The Economic Data Global Express (e-EDGE)

v.6 n.6       Released Feb. 11, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

JAPANESE BANKING SECTOR STILL IN INTENSIVE CARE UNIT

     Figures released by Japan's Financial Services Agency on nonperforming ("bad") loans last week indicate that the financial condition of the country's banks has worsened.  These loans have increased nearly 10% from 32.5 trillion yen in March 2001 to 35.7 trillion yen ($265 billion) in September 2001.  One is left to wonder where this figure will be at the end of the next reporting period ending March 31, 2002.  (We will not know until late July or early August). Two reasons were given for this big jump in bad loans:  (1) more rigorous classification of bad loans; and (2) faster growth in new bad loans than the write-off of existing bad loans in bank portfolios.
     One of the underlying problems in the deteriorating banking trend is that asset values have been falling as the Japanese economy struggles with both recession and deflation.  The decline lowers the value of collateral and further erodes the loan portfolio of banks--creating a vicious cycle.  Japan watchers are now beginning to worry about the impact of a regulatory change coming into effect on April 1st, 2002.  The government will no longer guarantee protection of unlimited customer deposits, but will impose a ceiling of 10 million yen--roughly $75,000 at current exchange rates.  It is feared that depositors may adopt a "flight to safety" strategy, as they contemplate the risk of bank failures.
     The memory of the 1998 failure of Long Term Credit Bank of Japan still lingers.  Although large banks accepted government bailout funds in1998 and the government injected 7.5 trillion yen into the system in 1999, the overall condition of the banking system has not improved.
     Japan's economy is in its third recession in ten years. In December 2001, Japan's unemployment rate moved up to 5.6%, its highest level since the end of World War Two. Adding to the malaise is the recent sharp drop in the Japanese stock market, pushing the Nikkei Index to an 18-year low under 10,000.
     Although Prime Minister Koizumi has finally succeeded in getting an emergency spending bill passed in the Diet, injecting an additional $19 billion into the world's second biggest economy in the current budget year (ending March 31st ) will hardly make a dent in the nation's problems.
      Until drastic (perhaps draconian) measures are taken to strengthen Japan's banking sector, the economy will remain in either reverse or neutral gear over the medium term. We hope that a financial crisis does not break out in the meantime.  (Ken Ackbarali)
 

FACTORY SECTOR:  BEGINNING TO TURN?

     U.S. manufacturers reported to the Census Bureau that new orders for their products increased by 1.2 percent in December, continuing a seesaw pattern that shows a 4.3 percent drop in November, a 7.0 percent surge in October, and a 6.5 percent plunge last September.  This pattern was mostly due to orders for defense related products, which have been extremely volatile of late:  up by 11.3% in December following a 70.1% plunge in November after soaring by 218.4% last October.  Nondefense new orders rose by 1.0% in December compared to a 0.3% decline in November, a 2.9% increase in October, and a 6.8% decline in September.
     Most manufacturers are happy that 2001 is finally over, as it turned out to be an eminently forgettable year.  Total factory orders dropped by 8.5% last year compared to 2000, with defense orders down by 5.8% and nondefense by 8.6%.  Orders for consumer goods fell by "only" 2.5%, while orders for nondefense capital goods plunged by 18%.  Two sectors important to California and the West Coast were especially hard hit.  Commercial aircraft orders plummeted by 28.6%, while orders for computers and other high technology products took a 25.9% dive.
     U.S. manufacturers reported that shipments also rose in December, by 0.6%, while their inventories fell by 0.6%, the 11th consecutive monthly decline in factory stocks.  As a result, the manufacturing sector's inventory-to-sales ratio fell to 1.37, a considerable improvement from September's peak of 1.43 though higher than 1999's average of 1.33.  Manufacturers have come a long way toward balancing their stocks with current sales levels.  December's results suggest that the factory sector is beginning to stabilize.  As stocks and sales finally come into balance, higher orders, like those in December, will lead to increased production and ultimately growing employment.  (Nancy D. Sidhu)
PR: http://www.census.gov/indicator/www/m3/index.htm
 

