Retail Sales Decline for Third Straight Month

In spite of firming consumer confidence and improvements in the labor market, retail sales declined in February for the third consecutive month. Spending on U.S. retail and food services fell by 0.6% last month following a decline of 0.8% in January and 0.9% in December. Core retail sales, which strip out vehicle sales, building supply centers and gasoline stations, were flat. 

Weakness in the retail sector was broad based. In February, eight of the thirteen major sales categories posted a decline in sales over the month. The largest drop occurred at motor vehicle and parts dealers where sales fell by 2.5%. Building material and garden supply dealers also posted a sharp decline (-2.3%), followed by electronic and appliance stores, general merchandize stores, and miscellaneous store retailers, all of which saw sales fall by 1.2% over the month. Smaller declines were posted by health and personal care stores (-0.7%); food services and drinking places (-0.6%); and furniture and home furnishings stores (-0.1%).

Not all retailers had cause for complaint last month. Sectors that recorded an increase in February were sporting goods, hobby, book and music stores (2.3%); nonstore retailers (2.2%); gasoline stations (1.5%, on rising prices); and food and beverage stores (0.3%). Sales at clothing and clothing accessory stores were flat.

On a year-over-year basis, total retail sales in February were up by 1.7%. Every major sector posted a gain over the last 12 months except for gasoline stations, which saw sales plummet by 23.0%. The largest gains were in nonstore retailers (8.6%); food services and drinking places (7.7%); and furniture stores (5.8%).

Current trends in retail sales are running counter to improving fundamentals that support increased consumer spending. The obvious culprits are the piles of snow on the ground and the nasty weather that hit a large part of the U.S. again this winter. Although the retail sales numbers are seasonally adjusted, the seasonal factors are based on a history that does not always reflect the situation in the current year. Therefore, if weather is harsher than normal, sales will fall below normal even after accounting for seasonality. Given the booming labor market and recent wage gains, we should see most of the retail sales lost to the winter weather made up as the spring thaw sets in. 

Source:  http://www.census.gov/retail/marts/www/marts_current.pdf

California Financial Report for February

The State Controller’s office has released the February financial report for the California General Fund. Eight months into the fiscal year (2014-15), total receipts were up by 10.6% to $68.1 billion compared with the same period last year. Total disbursements ($81.8 billion) increased by 11.8% over the same period, exceeding cash receipts by $13.8 billion. As of February 28, the state’s cash balance stood at -$11.9 billion.

Total revenues (receipts from taxes, licenses, fees or investment earnings) were up by 11.0% to $66.3 billion compared with the first eight months of the previous fiscal year. Most of California’s general fund revenues come from personal income taxes, retail sales and use taxes, and corporate income taxes, collectively known as the “big three”.

• In February (fiscal year-to-date), personal income taxes increased by 12.2% to $44.7 billion, beating expectations by 1.3% or $558.2 million.

• Corporate income taxes rose by 41.1% to $4.0 billion, running ahead of expectations by 1.9%.

• Revenue from sales and use taxes was up by 4.5% to $15.3 billion, surpassing projections by 2.3% or $342.4 million. The February figure also included a one-time adjustment of $343.3 million for an under-allocation of sales and use tax due to local government in prior fiscal years.

The schedule of cash disbursements in the Controller’s report showed that expenditures on Local K-12 Education were $30.3 billion during the first eight months of the fiscal year, which was up by 3.6% compared with the previous year. Disbursements to Community Colleges increased by 6.8% to $3.4 billion. Funds received by the UC and CSU systems rose by 12.0% to $4.1 billion. Contributions to CalSTRS (the state teachers’ pension fund) increased by 11.3% to $969 million.

Spending for the Department of Corrections rose by 11.1% to $6.5 billion, while outlays for Health and Human Services increased by 3.6% to $1.6 billion. The amount the state paid to service its debt obligations jumped by 16.3% to $2.5 billion (debt service amounts are net of offsets such as federal subsidies and reimbursements from other services).

