Dear Subscribers,
The LAEDC Kyser Center for Economic Research is sending out the e-EDGE today (Friday, May 30th) instead of Monday, due to the scheduled company server upgrades. Thank you for your understanding and patience.
Sincerely,
LAEDC Economic Research team
The U.S. Bureau of Economic Analysis (BEA) reported that U.S. personal income rose by +0.2% in April, following increases of +0.4% in March and +0.5% in February. Falling wages and salaries (-0.2% over the month) were the primary contributor to last month’s slow growth in total income, reflecting a decline in nonfarm employment. After income taxes, disposable personal income also increased by +0.2% in April, compared to growth of +0.3% in March and +0.5% in February. [DPI growth should improve in May and June when the bulk of the personal income tax rebates are expected to reach consumers’ hands.]
As to consumer inflation, the BEA’s price index for personal consumption expenditures (called the PCE deflator) rose by +0.2% last month, following increases of +0.3% in March and +0.1% in February. Rising food and energy prices were the primary culprits. Compared to April 2007, the overall PCE deflator has increased by 3.2% while the core PCE deflator (which excludes food and energy prices) was up by just 2.1%.
With more income going to pay for energy and groceries, consumer spending has lost all momentum. Real personal consumption expenditures (after adjustment for inflation) showed no change last month after edging up by 0.1% in March and down by -0.1% in February. April’s lackluster results reflected lower real spending for consumer durable and nondurable goods—both were down by -0.2% over the month. These declines were offset by slightly higher real spending for services (+0.1%).
The weakness in consumer spending during the February-April period provides very little support for the U.S. economy. Overall economic growth will continue to be sluggish in the 2nd quarter if consumers don’t open up their wallets more in May-June. (Nancy D. Sidhu)
PR: http://www.bea.gov/newsreleases/national/pi/2008/pdf/pi0408.pdf
The Bureau of Economic Analysis also released preliminary estimates of corporate profits in first quarter 2008. Seasonally adjusted pre-tax profits from “current production” (which exclude inventory profits and include other adjustments) rose during 1st quarter 2008, but by just 0.3% compared to the -3.3% decline registered during the 4th quarter, which was dampened by extensive write-offs. First-quarter 2008 profits were up by 1.7% compared to 1q2007.
U.S. financial industries’ profits fell by -0.7% (annual rate) over the 4th quarter and were down by -12.2% over 1q2007. Meanwhile, U.S. nonfinancial industries’ profitability edged up by +0.4% over 4q2007 but was down by -2.6% over the year. Net profits from the “rest of the world” soared by 34.9% over the year. [FYI, rest of the world profits is defined as the difference between U.S. receipts of profits earned by companies located in the rest of the world (which rose by 18.8%) and U.S. profit-based payments to companies and residents in the rest of the world (-12.9%).] (Nancy D. Sidhu)
PR: http://www.bea.gov/newsreleases/national/gdp/2008/pdf/gdp108p.pdf
The April report from the Construction Industry Research Board revealed continued declines in the number of new housing units permitted in California. As noted earlier, this is a good news/bad news situation – good in that the inventory of new units around the state will continue to shrink, but bad for anyone associated with homebuilding.
In California, the number of units permitted in April declined by -42.1% over the year. Year-to-date, the number of permits issued was down by -48.4% to 22,592 units. The single-family sector remained quite weak, with the 4-month permit total down by -59.2% over the comparable 2007 period.
The number of permits issued in Los Angeles County during April fell by -38.0% over the year, while the 4-month total was -42.0% below the comparable period last year. In Orange County, the April unit count declined by -31.9% over the year. The County’s 4-month total was -40.5% below the 2007 period.
The number of housing permits issued in the Riverside-San Bernardino area during April dropped by -65.5% over the year, while the area’s 4-month total was off by -65.1% to 3,090 units. However, there were 5 areas in the state with sharper declines over the year-to-date, including Vallejo-Fairfield with a heart-stopping -82.3% drop.
San Diego County’s April permit count was just -12.5% below the year earlier period, while the 4-month total was down by -54.4% to 1,410 units. Ventura County’s April housing permit total plunged by -82.8% over the year, while the 4-month total zipped down by -51.2% to 472 units.
In the 9-county Bay Area, the 4-month housing permit total was -29.7% below the comparable 2007 period. But things were booming in San Francisco County/City, where the 4-month housing permit total was 120.1% above the like 2007 period. The multi-family sector provided the punch. (Jack Kyser)
Notices of default in Southern California jumped significantly during first quarter 2008, according to a report released by The Real Estate Research Council of Southern California. A notice of default is the start of the foreclosure process and is typically handed out after three months or so of mortgage payments missed. A total of 70,924 notices of default were handed to homeowners in Los Angeles, Orange, Riverside, San Bernardino, Ventura, and San Diego counties in the last quarter compared with 47,190 (+50.3%) during fourth quarter 2007 and 29,783 (+138.1%) during first quarter 2007. Last quarter’s level of notices of default was the highest number recorded since RERC started collecting the statistics in 1988.
The Riverside-San Bernardino area had the largest share of notices of default in the region, with 27,884 notices of default recorded during first quarter 2008. This was up by +151.7% from the same period a year ago. Los Angeles County recorded 23,362 notices of default, up by +126.3% from the same period a year ago. Orange County recorded 4,742 notices of default, up by +149.3% over the year. San Diego County recorded 9,795 notices of default, up by +126.7% from the same period a year ago. Ventura County also posted an increase during the first quarter, with 2,269 notices of default, up by +125.8% from first quarter 2007.
