The Economic Data Global Express (e-EDGE)

v.5 n.45       Released Nov. 5, 2001
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FED LIKELY TO SATISFY MARKET EXPECTATIONS OF RATE CUT

     The Federal Open Market Committee (FOMC) will meet tomorrow to consider whether interest rates should be reduced again and by how much.  Responding to the bursting of  twin bubbles in the high-tech sector and the stock market and, in recent weeks, the 9/11 terrorist attack, the FOMC has aggressively lowered the Federal Funds Rate (FFR) by 400 basis points this year, from 6.50% to 2.50% currently. Why do we expect interest rates to be reduced further?
     Here are the main reasons why the FOMC will opt for more rate cuts:
     - There is now unarguable statistical evidence that a recession has already begun, with a decline in GDP registered in the third quarter of the year, albeit small.
     - October's large job losses and sharp rise in the national unemployment rate are  likely to have devastating effects on consumer confidence and spending in the months ahead.
     - The "fear factor" of Americans is not diminishing.  On the contrary, it is escalating in response to official warnings of another terrorist attack and the threat of bioterrorism in the U.S.
     - The U.S. military engagement abroad is likely to be protracted and may quickly shift to more conventional warfare (massive ground troops), a prospect that will severely dampen consumer and business confidence and may prolong the recession.
     The cynics among us will question whether cutting interest rates below their already low levels will have any impact on stimulating the economy -- and perhaps they have a point.  However, even after this year's massive dose of monetary easing, there is still some "psychological" benefit to be gained from strong policy action. After all, look at mortgages.  Lower rates are inducing borrowers to refinance, reducing debt-servicing costs and freeing up income for spending on other goods and services and paying down other debts.
     The likely outcome of the FOMC's deliberations tomorrow is a 50-basis point reduction in the FFR to 2.00%, or a less aggressive cut of 25 basis points now and another 25 basis points in December.  The former action will send a powerful signal to financial markets of the FOMC's level of concern, and would also put pressure on the European Central Bank to ease more quickly.  (Ken Ackbarali)
 

U.S. LABOR MARKETS GO FROM BAD TO WORSE

     The Bureau of Labor Statistics released its October labor market report last Friday, which included the first surveys of households and businesses taken after the 9/11 attacks.  Not surprisingly, the survey results were pretty ugly.  The nation's unemployment rate soared to 5.4% last month from 4.9% in September and August and 3.9% last year.  Joblessness rose in almost every category in October.  Unemployment rates for all age, race, and ethnicity groups increased.  Rates for part-timers rose more than full-time workers.  Manufacturing related occupations were hit harder than managers, professionals, technical, and sales employees.  The number of "job losers," persons who were laid off permanently or temporarily from their previous jobs, increased to 4.36 million in October compared to 3.60 million in September and 2.45 million in October 2000.  Job losers accounted for 55.8% of the nation's unemployed last month compared to 44.3% last year.
     The Bureau's survey of nonfarm businesses was just as dismal.  Nonfarm payrolls plunged by a whopping 415,000 jobs in October compared to declines of 213,000 in September and 54,000 in August.  Again, job losses were widespread among industries, with only mortgage banks, health services and local governments reporting higher payrolls.  Manufacturing lost 142,000 more jobs last month and was down by 1.1 million year-over-year.  Temporary help supply firms cut another 107,000 positions in October, and employment in this industry was down by 461,000 compared to last October.  Among travel/tourism industries, air transportation companies reduced head counts by 45,000 positions, while hotels cut back by 46,000 more.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

