The Economic Data Global Express (e-EDGE)

v.6 n.51       Released Dec. 23, 2002
Produced by the Los Angeles County Economic Development Corporation as a public service to the global community.

FEDERAL BUDGET SUMMARY--NOVEMBER RESULTS

      The U.S. federal budget ran a deficit of $59.1 billion in November, worse than the $54.3 billion deficit of November 2001.  Tax revenues were off by 1.0% this year, while government spending increased by a whopping 2.1%.
      November was the second month of the federal government's fiscal year 2003.  The U.S. government posted a budget deficit of $113.1 billion over the two-month period, much worse than the $61.9 billion deficit registered in the first two months of fiscal year 2002.  Rising government outlays--up by more than $17 billion compared to fiscal 2002--and falling receipts--down by almost $34 billion--shared responsibility for the budget's $51.2 billion worsening of the deficit.
      It's still too early in the year to have much confidence in any forecasts for the current fiscal year as a whole.  The Administration's official forecast for the fiscal year 2003 budget--which will surely change when the new budget proposals are released in January--calls for the deficit to shrink by almost $50 billion.  However, the deficit will surely widen this year if Congress and the Administration enact another tax cut, even more if the U.S. goes to war against Iraq.  Not surprisingly, many economists who track government spending and revenues believe this year's deficit will grow by up to $100 billion.   (Nancy D. Sidhu)
 

CONSUMER PRICES STABLE

     The US Consumer Price Index (CPI) rose by just 0.1% in November, the smallest rate of increase since July.  Compared to a year ago, the CPI was higher by 2.2%.  Food prices rose by 0.2 from October.  Energy prices declined by 0.2%, after rising by 1.9% in October.  Gasoline prices fell by 0.4, and utility gas and electricity prices fell by 0.2%.  Gasoline prices, however, were 19.3% above the year-ago level.  The core CPI, which excludes food and energy prices, rose by 0.2%.  One item that posted a significant increase was tenants' and household insurance.  The index of home insurance rose by 1.3% in October and was 4.2% higher than a year ago.  Some insurers have stopped issuing new policies in states with unusual number of claims (particularly mold-related claims), including California and Texas.  Those that stay in the market charge higher rates to cover their risks.  As usual, medical care services (+5.5% from a year ago) and education (+6.3%) posted higher-than-average price increases.  In contrast, personal computers and peripherals saw a 22.5% drop in prices from a year ago, after adjusting for quality improvements.  Experts recommend when shopping for computers, consider your short-term (3 to 12 months) needs instead of long-term needs.  What you buy and not use immediately will be worth a lot less and may even be outdated by the time you get around to them.
     Locally, the Los Angeles area CPI rose by 0.2% in November, following another 0.2% increase in October.  Local CPIs are not seasonally adjusted.  Compared to a year ago, the CPI was higher by 3.3%, significantly higher than the national average of 2.2%.  Food prices declined slightly by 0.1%.  Housing costs also declined slightly (-0.1%).  Utility natural gas service costs rose by 3.2% and were 25.8% higher than a year ago.  Energy prices rose by 2.0% and were 15.8% higher than a year ago.  Gasoline prices posted a 3.1% increase.  The core CPI rose by just 0.1% and was 2.7% higher than the same month last year.  (George Huang)
US PR: http://www.bls.gov/news.release/cpi.nr0.htm
LA PR: http://www.bls.gov/ro9/ro9cpila.htm
LA Area CPI data: http://www.e-edge.org/special/cpi-la.htm
 

