The Economic Data Global Express (e-EDGE)

v.6 n.21       Released May 28, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

BUDGET PROBLEMS WIDESPREAD THIS YEAR

     The U.S. government's budget was in surplus during April as expected, but by only $67 billion.  This was much lower than last year's $190 billion surplus.  Both sides of the government's accounts contributed to the decline.  Last month's revenues plunged by 28.4% compared to April 2001, while outlays increased by 19.9%.
     For the first seven months of the current fiscal year (which began on October 1, 2001 and ends September 30, 2002), the U.S. ran a deficit of $66 billion compared to a surplus of $165 billion over the same period in fiscal 2001-02.  About half of the $231 billion deterioration was due to falling personal income tax revenues.  The rest was attributable to a variety of factors:  falling corporate profits tax revenues, rising defense spending, higher payments for entitlements (like Social Security, Medicare, and Medicaid), and increased expenditures out of the unemployment insurance trust fund.
     California's budget problems are well known by now.  In the "May Revise," the regularly scheduled revision to his January budget proposals, the Governor estimated the "gap" between revenues and spending for the current fiscal year and fiscal 2002-03 (which ends June 30, 2003) at $23.6 billion.  The governor proposes to close the fiscal 2002-03 gap with lower spending, increased business taxes and vehicle license fees, more borrowing, and a number of bookkeeping adjustments.  What about later years?  He's hoping the state's economy and the stock market will turn around and the problem will just evaporate.  We'll see.  The Legislative Analyst's Office terms the current proposal "credible," but they note the state likely faces additional shortfalls in the future.
     California is not alone in its problems.  According to a survey by the National Council of State Legislatures, at least 40 states will have to consider making budget cuts this year.  However, California's tax system relies more heavily on personal income taxes and taxes higher incomes more heavily than many other states.  The state also has many high technology firms that are heavy users of stock-related compensation.  This wasn't a problem during the salad days when high tech employment and stock prices were both rising.  Indeed, the Department of Finance estimates that stock-related income taxes accounted for 24.7% of total revenues during fiscal year 2001-02.  However, employment growth has declined, especially in the high tech industries, and stock prices have plunged.  The result?  Stock related tax revenues have fallen too and will account for only 11% of the total this year.   (Nancy D. Sidhu)
 

OECD STUDY REVEALS A LITTLE KNOWN FACT ABOUT THE U.S.  ECONOMY:  RELATIVELY LOW TAX BURDEN!

     A study by the Organization for Economic Cooperation and Development (OECD), a Paris-based group of 30 advanced industrial countries, indicates that the United States is among the lowest in overall tax revenue as a percent of GDP.  For 2000, only three countries, Japan (27.1%), South Korea (26.4%), and Mexico (18.1%) had smaller tax revenue-to-GDP ratios than America's 28.9%.
     The "high-tax" countries are no surprise.  They include Sweden (53.3%) at the top, followed by Denmark (48.4%), Finland (46.5%), Belgium (46.0%), and France (45.5%).  Europe's largest economy, Germany, has a relatively high ratio of tax revenues to GDP, 37.8%.  The United Kingdom and Canada are in the same league with Germany, at 37.7% and 37.5% respectively.  It is also not surprising that Ireland's "low-tax" advantage has been an important driving force in the "Celtic Miracle" that has seen massive foreign investment in that country since the 1990s.  Australia is also proving attractive to foreign investors, as its 30.6% tax ratio ranks it among the lowest of  all OECD countries.
     The main differentiating characteristics of the U.S.  tax system, compared with other OECD countries, are:  (1) greater dependence on personal income taxes;  (2) a higher share of total tax revenue raised from property taxes, imposed by local governmental entities and mainly used to finance education;  (3) the absence of a value-added-tax (VAT)--retail sales tax is imposed by each state at varying rates (some states have none); and (4) relatively low taxation of gasoline, alcohol, and tobacco.
     The OECD estimates that when the 2001 U.S.  tax changes are fully implemented by 2010, the tax revenue-to-GDP ratio in the U.S.  will be lowered by 1.25%.  One has to wonder whether other OECD countries, especially the European Union members, will follow a path of lower taxation in the years ahead.  If not, the tax-burden differential with the U.S.  will at least remain, if not widen, and U.S.  attractiveness to foreign investors will be even greater in the future.
     Although this comparison with other countries is an eye-opening experience, we are not likely to give up our national pastime of complaining about taxes--lumping it with the other inevitable "demon", death.  (Ken Ackbarali)
 