U.S. ECONOMY TURNED DOWN IN THIRD QUARTER

     The Commerce Department's "advance" estimate of economic growth during the third quarter wasn't growth at all but a decline of 0.4% (seasonally adjusted annual rate or SAAR).  This was the largest decline since the first quarter of 1991 (which was the bottom of the 1990-91 recession).  Several sectors of the economy actually grew last quarter, though much more slowly than earlier in the year.  Consumer spending increased at a 1.2% rate (SAAR), while residential investment and government spending each grew by 1.8% (SAAR).  However, business firms reduced inventories sharply and also invested much less in new plant and equipment, tipping the overall economy into the negative column.
     The Commerce Department calls its initial GDP calculation an advance estimate because it doesn't yet have all of the information required to produce even a preliminary estimate.  In particular, we don't yet know much about business inventories or foreign trade in September.  If either or both of these come in better or worse than the Department expects, the next GDP estimate could change significantly.  In any event, one message is clear:  the U.S. economy is declining.  However, it's still unclear how far it will fall and how long it will be until the economy reaches bottom and turns up again.  (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/gdp301a.htm
 

CONSUMER CONFIDENCE PLUNGED ALSO

     Private consumption is roughly 2/3s of the economy and had been the strongest cylinder of the of the economic engine until 9/11.  The Consumer Confidence Index, compiled by the Conference Board, plunged from 114.0 in August to 97.0 in September and 85.5 in October.  Concerns about further terrorist attacks, job security, and general economic conditions contributed to the sharp drop in the past two months.
     Looking down the road, retailers are very worried about the holiday shopping season, which is a make-or-break time for many of them (not just e-commerce folks).  Automakers made a preemptive strike with 0% financing on some vehicles and scored a record sales of 1.73 million vehicles in October (21.3 million at annualized rates), but at significant financial costs and at the expense of future sales (3-6 months out).  Consumers can expect continued heavy discounting from retailers this holiday season (and in the many days after Christmas).  (George Huang)
PR: http://www.conference-board.org/search/dpress.cfm?pressid=4670
 

MANUFACTURING SECTOR HURTING...

                 "Ouch!" may be the best word to describe the state of the U.S. manufacturing sector at this time.  Just when the sector saw a glimpse of light at the end of the tunnel in late summer, the U.S. economy was thrown into recession by the events of 9/11.  The Purchasing Managers' Index (PMI) from the National Association of Purchasing Management (NAPM) declined sharply in October to 39.8%, down from 47.0% in September and 47.9% in August.  Prior to 9/11, the recent low was 41.2% registered in January.  New orders and production both plunged, and since new orders fell more than production did, the backlog of orders also dropped.  Firms were not facing price pressures from their suppliers (the PMI for prices was at its lowest level since 1949).  Employment also dropped, and this is reaffirmed by the national employment report (see the second article).  One piece of "less bad" news: inventories were still being liquidated and thus will be less of a burden during the bad economic times.  The factory report from the Census Bureau painted a similar picture, even though its data reflect the conditions of September.  Orders and shipments were way down during the second half of September as manufacturers pondered the future. (George Huang)
NAPM PR: http://www.napm.org/NAPMReport/ROB112001.cfm
Census Bureau PR: http://www.census.gov/indicator/www/m3/index.htm
 

LOCAL AUGUST TRADE VALUES MALO

     The August report on international trade values from the U.S. Department of Commerce was no fun.  At the Los Angeles Customs District, export values continued their skid, dropping by 20.5% over the year.  Import values declined by 8.1%.  Total two-way trade through Los Angeles in August was $18.2 billion, down by 12.4% over the year, while the 8-month total stood at $141.8 billion, a decline of 3.7% from the comparable 2000 period.
     The San Francisco Customs District saw export values plummet 33.9%, while imports dropped by 40.8%.  The August two-way trade total came to $7.3 billion, down over the year by 37.7%.  At the 8-month mark, the San Francisco District's total was $68.6 billion, down by 15.7%.  The San Diego District's August numbers were slightly better reading.  Exports were off by 8.1%, imports were down by 5.9%, and the month's total of $3.1 billion was down by 6.7%.  San Diego's 8-month total was $22.3 billion, down by 2.4%.  (Jack Kyser)
 