JAPAN'S TAX REFORM--SKEPTICAL, CYNICAL, OR HOPE FOR THE BEST

     In the midst of worldwide concerns about the Japanese economy being on the cusp of slipping into a fourth recession in ten years, the government coalition agreed to a tax reform package to be implemented April 1st, 2003.  Two of the three key measures are aimed at boosting the business sector:
     - Tax credits for business investment in research and development;
     - Cuts in capital gains tax rates; and
     - A new method of taxing businesses with capital over 100 million yen, i.e. on the basis of capital size instead of profits.
     One would like to be sanguine about the prospects for these tax reform measures, given the long-running malaise plaguing the Japanese economy.  However:
     - Deflation continues to drive households to save at very high rates and defer spending.
     - Low business confidence has virtually paralyzed investment spending and hiring.
     - The government's budget deficit will reach $20 billion in the current fiscal year ending March 2003.
     - The term "implosion" is creeping back into the rhetoric, as Japan's economy is expected to be nearly flat in the first half of next year.
     While lower tax rates are nearly always a good policy, it remains to be seen if this mix of tax measures will produce positive results in the current environment.  The global economic outlook is not favorable for Japanese exports next year, as Germany's outlook has dimmed and along with it the rest of the European Union.  If the U.S. economy fades to a less than moderate growth pace, this will further compound Japan's problems.
     Perhaps, the most frustrating and disappointing aspect of the policy framework is the lack of effective action to strengthen the banking system.  Several restructuring and bail-out attempts have been made since the early 1990s, and yet the banking system continues to be at risk and fragile.  Delaying the inevitable (declaring insolvencies, forcing combinations, and closing down some banks) will mean more losses for stakeholders, greater disruption for borrowers, and more grief for the country as a whole.
     The return to confidence in the Japanese economic system by consumers, businesses, and investors (foreign and domestic) in 2003 would be a great boost to the global economy.  The country's stock market and real estate bubbles burst over 10years ago.  It is time to complete the job of damage control and get on to a healthier and more stable platform. The U.S. and California would benefit enormously from increased trade and investment with Japan.  Not only is it time to "bite the bullet" on the banking issue, but  it is also painfully overdue.  (Ken Ackbarali)
 

CALIFORNIA BUDGET UPDATE

      According to the California state Department of Finance, total state receipts fell by 1.2% during the first five months of fiscal year 2002-2003 (otherwise known as July -- November 2002) compared to the same period last year.  However, this total included some special items that distorted the comparison.  Revenues generated by the "Big 3" taxes (personal income tax, sales & use tax, and bank & corporate profits tax) declined by 1.7% over the year.   (DoF Finance Bulletin: http://www.dof.ca.gov/HTML/FINBULL/Dec02.HTM)
      These figures look much less alarming than the deficit estimates being aired in the media, which cover the rest of the current fiscal year and next year--the "budget" year--as well.  Part of the discrepancy is due to the fact that a big chunk of personal income tax revenues--in particular, taxes due on capital gains and other stock-related forms of income--aren't due until April 2003.  Nobody knows for sure how much revenue will come in that month, but the stock market has been down during most of 2002 suggesting that we shouldn't expect much.  Another point at issue is how fast the California economy and employment will recover.  The economic pessimists see a bigger budget problem looming than do the optimists.
      For those who haven't time to keep track of the deterioration in the state's budget situation, here is a chronology of key events:
      * 11/14/02:  The Legislative Analyst Office (LAO) published an estimate of the two-year (fiscal years 2002-2003 and 2003-2004, ending June 30, 2004) budget deficit.  At $21.1 billion, this estimate is almost the same size as the "gap" that existed before last summer's tortuous budget negotiations.  (PR: http://www.lao.ca.gov/2002/fiscal_outlook/fiscal_outlook_2002.pdf)
      * 12/6/02:  Governor Davis proposed $10.2 billion in spending cuts as an initial step towards resolving the state's budget problems.  Areas targeted for spending cuts were K-14 education, social programs, MediCal, and transportation.  ( PR: http://www.governor.ca.gov/state/govsite/gov_htmldisplay.jsp?sFilePath=/govsite/press_release/2002_12/20021206_PR02627_decbudget.html)
      * 12/16/02:  The LAO came back with its evaluation of the Davis proposals, approving the fact that $7.2 billion took the form of true spending reductions (which can reduce budget problem in future years).  (PR: http://www.lao.ca.gov/2002/midyear_budget/1202_midyear_budget.pdf)
      * 12/18/02:  Davis announced an updated estimate of the two-year budget deficit prepared by the state Department of Finance, a truly horrific $34.8 billion.  For perspective, this figure is about 35% of total spending in the current fiscal year.  (PR: http://www.governor.ca.gov/state/govsite/gov_htmldisplay.jsp?sFilePath=/govsite/press_release/2002_12/20021218_PR02638_Budget.html)
     The Governor's announcement had an immediate effect on the discussions taking place in the media and among policymakers.  No longer do we hear debates about the merits of spending cuts VERSUS tax increases.  Instead, most of the policy options now under consideration include spending cuts AND tax increases.  Increasingly, the debates turn on just which government functions should be cut back, which taxes should be raised, and in both cases by how much.
     The next important date in this chronology is January 10, 2003, when the Governor must offer a balanced budget and reveal how he proposes to close the yawning chasm (no longer just a gap) between state spending and anticipated revenues.   (Nancy D. Sidhu)
 

