The Economic Data Global Express (e-EDGE)

v.6 n.17       Released April 29, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

U.S. ECONOMIC GROWTH SURGED IN FIRST QUARTER

     The U.S. economy powered forward at a 5.8% rate in the first quarter of 2002, a marked improvement over the 1.7% growth registered during the fourth quarter and the 1.3% decline of the third.  Indeed, last quarter's growth rate was the highest since the final quarter of 1999.  (All rates quoted are seasonally adjusted and annualized.)
     The two biggest contributors by far to last quarter's performance were business inventories and non-vehicle consumer spending.  Many firms discovered they had to increase their stocks after pushing them down dramatically during the last three months of 2001, and this swing from de-stocking to re-stocking boosted first quarter economic growth by 3.1 percentage points.  Household purchases of nondurable goods and services rose briskly, enhancing economic growth by another 3.3 percentage points.  Continued increases in government spending at all levels were the third major positive, adding 1.4 more percentage points to last quarter's economy.  Finally, rising exports of goods and services and increased new home construction contributed another 0.7 and 0.6 percentage points respectively.
     On the downside, a huge surge in imports of goods and services--much of it due to business firms re-filling their pipelines--subtracted 1.9 percentage points from the economy's first quarter growth rate.  Also, household purchases of consumer durable goods--mostly motor vehicles--declined, pushing growth down by another 0.7 percentage points.  Lastly, business investment spending on plant, equipment and software continued weak, subtracting 0.7 percentage points.
     What to make of all this?  The headline figure of 5.8% surely overstates the true condition of the U.S. economy, boosted as it was by substantial inventory building.  However, abstracting from inventories, the first quarter saw respectable improvement in many sectors, though not yet in business investment.  It looks like the recession ended with a burst of re-stocking by U.S. business firms.  This will, however, not be repeated in the second or future quarters.  What happens in the current quarter will give us a much better idea of the shape of the current recovery.   (Nancy D. Sidhu)
PR: http://www.bea.doc.gov/bea/newsrel/gdp102a.htm
 

GLOOMIER FORECAST FOR LATIN AMERICA IN 2002

     According to a panel of economic forecasters from European, British, and American financial firms, the consensus outlook for Latin American emerging-market countries in April 2002 became gloomier than the comparable viewpoint in January. This reflected the persistent financial troubles in Argentina as well as political instability in Venezuela.  Argentina's GDP in 2002 is now projected to decline by 10.6%, over twice the rate of shrinkage, 4.7%, expected in January.  This comes on the heels of a 3.1% decrease in 2001, in the wake of Argentina's financial crisis.
     Venezuela's GDP for 2002 is forecast to fall by 1.7% compared with the January consensus of an increase of 1.2%. In 2001, GDP growth of 2.8% was achieved. Uncertainties over President Chavez's ability to ward off his challengers combined with oil price volatility have clouded the picture for Venezuela.
     The 2002 outlook (GDP growth) for Brazil (2.3%), Chile (3.0%), Colombia (2.2%), and Peru (3.5%) remained close to the January consensus.  To some extent, this is a reflection of the relative containment of the Argentine problem which appears to have not contaminated the rest of Latin America.  On the other hand, the brighter outlook for the U.S. economy this year has not filtered into the outlook for these four countries.
     If this panel of forecasters turns out to be correct, virtually all emerging-market countries can look forward to stronger economic growth in 2003. Projections for East Asia, Latin America, Eastern Europe, et al are very upbeat for next year.  U.S. exporters and investors will need to be patient in the next several months, as we get through the current "choke point" in global economic conditions.  (Ken Ackbarali)
 

O JOBS, WHERE ART THOU?

