| Humboldt County | Seasonally Adjusted | ||
| Median Home Price* | Help Wanted Advertising | ||
| 30 Yr. Mortgage Rate (3/22) | Building Permits | ||
| Average Hotel Occupancy Rate | Unemployment Claims | ||
| Unemployment Rate** | Manufacturing Orders | ||
| * Home price data are provided by the Humboldt County Board of Realtors. MLS is not responsible for accuracy of information. The information published and disseminated by the Service is communicated verbatim, without change by the Service, as filed with the Service by the Participant. The Service does not verify such information provided and disclaims any responsibility for its accuracy. Each Participant agrees to hold the Service harmless against any liability arising from any inaccuracy or inadequacy of the information. | |||
| ** Preliminary EDD data. See the EDD Website for updates. | |||
| Sector | Sectoral Index Value (1994=100) | Previous Month | Same Month 2001 | Same Month 2000 | Same Month 1999 | Same Month 1998 | Same Month 1997 |
|---|---|---|---|---|---|---|---|
A look at the sectoral performance table shows that three of our six sectors declined by fairly large amounts in February. Two of these sectors, home sales and retail, have been the Index's most consistently strong performers over the past couple of years. The third, hospitality, probably is continuing to feel the effects of a general downturn in the travel and tourism industries. The biggest gainer this month was lumber based manufacturing, where the surviving local mills are gearing up to supply the spring/summer construction season. The local labor market showed improvement with a strong increase in the employment sector. The figure for electricity consumption is up for the fourth consecutive month. However, since it is based on an estimate, one should not read too much into it just yet. Hard data for this sector will be available next month.
The Leading Indicators are mixed once again this month, but interestingly the positive performers last month are negative this month, and vice versa. Help wanted advertising and unemployment insurance claims suggests that the recent gains made in employment are likely to continue. In light of the improvement in lumber based manufacturing, the decrease in manufacturing orders is likely indicative of a contracting pool of suppliers. Finally, building permits are down sharply, probably in reponse to the recent wet weather. We've made some changes in how we report these indicators in the hope of more accurately indentifying likely future activity.
February's median home price decreased 8.4 percent to $145,000 from the previous month's $158,250. This measure is up 6.2 percent from February 2001. The current statewide median sale price rose 1.3 percent to $289,550, while nationally the figure for existing homes fell 0.7 percent to $150,000 (The California Association of Realtors and the National Association of Realtors). The national median price of new homes dropped 2.1 percent to $179,600 (www.census.gov).
According to the latest data released by the National Association of Realtors, the annualized sales rate of existing homes in February slid 2.6 percent from a record breaking January to 5.88 million, still well above the previous record of 5.49 million. The figure is up 11.6 percent over February 2001. The NAR's chief economists predicts that this pace will slow as morgage interest rates climb. The national average for a 30 year, fixed rate mortgage in February was 6.89 percent. As of March 29, the number was 7.18 percent. Many analysts are forecasting rates to go as high as 7.5 percent by the end of the year. Inventories of unsold homes remain tight with enough existing homes presently on the market to last a little over 4 months at the current sales pace. Sales of new homes improved over the previous month by 5.3 percent to an annualized pace of 875,000. This figure is 8.8 percent lower than it was in February of last year. The inventory of available new homes will last over four months at this pace (www.census.gov). This figure should improve in the coming months. According to the Commerce Department, housing starts climbed to an annualized rate of 1.77 million units , the highest amount recorded since December 1998 (www.nytimes.com).
Nationally, retail sales fell by 0.3 percent in February. As was the case in January most of the decline can be attributed to falling automobile sales. The sector rose a healthy 2.8 percent when vehicles sales are excluded. Other promising data was recently released by the Commerce Department. Both consumer spending and personal income rose in February, each by 0.6 percent. In addition, the Conference Board's Consumer Confidence Index soared 16 percent for March. All of this information lends credence to the view that the recovery is gaining a surprising amount of momentum. Analysts point at an improving employment outlook as the most probable cause (www.nytimes.com and www.salon.com).