SEPTEMBER NEW HOME CONSTRUCTION WEAK

     The September report from the Construction Industry Research Board was not fun reading, either.  The number of permits issued for new housing units in the State was down from the previous month and over the year, with 9/11 being a factor in this weakness.  At the 9-month mark, the total number of units permitted was down by 1.3% over the comparable 2000 count.
     Around Southern California, the September results were mixed.  Los Angeles County posted a decline from the previous month and over the year, but its 9-month total was still ahead of last year, by 6.0%.  However, the increase is shrinking with every new month's data.  In Orange County, the September permit count was below August, but up over the year.  However, the County's 9-month total was behind last year by 35.3%.  The Riverside-San Bernardino area's September permit count was down and down.  The 9-month total was above 2000 by 20.1%, but again the advantage is shrinking.  In San Diego County, the September permit number was up over the year, and even with last month.  The County's 9-month total was 1.5% behind last year.  Ventura County was down over both the month and year, with the 9-month total down by 6.0%.
     In the Bay Area, new homebuilding activity was quite weak in September.  Permits issued in the San Francisco metro area were down over both the month and year, and the 9-month total was off by 34.9% from the like 2000 period.  The trend was similar in the Oakland area, with the 9-month total off by 12.9%.  In San Jose, the September permit count was also down and down, with the 9-month total lagging last year's by 18.2%.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION ALSO MUTED IN SEPTEMBER

     The September nonresidential data from the Construction Industry Research Board was also weak.  In Los Angeles County, the 9-month value of industrial permits was down by 50.2% while retail was off by 2.2%.  Office permit valuations were up by 122.9%, but the advantage is shrinking.  In Orange County, new industrial permits at the 9-month mark were up by 24.6%, but office was down by 46.3%, while retail was off by 18.5%.  In the Riverside-San Bernardino area , new industrial permit values for 9 months were down by 25.5%, but the total was still large at $317 million.  New office permits were up 43.2% in the area, while retail valuations were down by 13.0%.  In San Diego County at the 9-month mark, all 3 sectors were behind last year, with industrial down by 48.1%, office down by 13.8%, while retail was off by 21.3%.  In Ventura County, only office permits were down, by 8.8%.  Industrial valuations were up by 51.9%, and retail was ahead by 176.1% (working off a small base in 2000).
     In the 9-county Bay area at the 9-month mark, industrial valuations were down by 28.1%, while office was off by 21.9% (but the 9-month total is a rather large $1.0 billion).  New retail activity was ahead by 28.6%.  (Jack Kyser)
 

QUICK STATS:

* BEA: US Gross Domestic Product for 3Q01 (advance report): -0.4% annualized rate (2Q01: +0.3% a.r.)
* BEA: US implicit GDP deflator for 3Q01 (adv. rpt.): +2.1% (2Q01: +2.1%)
* BEA: US personal consumption expenditure for 3Q01 (adv. rpt.): +1.2% (2Q01: +2.5%)
* BEA: US personal income for 9/01: +0.0% (8/01: +0.1%)
* BEA: US disposable personal income for 9/01: -1.1% (8/01: +1.9%)
* BEA: US personal consumption expenditure for 9/01: -1.8% (8/01: +0.3%)
* BEA: US personal savings rate for 9/01: 4.7% (8/01: 4.1%)
* BLS: US unemployment rate for 10/01: 5.4% (9/01: 4.9%)
* BLS: US nonfarm employment for 10/01: -415,000 (9/01: -213,000)
* Conference Board: US consumer confidence index for 10/01: 85.5 (9/01: 97.0)
* Census: US construction spending for 9/01: -0.4% (8/01: -1.2%)
* Census: US new factory orders for 9/01: -5.8% (8/01: -0.1%)
* Census: US factory shipments for 9/01: -4.2% (8/01: -0.3%)
* Census: US unfilled factory orders for 9/01: -1.8% (8/01: -0.9%)
* Census: US factory inventories for 9/01: -0.9% (8/01: -0.7%)
* Natl Assn of Purchasing Mgmt: US manufacturing Purchasing Manager's Index for 10/01: 39.8% (9/01: 47.0%)
* Cal Assn of Realtors: California housing affordability index for 9/01: 32% (8/01: 31%)
* Cal Assn of Realtors: LA County housing affordability index for 9/01: 35% (8/01: 34%)
* USDA: US agricultural prices for 10/01: -9.5% (9/01: -3.7%)

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