The Economic Data Global Express (e-EDGE)

v.6 n.25       Released June 24, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

NO BIG SURPRISE--FED TO STAND PAT ON INTEREST RATES

     A number of factors will converge to influence Federal Reserve officials to leave interest  rates unchanged, after their deliberations tomorrow and Wednesday.  They are likely to conclude from their analysis of economic conditions that it is premature to raise the Federal Funds Rate (FFR) from its current 1.75% level.  Perhaps the most important factor in the picture is that the national economy's pace has slowed significantly in the second quarter, from the nearly 5.6% annualized rate of expansion in the first quarter of the year.
     The housing sector continues to boom, fueled by low mortgage rates, and this in turn has boosted consumer spending.  Investor confidence, however, has been devastated by a seemingly unending string of alerts of another terrorist attack, corporate announcements of re-stated financial results, disappointing earnings reports, and outright scandalous behavior by certain corporate CEOs.  On top of this, worker layoffs continue to plague the job market and business investment is still spotty.
     Some observers worry about the inflation rate rising beyond the Fed's tolerance limits later this year.  But, this is not very likely if "core inflation" (which excludes energy and food) is the target--and targetting core inflation, not "headline" inflation, would allow for oil prices going higher in the unstable international environment.
     Since the pace of the expansion is modest, inflation remains benign, and a "hands-off" policy on the dollar is being observed, the Federal Reserve should feel no urgency to raise the FFR rate this week.  In fact, economic conditions may not warrant a rate hike until the fourth quarter of this year.  (Ken Ackbarali)
 

U.S. BUDGET WOES CONTINUED IN MAY

     The U.S. government ran a deficit of $80.6 billion in May, an increase of 188% over the May 2001 shortfall of $27.9 billion.  Both sides of the government's accounts contributed to the deterioration over the year.  Total revenues plunged by 18.4% while outlays increased by 10.0%.  For the fiscal year 2001-02 to date (i.e., from October 2001 through May 2002), the federal deficit was $147.1 billion compared to a surplus of $137.1 billion for the same period last year.
     Looking more closely at the latest Monthly Treasury Statement, one can see problems everywhere.  Revenues have declined by $160 billion while spending rose by $124 billion.  Personal income tax receipts have dropped by $144 billion and corporate profits taxes by $18 billion.  Government analysts estimate that between $35 billion and $40 billion of the total drop ($162 billion) is due to Congressional actions during 2001 and 2002 (tax rebates, rate cuts, and other reductions in the economic emergency bill last March, remember?).  That means between $122 billion and $127 billion of the total deterioration in government revenues was caused primarily by last year's recession and the plunge in stock prices.
     Meanwhile, federal spending is rising apace.  Here are the depressing statistics.  Defense outlays have increased by $31 billion, or 15.7%.  Social security payments have risen by $16 billion, up by "only" 5.6%.  Outlays for income security programs (primarily government pensions, unemployment compensation, and other welfare programs) were up by $34 billion, or 17.9%.  Health and Medicare spending was up by $31 billion, or 12.4%.  Last, but definitely not least, spending for "other" types of programs soared by $38 billion, or 21.9%.  Net interest payments were still falling through May, down by $26 billion or 17.8%, but this offset will not last long now that the federal debt is on the rise.
     The Treasury has told Congress it will hit the federal debt limit soon, perhaps this week, and has asked that the limit be increased.  As usual, Congress is taking its own sweet time responding to this request.  Meanwhile, the range of forecasts for the fiscal year 2001-2002 final, 12-month deficit begins near $100 billion and goes up from there.  Forecasts for the next fiscal year, which begins October 1, 2002, begin at about $200 billion.  The administration and congress both will issue updated forecasts later this summer, after they see what June brings.  It looks like a long, hot summer is in store for Washington.  (Nancy D. Sidhu)
PR: http://www.fms.treas.gov/mts/mts0502.pdf
 

CALIFORNIA'S BUDGET WOES

     California's budget numbers may be smaller than the U.S., but the problems are just as severe, perhaps more so.  The latest Bulletin from the Department of Finance showed that May revenues were 6.7% below forecast.  Fiscal year-to-date receipts were down by $13 billion or 18.4% from May 2001.  (California's fiscal year runs from July 1st through June 30th.)  California's main budgetary problem was a 26.3% decline in personal income and corporation taxes totaling $13 billion.  The Governor's May revision anticipated that state spending would drop by 1.9%, or about $2 billion, this year.
     This week the Governor and the legislature will continue wrestling with next year's budget.  The fiscal year 2002-2003 begins on Monday, and a huge two-year deficit, currently estimated at $23.6 billion, must be addressed.  Given the drastic decline in revenues, the real issues are:  how much to reduce spending and where, and how much to increase taxes and on whom.  The Governor has proposed to increase spending for K-12 education and reduce it pretty much everywhere else, which increases the burden on spending programs in the "other" category.  Legislators also have several different proposals to pick from.
     The final outcome is still in doubt.  However, this much is certain:  (1) The final budget will be late, as usual.  (2) County and city governments will share in Sacramento's pain.  (3) Your payments to Sacramento will go up.  (4) Copious amounts of chewing gum, scotch tape and baling wire will be necessary before everyone can go home for the summer.  They will need their rest, because the 2003-2004 fiscal year will also have a deficit problem.   (Nancy D. Sidhu)
     PS:  This discussion still assumes that $6.6 billion in state "electricity bonds" will be issued sometime soon, and the loans from the General Fund (to pay for electricity in 2001) will be repaid.  BUT that's a story for another day….
CA Budget site: http://www.dof.ca.gov/HTML/BUD_DOCS/Bud_link.htm
 

INFLATION, WHAT INFLATION?

