Leading Economic Indicators Up in 2004

July 1, 2004 --The University of San Diego's Index of Leading Economic Indicators for San Diego County has risen in each of the first four months of 2004. The USD Index now has increased or remained unchanged for 12 months in a row, after reaching a bottom in April 2003:

There were particularly strong gains at the end of 2003 and the beginning of 2004, although April’s results tailed off a bit. This portends well for the local economy for the rest of year. Unemployment is likely to remain at or below the 4% mark, and job growth should be solid at between 15,000 and 20,000 for the year as a whole. Potential problems that would slow growth but not throw the local economy into a recession include (1) higher interest rates, (2) the impact of higher gas prices on consumer spending, (3) cutbacks by the state of California and local governments in the wake of severe fiscal problems, and (4) the impact of the war in Iraq as it relates to the deployment of military personnel from San Diego.

The expansion in the USD Index has been solid, with most of the components on the positive side. Following is a discussion of the performance of each of the components of the USD Index and their impact in determining the outlook for the local economy:

Building Permits (Source: Construction Industry Research Board)

This is the total number of residential units (both single-family and multi-family) authorized by building permits in San Diego County. It measures the strength of the construction industry as it relates to housing. This is important not only in terms of direct employment in construction, but also in a number of related industries, such as real estate, furniture and appliance sales, and home repair and remodeling. After dropping sharply in the summer of 2003, building permits rebounded somewhat in the latter part of the year. Results have been mixed so far in 2004, which the total level of permits through April down over 13% compared to the same period the previous year.

Unemployment Insurance (Source: Employment Development Department)

This is the total number of initial claims for unemployment insurance filed in San Diego County, which reflects the rate of job loss in the local economy. The value is "inverted" so that an increase in claims is a negative for the index and a decrease in claims is considered a positive. After moving sporadically for much of 2003, initial claims started falling significantly at the end of that year. This carried over into this year and has been the largest contributor to the strength of the local leading indicators in 2004.

Stock Prices (Source: San Diego Daily Transcript)

The San Diego Daily Transcript calculates daily the "San Diego Stock Exchange Index." This index is based on the stock prices of companies headquartered in San Diego County. This gives an indication of the view of investors on the future prospects for San Diego-based companies. Local stock prices have risen for the most part since the spring of 2003, mirroring the rise in most major market averages.

Consumer Confidence (Source: The San Diego Union-Tribune)

The San Diego Union-Tribune conducts a monthly survey of 300 households in San Diego County which asks them about their present and future income and job prospects. The responses are compiled into an index of local consumer confidence. Consumer sentiment is significant because consumer spending is typically two-thirds of all economic activity. Local consumer confidence bottomed out in the middle of 2003 and has been rebounding ever since. There were particularly strong gains at the end of 2003.

Help Wanted Advertising (Source: The San Diego Union-Tribune)

This index measures the level of help wanted advertising in The San Diego Union-Tribune and gives an indication of employers’ hiring plans. Help wanted advertising turned positive in August 2003 and has been increasing, albeit modestly, ever since.

National Economy (Source: The Conference Board)

The national Index of Leading Economic Indicators measures the short-term outlook for the national economy. The performance of the national economy affects San Diego companies that do business on a nationwide basis as well as the local tourism industry, as both leisure and business travel are affected by the health of the economy. The national Index of Leading Economic Indicators has been positive or unchanged for 14 consecutive months, reflecting the generally positive news in the national economy. 

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: (858) 603-3873 

FAX: (858) 484-5304 

E-mail: agin@san.rr.com