So far this fiscal year, General Fund revenues are running 1.6% (or $1.0 billion) ahead of projections. Disbursements were also slightly higher than expected – 0.4% more than forecast by the Department of Finance or $300.2 million.

As of February 28, the General Fund had $29.9 billion in borrowable resources against $11.9 billion in outstanding loans (5.3% less than projected at this point in the budget cycle). The loan balance is comprised of $9.1 billion in internal borrowing and $2.8 billion of external borrowing in the form of revenue anticipation notes, which will be repaid by the end of the fiscal year. 

Sources:  http://www.sco.ca.gov/eo_pressrel.html

January State and Local Employment Report

The Employment Development Department (EDD) released the state and local employment reports for the month of January. This report incorporated revised industry employment data. Each year in March, employment data are updated to reflect additional data inputs and improved estimation techniques.

Total California nonfarm employment increased by 67,300 jobs over the month in seasonally adjusted (SA) terms. This followed a gain of 19,800 jobs (revised) in December.

The year-over-year change showed an increase of 498,000 jobs (SA). This equated to a growth rate of 3.2%, outpacing the January national increase of 2.3%.  California’s private sector added 447,500 jobs (an increase of 3.4%) over the year, while employment in the public sector rose by 2.1% (50,500 jobs).

Ten of the 11 super-sectors added jobs over the year to January: construction; manufacturing; trade, transportation and utilities; information; financial activities; professional and business services; educational and health services; leisure and hospitality; other services; and government for a gain of 498,300 jobs. Professional and business services posted the largest gain on a numerical basis, adding 111,900 jobs (up 4.7%), while construction posted the large gain in percentage terms, increasing by 5.7% or 37,800 jobs.

The only sector to record a decline over the year was mining and logging, down 300 jobs or 1.0%.

The historical revisions included in the January release showed that California’s economy added significantly more jobs in 2014 than initially reported. Before the revisions, the EDD reported employment increased over the year in 2014 by 336,150 jobs (up by 2.2%). After the revisions, nonfarm job counts rose to 461,850, an increase of 3.0% compared with 2013.

California’s unemployment rate fell to 6.9% in January, down from 7.1% in December and down from the year ago rate of 8.1%. The state’s civilian labor force rose by 0.1% over the month and by 1.3% over the year. This means the unemployment rate in California is falling because the state is adding jobs as opposed to workers dropping out of the labor force. The state’s labor force participation rate was 62.0% in January, versus the national rate of 62.9%.

County highlights:

(Note: With the exception of the Los Angeles unemployment rate, county level numbers are not seasonally adjusted, which means there can be large month-to-month fluctuations in jobs counts. A truer picture of how local labor markets are faring is revealed by focusing on the year-over-year numbers. Annual trends “correct” for the seasonal factors that influence certain industry sectors over the course of the year.)

§  In Los Angeles County, the seasonally adjusted unemployment rate was 7.9%, down from 8.0% in December and below the year ago rate of 8.8%. Total nonfarm employment rose by 62,100 jobs over the month and by 98,200 jobs over the year, an increase of 2.4%.

Educational and health services reported the largest year-over rise in employment January with an increase of 26,300 jobs. Most of the increase was due to the addition of 20,100 (76% of the total) health care jobs over the past 12 months.

Also posting significant gains was the leisure and hospitality sector where payrolls expanded by 23,400 jobs. Employment in trade, transportation and utilities was up by 21,800 jobs; and government increased by 11,500 jobs.

The largest year-over decline in employment was in information, which suffered a net loss of 3,700 jobs. Within the information sector, employment in motion picture and sound recording fell by 5,800 jobs but was partially offset by small gains in other sub-industries. Manufacturing gave up 900 jobs, and mining and logging was down by 100 jobs.

§  In January, the unemployment rate in Orange County was 5.0%, up from 4.7% in December but below the year-ago figure of 6.0% Nonfarm payroll jobs declined by 21,200 over the month but was up by 50,500 over the year (an increase of 3.5%).

§  In the Riverside-San Bernardino area, the unemployment rate in January was 7.3% compared with 7.0% in December and the year ago rate of 9.0%. Nonfarm payrolls fell by 13,900 jobs over the month but were up by 52,600 jobs over the year. This represented an increase of nearly 4.2%.

