Leading Indicators Down in October

December 14, 2000 --The University of San Diego's Index of Leading Economic Indicators for San Diego County fell 0.5 percent in October. A big drop in local stock prices was the primary contributor to the decline, which was further fueled by moderate decreases in building permits and consumer confidence. Help wanted advertising and the outlook for the national economy were down to a lesser extent. The only positive component during the month was initial claims for unemployment insurance

Index of Leading Economic Indicators 
The index for San Diego County that includes the components listed below (October) 
Source: University of San Diego 
- 0.5 % 
Building Permits 
Residential units authorized by building permits in San Diego County (October) 
Source: Construction Industry Research Board 
- 0.72% 
Unemployment Insurance 
Initial claims for unemployment insurance in San Diego County, inverted (October) 
Source: Employment Development Department 
+ 0.56% 
Stock Prices 
San Diego Stock Exchange Index (October) 
Source: San Diego Daily Transcript 
- 1.05%
Consumer Confidence 
An index of consumer confidence in San Diego County (October) 
Source: San Diego Union-Tribune
- 0.84% 
Help Wanted Advertising 
An index of help wanted advertising in the San Diego Union-Tribune (October) 
Source: Greater San Diego Chamber of Commerce 
- 0.48% 
National Economy 
Index of Leading Economic Indicators (October) 
Source: The Conference Board 
- 0.33% 

November’s drop was the fourth consecutive monthly decrease for the USD Index of Leading Economic Indicators. The breadth of the decrease remains decidedly negative, with five of the six components of the Index down. The decline appears to be deepening as well, with more of the components beginning to show significant drops. The outlook then remains for a weakening of the local economy sometime in 2001, probably in the second half of the year. The most likely outcome is for continued growth but at a significantly slower rate than in the last two years. The probability of an actual downturn (recession) is very low, but is not totally out of the question.

The outlook for the local economy mirrors that for the national economy. The Gross Domestic Product (GDP) increased at a 2.4% annual rate during the third quarter of 2000, down significantly from the 5.6% growth rate of the second quarter. And the near term outlook is not optimistic, as the national Index of Leading Economic Indicators has been flat or negative since March of this year. This softening in the national economy has led to speculation that the Federal Reserve will ease interest rates in 2001, if not sooner. The feeling here is that interest rates will end 2001 0.50% below where they start the year.

In terms of the individual components, consumer confidence remains weak, as it has been since February of this year. Local stocks are on the defensive, as high tech stocks in particular have taken a beating in the last few months. And building permits continue their slide. As was indicated last month, the total number of residential units authorized by building permits in 2000 will be down from 1999 levels, but will be the second best year since 1990. The labor market variables are mixed, although with a slight positive bias. Help wanted advertising is down slightly, but initial claims for unemployment insurance continue to drop, which registers as a positive for the Index. Initial claims remain at low levels not seen in more than a decade.

October's decrease puts the Index of Leading Economic Indicators for San Diego County at 148.2, down from September's reading of 148.9. There were minor revisions in building permits for a number of months, but the overall Index was not affected. The fluctuations of the Index of Leading Economic Indicators for San Diego County for the last year are given below:

    Index  % Change 
1999 OCT 145.4 +0.3%
  NOV 146.0 +0.4%
  DEC 146.6 +0.5%
2000 JAN 147.9 +0.8%
  FEB 148.8 +0.6%
  MAR 149.8 +0.7%
  APR 150.7 +0.6%
  MAY 150.8 +0.1%
  JUN 150.8 +0.0%
  JUL 150.3 -0.3%
  AUG 149.6 -0.5%
  SEP 148.9 -0.5%
  OCT 148.2 -0.5%

For more information on the University of San Diego's Index of Leading Economic Indicators, please contact:

Professor Alan Gin 
School of Business Administration 
University of San Diego 
5998 Alcalá Park 
San Diego, CA 92110 
TEL: (619) 260-4883 

FAX: (619) 501-2954 

E-mail: agin@home.com 

The Index of Leading Economic Indicators is published by USD’s Real Estate Institute (REI). For more information about the REI, please contact Mark Riedy at (619) 260-4872.