| Humboldt County | Seasonally Adjusted | ||
| Median Home Price* | Help Wanted Advertising | ||
| 30 Yr. Mortgage Rate (5/24) | 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 | Seasonally Adjusted 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 five of the Index's six sectors registered positive growth during the month of April. Electricity consumption posted the largest gain, but since second quarter energy data will not be available until our July report, the performance in this sector is simply an estimate. That said, the strong performance in lumber manufacturing indicates increased production, which may be behind the increase in electricity use. The lumber manufacturing sector seems to be solidifying after months of difficulties. The pending sale of Eel River Sawmills is moving along, and production at the company may resume in the near future. Home sales, with its impressive year-over-year numbers, was the only sector to log across the board increases this month. Despite doubt over the sustainability of this level of performance, most indications point towards continued growth. The second consecutive month of improvement in hospitality bodes well for the sector as the tourist season gets under way. The employment sector showed modest growth in April. Because there was no change in the size of the local labor force, the county's unemployment rate plunged 11.1 percent to a preliminary 6.4 percent. Finally, retail sales was the only sector to lose ground in April, erasing most of March's large increase. Retail's Index value is now 0.4 percent higher than it was in February.
As noted last month, forecasting future activity based on our Leading Indicators is the most difficult aspect of this project. Over the summer, we will be attempting to build a model that will improve our capabilities in this respect. With this in mind, the current indications for the local economy are less than optimistic. Three of the four Leading Indicators are negative this month. Additionally, the four-month trends shown near the end of this report suggest that this performance is not due to month-to-month volatility. Nevertheless, conditions are probably not as dire as the numbers imply. Help wanted advertising is strongly positive, which means the local labor market should be able to absorb many of the people who filed unemployment insurance claims for the first time this month. Various other factors mentioned below mitigate the decreases in manufacturing orders and building permits.
April's median home price increased as well, rising a strong 6.5 percent to $159,500. The measure is up 9.2 percent from its April 2001 level (not taking into account the effects of inflation). The current statewide median sale price for existing homes is $321,950, a one-month rise of 5.2 percent. This figure is up a whopping 26.1 percent from April 2001, when it was $255,310 (www.car.org). The national median price for existing homes rose 1.9 percent to $153,300, while the similar figure for new homes climbed 5.2 percent to $185,800 (www.realtor.org and www.census.gov).
What's behind the continued strength of the real estate market?
As stated in last month's
report, industry analysts claim three factors are primarily responsible. First,
construction of new housing is not keeping pace with the growing population. Second,
continued price appreciation, along with a weak stock market, is encouraging people to
invest more of their financial resources in real estate. And third, low mortgage rates are allowing more buyers into
the market, exacerbating the supply-demand imbalance (www.sacbee.com).
Will the trend continue?
As long as demand is greater than supply, the answer is a likely yes. The Center for
Continuing Study of the California Economy
in Palo Alto estimates that the state needs between 200,000 and 220,000 new homes and
apartments built each year to keep pace with the normal growth in population. The current
level of construction is around 150,000 units per year. The situation
will probably not improve anytime soon. Recent concerns over sprawl and the resulting
loss of open space make it more difficult to develop housing than in the past
(www.sfgate.com).
Nevertheless, some analysts remain doubtful that the weakened economy can sustain this level of activity. The Local Market Monitor in Wellesley, MA tracks what it calls an equilibrium home price, a measure that balances median home prices with personal income data for about 150 of the largest markets in the country. It claims that there are more overvalued markets currently than ever before, indicating a possible real estate bubble, and that a fall in prices is due. An economist at UC Berkeley's Haas School of Business cites the rising number of foreclosures in California as additional cause for concern. The number of homeowners statewide defaulting on their loans rose 4.9 percent in the first four months of 2002 from the same period one year earlier. In the Bay Area, the increase was 37.6 percent. Although the higher level of defaults hasn't yet affected homes sales, this economist believes it could be a leading indicator of future weakness given expectations of continued labor market weakness (www.sfgate.com).
National retail sales experienced its largest one-month increase in six months with a 1.2 percent improvement in April. Once again, strong sales of electronics and appliances, and health and personal care items led the gain. Sales of building materials, garden supplies and prepared meals also improved (www.census.gov and www.nytimes.com).
The latest release of the Conference Board's Consumer Confidence Index rose 1.2 percent in April to 109.8. This indicates that consumers remain optimistic about the economy's ongoing recovery (www.nytimes.com).
Despite a gloomy forecast from the California Division of Tourism, which predicts a 5.9 percent decrease in statewide tourist activity this summer from last summer, a number of other indications are pointing towards a strong tourist season locally. According to the Humboldt County Convention and Visitors Bureau, current interest in rural California destinations is much higher than in recent years. Visits to its website have doubled so far this year from the same period last year. The Bureau also reports that direct requests for tourist information are up 66% percent over last year. According to the American Automobile Association of Northern California, gasoline prices statewide are 35 cents per gallon cheaper, on average, than they were at this time last year. Since the current supply of gas is relatively high, prices will probably not rise dramatically in the near future. As a result, traveling by car will be an attractive option for vacationers this summer. Finally, preliminary figures on transient occupancy tax collections for the first quarter of 2002, which compare very favorably with last year's numbers, suggest improving conditions.