RESALE HOUSING STRONG IN NOVEMBER

     According to the November report from the California Association of Realtors (CAR), the resale housing market in the state remained extremely strong.  Unit sales during the month were up by 9.8% over the year, while the median price jumped by 21.5% to $328,310.  The CAR's unsold inventory index (the number of months needed to deplete supply at the current sales rate) was 3.1 months compared with 3.4 months last year.
     In Los Angeles County in November, unit sales were up over the year by 11.5%, while the median price advanced 21.3%, moving over the $300,000 mark to $307,230.  Orange County saw unit sales increase by 4.2%, while the median price surged by 21.1% to $434,110.  The Riverside-San Bernardino area posted a rather modest 4.2% increase in unit sales over the year, but prices moved ahead by 16.4% to $189,860.  Unit sales in San Diego County moved ahead by 15.9% over the year, while the median price zipped up by 26.8% to $378,040.  Ventura County saw unit sales in November increase by 14.6% over the year, while the median price advanced by 13.4% to $387,350.
     Despite the region's economic pain, resale housing activity in November in the San Francisco Bay Area was strong.  Unit sales increased over the year by 11.4%, while median price moved ahead by 10.5% to $515,460.   In Santa Clara County, unit sales in November were up over the year by 8.6%, while the median price increased by 7.3% to $535,000.  (Jack Kyser)
PR: http://www.car.org/index.php?id=MzE1NzI=
 

NOVEMBER CONTAINER TRAFFIC AT POLA

     Container activity in November at the port of Los Angeles (POLA) was strong, with the number of loaded import containers handled up over the year by 24.5%, while the export container count increased by 6.7% (catch-up from lock-out delays).  The total number of containers moved at POLA in November was up over the year by 19.8% to 545,979.  (Jack Kyser)
 

ENERGY WATCH

     * An administrative law judge with the Federal Energy Regulatory Commission (FERC) ruled last week that California's lawsuit to get refunds from power producers can include evidence from the other 14 Western states which, California claims, can show market manipulation by the producers.  The judge also ruled that California markets for natural gas and emission credits should also be examined.  (Our spring 2001 report, available at http://www.eedge.org/electricity/powercrisis.pdf, discussed the impact of natural gas prices and RECLAIM emission credits prices on electricity generation costs.  Natural gas is the most important fuel for California's power plants, and its price rose from $2.74/mcf in 12/1999 to $19.91/mcf in 12/2000.  RECLAIM credits (for NOx emissions) cost roughly $1/MWh in 12/1999, but the cost skyrocketed to $43/MWh by 12/2000.)
     * Another FERC admin. judge ruled that California's $43 billion long-term power contracts are valid and cannot be unilaterally modified or voided.  The State has already renegotiated its contract with Williams Cos. and reduced the cost by $1.4 billion (out of $4.3 billion in the original contract).  Some utilities in other Western states also signed similar long-term contracts.
     * Dynergy Inc. agreed to pay $5 million to settle allegations that it helped manipulate natural gas prices during the energy crisis.
     * California's bond ratings were cut by S&P because of the State's worsening budget crisis.  This may mean higher interests rates for State's energy revenue bonds to be issued in the future.  The State has yet to issue the revenue bonds to pay for the power purchases made during the energy crisis. (George Huang)
 

NEED CAPITAL FOR YOUR TECH VENTURE?

     If your company is involved in the development of innovative and cutting-edge, proprietary, ready for market technology, we have an event for you to reach potential investors.  The 9th annual Venture Forum (formerly the Southern California Technology Venture Forum) will be held on Thursday, April 3, 2003, at the Regent Beverly Wilshire in Beverly Hills.  It's a place where venture capitalists and other investors meet entrepreneurs.  Companies chosen to present will get intense mentoring by our group of industry and financial experts so they'll be ready to attract investors.  In the past 8 years, over $500 million of investment were generated as a result of these conferences.  The application deadline for presenting companies is January 8, 2003.  Please see http://www.theventureforum.com/Presenters_Apply.htm for more details.  The website for the conference is http://www.theventureforum.com .
 