§  In Ventura County, the unemployment rate was 6.4%; down from the year ago estimate of 7.5%. Last month, total nonfarm employment increased by 1,600 jobs. Over the year ending in January, the number of nonfarm jobs in Ventura County was up by 3,600 (up 1.2%).

To sum up, the California labor market remained on track in January while the unemployment rate fell to 6.9%, the lowest rate since may 2009. Moreover, the annual revisions that accompanied this release show that statewide job growth last year was considerably faster than was previously reported.

Sources:  http://www.labormarketinfo.edd.ca.gov/

The creative economy of the 

Los angeles region

How is creativity defined? One definition is that “creativity is the ability to produce something that is novel or original, and useful or adaptive.” This sounds simple enough but how is that “something” achieved? The creative spark is often depicted as an “aha” or “eureka” experience, when in reality there may have been years of thought, hard work and experimentation were needed to arrive at that one moment.[1] The origins of creativity remain elusive. Researchers still cannot name the specific combination of biological and environmental factors that produce creative brains. From the standpoint of economic development, the question of origination is less important than the question of whether creativity can be learned or taught and then nurtured.

A second question is whether or not creativity in the arts can be equated with creativity in the sciences or in business, or should the latter two groups be considered separately? Is innovation in the sciences or business the same as artistic creativity or is it something altogether different? Research suggests that the process of creation (or innovation) in all three activities is largely the same: preparation, incubation, inspiration (the eureka moment) and production. The same, ongoing, iterative process is essential to many forms of creativity whether it be composing an orchestral work or revealing the structure of the universe.[2]

Creativity is one of the Los Angeles region’s foremost economic assets and the creative economy is undeniably important to the region’s economic growth. In research conducted by the LAEDC for Otis College of Art and Design, the creative economy is defined as the businesses and individuals involved in producing cultural, artistic, and design goods and services. It consists of creative professionals and enterprises that take powerful, original ideas and transform them into practical and often beautiful goods, or inspire us with their artistry.

It also includes organizations that provide a venue for artists to share their work with the public such as museums, art galleries and theaters. Finally, it includes activities one does not instinctively associate with creativity, such as apparel, toy and furniture manufacturing - all industries that depend on good design.

In a broader sense, the creative economy must include a support system that teaches, nurtures and sustains creative activity: arts programs in K-12 schools, post-secondary arts institutions to develop talent, and philanthropic foundations along with other nonprofit funding organizations to provide financial resources, incentives, and services to the creative arts.

In today’s economy, the market value of products and services is increasingly determined by a product’s uniqueness, performance and aesthetic appeal. More companies are seeking employees with creativity as well as problem solving and communications skills. Business location decisions are also influenced by factors such as the availability of a creative workforce and the quality of life available to employees. The talent that drives the creative economy provides a competitive advantage that reaches across almost every industry in the Los Angeles region.

Regions acquire a competitive advantage when they attract creative employees because creative thinkers encourage innovation which fosters economic growth. Furthermore, the creative talent pool in a region is not as vulnerable to going “offshore”. Historically, the development of advanced technologies that increase productivity was seen as a pathway to better jobs, but that is no longer necessarily true. Many advanced technologies can be replicated across the world using cheaper labor or even automation. But original artistic creation, innovative design and other higher-level creative work cannot be outsourced so easily. Creativity builds both brand awareness and attracts talented people to a dynamic environment. Although entertainment is the most visible creative industry in Los Angeles, one can find creative individuals working in nearly every industry in the region.

In 2013, there were 407,000 individuals directly employed in the creative industries of Los Angeles and Orange Counties, equivalent to over seven percent of wage and salary employment. The creative industries also employ a large number of independent contractors (over 161,000), significantly boosting total employment and income numbers. Altogether, the creative economy generated a net economic contribution equivalent nearly eleven percent of the region’s gross product.