CONSUMER SPENDING MIXED IN JANUARY

     First, the good news.  Weekly surveys of retailers suggest that retail sales picked up a bit in January compared to December and to the same month last year.  Averaging the results of the first five weeks of 2002, the BTM-UBS Warburg index registered a 2.3% increase over the month and a 2.7% improvement over the year.  The Instinet Research Redbook survey reported a somewhat higher 12-month increase of 3.9% and also indicated that all of the growth accrued to discount stores, which are taking market share from traditional broadline retailers.
     Next, the not-so-good-but-not-so-bad news.  Light vehicle sales came in at 15.8 million units (seasonally adjusted annual rate, or SAAR) in January, down about 3% from December and 25% from October's all-time record of 21.1 million vehicles.  More to the point, the oomph provided by zero-percent incentives has mostly disappeared: seasonally adjusted sales have fallen back to September's level.  So far at least, domestic manufacturers have taken most of the hit in the current sales slowdown.  January sales of domestically produced vehicles came in at 12.5 million units SAAR compared to 17.6 million last October.  Meanwhile, imported vehicle sales fell from 3.6 million units to 3.3 million over the same period.  The import share of the U.S. light vehicle market has risen from 16.8% in October--lowest in 2001--to 21.2% last month, a new high.
     The Commerce Department will release its initial official estimates of U.S. retail sales this week.  Most observers expect the headline number to be negative, reflecting the decline in vehicle sales, but anticipate the ex-auto figure will be positive.  (Nancy D. Sidhu)
 

ARE YOU MORE PRODUCTIVE?

     U.S. nonfarm labor productivity rose by 3.5% annualized rate during the fourth quarter, the highest rate in six quarters.  Did the 9/11 attack cause a patriotic response in the workplace?  (We would speculate that many are less productive because they're glued to reports of the war and latest threats on Internet news services.)  The data show corporate America's response to the weaker economic conditions of the land.  During the fourth quarter, total output fell by 0.4% (compared to 3rd quarter on an annualized basis), but total work hours fell by 3.7%.  Because the drop in work hours was larger than the decline in output, productivity as measured by output per unit of labor rose.
     Over the past year, nonfarm labor productivity rose by just 1.6%, the lowest annual increase in six years.  Generally and over the longer term, productivity tends to move pro-cyclically--rising in good times (because new workers aren't hired early and quickly enough) and falling during recessions (because workers are let go only after demand has sagged for a while).  This time around, however, there was a single, dramatic incident (the 9/11 attacks) which signaled firms that an economic slowdown was imminent (even though it had started months before), and they reacted defensively and aggressively to conserve their financial resources.  This also means that inventories dropped sharply; so firms will need to hire workers when demand recovers.  Speedy responses to changing conditions by U.S. businesses help ensure a solid recovery.  (George Huang)
PR: http://www.bls.gov/news.release/prod2.nr0.htm
 

JANUARY FILM LOCATION ACTIVITY WEAK

     The Entertainment Industry Development Corporation 's (EIDC) report on off studio lot production activity in January was not the best of news.  The total number of location production days dropped by 33.2% over the year, reflecting the frenzied level of activity in early 2001, as the industry raced to build an inventory in anticipation of strikes by both writers and actors.  Strikes were averted, but that inventory hasn't yet been completely worked down, so the "de facto" strike is still in evidence.
     Feature films took the biggest hit, with only 256 location production days in January, compared with 1,118 last year!  Commercial activity was also down, to 562 days compared with 810 in 2001.  Music was up a bit, to 106 days versus 105 last year, and TV scored a big gain, 1,062 days versus 941 last year.  An upswing in film production is expected, but it will be a while before the wheels start moving.  (Jack Kyser)
 

REMEMBER FEBRUARY 22

     In case you were wondering where state and local employment data is, January results won't be announced until February 22.  The delay reflects the annual revisions to the data, which this year could be significant.  The "Interim" employment series indicates that nonfarm employment in California last year was overestimated by about 90,000 jobs.  Oh my!  (Jack Kyser)
 

QUICK STATS:

* BEA: US vehicle sales for 1/02: -4.2% s.a. annual rate (12/01: -8.3%)
* BLS: US labor productivity for 2001Q4: +3.5% (2001Q3: +1.1%)
* BLS: US unit labor costs for 2001Q4: -1.1% (2001Q3: +2.6%)
* BTM/Schroders: US chain store sales for 1/02: +5.2% year/year (12/01: +2.2% y/y)
* Census: US new factory orders for 12/01: -1.2% (11/01: -4.3%)
* Census: US factory shipments for 12/01: +0.6% (11/01: -1.2%)
* Census: US factory inventories for 12/01: -0.6% (11/01: -1.3%)
* Census: US unfilled factory orders for 12/01: -0.8% (11/01: -1.2%)
* Census: US wholesale trade for 12/01: -0.4% (11/01: +0.0%)
* Census: US wholesale inventories for 12/01: -0.6% (11/01: -1.3%)
* Federal Reserve: US consumer credit for 12/01: -3.6% (11/01: +15.9%)

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