The Economic Data Global Express (e-EDGE)

v.6 n.18       Released May 6, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

U.S. LABOR MARKETS MIXED AGAIN IN APRIL

     The Bureau of Labor Statistics released its monthly labor market report Friday showing that labor market conditions were mixed in April.  The headline figure was the rise in the nation's unemployment rate to 6.0% from 5.7% in March and 5.5% in February.  This increase was more than expected and represents a new high rate for this business cycle.  Unemployment rates rose for all categories of workers last month.  The biggest increases were registered by Hispanics, up by 0.6 percentage points to 7.9%, blacks, up by 0.5 percentage points to 11.2%, adult women and teenagers, both up by 0.4 percentage points to 5.4% and 16.8% respectively.
     Unemployment rates tend to lag behind the economic cycle, and this go-around appears to be no exception.  However, last month's jobless rate was boosted by the recent extension of unemployment benefits, part of Congress' economic stimulus package.  Many people who had previously dropped out of the labor force when their unemployment compensation ran out apparently decided to return to the fray and signed up for extended benefits in April.
     The Bureau's survey of employers was more encouraging.  Nonfarm employment increased by 43,000 jobs in April, following revised declines of 21,000 and 4,000 jobs in March and February respectively.  As March was revised down (from an original estimate of +58,000 jobs), last month's rise in payroll employment was the first "plus" figure since July 2001.  Revisions aside, the last three months represent a distinct improvement over prior months.  Between March 2001 and January 2002, monthly job losses averaged 144,000 per month. The broad picture for April was similar to March and showed job losses in construction and manufacturing, the latter posting its 21st consecutive month of decline.  These losses were more than offset by an increase of 134,000 jobs in service producing industries.  Industries registering notable increases were help supply services, up by 66,000 positions, health services, rising by 15,000, and engineering and management services, which rose by 14,000 jobs.
     Help supply job counts have risen for three months now, an encouraging sign.  Firms are turning to temps to catch up with increased orders.  Then, if the uptrend looks like it will continue, they will hire permanent workers again.  As the economic recovery gains strength, we are seeing progressively smaller losses in manufacturing and more widespread gains in services.  (Nancy D. Sidhu)
PR: http://www.bls.gov/news.release/empsit.nr0.htm
 

NO NEED FOR THE FEDERAL RESERVE TO CHANGE INTEREST RATES

     The Federal Reserve, throughout its long history (since 1913), has had difficulty resisting the temptation to "tinker" with the economy.  This tendency has been largely fed by the difficult balance the policymakers try to achieve between the strength of the economy and the inflation rate.  Once again, this critical balance is at stake.  Will the wise and experienced leader of the Federal Reserve, Chairman Greenspan, make the right call on Tuesday 5-7 when the Federal Open Market Committee meets?
     What is the right call?  We see a convincing case for the Fed to stand pat, i.e. avoid tinkering with interest rates this time around, and re-assess economic conditions at its next meeting at the end of June.  Here are the reasons for not raising rates:  First, the strong surge of the national economy in the first quarter came largely from the slowing of inventory liquidation rather than improving fundamentals.  Second, the second quarter has seen some dampening in manufacturing sector.  Third, consumer confidence has slipped a little.  Fourth, despite the recent spike in gasoline prices, inflation signals are not yet worrisome.  Fifth, the larger federal government deficit will soon push up long-term bond rates, which will boost mortgage interest rates and eventually dampen the housing sector.
     On the opposite side of the coin, the Fed does not need to overreact to the April rise in the national unemployment rate to 6.0% by lowering its Fed Funds Rate.  This is a lagging indicator and is behaving in the classical manner.  So, we appreciate and respect the dedication and conscientiousness of Mr. Greenspan and his colleagues.  But this would be a great time for them to go fishing, engage in holiday travel, and spend quality time with family and friends. No tinkering with financial markets needed.  I hope we be are not surprised !  (Ken Ackbarali)
 

MANUFACTURING EXPANDED FOR THE THIRD MONTH

     The U.S. manufacturing sector continued to expand, according to the latest reading of the manufacturing Purchasing Managers' Index (PMI) compiled by the Institute for Supply Management (ISM).  The index for April was 53.9%, down slightly from 55.6% in March and 54.7% in February.  A PMI above 50.0% indicates expansion of manufacturing activity.  All but the inventories and employment sub-indices are in "growth" territory (i.e. >50%).  Notably, prices paid for materials are in the positive territory.  Inventories are still being depleted, but the rate of liquidation is slowing--a sign that new production is needed to fill orders.  Employment is still shrinking, however.  Manufacturers are being very cautious--keeping inventories low, delaying the addition of full-time workers until things turn up, and cutting capital expenditures.  (George Huang)
PR: http://www.ism.ws/ISMReport/ROB052002.cfm
 

