemingly intent on carpeting the County with stores.  In Orange County, industrial permit values at 8 months were up by 84.9% over the like 2000 period.  However, office and retail were down, by 49.6% and 19.2%, respectively.
     In the Riverside-San Bernardino area, office permit values for 8 months were up by 45.5%, but industrial and retail were behind last year, by 27.1% and 12.7%, respectively.  In San Diego County, permit values for all 3 sectors at the 8-month mark were behind, with industrial down 51.6%, office off by 4.6%, and retail down 21.4%.  In contrast, in Ventura County all 3 sectors were above last year, by 57.4%, 42.6% and 107.8%, respectively.
     In the Bay Area, nonresidential construction activity at the 8-month mark was also mixed.  Industrial permit valuations were down by 18.0%, while office was off by 2.6% (although the San Jose area has authorized $340 million in new facilities despite rising vacancy rates).  However, retail permit valuations were up over the year, by 31.0% (with San Jose up by 60.7%).   (Jack Kyser)
 

AIRLINE TRAFFIC GOOD IN AUGUST

     After a lackluster performance over most of the year, total passenger traffic in August at LAX was up by 3.6% over the year.  International inched up by 0.3%, while domestic traffic advanced 4.8%.  Ontario chipped in with a 7.9% increase over the year, while John Wayne/Orange County recorded an 8.6% gain, its biggest in quite some time.  The Palm Springs Airport also had a good August, with an 8.2% gain.  Talk about irony.
     On the air cargo front, the August news wasn't as sparkling.  LAX saw volume decline over the year by 13.7%, while Ontario's tonnage declined by 29.8%.  International air cargo at LAX continued in its lackadaisical ways, with export tonnage down by 7.9% over the year, while import tonnage dropped by 13.2%.  Total international air cargo tonnage was down by 11.1%.  (Jack Kyser)
 

SEPTEMBER FILM LOCATION ACTIVITY REMAINS WEAK

     According to the Entertainment Industry Development Corporation (EIDC), total off-lot production days in September were down by 1.8% over the year.  Feature production days were off by 22.7%, while TV fell by 7.7%.  This reduced activity continues to reflect the "de facto" strike situation in the film industry.  However, after 9/11, the EIDC reports an upswing in information requests on potential local locations.
     In other film news, Canada's government is considering doing away with an attractive tax shelter that had helped lure runway production there.  Also, Hollywood is also breathing a little easier over recent box office results.  Year-to-date, domestic box office is running 10.0 % ahead of last year, with public tastes seemingly unchanged.  (Jack Kyser)
 

ENERGY WATCH:  CPUC ACTS FOR SCE (& AGAINST CA?)

     The California Public Utilities Commission (CPUC) made a pair of important decisions last week.  One of them dramatically improved the outlook for Southern California Edison's (SCE's) survivability, while the other created new uncertainty about whether and when the state of California will be able to sell bonds to recoup billions of dollars of power purchase costs.  This added to California's growing state budget problems.
     Way back in November 2000, SCE filed a lawsuit in federal court because the CPUC had not allowed SCE to raise its retail rates when its wholesale costs surged to record high levels, and thereby had driven the company to the brink of bankruptcy.  The settlement, which has been approved by the federal judge, establishes a plan to repay SCE's accumulated debts and marks the first step to its eventual recovery.  The most important elements of the plan are:  (1) SCE will use its current cash cushion plus incoming revenues (over and above "recoverable costs") to pay down its back debts, hopefully by the end of 2003.  (2) Edison International shareholders will receive no dividends (most of which came out of SCE's operations) until 2005--earlier if all outstanding debts are repaid.  (3) The CPUC cannot raise retail rates any further for SCE customers through 2003.  If all debts are not repaid by then, today's high rates will continue through 2004-2005 as needed.  On the other hand, rates can be reduced sooner if SCE's debts are fully repaid and the company's cost conditions warrant.  More good news:  as a result of this agreement, the debt rating agencies are already starting the process required to upgrade SCE's debt, which currently has "junk" status, once the agreement is fully implemented.
     On the very same day it OK'd the SCE settlement, the CPUC rejected the state's "legal framework" for issuing $12.5 billion in bonds because it required a portion of retail rates be dedicated to paying interest on the bonds.  The bonds need to be sold in order to repay the state's General Fund for the cost of electric power it's been buying on behalf of the three privately-owned electric utilities.  Phil Angelides, the state's Treasurer, had hoped to sell the bonds in August, then in the fourth quarter.  Now the sale will be delayed while the CPUC, Governor Davis, and other polimas (political movers & shakers) thrash out a new strategy.  Why does all this matter?  Without such repayment, a large deficit looms in the next fiscal year (July 1, 2002 through June 30, 2003).  Optimists believe the sale has simply been delayed again.  However, pessimists contend that spending cutbacks and perhaps tax increases are inevitable unless the General Fund is repaid fully and soon.  Watch this space for the next episode in this thriller.  (Nancy D. Sidhu)
 

COMMENTARY: TAX CUTS OR SPENDING INCREASES?

     President Bush and Congress all agree that the economy needs a boost, but can't quite agree on the way to do it.  An effective stimulus package should provide immediate impact to the economy and tackle the root of the problem, if possible.  The root of the current downturn is the weakened consumer confidence caused on one hand by the terrorist attack and the military conflict and fears of a subsequent economic recession on the other.  Weakened confidence means tightened wallets.  Changing the tax withholdings on paychecks and extending unemployment compensation can channel money to most workers immediately, but the real key is to build up confidence by any means available.
     Direct spending can be productive if done wisely.  Spending on improving transportation security can boost the economy and improve confidence at the same time.  Some counter-terrorist efforts also demand funding, such as investment in biochemical warfare countermeasures, emergency response systems, and public education regarding these issues.  The risk of spending lies in the potential for waste and continuing outlays once a program is started.  This is one reason why the Administration is resisting new spending programs.
     If you are one of those patriotic souls trying to help and are concerned about terrorist attacks at the same time, consider buying disaster preparedness supplies such as canned food, batteries, bottled water, and safe cooking fuel.  If you aren't concerned, go get a new PC or a car (with 0% financing).  Right now is a also great time to buy a new fridge or A/C.  Prices will drop as retailers try to keep sales up and SCE's rebate programs are still on.  And if your company has significant power use, consider installing a solar power system while the government is still subsidizing up to 50% of the costs.
     Finally, perhaps the government can have a sweepstakes of free vacation packages to New York City.  That may have more bang for the buck than anything else the politicians can ever cook up...  (George Huang)
SCE's rebate programs: http://www.sce.com/002_save_energy/002a1b_2001_her.shtml
Renewable power buydown programs: http://www.consumerenergycenter.org/buydown/index.html
 

QUICK STATS:

* BLS: US unemployment rate for 9/01: 4.9% (8/01: 4.9%)
* BLS: US nonfarm employment for 9/01: -199,000 (8/01: -84,000)
* Census: US new factory orders for 8/01: -0.0% (7/01: -0.1%)
* Census: US factory shipments for 8/01: -0.5% (7/01: +0.4%)
* Census: US factory inventories for 8/01: -0.7% (7/01: -0.8%)
* Census: US unfilled factory orders for 8/01: -0.7% (7/01: -1.0%)
* BTM: US vehicle sales for 9/01: -3.6% to 15.9 million annual units (8/01: +0.0% to 16.5mil.a.u.)--expect this number to rise in October due to 0% financing (and also lower bank financing) being offered
* Federal Reserve: US consumer credit for 8/01: +1.7% (7/01: -0.4%)


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