Leading Indicators Up Slightly in May

	Index of Leading Economic Indicators  The index for San Diego County that includes the components listed below (May)  Source: University of San Diego	+ 0.1 %
	Building Permits  Residential units authorized by building permits in San Diego County (May)  Source: Construction Industry Research Board	- 0.26%
	Unemployment Insurance  Initial claims for unemployment insurance in San Diego County, inverted (May)  Source: Employment Development Department	- 0.21%
	Stock Prices  San Diego Stock Exchange Index (May)  Source: San Diego Daily Transcript	+ 1.27%
	Consumer Confidence  An index of consumer confidence in San Diego County (May)  Source: San Diego Union-Tribune	- 1.18%
	Help Wanted Advertising  An index of help wanted advertising in the San Diego Union-Tribune (May)  Source: San Diego Union-Tribune	- 0.97%
	National Economy  Index of Leading Economic Indicators (May)  Source: The Conference Board	+ 1.84%

While May's increase in the USD Index of Leading Economic Indicators is a welcome relief from the recent string of declines, the outlook for the local economy is decidedly mixed.  Economists usually look for three consecutive moves in a leading index to establish a trend, so May's increase needs to be validated by more increases in the months ahead before a return to strong growth can be projected.  Also worrisome is the fact that only two of the components increased in May, with the big increase in the national Index of Leading Economic Indicators largely responsible for the gain in the local Index.  This was the first time since August 1994 that the Index has increased overall with less than half of the individual components increasing.  With the war in Iraq for the most part over and with local military units returning to San Diego , the biggest threat to the local economy is now California 's budget crisis.  Potential problems include tax increases and/or service cuts slowing the state economy, big cuts in state funds to local governments, an impasse in the budget process itself, and political chaos related to the potential recall of Governor Gray Davis.

Highlights: While residential units authorized by building permits remain up over the same period in 2002, they are down when compared on a month-to-month basis. . . Both labor market variables continue to be negative.  Job loss remains high, with initial claims for unemployment insurance increasing in May, a negative for the Index.  Hiring plans remain soft, with help wanted advertising down for the ninth straight month.  Although the unemployment rate dropped to 4.1% in May from 4.3% the month before, total nonfarm employment dropped on a year-to-year basis for the second month in a row. . . Local stock prices advanced along with other stocks as the financial markets rallied in the second quarter. . . The Index uses moving averages to smooth out the month-to-month fluctuations in some of the more volatile components.  Thus, while the raw consumer confidence index has turned upward, the smoothed trend continues to be negative.  Because its fall has been so severe, it will take a few more months of positive changes before it can be determined that the downward trend in consumer confidence has been reversed. . . The national Index of Leading Economic Indicators registered its strongest one month gain since December 2001.  A strong national economy would benefit San Diego companies selling products and services on a nationwide basis, as well as the local tourism industry.  For the same reasons as California , a big threat to the national economy are the budget deficits that dozens of states across the country are dealing with this year.

May's increase puts the Index of Leading Economic Indicators for San Diego County at 130.9, up from April's revised reading of 130.8.  Revisions in the national Index of Leading Economic Indicators caused the previously reported values for February through April to be revised downward.  The values for the Index of Leading Economic Indicators for San Diego County for the last year are given below:

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