The Economic Data Global Express (e-EDGE)

v.5 n.44       Released Oct. 29, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

SEPTEMBER DURABLE GOODS ORDERS:  YECCH!!

     As if things weren't already bad enough in manufacturing, new orders for durable goods plummeted by 8.5% in September, following monthly declines of 0.5% and 1.0% in August and July respectively.  This was the lowest level of new orders since August 1996.  Plunging orders for commercial aircraft were part of the problem; they collapsed by 46.6% last month.  However, the bad news was widespread.  Only two major industry groups registered higher orders in September, semiconductors and defense capital goods.  Semiconductor orders have increased for two consecutive months now, while inventories continued to fall, a good sign for eventual recovery in that industry.  On the other hand, defense orders, which have been volatile this year, are expected to increase significantly in the months to come.
     September order books look even worse when compared to September 2000.  Total durables orders were 21.6% below last year, led by huge declines in commercial aircraft and parts (down by almost 51%) and high technology (down by 36%).  Automotive orders, which had been improving over the summer, relapsed in September, falling by almost 19% year over year.  All three industries were hit by logistical and manufacturing problems after the events of 9-11, which should be resolved soon.  However, the economic outlook has darkened considerably, so any significant recovery will be delayed.
     This report provides the earliest "hard" information on business investment in producers durable equipment (PDE) and inventories during the third quarter.  With respect to the former, it looks like PDE declined last quarter at least as much as in the second quarter, which registered a 15% (annual rate) plunge.  With respect to the latter, businesses' attempts to reduce inventories clearly exacerbated the decline in overall economic growth last quarter.  The current consensus among private-sector economists is that GDP fell by 1.0% last quarter.  On Wednesday, we'll get the government's initial estimate.  Stay tuned.  (Nancy D. Sidhu)
PR: http://www.census.gov/indicator/www/m3/index.htmhttp://www.census.gov/indicator/www/m3/index.htm
 

CONTROVERSIAL COUNTRY RANKINGS BY OECD & FINANCIAL TIMES

     The 30-member, Paris-based, Organization for Economic Cooperation and Development (OECD) has released its study of countries most likely to succeed in "knowledge-based industries."  The Financial Times (FT) then published its ranking of the 25 countries included in the study, likely to set off a wave of controversy.  In fact, the country rankings will be seen by many as completely counterintuitive.
     (1) Switzerland is at the top of the list--a surprise in that Switzerland is not widely recognized for innovation or entrepreneurial strength.  However, its business climate is universally regarded as very hospitable.
     (2) Sweden is ranked second--another surprise since only its pharmaceutical industry is recognized for innovation and competitiveness and certainly not its broader industrial base.  However, its heavy investment in information and communications technologies earns Sweden high praise.
     (3) The United States is ranked third for its enormous investment in research and development, its information-processing and aerospace industries, its investment in venture capital, and the number of patents filed.
     (4) Ireland (4th ranked) and the Netherlands (5th ranked) are relatively small economies.  Because their economies are highly open and attractive to foreign direct investment and ideas, the FT/OECD reviewers see them as benefiting from the transmission of "knowledge-based" industries developed elsewhere.
     (5) Other surprises include the ranking of Hungary (#6) ahead of Canada, the UK, Germany, France, and Japan.
     Criteria used in the rankings included the proportion of output provided by knowledge-based manufacturing and services; patents filed per capita; labor productivity growth; investment in research and development, software, and higher education; information technology spending; venture capital investment; foreign companies' share of manufacturing and services; and the proportion of foreign students in higher education.
     We will watch with great interest the reactions to this study and the country rankings on the part of industry leaders, investors, and government policymakers. (Ken Ackbarali)
 