Because creativity is a dynamic function of humanity, the creative economy is a vibrant and vital force in society. Intellectual and aesthetic sensibilities lead individuals to express themselves through the arts, solve problems through design, and seek out what is beautiful and original. The Los Angeles region is unique because of its combination of place, resources and open attitudes toward new ideas. This openness to new ideas and the ability to make associations and connections that other people do not see is one of the defining characteristics of creativity.

Here, new ideas are constantly given form and brought to life by creative people, not just in the arts but in many industries that make up the economy of the Los Angeles region.

---

[1] Andreasen, Nancy. “Secrets of the Creative Brain, The Atlantic; Web. June 25, 2014

[2] Ibid

Consumer Credit Expands at Steady Pace

Total consumer credit outstanding (all non-mortgage debt) increased by 4.2% ($11.6 billion) over the month in January to $3.33 trillion (seasonally adjusted annualized rate). January consumer credit was revised up from a gain of $14.7 billion to $17.8 billion. Over the 12 months ending in January, total consumer debt was up by 6.9%.

Non-revolving debt is composed primarily of credit for new automobiles and student loans, and makes up nearly three-quarters of non-mortgage consumer debt in the United States. In January, non-revolving debt grew to $2.44 trillion, an increase of 6.3% (or $12.7 billion) over the month. In December, growth in non-revolving debt was initially reported at 4.5%, somewhat below trend, but in the current report, the December growth rate was revised up to 5.8%. On average, this category of consumer debt has expanded by $15.5 billion per month over the last 12 months.

Revolving debt (mainly credit cards) contracted by 1.6% (-$1.1 billion) in January. In December, revolving debt increased at its fastest pace (8.4%) since April of last year. The prevailing pattern of revolving debt since the end of the recession has been a month or two of gains followed by a decline as consumers run up and then pay down their credit cards. Revolving credit tends to be volatile since it is often used for discretionary purchases and more readily impacted by swings in consumer confidence, employment reports and retail prices.

Consumer credit continues to expand at a steady pace and growth is expected to remain solid. Delinquency rates across all types of consumer loan types have continued to decline and remain low relative to the peaks reached in the aftermath of the last recession. Although, there is some concern that given the rapid expansion of student and auto loans, these sectors may be overextended. The ratio of debt-to-disposable income has also been rising steadily and now stands at 25.1%. The long-term average ratio going back to 1995 is 22.9%. 

Source:  FFederal Reserve

U.S. Light Vehicle Sales Pause in February

Light vehicle sales in February were up by 5.4% over the year to 16.2 million units (seasonally adjusted annualized rate), the slowest rate of increase since April 2014. On a per unit volume level, 1.25 million light vehicles were sold, a 5.4% increase compared with February last year when much of the nation was experiencing similar winter weather conditions.

Total passenger car sales, including foreign and domestic models edged down by 1.6% to 7.0 million units. Sales of foreign models have been on a downward trend since July of last year, partially or completely offsetting increases in sales of domestic models.

• Sales of domestic autos ticked up by 1.4% over the year to 5.2 million units
• Foreign auto sales dropped by 8.9% to 1.9 million units
• Compared with January, total passenger car sales were off by 4.1%, the third consecutive month-to-month decline.

Sales of light trucks, SUVs and crossover utility vehicles continue to be brisk in spite of moderate increases in the price of gasoline in February. Sales were up by 11.5% over the year to 9.1 million units and accounted for 56.6% of the sales mix, the highest since the share of light trucks peaked at 61.1% in July 2005. 

• Sales of domestic trucks increased by 12.1% over the year to 7.7 million units
• Foreign light truck sales, a much smaller segment of the U.S. truck and SUV market, rose by 8.8% over the year to 1.4 million units
• Compared with January, sales of light trucks were down by 0.9%

Sale of medium-heavy trucks, used primarily by businesses to haul freight and make deliveries, posted another large gain last month, rising by 23.4% over the year in February to 453,000 vehicles.

The more moderate pace of sales in February was likely due regional weather effects. If so,  the slowdown should reverse course as the automotive industry moves into the spring selling season. All the fundamentals supporting light vehicle demand (low fuel prices, available credit, expanding employment, and improvements in the construction industry) remain intact. 