     Although some analysts are already claiming that a recovery is underway, we have yet to see a strong rebound in the labor markets.  This is actually quite normal.  Employment is often seen as a lagging indicator of business cycles, because firms tend not to hire or fire workers quickly due to the high costs associated with both actions.  When businesses see stronger demand, they'll first squeeze more out of existing workers (i.e. overtime, see article below) or hire temps before adding permanent workers.  When a recovery is evident, businesses will add permanent workers.  The Help-wanted Advertising Index (HWI) from the Conference Board posted a small decline in March to 46, after holding at 47 for three consecutive months.  The index has stayed around 45-47 after 9/11.  One local temp agency said they're getting more requests for small assignments from small companies and fewer larger assignments (i.e. longer timeframe and larger number of workers).  Perhaps large companies that had not downsized significantly have spare capacity while smaller companies that need additional workers are still nervous about hiring.
     But there are other reasons hindering a recovery in employment.  One is rising labor costs.  According to the Bureau of Labor Statistics, the Employment Cost Index (ECI) rose by 0.8% during the first quarter (compared to a 1.0% increase during 4Q01).  Wages and salaries rose by 0.8%, after a 0.9% 4Q01 increase.  But the real killer was benefit costs, which rose by 1.0% during the 1Q02 and 1.2% during 4Q01.  Medical insurance costs are rising at an alarming rate.  In our CPI analysis last week, we showed that medical costs continue to outpace general inflation by a large margin.  The mild numbers in the ECI are a bit deceiving.  In response to rising medical insurance costs, some businesses have downgraded their insurance coverage or pay their workers cash to finance the purchase of their own insurance.  It's almost impossible that the increases in cash payments would keep up with rising insurance costs.  In one sense, workers are hit twice.  First by getting cash that couldn't buy the same insurance; and second, by losing the bargaining power that comes with group policies.  (George Huang)
HWI PR: http://www.conference-board.org/search/dpress.cfm?pressid=4706
ECI PR: http://www.bls.gov/news.release/eci.nr0.htm
 

SIGNS OF LIFE IN MANUFACTURING

     Being wonks at heart, we look at many economic indicators, and we have spied a sign of life in California's manufacturing sector.  Average weekly hours worked in manufacturing in March were up over the year to 41.2 hours, for the first year-to-year gain since November 2000.  Both the durable and nondurable sectors were also up.  More good news was found in average overtime hours worked in March, with the 4.3 hours worked per week matching last year.  Manufacturing hours worked in the four local metro areas in March were still below the year ago levels, but the gap was closing.  (Jack Kyser)
 

RESALE HOUSING STILL HOT IN MARCH

     According to the California Association of Realtors (CAR), the state's resale housing market continued to perform strongly in March.  Unit sales were up over the year by 13.1%, while the median price advanced by 18.8% to $305,940.  The latter was a new record level.   The Unsold Inventory Index (the number of months needed to deplete the supply of homes available at the current sales rate) was just 2.3 months, compared with 3.5 months a year ago.
     Around Southern California, the March picture was much the same.  In Los Angeles County, unit sales were up over the year by 12.4%, while the median price advanced by 16.9% to $266,830.  In Orange County, unit sales were up by 16.6%, while median price increased by 10.2% to $379,760, also a new high.  In the Riverside-San Bernardino area, unit sales declined by 2.5% over the year, but the median price moved ahead by 13.3% to $170,670.   San Diego County had a very strong March, with unit sales up 27.3%, and the median price ahead by 18.5% to $338,410.   Unit sales of resale housing in Ventura County were up by 23.3%, while the median price moved ahead by 12.5% to $336,340.
     March produced surprising resale numbers in the Bay Area.  In San Francisco Bay, unit sales were up over the year by 29.0%, while the median price increased by 3.2% to $507,530.  In Santa Clara County, unit sales shot up by 59.0% in March, but prices declined over the year by 5.3% to a still lofty median of $535,000.
     What next for the resale housing market in California?  While mortgage rates should hold at attractive levels for a few more months, some people worry about a "frenzy" mentality; i.e., mortgage rates could go up and the inventory is thin.  When buyers pull back, will prices also soften?  (Jack Kyser)
PR: http://www.car.org/index.php?id=MzA2NTY=
 

