The Economic Data Global Express (e-EDGE)

v.6 n.12       Released Mar. 25, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

GLOBAL ECONOMY DEPENDING ON U.S. RECOVERY--NO SURPRISE

     Last week's decision by the Federal Reserve to keep interest rates unchanged and to shift its policy bias from accommodative to neutral has been widely interpreted by global financial markets as good news.  Expectations for U.S. economic growth this year have moved up sharply from about a 1.0% increase in GDP (IMF's latest figure is 1.4%) to over 2.0%.  The opposite has occurred in the European Union, especially Germany.  The latest IMF forecast has scaled down Germany's growth expectations for 2002 to a 0.7% rise in GDP, which would bring the EU's growth down from an earlier 1.2% to less than 1.0%.  Japan, still the world's second largest economy, seems to be sinking further into recession and its GDP is likely to fall by 1.0%, compared with earlier estimates of 0.5%.
     These recent changes in the forecast hold several implications for major industrial countries.  First, the U.S. has reclaimed its "locomotive" role in the world economy, only six months after the damaging 9-11 terrorist attack.  Second, hopes that Europe would help revive the global economy's slump have been dashed.  Third, U.S. imports are likely to grow even more rapidly this year, while U.S. export growth will be constrained by the economic weakness of its major trading partners--the result being a widening of the trade deficit to more than $400 billion in 2002 from $360 billion in 2001.
     What can the U.S. do about any of these developments?  Not much.  U.S.-EU relations are already strained by the trade dispute over tariffs on steel imports to the U.S.  External pressures on the European Central Bank to lower interest rates have not worked and are probably futile in this environment.  U.S.-Japanese relations have become increasingly testy since the Bush Administration has revved up the dialog on Japanese economic policies.
     Center stage will continue to be occupied by the unfinished war in Afghanistan, saber rattling over Iraq, and the volatile Israeli-Palestine confrontation. A stronger recovery of the U.S. economy this year and no "double-dip" recession will benefit the world economy across the board. Unfortunately, economic issues on the international stage could receive a lower priority in the months ahead.  (Ken Ackbarali)
 

HOUSING STARTS ROSE IN FEBRUARY

     U.S. housing starts rose unexpectedly in February to 1.77 million units from 1.72 million in January.  Both months were well above the 2001 total of 1.61 million housing starts.  Single family starts have shown the most strength so far this year, rising from 1.28 million units in 2001 to 1.36 million in January and again to 1.46 million units in February.  Multiple family starts, which can be volatile from month to month, declined by 14% in February to 312,000 units after rising by over 25% to 364,000.  Still, both months were not far from the 2001 level of 329,400 units.  Looking at housing by region, the West accounted for all of the increase in activity during February while the South was the growth leader in January.
     January and February have set a hot pace for housing this year.  Starts haven't been this high since December 1998.  Indeed, housing starts have exceeded 1.7 million only 7 times in the past 14 years.  Unusually mild weather certainly helped out this year as did relatively low mortgage rates.  However, neither can be counted on to continue much longer.   (Nancy D. Sidhu)
PR: http://www.census.gov/indicator/www/newresconst.pdf
 

CONSUMER PRICES ROSE SLIGHTLY, BUT NOT IN L.A.

     The U.S. Consumer Price Index (CPI) rose by 0.2% last month, following a similar increase in January.  The index was 1.1% above the year-ago level.  Energy costs dropped by 0.8% last month, after having risen by 0.9% in January.  Energy prices have fallen for four out of the five months since 9/11.  Seasonally-adjusted gasoline prices fell by 0.4% last month after a 2.7% increase in January.  Gas prices were 23.0% below the year-ago level.  Home heating oil cost 1.3% less last month and was 22.3% cheaper than a year ago, thanks to the milder weather.  Natural gas and electricity were also cheaper than last year, by about 9%.  Food prices were 0.2% higher last month, following a 0.3% increase in January.  Apparel prices posted a 0.3% increase last month, after having fallen for three consecutive months.  Housing rents rose by 0.4% and were 4.7% above the year-ago level, and "owners' equivalent rent" (an estimate of how much it would rent for) rose by similar magnitudes.  Education costs rose by 0.8% and were 6.2% higher than a year ago. Excluding food and energy costs, the core CPI rose by 0.3% and was 2.6% higher than a year ago.
     Locally, the Los Angeles area CPI jumped 0.7% in February, following a 1.0% increase in January.  The index was 2.7% above the year-ago level.  The biggest culprit was the 10.8% jump in gasoline prices last month.  Yet gas prices were around 15% below the year-ago level.  Housing rents rose by 0.4% last month and was 6.7% higher than a year ago.  Owners' equivalent rent rose by 0.4% last month and was 5.8% than the year-ago level.  Natural gas service was 12.0% cheaper last month and 40.6% cheaper than a year ago.  Electricity prices were unchanged last month but a whopping 38.8% higher than a year ago.  Food prices rose by 0.6% last month and were 2.8% higher than a year ago.  Excluding food and energy costs, the core CPI for L.A. was 0.5% higher last month and 3.2% higher than a year ago, both higher than the national average.
     Up north, the Bay Area CPI was 0.4% higher than in December and 1.8% higher than a year ago.  Housing cost inflation has moderated dramatically in the past few month, but housing costs were still 7.9% higher than last year.
     The potential for even higher gasoline prices in California is worrisome.  The keyword: MTBE.  MTBE is an additive put into California gasoline to meet the Federal 2% oxygenate requirement, and in recent years we have evidence that MTBE is polluting our ground water.  Gov. Davis had proposed to phase out MTBE by 2003 (after his re-election), but there is concern that California cannot get enough ethanol to meet the 2% oxygenate requirement without driving up the cost of ethanol and hence gasoline.  Gov. Davis has issued another delay in the phase out of MTBE on March 15th.  EPA has denied his request for a waiver on the oxygenate requirement, and there's not much help coming from the U.S. Congress either.
     Education cost inflation is a major concern for parents, but most parents are not well informed of their options.  There are investment plans (e.g., Ed IRAs, 529 savings plans) that offer tax advantages, and pre-paid tuition plans that lock in the current rates (e.g., 529 prepaid plans offered by 20 states).  (George Huang)
US PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA PR: http://www.bls.gov/ro9/ro9cpila.htm
LA data: http://www.laedc.org/cpi-la.htm
Bay Area PR: http://www.bls.gov/ro9/cpisanf.htm
 

