CALIFORNIA ECONOMIC DEVELOPMENT BRIEFS
L.A. COMMERCIAL SPACE INDUSTRY GETS A BOOST FROM SEA LAUNCH
The Sea Launch project, an international consortium led by The Boeing Commercial Space Company and based in Long Beach, passed a major milestone on Saturday by successfully placing a demonstration payload into orbit. Sea Launch uses a self-propelled launch platform near the equator to launch rockets into geostationary orbits used by many commercial satellites. By launching near the equator, Sea Launch can send heavier payloads into orbits at a lower launching cost. It’s market includes the explosive growth of wireless applications such as cell phones and satellite-based Internet access. The Sea Launch’s success further strengthens L.A.’s dominance in the commercial space sector. (George Huang)
CALIFORNIA’S REAL ESTATE MARKET CONTINUE TO CLIMB
California’s residential real estate market continued to steam ahead in February. Although posting small declines from January, the sales volume of existing homes (646,710 units) was 5.8% over 2/98 level, and the median price ($199,160) was 8.5% higher. The unsold inventory index was 6.9 months, down from 7.3 month in 2/98. Average 30-yr. fixed mortgage rate was 6.81%, and the median days it took to sell a home was 50 days. The San Jose area continues to be strong despite suffering from the Asian flu. San Diego seems to have a lot of momentum also. The Riverside-San Bernardino area is still a lackluster performer, but its foreclosure numbers have dropped in recent months. Finally there’s light at the end of the tunnel. (George Huang)
(% change from specified date; regional data not seasonally adjusted)
Sales Activity Median Price
Area 1/99 2/98 1/99 2/98 Current
California* – 0.5% + 5.8% – 2.3% + 8.3% $199,160
*(single-family, detached (non-condos); seasonally adjusted)
Los Angeles -12.9% – 3.9% + 5.8% +12.3% $197,060
Orange – 5.0% + 3.4% + 2.5% +12.7% $271,980
Riv./S’Bdo. – 6.5% +15.3% – 0.2% – 2.1% $118,240
Ventura – 1.6% – 8.5% + 0.6% + 6.2% $243,620
San Diego +12.4% + 1.1% – 5.0% +12.3% $208,300
S.F. Bay + 1.8% +19.7% – 2.0% +10.4% $320,300
Santa Clara – 4.5% +13.4% + 1.8% +13.2% $365,530
INTERNATIONAL TRADE VALUES IN JANUARY DISAPPOINTING
The January trade value data for California’s three customs districts contained some contradictions. At Los Angeles, import values moved up a weak 1.7% over the year ago, quite a contrast with the container numbers. Exports were down 8.4%, and total two-way trade value for the month was down 3.0%. The San Francisco district posted declines in both sectors, with export values down 11.5% and imports off 8.8%. The two-way total for the month was down 10.1%. At San Diego, export value was down over the year by 5.0%, a continuation of the downtrend that surfaced in October 1998. Import values continued to grow, up 13.8%, and total trade value at San Diego was ahead 6.7% for the month. (Jack Kyser)
AIRPORT TRENDS SOMEWHAT BETTER
Total passenger traffic at Los Angeles International Airport (LAX) was up 2.6% in January, and the good news was that international traffic was up 1.5% over 1998. This is the third month in a row of growth, after the mid-1998 swoon. Ontario International also posted a gain, of 1.1%. The pattern here has been two steps forward, one step back. January passenger totals at the Burbank-Glendale-Pasadena airport were up 2.1%. However, activity at Palm Springs is disappointing, down 5.5% in February which is the third month in a row of declines. And this comes in the face of increased service. Did the snow birds get new coats for
Christmas?
As to the international air cargo tonnage, January “arrivals” were up 8.2%, but “departures” were down 2.7%. The total tons moved were up 2.7%. (Jack Kyser)
Y2K LOAN GUARENTEE FROM UNCLE SAM
The House of Representatives passed S.314 (Small Business Year 2000 Readiness Act, passed by Senate on 3/2/99) which provides loan guarantees to small businesses. In our 2Q99 edition of the Economic Edge quarterly report, we mentioned legislation like this one as something that the US can do for its small businesses. Unfortunately, too many entrepreneurs are still ill-informed about the Y2K dangers… Check out http://www.laedc.org/y2k.html to see what you might be missing
UNEMPLOYMENT RATES IN DOWN
February unemployment data results are in. And the news was good. California’s rate eased to 5.6% from 5.8% in January, and from 6.0% a year ago. Los Angeles County’s rate was 6.3% in February, down from 6.5% the preceding month, but even with the year-ago reading. These numbers are seasonally adjusted.
