The Economic Data Global Express (e-EDGE)
v.5 n.49 Released Dec. 3, 2001
Produced
by the Los Angeles County
Economic Development Corporation as a public service to the global
community.
IT'S OFFICIAL: THE U.S. IS IN A RECESSION
The U.S. economy entered a recession in March
2001. How do we know? NOT because layoffs are high and the
national unemployment rate is rising. Nor because business profits
are falling and the number of bankruptcies is surging. Not even because
the Gross Domestic Product (GDP) fell by a downwardly revised 1.1 percent
(annual rate) during the third quarter, more than eclipsing the second
quarter's meager 0.3 percent gain. No, the official arbiter of recession
timing has spoken and we must all take note. Who is this person?
It's a committee made up of six academic and research economists, sponsored
by the National Bureau of Economic Research (a private non-profit organization)
and called the Business Cycle Dating Committee. Last week the Committee
announced the U.S. economy peaked in March 2001, simultaneously ending
a record-setting 10-year period of expansion and inaugurating a recession
period of unknown length.
The Committee pored over this year's economic
data to see whether recent developments met its three criteria for calling
a peak/recession. These are: (1) a significant decline in economic
activity must have taken place; (2) the decline must have spread across
many sectors; and (3) the decline must last more than a few months.
The Committee did not even meet through the summer because the weakness
in the economy wasn't bad enough or widespread enough to satisfy its criteria.
As documented in past issues of e-Edge, the problems then were mostly confined
to technology industries, including the dot.com bust, and manufacturing.
However, the economic downturn deepened following the events of 9/11, and
many more industries are feeling the pain. Thus, the only remaining
issue for the Committee was which month to choose as the turning point.
September might seem the obvious choice, but was rejected. The Committee's
view is that the 9/11 Attacks were the last straw for an economy that was
already slumping badly. Instead, the Committee chose March 2001 as
the cycle peak because that was the month in which employment, its most
general economic indicator, peaked.
How long will this recession last? No
one knows for sure. The average length of the previous eight downturns
was 11 months, but the shortest (in 1980) lasted only 6 months and the
longest (1973-75 and 1981-82) labored on for a full 16 months each.
The current recession is already eight months old; so it's unlikely to
be a short one. Most economists are divided into two camps on this
issue. The first expects the economy to turn up right after New Year's
Day, for a nine-month downturn, while the second expects a recession of
average length or so, delaying the upturn until the spring. (Nancy
D. Sidhu)
PR: http://cycles-www.nber.org/cycles/november2001/recessnov.html
CONSUMERS: FEELING WORSE BUT STILL SPENDING?
By their actions, U.S. consumers will play an
important role in determining the ultimate length, depth, and duration
of the current recession. The Conference Board reports that consumers
have been in a funk ever since 9/11. The Board's Consumer Confidence
Index has declined in each of the past three months. By November,
it had plunged by 28 percent from August. As you might expect, survey
respondents were especially worried about rising layoffs and unemployment.
However, expectations for the future also have been dampened.
The grim confidence statistics suggest U.S.
consumers are staying home in droves and out of the stores. However,
the reality is much less drastic. The Commerce Department just reported
that personal consumer spending, after dropping by 1.7% in September, increased
by a whopping 2.9 percent in October despite the hangover from 9/11.
Many shoppers were lured into auto dealerships by extremely attractive
incentives (who can resist zero interest-rate loans?), most of which have
been extended until after the holidays. Spending for other types
of goods and services also increased in October but barely recovered September's
losses. What about November? The vehicle sales numbers are
just starting to come in today. They are expected to be good but
fall short of October's spectacular performance. On the other hand,
weekly retail sales reports from the Bank of Tokyo-Mitsubishi/UBS Warburg
and Instinet Research Redbook, which had been very weak during the second
half of September and October, firmed somewhat in November. (Nancy
D. Sidhu)
Personal income PR: http://www.bea.doc.gov/bea/newsrel/pi1001.htm
CALIFORNIA HOUSING RESALE MARKET OK IN OCTOBER
According to the California Association of Realtors
(CAR), the number of resale housing units sold in the state in October
was down over the year by 9.7%, but the median price was up by 8.5% to
$272,570. One interesting note in the CAR report -- the unsold inventory
index (the number of months needed to deplete the supply of available homes
at the current sales rate) was 4.1 months compared with 3.0 months a year
ago.
In Los Angeles County, unit sales were up
5.0% over the year, while the median price moved ahead 13.3% to $249,070.
In Orange County, unit sales were up a more modest 0.7% over the year,
while the median price moved ahead by 12.1% to $360,080. The Riverside-San
Bernardino area posted an impressive 8.7% increase in unit sales during
October, while the median price advanced by 15.0% to $165,890. Breaking
the pattern was San Diego County, where unit sales declined over the year
by 1.7%, and median price moved ahead by a comparatively modest 5.4% to
$294,250. No data was available for Ventura County.
In the Bay Area, October saw more heartbreak.
In the "San Francisco Bay" area, unit sales dropped by 32.9% over the year,
while the median price slipped by 1.7% to $455,930. In the San Jose
area, unit sales fell by 43.2% over the year, while the median price dropped
by 8.8% to $481,000. This was the first time this area's price has
been under $500,000 since February, 2000. (Jack Kyser)
PR: http://www.car.org/newsstand/news/nov01-4.html
E-COMMERCE RETAILERS FACING A TRICKY HOLIDAY SEASON
E-commerce retail ("e-tail") sales increased by
0.2% in the 3rd quarter from the 2nd quarter to $7.472 billion. This
may seem disappointing but it's much better than the 2.6% quarter-to-quarter
decline in total retail sales. E-tail sales accounted for 0.95% of
the total retail sales volume in 3Q2001. It had peaked at 1.09% during
4Q2000. Compared to the 3Q2000, e-commerce retail sales rose by 8.3% while
total retail sales increased by only 1.8%. While still outpacing
total retail sales, the e-tail increase was the first single-digit year-over-year
growth since the such comparisons began in 4Q2000. (Just for the
record, here are the year-over-year growth rates: +68.6% for 4Q00, +37.4%
for 1Q01, and +24.7% for 2Q01.)
