The Economic Data Global Express (e-EDGE)

v.6 n.5       Released Feb. 4, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

U.S. LABOR MARKETS IN JANUARY

     The Bureau of Labor Statistics released its monthly labor market report last Friday showing that the nation's unemployment rate dropped back to 5.6 percent in January from the cycle high of 5.8 percent in December.  Last month's decline was a welcome change, the first monthly improvement since May 2001, and it certainly grabbed the headlines.  Among the major demographic groups, lower jobless rates were reported for adult women and blacks, while joblessness among Hispanics increased.  Note, however, that the number of employed declined last month as well as the number of unemployed.  We'll need another few months of data to discover what's really happening to unemployment trends.
     According to the January employer survey, nonfarm employment dropped by 89,000 jobs, the sixth consecutive monthly decline.  However, January's drop was considerably smaller than the fourth-quarter average decline of 311,000 jobs per month.  As usual, manufacturing industries led the way down, losing 89,000 jobs in January compared to a fourth-quarter average decline of 137,000 jobs per month.  Construction, which held up quite well last year, was down by 54,000 jobs in January.  Employment counts in the business services sectors also fell, mostly reflecting lower job counts in computer & data processing.  Industries registering higher employment included health and social services and retailing.
     January is often a difficult month for the government's statisticians.  Employment usually contracts in January and unemployment normally rises.  January employment shrinks in those industries that staffed up in November-December to handle the holiday rush.  In addition, poor January weather normally causes job losses in outdoor industries like construction and landscaping.  Seasonal adjustment procedures are designed to handle "normal" month-to-month variations of this sort, but they aren't always adequate.  This time, for example, retailers hired fewer holiday workers than normal--causing December's seasonally adjusted job counts to fall.  Then, they laid off fewer workers than normal--causing January's seasonally adjusted counts to rise!  Given these seasonal and other statistical quirks, the Bureau's director suggested that last month's apparent improvements should be treated with some caution.  As economists are fond of saying, it takes more than one month to establish a new trend.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

U.S. ECONOMY FLAT IN FOURTH QUARTER, SORT OF

     The Commerce Department announced that the U.S. Gross Domestic Product (GDP), the nation's most comprehensive measure of the economy, edged up by 0.2% last quarter, a small increase but nonetheless a decided improvement over the third quarter's 1.3% decline.  This small fourth quarter rate of growth reflects the net effect of some powerful trends that operated in both positive and negative direction last quarter.  [All changes are seasonally adjusted annual rates or SAAR.]
     Two sectors pulled the economy upward during the fourth quarter.  (1) The biggest plus factor was consumer spending, which increased by 5.4%.  This increase was primarily the result of surging purchases of durable goods, which soared by 38.4%, led by--you guessed it--a huge increase in purchases of cars and light trucks.  Zero-percent financing was clearly a very effective marketing tool for the automotive manufacturers, but it did some nice things for the whole economy as well.  (2) Government spending also increased substantially.  Federal spending rose by 9.2%, led by increased expenditures for national defense.  Spending by state and local governments also rose by 9.0%, though part of this increase was due to accounting adjustments made in the third quarter.
     Three sectors pulled the economy down during the fourth quarter:  (1) Business firms throughout the U.S. slashed inventories by a record-setting $121 billion.  (The previous record was the third quarter's $62 billion decline.)  This plunge in inventories sliced 2.2 percentage points off the nation's economic growth rate last quarter.  (2) In addition, business investments in plant and equipment dropped by 12.8%, the fourth consecutive quarterly decline.  In a change from the previous three down quarters, purchases of structures fell more than purchases of equipment and software.  [Even more interesting, purchases of computers and peripheral equipment turned up last quarter, the first positive sign to come out of the high technology industries in over a year.]  (3) Finally, the U.S. foreign trade balance worsened.  Exports of goods and services dropped by 12.4%.  This decline was only partially offset by a 3.4% fall in imports.
     The Commerce Department reminds us that this was only an "advance" estimate of fourth quarter economic growth, based on incomplete data and subject to (sometimes large) revision.  The government's estimate of last quarter's economic performance will surely change between now and late March, when the "final" estimate is released.  However, unless the remaining bits of information (primarily covering inventories, foreign trade, and construction in December) are greatly different from current expectations, the "story line" for the fourth quarter has already been established.  Businesses cut production and slashed inventories and investment spending last quarter.  These cuts were offset by significant increases in spending by consumers and all levels of government, leaving the net growth rate near zero.  All in all, a much better performance than feared.  The next question is how will the current quarter turn out?  Stay tuned.  (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/gdp401a.htm
 