Source: Bureau of Economic Analysis 

February U.S. Employment Report: Strong Hiring Continues

The U.S. Labor Market Report covering the national employment situation in February showed stronger than expected gains that were accompanied by a small uptick in wages. The labor market added 295,000 jobs last month and the unemployment rate dropped to 5.5%. After increasing by twelve cents in January, average hourly earnings on private nonfarm payrolls increased by three cents to $24.78 in February. Over the year, average hourly earnings were up by 2.0%, well ahead of inflation and thus boosting real wages and consumer spending power.

The employer payroll survey reported that total nonfarm employment in the United States increased by 295,000 jobs in February. The December employment figure remained unchanged, but November employment was revised down from 257,000 jobs to 239,000. Job growth has averaged 288,000 jobs over the last three months. February was also the twelfth consecutive month where job gains topped the 200,000 mark.

On a year-to-year (YTY) basis, U.S. employment expanded by nearly 3.3 million jobs, an increase of 2.4%. With the exception of mining and logging, every major industry sector including government added jobs over the year, an indication of a stronger and more diverse economy. The fastest growing sectors were construction (5.3% or 321,000 jobs); transportation and warehousing (4.2%, 192,200 jobs); administrative and waste services (3.8%, 322,700 jobs); leisure and hospitality (3.6%, 527,000 jobs); and professional and technical services (3.6%, 296,400 jobs). The manufacturing sector continues to grow as well – jobs in durable goods were up by 2.6% or 195,000 jobs, while employment in nondurable goods edged up by 0.3% or 13,000 jobs.

The unemployment rate fell to 5.5% last month from 5.7% in January, which is very close to what many economists consider to be full employment.  However, 178,000 individuals left the labor force causing the labor force participation rated to tick down 0.1 percentage point to 62.8%. Since only individuals in the labor force are used to calculate the “headline” unemployment rate, a decline in the labor force will result in a lower unemployment rate, which was partially the case last month; but he unemployment rate continues to fall because the economy has been creating over 200,000 jobs per month over the last year. This last time the economy experienced job growth of this magnitude was back in the late 1990s.

While job gains and a declining unemployment rate point to steady improvement in the labor markets, indicators of underlying distress have also made significant gains.  The more comprehensive U-6 unemployment rate, which counts part-time workers who would prefer full-time work and persons who would like to work but have given up looking for a job fell to 11.0% from 12.6% a year ago. 

Also encouraging, as of February, someone who is out of work would need a little over 13 weeks to find a new job. A year ago it would have taken over 16 weeks. Improvements in the labor market have also helped to bring down the share of workers who have been jobless for 27 weeks or more. In February that share was 31.1% versus 36.8% in February 2014 (not counting individuals who have given up looking for work). Over the year, the number of long-term unemployed persons has fallen by nearly 1.1 million. Since 1990, the percentage of long-term unemployed has averaged 25%, reaching as high as 45% in 2010. 

Summary: February was another month of solid, broad-based job, and sustained growth – good news for the economy. The gain in manufacturing jobs and the number of production hours worked was an indication of improving industrial production. There was a loss of 8,000 jobs in the mining sector, mostly in oil and gas extraction, a consequence of declining oil prices. While bad for the energy sector, the net impact of the decline in energy prices has proven to be more than sufficient to offset those losses and provide an overall boost to the economy. 

Source:  http://www.bls.gov/news.release/pdf/empsit.pdf 

January Personal Income and Spending

Total personal income increased by 0.3% in January after rising by the same amount in December.

Total wages and salaries jumped by 0.6% ($42.4 billion) after edging up by just 0.1% in December. Wages and salaries are the largest component of personal income for most Americans. Wages in private goods producing industries were up by 0.5% ($6.8 billion), while wages in the much larger service sector increased by 0.7% ($33.3 billion). Wages in the public sector rose by 0.2%. Over the past  year, government workers have seen much slower wage growth than workers in the private sector – just 1.7% over the 12 months ending in January compared with 5.6% for private industry employees.