E-tailers face a tricky holiday season this
year. First, e-tailing is more seasonal than ordinary retailing,
and some desperate e-tailers may yet start a "fire sale" in December in
order to stay alive and avoid excess inventories. This would be good
news for consumers but maybe not for those e-tailers that are short on
cash. Second, many e-tailing operations are now just a side business
for established retailers, who tend to be better at anticipating consumer
tastes and inventory. But after Sept. 11, all spending forecasts
were tossed out of the window. The only certainty in this environment
is uncertainty. Third, some consumers may still wish to avoid going
to the post office and thus would rather have the e-tailers send gift-wrapped
products directly to the recipients. This presents a window of opportunity
for e-tailers to make more converts. Finally, because e-tailers'
shopping season really ends about one week before Christmas (because of
shipping needs), they may be induced to cut their prices more aggressively
if they sense that they are overstocked and would not be able to pare down
their excess inventories in a timely fashion. Consumers have noticed
this trend and may hold back just to get a good deal later in the month.
The perfect gift this year might be a gift certificate redeemable at several
stores or a mega-retailer. (George Huang)
PR: http://www.census.gov/mrts/www/current.html
COMING UP IN 2002:
* California's sales tax will increase by 0.25%
pts. The State's share will be 6.00% instead of the current 5.75%.
LA County's total sales tax rate will thus rise from 8.00% to 8.25%.
This increase is mandated by a 1991 law which authorized a drop in State
sales tax when the State has a General Fund reserve greater than 3% of
the General Funds revenue for two consecutive years. The State will
fail to meet that condition this year due to the decline in personal and
corporate income tax revenues. (PR: http://www.boe.ca.gov/pdf/taxincreasenotice.pdf
) The Office of Legislative Analyst (LAO) is projecting a $4.5 billion
deficit for this fiscal year which ends in June, 2002 (PR: http://www.lao.ca.gov/2001/fisc_outlook/fiscal_outlook_2001.pdf
). The increase in sales tax amounts to around $120 per California
family. If you have been thinking of that new car, get it now with
0% financing and the lower sales tax. You can save $50 in taxes on
a $20,000 car, and $2,000+ on interest charges.
* The limit on conforming mortgage will go
from $275,000 currently to $300,700 in 2002. With record low mortgage
rates, it may be a good time to refinance your existing mortgage and use
the extra cash to pay down other higher-interest-rate loans or commitments.
(PR: http://www.fanniemae.com/news/pressreleases/1651.html
)
* TAXES! The time for year-end tax planning
is here. Check out http://personalfinance.netscape.com/finance/planning/tax.tmpl
for some tips and useful tools.
QUICK STATS:
* BEA: US Gross Domestic Product (preliminary) for 3Q01: -1.1% (2Q01: +0.3%)
* BEA: US implicit GDP deflator (p) for 3Q01: +2.2% (2Q01: +2.1%)
* BEA: US personal consumption expenditure (p) for 3Q01: +1.1% (2Q01:
+2.5%)
* BEA: US gross private domestic investment (p) for 3Q01: -10.7% (2Q01:
-12.1%)
* BEA: US total personal income for 10/01: -0.0% (9/01: -0.0%)
* BEA: US disposable personal income for 10/01: -1.7% (9/01: -1.2%)
* BEA: US personal consumption expenditures for 10/01: +2.9% (9/01:
-1.7%)
* BEA: US personal savings rate for 10/01: +0.2% (9/01: +4.6%)
* Cal Assn of Realtors: California existing home sales for 10/01: +4.1%
to 494,920 seasonally adjusted annual units (9/01: +% to 475,427 s.a.a.r.)
* Cal Assn of Realtors: California median (single-family) home price
for 10/01: -1.0% to $272,570 (9/01: -0.1% to $275,300)
* Cal Assn of Realtors: LA County existing home sales for 10/01: -12.3%
(9/01: -18.0%)
* Cal Assn of Realtors: LA County median home price for 10/01: -0.6%
to $249,070 (9/01: +0.4% to $250,570)
* Census: US e-commerce retail sales for 3Q01: +0.2% (2Q01: -1.8%)
* Census: US new durable goods orders for 10/01: +12.8% (9/01: -9.2%)
* Census: US durable goods shipments for 10/01: +3.2% (9/01: -6.0%)
* Census: US durable goods inventories for 10/01: -0.4% (9/01: -1.1%)
* Census: US unfilled durable goods orders for 10/01: +0.9% (9/01:
-1.8%)
* Census: US new home sales for 10/01: +0.2% to 888,000 annual units
(9/01: +1.0% to 878K a.u.)
* Census: US construction spending for 10/01: +1.9% (9/01: -0.7%)
* Conference Board: US Consumer Confidence Index for 11/01: 82.2 (10/01:
85.3)
* Conference Board: US Help-Wanted Advertising Index for 11/01: 46
(10/01: 52)
* Natl Assn of Purchasing Mgmt: US manufacturing Purchasing Managers'
Index for 11/01: 44.5% (10/01: 39.8%)
* Natl Assn of Realtors: US existing home sales for 10/01: +5.5% to
5.17 million s.a.a.r. (9/01: -11.6% to 4.90mil. s.a.a.r.)
* USDA: US agricultural prices for 11/01: -1.1% (10/01: -10.5%)
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