Perhaps immunity to blind, or even near-sighted optimism is a personal flaw, however we are not ready to admit that the worst is behind us. There are two primary concerns to be reckoned with. The first is that the unexpectedly strong surge in retail activity could fuel inflation. Just as the apparent strenth of the recovery has caught many by surprise, an unexpected jump in inflation is not out of the question according to some economists. After several months of deep discounting, retailers will likely attempt to recoup some of their losses from last year by raising prices now that the recovery seems to be under way. Furthermore, the cost of necessities like energy and medical care have been increasing for some time now. Given that over the past year, the Consumer Price Index rose by just 1.1 percent, the lowest 12 month increase in 38 years, there is a lot of room for prices to rise. Should inflation occur, the Federal Reserve will undoubtably raise interest rates in response. As a result, housing, which has been the most consistently strong sector of the economy lately, will undoubtably be affected negatively. One estimate has the federal funds rate, currently at 1.75 percent, reaching 5 percent by mid-2003 (www.sfgate.com).
The other concern regards recent record high levels of personal debt, while at the same time personal savings are at near historic lows (encouragingly, the savings rate, though still very low, has risen in each of the past two months). This behavior is not sustainable over the long run and eventually the bill will come due, likely causing some economic pain. Bankrupcy data for 2001 may be an omen of things to come. Nationwide, a record 1.45 million individuals filed for bankruptcy protection last year. Because bankruptcies generally lag general economic conditions by six to eight months, the number of filings will probably be high in 2002 as well (www.sfgate.com).
Gasoline Prices
Humboldt County gas prices are soaring once again. The price (as of 3/26)
of a gallon of self-serve regular unleaded jumped about 25 cents, to around $1.80.
According to the California State Automobile Association, the statewide average
price is $1.57. The Lundberg Survey, a bi-weekly survey of 8,000 gas stations
nationwide, cited a record increase in its latest report. The national average price
surged over 14 cents, to $1.38, since March 8. Increased demand due to economic recovery
and decreased supply due to OPEC production cutbacks and annual emission reduction
requirements at refineries are among the major factors behind the rise (www.nytimes.com).
Governor Gray Davis recently announced that a ban on the oxygenate MTBE will be
delayed for one year. Despite a Congressional study that found there is an adequate
supply of ethanol available to replace the suspected carcinogen, concerns linger
over the infrastructure upgrades needed to bring the corn-based additive to California
from the Midwest. The governor is also concerned that one firm, Archer Daniels Midland Co.,
controls 41 percent of the ethanol market, and just eight companies have a 71 percent share
of the market. Referring to the recent electricity crisis, Davis said "I am not going to
allow Californians to be held hostage by another out-of-state energy cartel." Environmentalists
responded angrily to the move . They cited state records that document about 1,200
underground tank sites leaking MTBE lying within 1,000 feet of public supply wells
or drinking water aquafers. The vunerable water sources serve millions of people (www.sfgate.com).
Click
here for a brief description of the MTBE issue.
We're Speechless
One day after PG&E requested $4 billion in taxpayer funds from the California Victims
Compensation and Government Claims Board (the same body that is compensating the victims
of September 11) to recover money lost due to failed deregulation of the electricity
market, its parent company, PG&E Corp., announced $1.1 billion in net income
for 2001. Fourth quarter earnings by the bankrupt utility accounted for half of the
total. As a result, more than 6,000 of PG&E's administrative employees will split
$64 million in bonuses. This includes a reported $1.2 million to PG&E Corp.'s Chairman,
$460,000 to PG&E's CEO and $300,000 to the CFO. Shareholders paid for approximately
75 percent of the total with customers providing the other 25 percent. PG&E distributed
$50 million in bonuses
last year the day before filing for bankruptcy (www.sfgate.com). Perhaps, running
a business into the ground is more difficult than one would think. The contract
employees who actually keep the lights on and the natural gas flowing did not share in the
largesse. If it's any consolation, the victim's compensation board unanimously denied
PG&E's request.
