The Economic Data Global Express (e-EDGE)

v.6 n.9       Released Mar. 4, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

JANUARY ECONOMY LOOKED BETTER, BUT . . .

     We learned a lot last week about the economy's performance during the month of January.  Mostly the news was good.  However, each report contained at least one issue of concern.  First, a review of the good stuff:  (1) Personal income increased by 0.4% over the month in January, more than expected, while after-tax disposable income soared by 1.6%.  (2) Consumer spending rose by 0.4% over the month as well.  As the increase in spending was less than the rise in take-home pay, the household sector's saving rate increased to 1.8% from 0.6% in December.  (3) Construction of all types rose by 1.7% over the month in January, led by a standout 3.8% rise in public construction.  (These figures are seasonally adjusted in constant $1996.)  Compared to January 2001, spending for construction of new housing was up by just 1%, while nonresidential building plunged by 16% and public construction up by an impressive 15%.  (4) Finally, shipments and new orders for durable manufactured goods both rose significantly in January, by 2.9% and 2.6% respectively, following smaller increases in December.  January's improvement was widespread.  Only two sectors -- communications equipment and electrical equipment -- reported lower shipments, and only the latter reported lower orders last month.  Even so, the current level of activity in most sectors was well below January 2001.  Only two sectors -- motor vehicles and aircraft -- reported solid shipment increases over the year to January, up by 16.4% and 21.2% respectively, while only the motor vehicle and semiconductor sectors reported significantly higher new orders.  Still, after months of decline, durable goods manufacturers were gratified by their January results.  And it looks like the improvement continued into February  (See the ISM Index report below.)
     Now, the list of caveats:  (1) Most of January's increase in pre-tax income was due to higher Federal payments of Social Security and other inflation-indexed health and welfare transfer payments and to pay raises for Federal employees.  Payments of private-sector wages and salaries declined.  (2) Much of the big increase in disposable income for January was due to adjustments to account for changes in personal income tax withholding and rates, which took effect last month.  (3) As a rule, the government's statisticians adjust their reports for normal weather.  This procedure made construction look unusually good last month because January 2002 was one of the mildest winter months on record.  Payback will come when actual weather returns to normal, most likely in March.  (4) Finally, while industrial conditions certainly look better, durable manufacturers' shipments outpaced incoming orders in January; so backlogs--manufacturers' book of future business--are still falling.  Better orders will be needed soon to maintain production and employment at current levels.
     The caveats above are matters of concern but shouldn't cause the economy to relapse seriously unless consumer spending falters.  So far consumers have done their part to boost the economy.  Spending for nondurable goods and consumer services looked pretty good in January, as did retailers' reports for early February.  In addition, last month's motor vehicle sales were pretty healthy.  Finally, the IRS is processing more refunds this year than at the same time in 2001, providing more fuel for March and April.  The near-term economic outlook is clearly better.  We just don't know yet how much better.  (Nancy D. Sidhu)
Personal income PR: http://www.bea.doc.gov/bea/newsrel/pi0102.htm
Durable goods PR: http://www.census.gov/indicator/www/m3/index.htm
 

MANUFACTURING EXPANDED IN FEBRUARY

     The manufacturing Purchasing Managers Index (PMI) published by the Institute for Supply Management brought cheers to the markets on Friday.  For the first time in 19 months, the index showed that the manufacturing sector was expanding.  After hitting bottom in October, the index has posted strong growth and finally broke the 50% barrier last month (an index above 50% indicates growth in the manufacturing sector).  It seems that the two-year-long inventory correction is finally paying off.  Customers' inventories are at extremely low levels, and manufacturers' own inventories are also low and shrinking.  Thus it's no wonder that indexes for production and new orders were showing strong growth, and the backlog of orders moved into the positive territory.  Prices were still subdued, but probably not for much longer.  Employment was still contracting, but at a slower pace.  Supplier deliveries were slower, indicating that many orders are now coming from new production rather than existing inventories and that some suppliers have to wait for their raw materials to arrive.  U.S. consumers have fought well in their war against recession, so it seems.  (George Huang)
PR: http://www.ism.ws/ISMReport/ROB032002.cfm
 