Actual foreclosures in Southern California reached an all-time high of 27,134 during first quarter 2008, compared with 18,272 foreclosures (+48.5%) during fourth quarter 2007 and 6,902 (+293.1%) during first quarter 2007. The growing number of foreclosed homes has swelled inventory levels, driving home prices down throughout the region. Foreclosures in Los Angeles County totaled 7,858 during 1Q 2008, up by +306.5% (year-over-year); Orange County had 2,360 foreclosures (+288.8%); the Riverside-San Bernardino area had a total of 12,046 foreclosures (+334.9%); San Diego County had 4,020 foreclosures (+192.6%); and Ventura County recorded 850 foreclosed homes (+289.9%).
So the big question is: when will notices of default and foreclosures peak in this current real estate cycle? Remember that foreclosures are a lagging indicator. The last peak of notices of default in Southern California was during first quarter 1993, at 31,251 notices of default recorded and foreclosures peaked during third quarter 1996, at 18,532 foreclosures recorded. Foreclosures topped out three years after the region’s recession was over in 1993 (when total residential construction permits bottomed at 33,794 units and nonfarm employment at 6.7 million). (Candice Flor Hynek)
The nonresidential building permit values through April reported by the Construction Industry Research Board were the veritable dog’s breakfast. In Los Angeles County, industrial permits were up by 63.0% over the 2007 period, while office was down by -57.6%. Retail was up by 20.4%, while hotel permit values through April totaled $148.2 million compared with $13.7 million last year.
In Orange County nonresidential permit values through April were all well down over the year, with industrial down by -68.8%, office off by -68.0%, retail off by -79.1%, while hotel permit values were -86.7% below last year. In Riverside County, industrial permit values through April were off by -51.9% and office was down by -13.8%. However, retail was up by 3.8%, and $10.7 million in hotel permits had been issued, compared with none last year. In San Bernardino County through April, industrial permits were off by -37.6%, office was down by 56.5%, and retail was down by -27.2%. However, hotel permits in the County were 2.2% ahead of last year.
In San Diego County through April, industrial permit values were down by -52.7%, while office was just -2.8% behind. Retail permits were up by 93.0%, and hotels roared upward by a stout 461.4%.
In the 9-county Bay Area through April, industrial construction was the star, with permit values up by 136.7%, reflecting strength in Alameda and Solano counties. Office permits were also up by 23.9% (San Francisco County was the leader of the pack), but retail lagged by -16.7%. (Jack Kyser)
The March data from PKF Consulting indicated that the hotel business was barely holding its own (although the gas price spike was more recent). In Los Angeles County, the March occupancy rate eased down to 78.7% from 81.0% last year. The average daily room rate (ADR) rose by 5.0% to $163.76. Six areas in the County had March occupancy rates over 80%, including: Downtown 2 (hotels outside the Downtown core) 86.6%); LAX (84.4%); Santa Monica (83.1%); South Bay (81.7%); I-5 Corridor/Whittier (81.6%); and Hollywood (80.4%). Beverly Hills again enjoyed the highest ADR in March of $447.94, which was up by 10.7% over the year.
The March occupancy rate in Orange County was also below last year’s level, at 78.0% compared with 2007’s 81.9%. The ADR rose by 5.1% to $163.19. The highest occupancy rates were in Anaheim (82.7%), and North Orange County (80.1%). The highest ADR was South Orange County’s $239.18, which was up by 4.4% over the year to March.
San Diego County had a soft month in March, with the occupancy rate at 76.4% compared with 79.7% last year. The ADR rose by a modest 2.3% to $169.02. The highest occupancy rates during the month were found in Mission Bay (86.5%) and Sports Arena/Old Town (84.4%). The highest ADR was in the San Diego Bay area, at $276.94, which was up by 12.0% over the year to March. (Jack Kyser)
Saturday, June 7
Valley Economic Development Center: Where’s the Money? - Access to Capital Business Expo: The event is dedicated to the business owners, helping them find the capital and education they need to start/grow business. To register and for more information www.vedc.org
Tuesday, June 12
Asian Business League Southern California: "The R Word": Do's and Don'ts in a Real Estate Downturn: LAEDC Chief Economist Jack Kyser will address the critical problems facing the real estate, finance and construction industries, including falling home prices, record foreclosures, and the capital markets turmoil. To register and for more information www.ablsocal.org
Tuesday, June 17
Los Angeles National Association for Business Economics and the Federal Reserve Bank of San Francisco: “Term Auction Facilities and Other Federal Reserve Bank Efforts to Increase Liquidity.” A review of efforts by the Fed over the past several months to provide liquidity to lending institutions and stabilize the national and global financial markets with Donald Lieb, Group VP and CFO Finance and Risk Management Group of the Federal Reserve Bank of San Francisco. Presentation of the 2nd Annual Robert T. Parry Award, honoring a local economist for his or her contribution to their community and LA NABE. The event will be held at the Los Angeles Branch of the FRBSF. Space is limited. Deadline to register is June 9th. To register and for more information www.lanabe.org
Wednesday, July 16: 2008 Mid-year Economic Forecast and Updates
In addition to the Mid-year Economic Forecast updates, the LAEDC and its subsidiary, the World Trade Center Association Los Angeles - Long Beach, will also unveil the final report of the LAEDC's Foreign Direct Investment Study, highlighting the economic impact to the regional economy. 2 panels of experts to include: James Dibbo, British Telecom; John Burns, John Burns Rela Estate Consulting; Richard Weiss, City National Bank; Vance Baugham, WTCA LA-LB; and Jack Kyser, LAEDC.
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