ADDITIONAL HOTEL NEWS

     The February hotel data for Orange County has just come in from PKF Consulting, and a semi-recovery is again in view.  Occupancy rates continue to move up, to 61.8% compared with 56.3% in January.  However, this is still below the 70.5% reading of last February.  The average daily room rate (ADR) is also inching up, but at $116.74 in February is 4.1% below last year.  The strongest market during the month was Orange County Airport at 64.5% occupancy, but the ADR was down by 5.2% over the year to $108.66.
     The February hotel occupancy rate in San Diego County was a relatively healthy 72.8%, but this was still down from 77.0% last year.  The ADR also eased by 5.1% to $129.36.  The strongest market in the County was Downtown, with a February occupancy of 79.1%, UP over last year's 78.0%.  However, the ADR slipped by 2.8% to $141.10.  San Diego's product is attractive, and they have aggressively pursued the drive market.  (Jack Kyser)
 

FEBRUARY INTERNATIONAL TRADE VALUES STILL WEAK

     While container counts are improving at local ports, the value of goods passing through the Los Angeles Customs District is still looking for a bottom.  The value of exports in February was down over the year by 21.0%, however  import values were up by 9.1%, the first increase since January 2001.  Total trade value at Los Angeles in February was down by 2.3%, and the two-month total at $31.4 billion was below last year by 10.0%.
     The San Francisco district continued to struggle in February.  Export values were down by 39.6%, while imports dipped 31.4%.  Total trade value for the month was 35.4% below last year, while the two-month total at $11.7 billion was off 39.0%.  The news from the San Diego district was mixed, with export values down by 9.5%, but import values managed a 7.8% gain over the year.  The February total trade value was positive for the second month in a row, with an increase of 1.1%.  The two-month total was up 2.4% to $5.2 billion.  (Jack Kyser)
 

QUICK STATS:

* BEA: US Gross Domestic Product (advance report) for 1Q02: +5.8% annual rate (4Q01: +1.7% a.r.)
* BEA: US personal consumption expenditures for 1Q02: +% a.r. (4Q01: +% a.r.)
* BEA: US business investments in equipment & software for 1Q02: -0.5% a.r. (4Q01: -5.3% a.r.)
* BEA: US implicit GDP deflator for 1Q02: +0.8% a.r. (4Q01: -0.1% a.r.)
* BEA: US personal income for 3/02: +0.4% (2/02: +0.6%)
* BEA: US disposable personal income for 3/02: +0.5% (2/02: +0.7%)
* BEA: US personal consumption expenditure for 3/02: +0.4% (2/02: +0.6%)
* BEA: US personal savings rate for 3/02: 2.2% (2/02: 2.1%)
* BLS: US Employment Cost Index for 1Q02: +0.8% (4Q01:+1.0%)
* Cal Assn of Realtors: California existing home sales for 3/02: -4.0% (2/02: +4.5%)
* Cal Assn of Realtors: California median existing home sale price for 3/02: +2.6% to $305,940 (2/02: +0.0% to $298,190)
* Cal Assn of Realtors: LA County existing home sales for 3/02: +34.7% (2/02: -11.4%)
* Cal Assn of Realtors: LA County median existing home sale price for 3/02: +0.0% to $266,830 (2/02: +2.7% to $266,940)
* Census: US new home sales for 3/02: +6.0% to 953,000 annual units (2/02: +1.9% to 899K a.u.)
* Census: US new durable goods orders for 3/02: -0.6% (2/02: +2.7%)--including a 17.8% jump in defense orders
* Census: US durable goods shipments for 3/02: +0.0% (2/02: -3.0%)--excludes semiconductors
* Census: US unfilled durable goods for 3/02: +0.2% (2/02: +0.4%)
* Census: US durable goods inventories for 3/02: -1.1% (2/02: -0.7%)
* Census: US homeownership rate for 1Q02: 67.8% (4Q01: 68.0%)
* Conference Board: US Help-wanted Advertising Index for 3/02: 46 (2/02: 47)
* Natl Assn of Realtors: US existing home sales for 3/02: -8.3% to 5.40 million annual units (2/02: -2.6% to 5.89mil.a.u.)
* Univ. of Michigan: US Consumer Sentiment Survey for 4/02: 93.0 (3/02: 95.7)

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