DISCOURAGED JAPANESE WORKERS EXIT THE LABOR FORCE

     For the first time in almost a year, the unemployment rate in Japan declined in December 2001 by 0.2 percentage points to 5.3%.  In most circumstances this should be good news and reason to be optimistic. A close examination of the data, however, reveals that the primary factor behind the lower jobless rate was a drop in the labor force as discouraged workers have dropped out. Unemployed workers who have stopped reporting to job-placement centers are not counted in the labor force or as unemployed.
     On a year-to-year basis, the jobless count in Japan has increased by 8.5% to 3.44 million workers.  The size of the workforce has shrunk by 1.0% over the year to December, to 66.11 million workers, as the "discouraged-worker" effect has accelerated.  Labor market prospects in Japan are nothing short of grim as an increasing number of companies file bankruptcy.  According to Tokyo Shoko Research Ltd, 1,543 corporate failures were reported in January 2002, resulting in the loss of another 17,455 jobs.  These job losses were centered in manufacturing (25.3%), construction (24.6%), wholesale trade (18.8%), retail trade (13.0%), and services (9.7%).
     The immediate result of the dismal employment outlook has been weak consumer spending.  As Japanese consumers view the recent political turmoil, lack of aggressive economic reform, and continued recessionary conditions projected for the next two years, they are not inclined to spend.  On top of this, the global weakness is taking a toll on the demand for Japanese exports, further compounding the situation for businesses that are dependent on international trade.  In the months ahead, additional workers are likely to give up their search for jobs and join the ranks of the discouraged.  (Ken Ackbarali)
 

RESALE HOUSING TRENDS ALSO POSITIVE IN JANUARY

     The January data from the California Association of Realtors (CAR) contained more positive news.  Sales of existing homes in California were up 16.2% over the year, while the median price was up by 17.1% to $285,860.  The CAR's unsold inventory index was only 3.0 months, compared with 4.2 months last year.  This index indicates the number of months needed to exhaust the supply of homes on the market at current sales rates.
     Southern California's resale market also was strong during January.  In Los Angeles County, unit sales were up by 29.8% over the year, while the median price advanced 19.4% to $259,940.  In Orange County, unit sales moved ahead by 20.7% and the median price climbed 8.7% to $361,830.  San Diego County posted a 25.0% increase in unit sales, while the median price advanced by 7.8% to $304,160.  Resale activity in Ventura County was also brisk during January, with unit sales up by 12.8% while the median price moved ahead 16.1% to $335,960.  Data for Riverside-San Bernardino was not available.
     Resale housing activity in the Bay area was mixed in January.  In "San Francisco Bay," unit sales were up by 30.0% over the year, while the median price slipped 2.2% to $462,060.  In San Jose, unit sales were up 52.5%, while the median price dropped by 14.0% to $493,500.  (Jack Kyser)
PR: http://www.car.org/index.php?id=MzA0Nzc=
 

DECEMBER TRADE VALUES DOWN

     The December report from the Bureau of the Census on trade values was more bad news for California's customs districts.  At Los Angeles, export values were down over the year by 20.5%, while December imports slipped by 15.6%.  Total two-way trade value for the month was off by 17.3% to $16.4 billion.  The year's total was $212.5 billion, down by 7.6% from 2000.
     The December numbers for the San Francisco district were even worse, with export values off by 40.7%, and imports down by 45.5%.  Total two-way trade value for the month skidded by 43.2% to $6.3 billion.  The 2001 total for San Francisco was down 25.2% to $95.1 billion.  The San Diego district provided no relief in December, with export values down by 10.3% and imports off by 5.6%.  The December two-way trade total declined by 7.7% to $2.5 billion, and the year's total was off by 3.7% to $33.6 billion.
     In 2001 the New York customs district slipped past Los Angeles to re-claim the number one spot in total two-way trade value.  It came in at $214.1 billion, down by just 5.1%.  The Los Angeles had been in first place since 1994.  The number three spot was again grabbed by Detroit, with a 2001 total of $168.5 billion, down 4.7% from 2000.  The San Francisco district slipped from 4th to 5th nationally, as Laredo jumped ahead with a 2001 total trade value of $115.0 billion. (Jack Kyser)
 