Estimated April consumption climbed an estimated 19.7 percent from the prior month. Though previous experience suggests this figure is overstated, the healthy increase in manufacturing activity indicates that a large increase in electricity consumption probably did occur.
In the wake of revelations that Enron used deceptive and possibly illegal trading activities to manipulate California's deregulated electricity market last year, the Federal Energy Regulatory Commission recently ordered some 150 energy suppliers to provide information on trades that artifically inflated the volume of power they bought and sold. The widening investigation lends credence to the argument that the primary cause of the market failure early in 2001 was the exertion of market power by energy firms in the context of tight supplies and a flawed deregulation plan. If the companies refuse to comply with the order, they could lose the authority to sell wholesale electricity at market-based rates. Should the alleged manipulation be proved widespread, the state is in a much better position to recover an estimated $8.9 billion in overcharges. It would also potentially allow for the renegotiation or cancellation of $43 billion in overpriced long-term contracts signed during the height of the crisis (www.sfgate.com).
The unemployment rate for Humboldt County declined in April according to the preliminary EDD report. The current 6.4 percent is eight-tenths of a percentage point lower than March's revised 7.2 percent. Meanwhile, the national rate climbed three-tenths of a point to 6.0 percent and the state rate fell four-tenths of a percentage point from March's revised figure to 6.3 percent. As noted in previous reports, most economists expect the national unemployment rate to peak at around 6.5 percent later this summer.
The preliminary Index value for this sector is up strongly from March's record low performance. While this will be welcome news to some, the year-over-year comparisons show that the lumber production industry has lost a lot of ground over the past year and a half. Blue Lake Forest Products is the most recent firm to shut done its mill as it reportedly continues to struggle through a reorganization process that began with a bankruptcy filing in 1991. The company's CEO is optimistic that a buyer can be found for the facility that had employed over 90 workers. The sale of Louisiana-Pacific's Arcata particle board plant to a Crescent City firm is pending. Closure of the deal is expected to occur before the end of June. If the sale falls through, L-P will shut down the mill permanently, throwing over 100 people out of work (www.times-standard.com).
The Good News
The pending sale of Eel River Sawmills is moving again after having stalled for several weeks.
The prospective owners are confidant that once the deal is completed, at least one of
the company's four mills can be put back into production relatively quickly in order to take
advantage of improving market conditions.
Industry analysts claim that the market for redwood lumber, which has been in a trough lately, is poised for a turnaround, and the outlook for 2003 is good. Local producers apparently agree. According to a recent article in the Times-Standard, Pacific Lumber is milling more redwood this year than last and Simpson Timber's new redwood-based decking product is catching on with builders and consumers.
Additional good news for the industry came recently when the United States International Trade Commission unanimously voted to make permanent the large tariffs placed on Canadian softwood lumber. The reduction of cheap imported wood sold on the U.S. market will likely lead to rising prices, which will undoubtably aid domestic manufacturers (www.sfgate>com).
Employment-Based Economic Indicators:
A count of help-wanted ads indicates the number of new job openings. This indicator jumped 19.1 pecent in May. Conditions in the local labor market appear to be in good shape based on the trend of the four-month moving average.
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. This volatile indicator soared 31.0 percent in May. We hope many of the newly unemployed are able to find other work relatively quickly.
Manufacturing Economic Indicator:
Manufacturing orders, are a leading indicator of activity and employment in the County. As noted in the past few reports, the negative trend in the graph below may be indicative of a shrinking number of participants in the local market. A number of other factors, like the pending sale of Eel River Sawmills and the tariff on Canadian softwood lumber, point to improving conditions for local lumber manufacturers.
Home Sales Economic Indicator:
The building permits indicator plunged 22.2 percent in May. This is troubling news considering construction activity typically increases this time of year. The four-month trend is obviously pointing downwards, but based on the performance of previous years, we expect activity to pick up in the near future.
Based on the current data, the decline in economic output during the 2001-02 recession was just 0.3 percent, making it the mildest recession on record. The previous low was the recession of 1969-70, when ouput fell 0.6 percent(www.nytimes.com). Some analysts believe there is evidence that a severe recession is typically followed by a strong recovery, and conversely, a mild recession is usually followed by a weak recovery. Economists at the Federal Reserve Bank of St. Louis recently put the claim to the test. They looked at the decline in output, measured both by real GDP and industrial production, during the ten post-World War Two recessions. Their conclusion is that while there is a positive correlation between the sizes of a recession and the subsequent recovery, there is no statistically significant relationship.
One of the most vital components of a strong recovery is sustained growth in business investment. Unfortunately, capital spending has decreased for five consecutive quarters. This fact is one of the primary reasons behind the National Bureau of Economic Research's reluctance to declare an official end to the recession. The NBER will likely wait until there are unambiguous and lasting improvements in employment, personal income and industrial production before making the call (www.sfgate.com and www.nytimes.com).
As a result of the continued uncertainty, the Fed's Open Market Committee voted unanimously earlier this month to leave interest rates unchanged. The federal funds target rate remains at a forty year low of 1.75 percent.
| 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 "May 2002" report reflects data from April 2002. As is common, our initial report is preliminary, and as we receive final data we revise our reports accordingly. |
The Eureka Times-Standard website
The San Francisco Chronicle website
California Association of Realtors website
National Association of Realtors website
U.S. Bureau of the Census's Economic Briefing Room webpage
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