MORE LIGHT AT THE END OF THE TUNNEL

     The manufacturing Purchasing Managers' Index (PMI) from the Institute for Supply Management gave us even more encouraging news last week.  The manufacturing PMI rose to 49.9% in January, up from 48.1% in December.  It had crashed to 39.5% in October following the 9/11 attack.  Before 9/11, it was on a path for recovery after bottoming out in January 2001 (41.7%).  A PMI above 50.0% indicates expansion in manufacturing activity, and thus reaching the 49.9% mark is psychologically important.  The new orders index (55.3%) declined a bit but was well above the 50% threshold.  The production index rose to 52.0% from 50.3% in December.  Supplier deliveries were slower--indicating that factories have less underutilitized capacity or more production bottlenecks.  Inventories were at very low levels for many industries, and the pace of inventory liquidation has slowed.  Prices for materials are getting lower, but here too the pace of such deflation has declined.  The index for order backlogs was still in negative territory, but the rate of decline has slowed.  The index for new export orders rose to 50.8%, the first reading above 50% since August.  The importing of materials also rose.  Although employment continued to decline, the pace of job losses slowed.  Employment tends to lag production on the upside, as firms are hesitant to hire and train without clear signs of expansion.  In short, the manufacturing sector is on the path of recovery, but it should be a bit longer for job gains to materialize.  (George Huang)
PR: http://www.ism.ws/ISMReport/ROB022002.cfm
 

BENEFIT COSTS RISING...

     The U.S. Employment Cost Index rose by 0.9% between September and December, and was 4.1% higher than a year ago.  The index for wages and salaries rose by 0.8% in the fourth quarter and was 3.7% above the year-ago level.  Benefit costs, which include employer-financed health insurance, rose by 1.2% over the three-month period and were 5.2% above the year-ago level.  Benefit costs have not only risen in recent years--the rate of increase has accelerated (1996: +2.0%, 1998: +2.6%, 1999: +3.3%, 2000: +4.9%, and 2001: +5.2%).  In contrast, the index of cash compensation (i.e. wages & salaries) has remained in a fairly narrow range of 3.3% to 3.8% in the past six years.  The main culprit is, unsurprisingly, health costs.  It seems that the cost savings of HMOs are not being sustained, and we may be heading back to the high healthcare inflation of the late 1980s/early 1990s.  Some employers have responded by "downgrading" their health plans (or reducing coverage for dependents), increasing the employees' share of costs, converting their own contributions to a cash subsidy with fixed rates of adjustments, or foregoing healthcare benefits altogether.  Large firms with more leverage over health plan providers can probably squeeze out better deals.  Options for small businesses and self-employed include pooling and joining government-sponsored or subsidized programs.  (George Huang)
PR: http://www.bls.gov/news.release/eci.nr0.htm
 

HOUSING MIXED IN '01

     The December report from the Construction Industry Research Board paints a mixed picture for new home construction during the month and for all of 2001.  Total housing permits issued in the state in December were up over the previous year, but the full year total was down by 0.5% to 147,752 units.  By type, single family units were up just 0.9% to 106,517 in 2001, while permits for multi-family units declined by 4.0% to 41,235.  As an aside, the California Department of Finance just reported a population increase for the state of 670,000 between July 1, 2000 and 2001, so no progress was made on addressing the housing shortage.
     Around Southern California, housing permits issued in Los Angeles County were down over the year in December, but the County managed a 5.8% increase for 2001 to 18,059 units.  Orange County posted an increase in December, but its annual total was down by 30.3% to 8,620 units.  The Riverside-San Bernardino area posted an increase over the year in December, and led the state in homebuilding activity in 2001, up by 25.4% to 25,574 units.  San Diego County saw a decline in December, and for the year new housing permits were off by 1.7% to 15,650 units.  Ventura County posted an increase in activity in December, but its annual total was down by 14.1% to 3,411 units.
     In the Bay Area, new homebuilding activity in the Oakland area recorded a decline of 17.8% in 2001 to 8,096 units.   The San Francisco metro area was down by a thumping 43.4% to 3,576 units.  Despite all its other economic pains, new homebuilding in the San Jose area in 2001 was down by only 17.4% to 5,825 units.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION WEAK IN 2001