TRYING TO REACH SMALL AND MID-SIZED BUSINESSES?

     LAEDC may have the right channel for you.  LAEDC's Business Resource Guide (BRG) is full of free resources that serve small and mid-sized businesses and is seen as an indispensable reference book for these businesses.  An advertisement in the BRG can reach these businesses at a fraction of the cost of radio and billboard ads.  Our 2003 edition is nearing completion and a few ad spots are still available.  Please call Beverly Dill at 213-236-4820 or e-mail to bdill@laedc.org for more information.
 

MERRY CHRISTMAS OR KWANZAA OR SIMPLY HAPPY HOLIDAYS

     The e-EDGE editorial staff wish all our readers a happy holidays season and a prosperous 2003 .  We apologize for not sending each one of you a customized Christmas card--there are only around 3,000 of you on our list!  Here's our generic e-card (in PDF format) for you: http://www.e-edge.org/special/e-card.pdf
 

HOLIDAY NOTICE

     LAEDC offices will be closed on Wednesday, Dec. 25, in observance of Christmas.
 

VARIOUS EVENT CALENDARS

     To prevent the e-EDGE from listing too many events, we encourage you to visit our events pages:
LAEDC events: http://www.laedc.org/data/events/index.shtml
World Trade Center Association events: http://www.wtcanet.org/index_event.htm
LAEDC's economic development-related events: http://www.laedc.org/events/calendarevent.asp
 

TRADE SHOWS LISTINGS (Repeat announcement)

     LAEDC is now compiling a comprehensive listing of trade shows in Southern California.  Please send us such information.  Thank you so much.
     Our current listing includes fashion/apparel, textiles, shoes, home furnishings & giftware, and manufacturing.  It's available at http://www.laedc.org/trade_shows.html
 

QUICK STATS:

* BEA: US Gross Domestic Product for 3Q02 (final): +4.0% (2Q02: +1.3%)
* BEA: US implicit GDP deflator for 3Q02 (final): +1.0% (2Q02: +1.2%)
* BEA: US personal consumption expenditure for 3Q02 (final): +4.2% (2Q02: +1.8%)
* BEA: US nonresidential fixed investment for 3Q02 (final): -0.8% (2Q02: -2.4%)
* BEA: US personal income for 11/02: +0.3% (10/02: +0.3%)
* BEA: US disposable personal income for 11/02: +0.4% (10/02: +0.4%)
* BEA: US personal consumption expenditure for 11/02: +0.5% (10/02: +0.4%)
* BEA: US personal savings rate for 11/02: 4.3% (10/02: 4.4%)
* BLS: US Consumer Price Index for 11/02: +0.1% (10/02: +0.3%)
* BLS: LA Area Consumer Price Index for 11/02: +0.2% (10/02: +0.2%)
* Calif. Assn. of Realtors: California median single-family home sale price for 11/02: +1.6% to $328,310 (10/02: +0.2% to $323,140)
* Calif. Assn. of Realtors: California single-family home sale volume for 11/02: -6.4% (10/02: +17.3%)
* Calif. Assn. of Realtors: LA County median single-family home sale price for 11/02: +4.1% to $307,230 (10/02: +1.1% to $295,130)
* Calif. Assn. of Realtors: LA County single-family home sale volume for 11/02: -7.8% (10/02: -4.8%)
* Census: US exports for 10/02: -1.0% (9/02: -0.4%)
* Census: US imports for 10/02: -2.4% (9/02: -1.1%)
* Census: US trade deficit for 10/02: US$35.1 billion (9/02: $37.1bil.)
* Census: US housing starts for 11/02: +2.4% to 1.70 million annual units (10/02: -8.4% to 1.66mil.a.u.)
* Conference Board: US Index of Leading Economic Indicators for 11/02: +0.7% (10/02: +0.1%)
* Federal Reserve: US industrial production for 11/02: +0.1% (10/02: -0.6%)
* Federal Reserve: US industrial capacity utilization rate for 11/02: 75.6% (10/02: 75.5%)
* US Treasury: US budget deficit for 11/02: $59.1 billion (10/02: $54.0bil.)
* Univ. of Michigan: US Consumer Sentiment Survey for 12/02: 86.7 (11/02: 84.2)

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