SEPTEMBER HOME SALES -- MIXED MESSAGE

     The California Association of Realtor's September report on the resale housing market contained mixed messages.  Unit sales fell by 16.1% over the year, while the median price advanced by 12.3%.  The latter was attributed to the shortage of affordable housing in the State's major metro areas.  Indeed, realtors report that the market for housing under $300,000 has rebounded since 9/11.
     In Los Angeles County, unit sales declined by 2.9% over the year, while the median price increased by 12.3% to $250,690.  In Orange County, unit sales in September slipped by 6.1%, while the median price advanced by 11.1% to $361,370.  In the Riverside-San Bernardino area , unit sales dropped by 9.6%, but the median price jumped by 15.3% to $162,480.  In San Diego County, unit sales dropped by 7.9% over the year, while the median price increased by 17.2% to $314,650.  Ventura County went against the grain in September, with a 3.6% increase in unit sales, while the median price advanced by 10.5% to $328,280.
     While Southern California looked a little better than the State in September, the Bay Area was hit hard.  In the San Francisco Bay area, unit sales in September declined by 31.6% over the year, while the median price moved ahead by 4.6% to $463,440.  In Santa Clara County, unit sales dropped by 37.9%, AND the median price declined by 22.5% to $500,000.  Ouch!  (Jack Kyser)
PR: http://www.car.org/newsstand/news/oct01-6.html
 

WAR BONDS -- OR MORALE BONDS

    Bills to issue war bonds have passed both chambers of Congress, but many see it more as a morale booster rather than a needed financial instrument.  The Treasure Department said it will designate an existing savings bond as "war bonds" and thus making it available in a matter of weeks. The U.S. had not issued war bonds since WW2.  Much like the rush to donate blood after Sept. 11, Americans want to feel that they're doing something to combat terrorism, and these war bonds may do just that.  The government would rather that Americans go out and spend their money and keep the economy rolling.  After all, bonds need to be repaid later but tax revenues are all theirs to spend.  (George Huang)
 

JOINT STRIKE FIGHTER -- HIGH STAKES FOR SO CAL

     The Department of Defense selected Lockheed Martin as the winner of the Joint Strike Fighter (JSF, now the F-35) program.  JSF is a high-performance, lower-cost stealth fighter designed to replace the aging F-16, A-10, F/A-18 (pre-E/F versions) and British-designed Harrier (AV-8, used by the Marines).  (The Navy will keep the F/A-18E/F Super Hornet as its main fighter for the foreseeable future.  The Air Force will use the F-22 Raptor as the successor to the F-15.)  This $200+ billion F-35 contract is the largest in history.  If it's fully funded, Lockheed will see 3,002 orders from the military services of U.S. and U.K., and perhaps thousands more in other overseas orders.  California has been fighting to get a piece of this huge pie by persuading the two bidders to use California (specifically Palmdale) as a production site.  But even if California is not chosen as a production site, there's still much dough to enjoy.  Around 1/3 of the aircraft's cost goes for its advanced avionics (some not yet fully developed), a big business for many companies with major operations in Southern California such as Northrop Grumman (HQ'ed in L.A.), Raytheon, and HR Textron.  Northrop is a principal partner in Lockheed's team and has announced a plan to increase employment by around 1,200.  California already gained from the R&D for the basic JSF airframes, which were both developed in Palmdale.  Boeing also said it would also use technology learned in JSF's R&D on the proposed Sonic Cruiser, the near-sonic passenger jet.  (George Huang)
DoD PR: http://www.defenselink.mil/news/Oct2001/b10262001_bt543-01.html
Lockheed Martin's JSF info: http://www.lockheedmartin.com/spotlight/jsfmain.html
Northrop Grumman's PR: http://www.irconnect.com/noc/press/pages/news_releases.shtml?d=21128
 

QUICK STATS:

* BLS: US Employment Cost Index for 3Q01: +1.0% (2Q01: +0.9%)
* Census: US new durable goods for 9/01: -8.5% (8/01: -0.5%)
* Census: US durable goods shipments for 9/01: -5.5% (8/01: -1.0%)
* Census: US new home sales for 9/01: -1.4% to 864,000 annual units (8/01: -2.9% to 876K a.u.)
* Census: US home ownership for 3Q01: 67.9% (2Q01: 67.8%)
* Census: US homeowner vacancy rate for 3Q01: 1.9% (2Q01: 1.8%)
* Census: US rental vacancy rate for 3Q01: 8.4% (2Q01: 8.3%)
* Conference Board: US Help-wanted Advertising Index for 9/01: 52 (8/01: 53)
* Natl Assn of Realtors: US existing home sales for 9/01: -11.7% to 4.89 million annual units (8/01: +6.5% to 5.54mil.a.u.)

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