The next step in PG&E's bankruptcy case will be a vote by the firm's creditors to determine which of the rival reorganization plans they prefer. PG&E's proposal would transfer many of its most valuable assets to new sister companies that would not be subject to Californaia Public Utilities Commission regulation. This would allow for the market rate pricing of retail electricity, which would, in turn, allow PG&E to borrow enough money to pay off the thousands of firms it owes. The PUC proposes that the creditors be paid off with cash PG&E Corp. has on hand. The vote will take place in June (www. sfgate.com).
The net gain is reflected in the county unemployment rate. The measure fell by more than a full percentage point from January's revised 7.9 to February's preliminary 6.8. The large improvement is even more impressive considering the local labor force grew by 200 people during this time period. The current number ranks Humboldt County 26th out of California's 58 counties. For the sake of comparison, the corresponding unemployment rates for the four neighboring counties are 9.2 percent in Del Norte, 13.0 percent in Siskiyou, 13.8 percent in Trinity, and 8.5 percent in Mendocino. The statewide rate fell from January's revised 6.8 percent to a preliminary 6.4 percent.
The national jobless rate fell for the second straight month. The 0.1 percentage point drop in February caught economic forecasters napping once again. The consensus prediction was for a 0.2 percentage point increase. While news of the 66,000 new jobs supports those analysts who feel a recovery is well under way, many of them still warn that there is no guarantee of a return to the low unemployment levels seen in recent years. Other economists point out areas of sustained weakness in the national labor market. The private sector added 42,000 jobs in February, which falls short of the 44,000 positions cut in January. Additionally, 217,000 more people were forced to work less than full-time last month. The Labor Department notes that statistical anomaly may be skewing the data in a positive direction. Because fewer temporary workers were hired during the last holiday season, fewer than normal layoffs were recorded in January and February. This shows up in the February data as an unusually high gain in the Retail sector. As a result, the unemployment rate may have been distorted downwards in the seasonal adjustment process (www.sfgate.com).
Proponents of "living wage" laws received a boost with the recent release of a study that examined the effects of such laws in 36 cities. The author of the study, a Michigan State University economist who is characterized as "a noted minimum wage critic," found that living wage laws result in a net reduction of poverty in the areas affected. One of the major criticisms of the living wage is that it leads to increased unemployment. The study found that while this is generally true, the gains to those receiving the higher wage more than offset the losses to those who lose or are unable to find jobs (www.commondreams.org).
The preliminary Index value for this sector rose for a second consecutive month in February. The current figure is 2.9 percent higher than it was in January. The graph below illustrates that increased activity is not unusual this time of year as producers seek to meet rising demand from the construction industry. One local industry source cited mild weather, low interest rates and low field inventories as the primary causes behind increased demand for, and rising prices of redwood and douglas fir, this area's two main lumber species. Unfortunately, the Index number remains down, in most cases by double-digit percentages, in all of the year-over-year comparisons.
The local timber industry will likely be helped by recent changes in national trade policy. The Commerce Department took further restrictive action against Canadian softwood lumber producers. A yearlong investigation by the agency concluded that Canada unfairly subsidizes its timber industry by charging low fees for logging public land and by allowing the illegal dumping of lumber in the United States at artificially low prices. U.S. producers have long claimed that the Canadian policy encourages overproduction north of the border, which ultimately leads to prices too low to sustain a healthy domestic industry. The Western Council of Industrial Workers estimates that 5,000 jobs have lost due to the dumping. As a result, the department set a 19.3 duty to offset the subsidies. It also set an additional duty, ranging from 2.3 percent to 15.8 percent, against specific companies suspected of dumping. These permanent duties follow two temporary tariffs imposed late last year. Not surprisingly, Canadian officials argue the move is nothing more than protectionism being used to curry favor in the western states during an election year. The Canadians claim that their cheap prices are due to resource availability and production efficiency. If so, then perhaps there is a simple comparative advantage at work. Furthermore, they claim their product is distinct from many of the U.S. softwood species, and so can't be compared directly. The United States imported $5.7 billion worth of lumber from Canada in 2001, amounting to one-third of the U.S. supply. U.S. home builders, who also oppose the action, claim the duties will add $1,500 to the cost of a new home, locking around 450,000 potential buyers out of the market (www times-standard.com).