Elsewhere in Southern California, Orange County moved down to 2.7%, from 3.0% the previous month and from 2.9% last year. The Riverside-San Bernardino area checked in at 5.4%, down from 5.8% in January and from 6.3% in 1998. San Diego County’s rate also made a significant downward move, to 3.3% from 3.7% and 3.6% in February 1998. The story in Ventura County was the same, 4.9% in February 1999, versus 5.9% the previous month and 5.6% last year.
To the north, the San Francisco area snatched the low unemployment rate honors from Orange County with a reading of 2.6%. And San Jose checked in at 3.5%, which is on the high side for them. In the Central Valley, the blight of double digit unemployment rates continues. (Jack Kyser)
THE JOB NUMBERS
The California economy continued to roll in February, with a 3.2% or 424,700 gain in nonfarm jobs over the year. Los Angeles County posted a 2.1% or 80,700 gain, despite a worrisome decline in manufacturing employment (courtesy of both aerospace and apparel). Orange County trod a more moderate growth path, with a 3.3% or 41,400 job increase. The Riverside-San Bernardino area posted growth of 4.9% or 42,100 jobs. San Diego was up 3.1% or by 32,800 jobs. Ventura County recorded a sturdy 4.7% or 11,500 job gain.
In Northern California, it was a mixed picture. The San Jose area’s growth rates were 0.6% or just 5,900 new jobs. Meanwhile, the San Francisco area’s economy turned in perky gains of 3.3% or 32,200 jobs. This contrast is interesting.
One additional factor to note is that these numbers will be revised when the next jobs report is released. For example, there was concern about the modest gain in jobs in California from January to February. This weakness will probably be erased in April. (Jack Kyser)
HOTEL BUSINESS STEADY IN JANUARY
According to PKF Consulting, hotel occupancy rates in Los Angeles County held fairly steady in January at 71.42% compared with 71.83% a year ago. However, room rates continued to move ahead, up 4.7% to $113.87. The strongest sub-markets were Marina del Rey at 80.13% occupancy, and the South Bay at 78.57%. The Hollywood market posted a sharp decline to 53.21%, due to some confusion over the pending closure of the Holiday Inn for a major renovation and re-flagging.
Orange County’s hotel occupancy continued to ease down, to 61.34% compared with 62.72% in January 1998. This reflects business disruptions caused by the renovation/expansion of the Anaheim Convention Center and the expansion at Disneyland. But again, room rates increased, up 3.7% to $103.50. The strongest submarket was “South” County at 68.48% occupancy.
Looking ahead a little, the Democratic National Convention which will be in Los Angeles August 21-24, 2000, could spur some quick hotel construction (i.e., projects in the development pipeline, or budget type of facilities) to accommodate the estimated 80,000 room night demand. (Jack Kyser)
INFLATION LOST IN NO ACTION
The US Consumer Price Index (CPI) is as exciting as a college economics textbook nowadays. The seasonally adjusted CPI rose by 0.1% in February. Even the volatile energy prices (+0.0%) saw almost no action. Although there was little change in the overall food prices (+0.1%), there were major actions in certain products. Veggie prices dropped 1.1% after a 2.2% increase in January, and meat prices shot up 0.9% after dropping 0.8% in January. Gasoline prices declined by 0.5% and were 30.1% lower than their peak level in late 1990.
Metro L.A. CPI rose 0.2% in February. Local numbers are not seasonally adjusted and should not be used to compare directly with national numbers. Apparel (+6.2%), alcoholic beverages (+2.8%), and recreation (+1.1%) posted large increases while utility natural gas service (-1.6%) got a significant decline. Overall, the price level was 2.2% above the 2/98 level.
The Bay Area CPI rose 1.2% from December to February. Shelter costs rose 2.0% over the past two months and is now 7.9% higher than in 2/98. Overall, the price level was 3.8% above the 2/98 level. (George Huang)
FEBRUARY CONTAINER TRAFFIC AT POLA AND POLB
Loaded inbound container traffic in February at the ports of Los Angeles (POLA) and Long Beach (POLB) was strong, with the former posting a 21.8% increase, while the latter notched a 30.6% gain. Shippers are rushing to avoid rate increases which go into effect May 1, courtesy of deregulation. Loaded export containers continued on an uptrend at Long Beach with a 3.5% increase over the February 1998 count. While Los Angeles saw a 9.1% decline over the year, it looks like a bottom has been reached. Port officials note an upswing in raw materials demand in Asia. However, empty containers continue to be a pesky problem, with over 139,000 being handled by the two ports in February. (Jack Kyser)
REAL ESTATE NEWS STILL GOOD
Office vacancy rates in Southern California continue to head south, according to Grubb & Ellis. In the fourth quarter of 1998, Los Angeles County had a reading of 14.9%, with the tightest sub-markets being the San Fernando Valley (10.4%) and West Los Angeles (11.1%). Orange County’s rate moved down to 8.4%, while the Inland Empire held steady at 21.3%. However, San Diego County bounced up from 10.0% to 10.4%.