In addition to wages and salaries, government transfers (social security, Medicare, Medicaid, unemployment insurance, veterans’ benefits) boosted personal income, rising by 1.0% over the month ($24.8 Billion) and by 5.8% over the year.

Real disposable income (adjusted for taxes and inflation) shot up by 0.9% in January, while real personal consumption expenditures rose by just 0.3%, after declining by 0.1% in December. With income growth outpacing spending, American households put more of their earnings aside last month. The saving rate was 5.5% in January compared with 5.0% in December and 4.5% in November.

Real consumer spending on both durable and nondurable goods increased by 0.2%, while spending on services increased by 0.4%. Services include utilities consumption so it is not unusual to see stronger spending on services during the cold winter months.

On a year-to-year basis:

·         Real disposable income was up by 4.2%

·         Real personal consumption expenditures increased by 3.4%

·         Growth in real spending on goods (5.2%) outpaced spending on services (2.5%)

Inflation continues to be a non-issue for consumers. Consumer prices declined by 0.5% in January (the third consecutive monthly decline), but factoring out food and energy, prices edged up by 0.1%. Prices for food dipped by 0.2%, while prices for energy goods and services plunged by 10.4%. Over the year, consumer price inflation was just 0.2%, well below the Federal Reserve’s target range of 2.0%.

Disposable personal income continues to grow at a healthy rate, helped by rising wages and the current low inflation environment. Consumer spending was weaker than expected last month – lower gasoline prices haven’t translated into higher spending elsewhere – but increases in the saving rate over the last few months may support high consumption expenditures going forward. 

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

Small Business Employment in the United States

It is commonly understood that small businesses play a vital role in the economy as a major source of innovation and job creation. But how many Americans actually work for a small business? A recent report released by the U.S. Census Bureau shows that in the United States more than half of all workers in 2012 (51.6% or 59.9 million) were employed at large enterprises for the sixth consecutive year. The share of employment at large enterprises has increased steadily since 2004 when the share was 49.1%. The employment share of very small enterprises decreased from 17.9% in 2004 to 16.6% in 2010 and 2011, before rising slightly to 16.7% in 2012.

California has a slightly higher share of workers employed at small and very small businesses and a marginally smaller share employed at large firms than the nation overall.

The dominance of large enterprise employment varies of industry sector. The nation’s largest industry sector by employment in 2012 was health care and social assistance. Of the 18.4 million people working in this sector, 54% were employed by large enterprises. In the retail sector the share was 64.1%, while the share for utilities was 82.6%, which is  not surprising given the high cost of entry and regulatory structure of the utilities industry.

Of the 21 major private industry sectors, eight had a higher share of workers employed by firms with less than 500 employees. Industries in which small and medium firms dominated  were “other” (personal) services (85.8% with 47.4% employed in very small enterprises); agriculture (85.1%); construction (83.3%); real estate, rental and leasing (69.3%); arts, entertainment and recreation (63.3%); accommodation and food services (59.9%); wholesale trade (59.6%); and professional, scientific, and technical services (59.5%).

In California, large enterprises employed 6.48 million workers in 2012 with an annual average salary of $62,246, while smaller firms employed 6.47 million with an average annual salary of $45,842. Between 2011 and 2012, employment at firms with less than 500 workers increased by 2.2% and by 1.8% at larger firms. Historically, large business have paid their workers higher salaries. The amount of capital that small or young firms have to draw on to pay employees is typically lower than for larger companies. While this is not particularly worrisome in and of itself, the gap in pay between small and large firms appears to be widening, luring talented employees from smaller to larger firms.

The popular perception is that small businesses create most of America’s jobs, but a growing body of research (NBER, Haltiwanger, et al, 2010) shows that a more telling characteristic for predicting job creation is the age of a firm not its size. Smaller firms may create more jobs during their start up period, but many fail during the first five years, destroying about half of those new jobs. The surviving firms continue to ramp up, growing faster than more mature companies and creating a disproportionate share of jobs relative to their size.

Source:  http://www.census.gov/econ/susb/