     According to the Construction Industry Research Board, nonresidential construction activity around California was generally weak in 2001.   Total nonresidential permit values were down by 10.6%, with industrial activity off by 31.0% and office construction off by 21.1%.   As might be expected the 9-county Bay Area posted the biggest decline, 20.8%, followed by the Central Coast with a 9.8% drop-off and Southern California with a 6.4% slippage from 2000.  However, the Sacramento area managed a 4.9% increase in nonresidential permit values, and the San Joaquin Valley was ahead by 2.2%.
     Around Southern California, nonresidential permit values in Los Angeles County were up by 7.1% in 2001.  Industrial activity was down by 43.7%, but the office sector charged ahead with a 104.2% gain to $547 million.  In Orange County, nonresidential activity dropped by 24.1% in 2001, with industrial up by 3.7% and office down by 50.9%.  The Riverside-San Bernardino area recorded a 7.6% decline in nonresidential activity, with industrial activity down by 19.1% but the office sector up by 36.6% (to $63.4 million).  San Diego County posted a 14.5% slippage in nonresidential activity, with industrial permit values off by 45.3% and office ahead by 10.3%.  Ventura County was ahead by 9.8% in 2001, with industrial permits up by 81.7%, but office down by 5.5%.
     In the Bay area, only Contra Costa, Napa and Solano counties managed increases in nonresidential permit values in 2001.  Alameda County was down by 4.1%, San Francisco dropped by 52.2%, and Santa Clara County was down by 21.3%.  By product type, industrial was down by 36.7%, office was down by 41.4% (though the total valuation was a still hefty $1.1 billion), but retail managed a 19.8% gain.  (Jack Kyser)
 

QUICK STATS:

* BEA: US Gross Domestic Product for 4Q01 (advance est.): +0.2% annualized rate (3Q01: -1.3% a.r.)
* BEA: US personal consumption expenditure for 4Q01 (adv. est.): +5.4% a.r. (3Q01: +1.0% a.r.)
* BEA: US fixed nonresidential (business) investment for 4Q01 (adv. est.): -12.8% a.r. (3Q01: -8.5% a.r.)
* BEA: US implicit GDP deflator for 4Q01 (adv. est.): -0.3% a.r. (3Q01: +2.3% a.r.)
* BEA: US personal income for 12/01: +0.4% (11/01: +0.0%)
* BEA: US disposable personal income for 12/01: +0.3% (11/01: +0.0%)
* BEA: US personal consumption expenditures for 12/01: -0.2% (11/01: -0.3%)
* BEA: US personal savings rate for 12/01: 1.0% (11/01: 0.5%)
* BLS: US unemployment rate for 1/02: 5.6% (12/01: 5.8%)
* BLS: US nonfarm employment for 1/02: -89,000 (12/01: -130,000)
* BLS: US Employment Cost Index for 4Q01: +0.9% (3Q01: +1.0%)
* Census: US new durable goods orders for 12/01: +2.0% (11/01: -6.0%)
* Census: US durable goods shipments for 12/01: +0.5% (11/01: -0.4%)
* Census: US durable goods inventories for 12/01: -0.4% (11/01: -1.4%)
* Census: US unfilled durable goods orders for 12/01: -0.7% (11/01: -1.2%)
* Census: US construction spending for 12/01: +0.2% (11/01: +0.3%)
* Conference Board: US Consumer Confidence Index for 1/02: 97.3 (12/01: 94.6)
* Conference Board: US Help-wanted Advertising Index for 12/01: 46 (11/01: 45)
* USDA: US agricultural prices for 1/02: +1.1% (12/01: +2.2%)
* ISM: US Manufacturing Purchasing Managers' Index for 1/02: 49.9% (12/01: 48.1%)
* Autodata Corp.: US vehicle sales for 1/02: -4.2% to 15.8 million annual units (12/01: -8.3% to 16.5mil.a.u.)

The Economic Data Global Express (e-EDGE) is a free service of the Los Angeles County Economic Development Corporation (LAEDC). Permission to quote any proprietary part of this release is granted given proper credit. Distribution is allowed provided that no modifications are made to the original content. Sponsors of this service do not necessarily endorse all opinions stated herein. For more information, please e-mail to research@laedc.org. To contact LAEDC, please call 213-622-4300.

Subscribe to e-EDGE and receive current economic news and major developments.  Your e-mail address will not be disclosed to any outside party (including e-EDGE sponsors) under any circumstances.

To send us comments regarding e-EDGE, please e-mail to research@laedc.org.