California Economic Development News Briefs

CENSUS BUREAU POPULATION DATA

The U.S. Bureau of the Census reported their population estimates for counties as of July 1, 1997. Four Southern California counties were in the top 10 for numerical gains between 1996 and 1997, including Los Angeles (number two in the nation), Orange (4th), San Diego (5th), and Riverside (7th). Number one was Maricopa County, which includes Phoenix. Los Angeles County had a July 1, 1997 population of 9,145,219 according to the Census Bureau, while Orange county checked in with 2,674,091, Riverside had 1,447,791, San Bernardino 1,615,817, while Ventura had a population of 725,968.

It should be noted that the California Department of Finance (DoF)

reports higher 1997 totals for Los Angeles and Orange counties, 9,525,000 and 2,705,000 respectively. However, the Finance numbers for Riverside, San Bernardino and Ventura counties are lower, at 1,393,300, 1,592,600, and 714,800 respectively. Who do you believe? Tough call, but we would go with the DoF, because they have better access to driver’s license changes. Moreover, there was the undercount in the 1990 Census of Population.

HOME PRICES CONTINUE TO MOVE UP

Prices of resale homes in Southern California continued to forge ahead in February according to the California Association of Realtors (CAR). In Los Angeles County the median price was $176,150, up 5.6% over the year ago price. And unit sales continued to move ahead strongly, as evidenced by the sharp decline in the unsold inventory, which was 5.3 months compared with 10.0 months a year ago. Orange County continued to rip ahead with the median price up 14.4% to $241,440, and unit sales up 18.2% year-to-year. The unsold inventory was 6.0 months compared with 9.9 months in February 1997. Both prices and sales were up strongly in Ventura County, however there were mixed trends in the Riverside-San Bernardino area. Prices were up year-to-year 8.4% to $120,590. However unit sales activity was down. The resale housing market in this area is still in the process of turning around as witnessed by the see-saw trend in both prices and sales activity.

CONSUMER PRICES… NO SURPRISES HERE

The Consumer Price Index (CPI) rose 0.1% in February (seasonally adjusted) to 161.9 (1982-84=100). Energy prices dropped 2.2% and overall food prices were unchanged. Don’t expect the low energy cost euphoria to continue for long (see related story below). The core CPI, which excludes the seasonally volatile energy and food prices, rose by 0.3%. The biggest drop comes from personal computer prices (-5.8%). More prices cuts by major producers are forthcoming. The biggest increase came from tobacco products (2.9%). Weak overseas demand, cheaper imports, and technological advancements (that leads to shorter product cycles and more need to move products down the ladder) are helping to push commodity prices down. Service costs are rising faster because they are mostly not exposed to international competition.

Locally, L.A. area continues its low inflation trend with a 0.1% rise for February to 161.1 (local figures are not seasonally adjusted), but much of the moderation is the result of the huge drop in energy prices. Energy prices fell by 7.0% (gasoline prices: -9.0%). Apparel prices rose by 5.5%. The core CPI rose by 0.8%. The Bay Area CPI rose by 0.4% since December (or about 0.2% for the month, on average) to 163.2. Starting with 1998, Bay Area CPI is published on even-numbered months only. Overall, we should expect higher inflation rates in the months ahead as oil prices recover and tight labor markets exert more wage pressure. While weak overseas markets and cheap imports will continue to hold commodity price pressures down, this favorable trend will not last forever.

OPEC ONCE AGAIN MANIPULATING OIL MARKET-WILL IT WORK?

The agreement reached over the weekend by Saudi Arabia and Venezuela as well as non-OPEC member Mexico to cut oil production is likely to stimulate other producers to follow their lead. The overall global reduction could be 1.5 to 2.0 million barrels per day through the end of 1998, enough to prompt oil prices to rise from the current $13/barrel to a more sustainable $16/barrel. It is clear that the 9-year low in oil prices was caused mainly by: (a) the 10% increase in production quotas approved last November by OPEC countries; (b) failure to observe quotas on the part of Venezuela, Nigeria, and other members of the cartel; and (3) underestimating the severity of the Asian financial crisis on the demand for oil imports. The outcome of this new agreement depends considerably on factors that are very uncertain-recovery of the large oil-importing Japanese economy, the level of U.S. oil imports, and observance of new OPEC quotas. We will see the impact in the months ahead in our inflation trends and the trade deficit. Oil exporting countries will also be experiencing uncertain fiscal outlooks.

THE BOEING ANNOUNCEMENT

Boeing’s announcement that it will cut 6,200 jobs in Southern California startled and dismayed people. However, some of these cuts had already been reported in 1997, with the decision to phase out production of the MD-80 and 90 commercial jets when current orders are filled. This will be in 1999. There was also movement of people between the multitude of Boeing facilities in the region. The big immediate job loss is of 1,100 at an electronics facility in Monrovia. This business will be moved to Texas. How does this all play out for the aerospace/high-tech industry in the Los Angeles five-county area, in light of the recent announcement by Raytheon that they will cut 2,800 jobs in Los Angeles and Orange counties? Classically defined aerospace in Los Angeles County bottomed out in October 1995, and through February 1998 had recovered 7,600 jobs. In Orange County, the low was in November 1995, with a rebound through February of 6,500. In Los Angeles, the February count for aerospace was 144,200, and in Orange County it was 61,700.

These cuts will obviously put a significant dent in the uptrend in aerospace, but should not cause another decline. “New” technology activities are growing, including advanced communications and commercial

space activities.

Attention now has to be focused on the Northrop Grumman/Lockheed Martin merger, which seems right now to be in limbo. This merger would cause some more cuts. The most important news to come out of Boeing was that they were studying the situation with the MD-11, where new orders have been slower than anticipated.

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News briefs for this feature were supplied by Jack Kyser, George Huang and Ken Ackbarali of the Los Angeles Economic Development Corporation (LAEDC). For more information, please e-mail to [email protected].