APRIL RESALE HOUSING VERY HOT

     The resale housing market in California in April continued at a superheated pace, according to the California Association of Realtors (CAR).  For the state, unit sales were up 29.8% over the year, while the median price advanced by 26.1%.  The unsold inventory index compiled by the CAR was 2.0 months, compared with last year's reading of 4.0 months.
     There were some surprises in the data, however.  Despite economic hard times, the San Francisco area's resale market was quite strong.  In "San Francisco Bay," unit sales were up by 72.9% over the year while the median price was up 9.5% to $529,940.  In San Jose, unit sales shot up by 118.8% while the median price advanced by 4.2% to $552,250.  However, the Riverside-San Bernardino area turned in a mixed performance.  Unit sales were up a wan 1.9% over the year, while the median price advanced by 7.7% to $165,710.
     Elsewhere in Southern California, Los Angeles County saw unit sales in April move ahead by 26.5% while the median price jumped by 21.1% to $274,460.  In Orange County, unit sales moved up by 30.0%, while the price increased by 11.2% to $392,610.  In San Diego County, unit sales increased by 28.7% in April, while the median price went up by 14.8% to $345,540.  Ventura County chipped in with a 46.8% increase in unit sales, while the price was up by 18.1% to $355,080.
     More interesting detail from the CAR's April report.  The roster of cities with the greatest price increase over the year included names like Los Alamitos (+43.6%), La Verne (+42.0%), Big Bear (+38.9%), and Paramount (+32.4%).
     Moreover, builders wonder if the state will ever be able to build enough new housing to keep up with demand (and take some of the upward pressure off the resale housing market).  (Jack Kyser)
 

MIXED AIRLINE TRAFFIC TRENDS IN APRIL

     There was good news and bad news in the region's April airport data.  First the bad.  Activity at LAX fell back, with a 20.8% decline over the year.  In March the year-to-year decline had narrowed to 14.3%. International activity was off by 21.3%, which also represented an interruption in the recovery trend.  The good news was found at John Wayne Orange County Airport, which posted an INCREASE over the year of 5.6%.
     The Palm Springs airport recorded a 10.1% decline in traffic in April, with a slow recovery in activity still underway.  We now have data for the Long Beach Airport (you asked), with April posting an increase of 58.6% over the year.  Before you get too excited, this reflects last year's start of service by JetBlue.
     April data for other local airports is not yet available.  March traffic at Burbank-Glendale-Pasadena was down by 4.2%, again a slow recovery.
     On the air cargo front, LAX's April tonnage was down by 10.5% over the year.  International air cargo tonnage during the month was down by 8.9%, with mixed trends still on display.  Export tonnage was off by 19.5%, while import tonnage was down by only 1.1%.  This component has been bouncing up and down in recent months, with March ahead by 4.0%.  (Jack Kyser)
 

MARCH TRADE VALUES

     The value of goods passing through the state's customs districts continued to lag in March.   At Los Angeles, exports were down by 10.0% over the year, while imports slipped by 12.5%.  Total two-way trade value in March was down by 11.6% to $16.5 billion.  The total for the first 3 months of the year was $48.0 billion, down by 10.5%.
     The news at the San Francisco district in March continued to disappoint.  Exports were down by 35.3%, while imports declined by 21.9%.  The month's total of not quite $7.0 billion was below last year by 32.0%.  The 3-month total of $18.7 billion was also behind by 36.6%.
     At the San Diego district, March exports were down by 4.7%, imports slipped by 5.0% (after year-to-year increases in January and February), and the month's total of $2.8 billion was off by 4.9%.  The 3-month total of $8.0 billion, however, was down from last year by only 0.2%.  (Jack Kyser)
 

QUICK STATS:

* BEA: US personal income for 4/02: +0.3% (3/02: +0.4%)
* BEA: US disposable personal income for 4/02: +0.3% (3/02: +0.5%)
* BEA: US personal consumption expenditure for 4/02: +0.5% (3/02: +0.3%)
* BEA: US personal savings rate for 4/02: 2.8% (3/02: 3.0%)
* BEA: US Gross Domestic Product (preliminary) for 1Q02: +5.6% (4Q01: +1.7%)
* BEA: US personal consumption expenditure (preliminary) for 1Q02: +3.2% (4Q01: +6.1%)
* BEA: US implicit GDP deflator (preliminary) for 1Q02: +1.0% (4Q01: -0.1%)
* Cal. Assn of Realtors: California existing home sales for 4/02: 9.7% to 643,000 annual units (3/02: -4.0% to 586,100 a.u.)
* Cal. Assn of Realtors: California median (single-family) home sale price for 4/02: +5.2% to $321,950 (3/02: +2.6% to $306,000)
* Cal. Assn of Realtors: LA County existing home sales for 4/02: +11.8% (3/02: +34.7%)
* Cal. Assn of Realtors: LA County median home sale price for 4/02: +2.9% to $274,460 (3/02: 0.0% to $266,700)
* Census: US new durable goods orders for 4/02: +1.1% (3/02: +0.2%)
* Census: US durable goods shipments for 4/02: +3.5% (3/02: +0.5%)
* Census: US durable goods inventories for 4/02: -0.3% (3/02: -1.0%)
* Census: US unfilled durable goods orders for 4/02: -0.5% (3/02: +0.3%)
* Census: US new home sales for 4/02: +1.0% to 915,000 annual units (3/02: -3.0% to 906K a.u.)
* Conference Board: US Consumer Confidence Index for 5/02: 109.8 (4/02: 108.5)
* Natl Assn of Realtors: US existing home sales for 4/02: +0.7% to 5.79 million annual units (3/02: -8.1% to 5.41mil.a.u.)

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