A LITTLE LIGHT AT THE END OF THE AIRPORT TUNNEL IN JANUARY

     Slowly, things are improving at the region's airports.  In January, total passenger traffic at LAX was down by 18.3% over the year, with international traffic dropping by 17.2%.  Air cargo tonnage during the month was down by 9.9%.  In both cases, the year -to-year declines were narrowing.  Ontario's numbers are definitely getting better, with January passenger traffic down by 7.8%, while air cargo was actually UP by 19.1%.  The Burbank-Glendale-Pasadena airport's January passenger count was down by 5.7%, while John Wayne-Orange County was off by just 2.8%.   However, January passenger traffic at Palm Springs was down by 18.7% over the year.  Evidently, people are not working on their tans.
     The international air cargo numbers at LAX in January were quite interesting.  Departure tonnage was off by 14.3%, but arrival tonnage was UP over the year by 11.2%.  This was the first positive number since October of 2000.  Total international air cargo tonnage at LAX in January was unchanged from last year.  (Jack Kyser)
LAX data: http://www.lawa.org/statistics/tcom-0102.pdf
ONT data: http://www.lawa.org/ont/statistics/voat-0102.pdf
SNA data: http://www.ocair.com/airportstatistics/airport_statistics_january_2002.htm
 

NEW TRANSPORTATION PROJECTS APPROVED

     Last week, MTA approved the 13-mile extension of the Gold Line light rail that would run from Downtown L.A. throughBoyle Heights to East L.A.  The segment from Downtown to Pasadena is currently under construction, and there are also plans to extend it from Pasadena to Claremont.  The East L.A. extension basically replaces the previously proposed Red Line subway segment that was axed due to cost overruns.
     The MTA also approved the dedicated 14-mile east-west busway for San Fernando Valley, which goes from the North Hollywood Red Line station to Warner Center in Woodland Hills.  This "Bus Rapid Transit" (BRT) corridor will be landscaped and will include a pedestrian & bike path.  It will serve as a substitute for a light rail or subway system.  At around $300 million, building the busway will cost roughly 1/3 as much as the Blue Line.  More widespread adoption of BRT (instead of the more costly light rail) will allow the MTA's limited transportation dollars to go many extra miles...
     Last but not least, the MTA will also expand the popular Metro Rapid system, whose Signal Priority System allows street-running buses equipped with electronic sensors to coordinate with smart street lights.  These modifications cost a fraction of new light rails and can attract higher ridership because of its faster speed as compared with regular buses.  The travel time on the Wilshire-Whittier line is 25% less than regular buses.  (George Huang)
Gold Line extension PR: http://www.mta.net/press/2002/02_February/mta_022.htm
SFV BRT PR: http://www.mta.net/press/2002/02_February/mta_023.htm
Metro Rapid PR: http://www.mta.net/press/2002/02_February/mta_025.htm
 

CALIFORNIA'S GDP

     There are questions about California's economic prowess.  Yes, California was (and probably still is) the fifth largest economy in the world, based on the available 2000 GDP data.  In 1999 it surpassed Italy and in 2000 it narrowly beat France.  But the real factor behind the changes in the past few years' rankings was the weak euro/strong US dollar (in fact, euro got even weaker last year).  In order to do this comparison, we had to convert all gross product measurements into a common currency--the US dollar.  Therefore any change in the exchange rates would affect these GDP measurements significantly.  These numbers do not indicate the total output (as measured in cars, computers, apples, etc.) nor the real purchasing power of each country's residents, and so let's not mock the Italians or the French for losing to California.  Just treat this GDP comparison as a fun fact to have around and nothing more.
     In case you are curious, the LA five-county area was the tenth among the nations of the world, ahead of Mexico and Spain, and LA County was the 16th, ahead of Taiwan and Argentina.  (George Huang)
 