The prospective buyer of Eel River Sawmills presented a $38 million propsal to the Fortuna company's shareholders eariler this month. If the deal is accepted, the buyer, Eel River Acquisition Corp., says it has enough logs on hand to run at least one mill (www.times-standard.com).
The Good News
After eighteen consecutive months of contraction, the Institute
of Supply Management (formerly known as the National Association of Purchasing Management)
Index climbed above 50, indicating expansion. The ISM figure rose a srong 9.6 percent
from January and now stands at 54.7 (www.dismal.com). Meanwhile, national manufacturing
activity improved for a second consecutive month for the first time since August and
September 2000. The measure,which rose by 0.4 percent in February, had declined in all
but one of the months between September 2000 and January 2002 (www.nytimes.com).
Employment-Based Economic Indicators:
A count of help-wanted ads indicates the number of new job openings. February's Index figure rose an impressive 17.5 percent from the previous month. The graph below, taken together with the one for unemployment insurance claims, indicates that the local labor market may be poised for a sustained turnaround from the downward trend that began in the wake of September 11.
Claims for unemployment insurance indicate the number of newly unemployed people in Humboldt County. Thus the number of new unemployment claims is a negative indicator of economic activity. New claims plunged 33.8 percent in February. This is not too surprising since the spike in January was primarily due to changes in benefits that gave people who became unemployed at the end of 2001 incentive to hold off filing until after the first of the year. As mentioned above, the current performance bodes well for the local labor market in the near future.
Manufacturing Economic Indicator:
Manufacturing orders are a leading indicator of activity and employment in the County. The trends in this leading indicator seem to be running counter to prevailing sense that the economy is beginning a recovery.
Home Sales Economic Indicator:
The building permits indicator dropped 7.2 percent in February from the previous month. This volatile sector, while also down from February 2001, is up by large double digits in all of the other year-over-year comparisons.
The rosier outlook was probably behind the central bank's decision to forgo further cuts in interest rates. At the most recent meeting of the Open Market Committee (3/19), the federal funds rate was left unchanged at 1.75 percent for the second consecutive time (www.sfgate.com).
Further corroboration of improving conditions came with the final revision to the fourth quarter 2001 GDP figure. The number was revised upwards to 1.7 percent from 1.4 percent. The increase was due to more complete information on foreign trade, which was not as much of a drag on the economy as was first suspected. Although the new figure is lackluster at best, it indicates how quickly the economy recovered from the devastation of September 11. Growth for the current quarter, which ends March 31, is projected to be in the 4 to 6 percent range (www.sfgate.com).
| Explanatory Note: For those of you who are new or less familiar with the Index, we have been tracking economic activity since January 1994. The composite indices plotted as blue and green lines in the diagram at the top of this page are weighted averages of each of the six sectors described in the table above. Each sectoral index, and the composite index, started at a value of 100 in 1994. Thus if the retail sectoral index value is currently 150, that means that (inflation-adjusted) retail sales among the firms that report data to us are 50 percent higher than in January 1994. We also seasonally adjust each sector, and the composite index, to correct for "normal" seasonal variation in the data, such as wet season vs. dry season, and so trends in the seasonally-adjusted composite index (the blue line in the diagram above) provide a better indication of underlying growth and fundamental change in the economy. This month's report reflects data gathered from the previous month, and so the "March 2002" report reflects data from February 2002. As is common, our initial report is preliminary, and as we receive final data we revise our reports accordingly. |
The Eureka Times-Standard webpage
The Northcoast Journal webpage
The San Francisco Chronicle webpage
The Common Dreams News Center webpage
California Association of Realtors webpage
National Association of Realtors webpage
U.S. Bureau of the Census webpage
The Federal Reserve Bank's Beige Book webpage
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