RESALE HOUSING SIZZLES IN FEBRUARY

     The resale housing market in California was ultra strong according to the February report from the California Association of Realtors (CAR).   For the state, unit sales were up by 25.5% over the year, while the median price moved ahead by 19.8% to $289,550.  The strength was attributed to concerns over rising mortgage rates, and a shortage of inventory in many areas of the state.
     In Southern California, unit sales in Los Angeles County were up by 22.7%, while the median price advanced 18.8% to $266,940.   Orange County saw unit sales advance over the year by 38.8%, while the median price was up by 12.3% to $369,760.   The Riverside-San Bernardino area saw unit sales move ahead by 13.1%, while the median price went up by 16.9%.  In Ventura County, unit sales increased by 35.3%, while the median price advanced by 16.5% to $337,370.  No February data was available for San Diego County.
     In the Bay Area, trends were more mixed.  In the San Francisco area, unit sales zoomed by 47.2%, but the median price eased down by 1.8% to $477,130.  In the San Jose area, unit sales were up by 76.6%, while prices dipped by 5.4% to $525,000.  The strength in unit sales in the face of unpleasant economic news was attributed to people who had been priced out of the market jumping back in.
     Another interesting note in the CAR's February data was the roster of cities with the greatest median home price increase.  Some of the locations were interesting, like La Verne (+42.9%), and Bell Gardens (+42.6%).
     Some people are starting to wonder if another "frenzy" is emerging in the California housing market.  (Jack Kyser)
PR: not yet available online at the time of this broadcast
 

AIRLINE TRAFFIC TRENDS STILL MIXED IN FEBRUARY

     Reports from Southern California airports on February activity were a mixed bag.  At LAX, total traffic during the month was down by 16.5% over the year.  This was the smallest decrease since last September.  International passenger activity was off by 14.1%, also reflecting some bounce-back.  At Ontario International, the February decline was only 7.2%.  The news was even better at John Wayne Orange County Airport, which registered just a 1.0% decline over the year.  At the Palm Springs airport, activity was down over the year by 17.0%, an improvement, but still disappointing as this is an important travel season for the area.  Data for the Burbank airport was not yet available.
     On the air cargo front, tonnage at LAX was down over the year by 15.1%, but Ontario posted an 11.6% increase.  As to international air cargo tonnage, the January bounce in import tonnage did not hold in February.  It was down by 6.2% over the year, while export tonnage was off by 21.0%  (Jack Kyser)
 

FEBRUARY CONTAINER COUNTS

     The February news from the Port of Los Angeles was fascinating.   The number of loaded import containers handled during the month was up a thumping 52.2% over the year, while export containers were ahead by 15.0%.  Total traffic at POLA in February was up by 31.7% to 435,008 containers.  There are three reasons for the big jump in imports.  One is the comparison with a soft month in 2001, the second is inventory restocking, while the third is nervousness over possible labor problems at mid-year.  (The talk between the longshoremen and the shipping companies is still fractious.)  While hard data for Long Beach is not available, preliminary estimates also point to some big gains.  (Jack Kyser)

QUICK STATS:

* BLS: US Consumer Price Index for 2/02: +0.2% (1/02: +0.2%)
* BLS: LA Area Consumer Price Index for 2/02: +1.0% (1/02: +0.7%)
* Cal Assn of Realtors: California single-family home sales for 2/02: +4.5% to 610,380 seasonally-adjusted annual rate (1/02: +23.1% to 584,250 s.a.a.r.)
* Cal Assn of Realtors: California median single-family home price for 2/02: +0.0% to $289,550 (1/02:+0.3%)
* Cal Assn of Realtors: LA County home sales for 2/02: -11.4% (1/02:+4.2%)
* Cal Assn of Realtors: LA County median home price for 2/02: +2.7% to $266,940 (1/02:+3.4%)
* Census: US exports for 1/02: -0.1% (12/01: -0.1%)
* Census: US imports for 1/02: +3.6% (12/01: -3.6%)
* Census: US trade deficit for 1/02: US$28.5 billion (12/01: $24.7bil.)
* Census: US housing starts for 2/02: +2.8% to 1.769 million annual units (1/02: +7.4% to 1.721mil.a.u.)
* Conference Board: US Index of Leading Economic Indicators for 2/02: +0.0% (1/02: +0.8%)
* Natl Assn of Realtors: US existing home sales for 2/02: -2.8% to 5.88 million annual units (1/02: +16.3% to 6.05mil.a.u.)

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