** EDITORIAL **    TRAFFIC CONGESTION IN SOUTHERN CALIFORNIA

     Southern California drivers face some of the worst traffic congestion in the nation, and the problem will worsen before it improves.  Proposition 42 -- which will dedicate revenue from the sales tax on gasoline to transportation projects -- is a small step in the right direction.
     "Rush hour" has become an oxymoron in Los Angeles. The peak travel period has crept up to six hours per day, during which the average travel speed drops to 35 miles per hour.  The Texas Transportation Institute annually surveys road congestion in metropolitan areas across the U.S., and Los Angeles has had the worst congestion every year since 1982.  The latest survey reveals 85% of all lane miles are congested, with almost half classified as "extremely congested."  As a result, on a per capita basis, we waste more hours (56) annually stuck in traffic than anywhere else in the country.
     The congestion is easy to explain. Population growth vastly outstrips spending on transportation infrastructure, including freeways, arterials and transit. Indeed, California ranks dead last among the fifty states in terms of per capita spending on transportation.
     The problem in Southern California is particularly acute because the five-county region will add more than 5 million people -- equivalent to the current population of the Cities of Los Angeles and San Diego -- over the next twenty years.  If current ownership patterns persist, that implies area roads must find room for a further 2.7 million more vehicles.
     Proposition 42 is a step in the right direction because it makes permanent the changes Governor Davis introduced two years ago.  The Governor's congestion relief act dedicated the revenue from the sales tax on gasoline to transportation through 2007.  Proposition 42 will require that gasoline sales taxes continue to be spent on transportation infrastructure -- both roads and transit -- on an ongoing basis.  Much like income tax withholding from one's paycheck -- for taxes you many not want to pay but know you must -- this proposition will assure a small, reliable source of income for transportation funding. This is a necessary, and in our view, reasonable, step because California desperately needs to commit to consistent transportation investment.  (Gregory Freeman)
 

QUICK STATS:

* BEA: US Gross Domestic Product (revised) for 4Q01: +1.4% (3Q01: -1.3%)
* BEA: US implicit GDP deflator (revised) for 4Q01: -0.3% (3Q01: +2.3%)
* BEA: US personal consumption expenditure (revised) for 4Q01: +6.0% (3Q01: +1.0%)
* BEA: US personal income for 1/02: +0.4% (12/01: +0.3%)
* BEA: US disposable personal income for 1/02: +1.6% (12/01: +0.2%)--thanks to lower income tax rates
* BEA: US personal consumption expenditure for 1/02: +0.4% (12/01: +0.0%)
* BEA: US personal savings rate for 1/02: 1.8% (12/01: 0.6%)
* BEA: US vehicle sales for 2/02: +5.7% to 16.7 million annual units (1/02: -4.2% to 15.8mil.a.u.)
* Cal Assn of Realtors: California existing home sales for 2/02: +23.1% to 584,250 annual units (1/02: -3.9% to 474,600)
* Cal Assn of Realtors: California median single-family home sale price for 2/02: +0.3% to $285,860 (1/02: +0.8% to $285,000)
* Cal Assn of Realtors: LA County existing home sales for 2/02: +4.2% (1/02: +5.5%)
* Cal Assn of Realtors: LA County median home sale price for 2/02: +3.4% to $259,940 (1/02: -0.7% to $251,390)
* Census: US new durable goods orders for 1/02: +2.6% (12/01: +0.9%)
* Census: US durable goods shipments for 1/02: +2.9% (12/01: -0.8%)
* Census: US unfilled durable goods orders for 1/02: -1.3% (12/01: -1.2%)
* Census: US durable goods inventories for 1/02: -0.6% (12/01: -1.0%)
* Census: US new home sales for 1/02: -14.8% to 823,000 annual units (12/01: +3.0% to 966,000 a.u.)
* Census: US construction spending for 1/02: +1.5% (12/01: +0.5%)
* Conference Board: US Consumer Confidence Index for 2/02: 94.1 (1/02: 97.8)
* Conference Board: US Help-wanted Advertising Index for 2/02: 47 (1/02: 47)
* Institute for Supply Management: US manufacturing Purchasing Managers' Index for 2/02: 54.7% (1/02: 49.9%)
* U. Michigan: US consumer sentiment survey for 2/02: 90.7 (1/02: 93.0)
* USDA: US agricultural prices for 2/02: +4.2% (1/02: +0.0%)

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