     The U.S. Consumer Price Index (CPI) was unchanged in May, thanks to declines in energy and food prices.  Energy prices dropped by 0.7% last month after two months of significant increases (+4.5% in April and +3.8% in March).  Gasoline prices were the prime mover, declining by 2.8% in May after a 10.1% jump in April and an 8.0% increase in March.  Food prices fell by 0.2%.  Excluding food and energy prices, the core CPI rose by 0.2% in May, following a 0.3% increase in April.  The May CPI was 2.5% over the year-ago level, not cause for concern by any means, while the core CPI was 2.1% higher than a year ago.
     The L.A. Area CPI rose by 0.2% last month, following a 0.6% jump in April.  (Local CPIs are not seasonally adjusted.)  Food prices increased by 0.7%.  Energy prices fell by 0.5%.  Gasoline prices declined by 1.9% and were 19.1% below the year-ago level.  Compared to a year ago, the local CPI for      May was up 2.9% and the core CPI was 3.5% higher.  (George Huang)
US PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA Area PR: http://www.bls.gov/ro9/ro9cpila.htm
LA Area data: http://www.e-edge.org/cpi-la.htm
 

MAY CONTAINER TRAFFIC -- THE RUSH IS ON

     The May container data from both local ports was quite strong.  Los Angeles set the pace in the number of loaded inbound containers moved, with a 35.0% increase over the year, while Long Beach posted an 18.0% gain.  The total number of loaded inbound containers in May was 505,831, up by 26.7%.  This was also a new record level for any month, according to our counts.
     Loaded export container traffic was also good in May, with Los Angeles recording a 10.7% increase over the year, while Long Beach was up by 3.6%.  The total number of export containers handled in May was 180,747, up by 7.3%.  Total container traffic handled at the twin ports in May hit 959,247, up by 25.0%.  Again by our records, this is a new record level.
     What's driving this rush?  It's fear of a strike by the International Longshoremen's Union.  Negotiations are continuing, but there is little word of what's really happening.  There are a lot of nervous people around as July 1 approaches.  (Jack Kyser)
POLA data: http://www.portofla.org/statistics/detailmonth.htm
POLB data: http://www.polb.com/html/2_portStats/teus.html
 

MORE MAY AIRPORT NUMBERS

     Passenger traffic at the Palm Springs Airport continued to lag in May, with a decline of 11.8% over the year.  The facility has been stuck at this level since March.  However, the Long Beach Airport continued to record stunning gains (the JetBlue effect?), with May traffic up by 74.0% over the year.  (Jack Kyser)
 

APRIL HOTEL ACTIVITY STILL PALLID

     According to PKF Consulting, hotel activity in Los Angeles County in May was still lackluster.  The overall vacancy rate came in at 66.2%, compared with 70.6% a year ago.  The average daily room rate also declined, by 2.5% to $120.00.  As usual, the County's strongest submarket in April was Valencia at 89.7%, down a tad from last year's 90.0%.  And the ADR increased by 2.0% to $89.83.  The next strongest submarket was Santa Monica at 77.1%, up from 69.8% last year.  However, the ADR declined by 10.2% to $191.07.   The weakest submarket in April was Downtown (over $85), at 38.5%, compared with 54.8% last year.  And the ADR eased down by 0.6% to $121.45.
     Orange County turned in a slightly stronger performance in April, with the occupancy rate at 69.9%, compared with 72.4% a year ago.  The ADR slipped by 5.7% to $114.16.  The strongest submarket was Anaheim, with a 74.0% occupancy rate, down modestly from 74.8% last year.  However, promotion was the word of the month, as the ADR declined by 5.1% to $119.95.  (Jack Kyser)
 

QUICK STATS:

* BEA: US Current Account for 1Q02: -US$112.5 billion (4Q01: -US$95.1)
* BLS: US Consumer Price Index for 5/02: +0.0% (4/02: +0.5%)
* BLS: LA Area Consumer Price Index for 5/02: +0.2% (4/02: +0.6%)
* Census: US housing starts for 5/02: +11.6% to 1.733 million annual units (4/02: -7.3% to 1.553mil.a.u.)
* Census: US exports for 4/02: +2.2% to US$80.1bil. (3/02: +1.2% to US$78.4bil.)
* Census: US imports for 4/02: +4.7% to US$116.0bil. (3/02: +0.5% to US$110.9bil.)
* Census: US trade deficit for 4/02: US$35.9bil. (3/02: US$32.5bil.)
* Conference Board: US Index of Leading Economic Indicators for 5/02: +0.4% (4/02: -0.3%)

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