NEW HOMEBUILDING SLUGGISH IN MARCH

     While the resale housing market in California is red hot, new homebuilding activity continues to be muted according to the latest Construction Industry Research Board report.  The number of permits issued in March was up from February, but below last year.  The state's three-month total was 3.9% behind the comparable period of 2001.
     Around Southern California, the news was mixed.  The number of housing unit permits issued in March in Los Angeles County was up from the previous month, but below March of 2001.  The County's three-month total was 43.9% behind last year.  The monthly pattern was the same in Orange County, but its three-month total was ahead of last year by  30.9%, with builders reporting strong demand.  The Riverside-San Bernardino area continued to set the housing pace, with the March permit count up over both the previous month and year.  The area's three-month total was ahead by 25.4%.  The pattern was similar in San Diego County, but its three-month housing total was about even with last year, down by 0.9%.  In Ventura County, the March permit total was down from the previous month and over the year, with the three-month total lagging last year by 34.8%.
     In the Bay Area, new homebuilding activity continued to lag.  The three-month permit totals in the San Francisco metro area were down by 39.0% while the San Jose area was behind by 33.3%.  (Jack Kyser)
 

NONRESIDENTIAL CONSTRUCTION WEAK IN MARCH

     The Construction Industry Research Board's March data on nonresidential construction pointed to a sluggish pace of activity, with retail being the only sector reporting some gains.  In Los Angeles County, the three-month permit valuations were all down: industrial -35.7%; office -90.6%; and retail -19.9%.  The story was the same in Orange County: industrial -52.3%; office -48.3%; and retail -11.7%.  The trend was ditto in San Bernardino County: industrial -36.4%; office -73.3%; and retail -55.5%.
     Riverside County broke the pattern: industrial -13.2%; office -53.0%; but retail permit valuations were up 25.0%.  San Diego County followed along: industrial -7.5%; office -43.8%; but retail was up by 44.3%.  In Ventura County, industrial was off 31.5%, office was down by 95.95, but retail was up by 78.6%.
     Restraint was really the order of the day in the 9-county Bay Area.  For the first three months, industrial permit values were behind last year by 75.4%, office was off by 70.9%, and retail was down by 17.8%.  (Jack Kyser)
 

ENERGY NOTES

     A few developments worth noting:
* BP, which operates Arco gas stations in California, announced its intention to phrase out MTBE from its gasoline by the end of the year.  MTBE has been shown to pollute ground water, and it's scheduled to be phased out by 2004.  BP had signed contracts with ethanol suppliers already, but some other gasoline companies are concerned over the lack of infrastructure to bring ethanol from the Midwest to California.  Expect gasoline prices to be higher when more firms adopt ethanol as the oxygenate additive.
* The State has been successful in negotiating some of the long-term power contracts it signed during the worst days of the energy crisis.  The $47-billion pack of contracts has come under criticism when the spot market prices for electricity plunged last year.  The latest renegotiation involves CalPeak and calls for elimination of one proposed power plant and modifications to six other projects.
* Now that spot prices for electricity are much lower than in early 2001, several proposed power plants have been delayed.  The lower spot market prices make some of the projects less desirable to lenders, investors and developers.  Governor Davis' threats to revoke some long-term contracts added additional uncertainty into the equation.  The reduced capacity expansion probably won't affect California in the next year or so if the weather cooperates.  Besides meeting additional demand, some of the proposed plants are meant to replace old plants that are scheduled for retirement.  Given that blackouts didn't materialize last summer (one of the coolest on record), there's a lack of urgency in Sacramento to tackle the hidden dangers of long-term electricity shortages.  (George Huang)
 

QUICK STATS:

* BLS: US unemployment rate for 4/02: 6.0% (3/02: 5.7%)
* BLS: US nonfarm employment for 4/02: +43,000 (3/02: -21,000)
* Institute for Supply Mgmt.: US manufacturing Purchasing Managers' Index for 4/02: 53.9% (3/02: 55.6%)
* Census: US construction spending for 3/02: -0.8% (2/02:+0.7%)
* Census: US new factory orders for 3/02: +0.4% (2/02: +0.2%)
* Census: US factory shipments for 3/02: +0.7% (2/02: -2.9%)
* Census: US unfilled factory orders for 3/02: +0.2% (2/02: +0.4%)
* Census: US factory inventories for 3/02: -0.6% (2/02: -0.5%)
* USDA: US agricultural prices for 4/02: -9.5% (3/02: +6.1%)
* Conference Board: US Consumer Confidence Index for 4/02: 108.8 (3/02: 110.7)
* BEA: US vehicle sales for 4/02: +3.0% to 17.4 million annual units (3/02: +1.2% to 16.9mil.a.u.)

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