In the industrial market, Orange County moved down to 7.0%, and San Diego county followed suit with a 7.8% reading. In the Riverside-San Bernardino area, the rate surged to 8.6% from 6.8% in the third quarter. It’s all those busy beaver developers! Los Angeles County as a whole moved up from 5.2% to 5.6% in 1998’s fourth quarter. Most of the sub-markets followed suit, with an especially big bounce in “Mid-cities,” which moved from 5.8% to 8.2%. However, “Central Los Angeles” moved down to just 3.9%.
Elsewhere on the real estate front, the Real Estate Research Council of Southern California’s survey of unsold new housing units notes a modest increase from mid-1998 to year-end. The number moved from 4,313 units to 5,359, thanks to increases in Orange and San Diego counties. Ventura County also saw a gain, but it was only 164 units.
And the Council’s compilation of foreclosures for 1998 was quite cheery, with the number dropping all around Southern California. Orange County posted a spectacular 44.1% drop, while San Diego County saw foreclosures slide by 34.9%. Ventura County posted a 33.9% drop, while Los Angeles County was down 21.4%. The news was more tempered in Riverside and San Bernardino counties, with declines of 19.5% and 6.9% respectively. This reflects the recent turn-around in their resale housing market. (Jack Kyser)
WHAT! ANOTHER PHONE AREA CODE!?
Yes, less than one year after the “213”/”323″ split, LA County is getting its 7th major phone area code. The current “310” service area will receive the new “424” as an overlay starting 4/17/99, which means that existing phone numbers won’t have to be changed. Most new users will get the “424” codes, and all within the “310”/”424″ service area will have to dial 11-digit code even if dialing numbers with the same area code. Users of the “818” area code may soon face a new a code also, and it may well be an overlay like the “310”/”424″ implementation.
FEDERAL RESERVE TO LEAVE INTEREST RATES UNCHANGED
The Federal Open Market Committee (FOMC), at its meeting tomorrow, will likely debate the merits of a rate hike or leaving rates unchanged. Those who would argue in favor of a rate hike will frame their case around the following issues: (1) the economy continues to expand at an unsustainable pace, with first quarter GDP likely to show growth of 3.0% to 3.5%, following the very robust fourth quarter of last year; (2) tight labor markets and resulting wage pressures will soon push inflation up, so why not act now to head this off?; and (3) since the Fed may have over-reacted last fall by cutting interest rates three times instead of twice, this is a good time to take back the third cut.
On the other side of the aisle, officials who believe that interest rates should not be changed at this time would advance the following points: (1) there is no solid evidence of higher inflation in the price measures, although they may be in the pipeline (think oil); (2) a bigger trade deficit this year will be a major dampening factor on economic growth; and (3) although a few bright signs are appearing in the East (Asian “crisis” countries), the overall global economy is still quite fragile–e.g., Brazil, Russia, and Japan. Higher American interest rates will exacerbate their condition. Finally, the military action in Yugoslavia has to be acknowledged. In this context, an FOMC decision to stand pat is the likely outcome. Later in the year, in the summer or fall, the mix may change enough to justify a rate hike. (Ken Ackbarali)
OPEC OIL PRODUCTION CUTS–WILL IT STICK?
OPEC members and some non-members agreed to cut oil production by 2.1 million barrels per day, which is about 3% of its current production volume. Crude oil prices have risen in the past few days in response to this development. You might have seen its impact at your favorite gas station already, although part of the cause is the explosion at a Chevron refinery in Northern California. Skeptics have reasons to doubt these countries’ determination in keeping to the new quota, however. In such a cartel, cheaters gain the most. Given how many oil producing countries (e.g., Russia and Mexico) have been seriously hurt by the low oil prices, the temptation is strong for small producers to pump more than their quotas and take advantage of the higher prices at others’ expense. Once others find out someone is cheating, they will likely jump on the bandwagon. OPEC has failed in its several recent attempts to cut production and raise prices. Let’s see if it can finally succeed this time. Last month, the Dept. of Energy announced its intention to purchase an additional 28 million barrels to add to its Strategic Petroleum Reserve. We can’t help but wonder if it is a Y2K contingency preparation or just a routine procedure. (George Huang)
Jack Keyser, George Huang and Ken Ackbarali are with the Los Angeles Economic Development Corporation (LAEDC). For LAEDC e-subscriptions or more information, please e-mail to [email protected]. To contact LAEDC directly, call 213-622-4300.
