Leading Indicators Up in January

March 23, 2000 --The University of San Diego's Index of Leading Economic Indicators for San Diego County rose 0.9 percent in January. The advance was led by big increases in local stock prices and help wanted advertising. There were also good gains by initial claims for unemployment insurance and consumer confidence, while the outlook for the national economy improved by a smaller percentage. The only negative component was building permits, which was down slightly in January.

	Index of Leading Economic Indicators  The index for San Diego County that includes the components listed below (January)  Source: University of San Diego	+ 0.9 %
	Building Permits  Residential units authorized by building permits in San Diego County (January)  Source: Construction Industry Research Board	- 0.32%
	Unemployment Insurance  Initial claims for unemployment insurance in San Diego County, inverted (January)  Source: Employment Development Department	+ 0.95%
	Stock Prices  San Diego Stock Exchange Index (January)  Source: San Diego Daily Transcript	+ 1.60%
	Consumer Confidence  An index of consumer confidence in San Diego County (January)  Source: San Diego Union-Tribune	+ 0.90%
	Help Wanted Advertising  An index of help wanted advertising in the San Diego Union-Tribune (January)  Source: Greater San Diego Chamber of Commerce	+ 1.50%
	National Economy  Index of Leading Economic Indicators (January)  Source: The Conference Board	+ 0.49%

The USD Index of Leading Economic Indicators started the 2000s on a strong note. January’s gain of 0.9% was the largest monthly increase in the Index since November 1997. The advance was broad and deep, with five of the six components moving up during the month, each by a solid amount. The outlook is for continued strong growth in the local economy well into the second half of 2000.

In examining the individual components of the Index, the labor market variables continue to perform well. After behaving erratically for the last two years, help wanted advertising rose sharply in January, resulting in the largest monthly gain in that component since the mid-1980s. Initial claims for unemployment insurance continue to fall, which is a positive for the Index. Initial claims have now fallen in 12 of the last 13 months. As a result, the outlook for the labor market remains positive, with the likelihood of continuing low unemployment in San Diego County.

There are two potential problems that could cloud what is otherwise a bright outlook for the local economy. The first is the recent sharp increase in oil and gasoline prices. This has a number of negative implications, including (1) a reduction in the amount of consumers’ income that could be spent on other goods and services and (2) an increase in the prices of other goods and services due to increased input and/or transportation costs. The second potential problem is the impact of higher interest rates. The Federal Reserve has increased interest rates to dampened inflationary pressures caused by the booming national economy. It is uncertain how the Fed will react to the cost-push inflationary pressure caused by the increase in oil prices. The higher interest rates mean higher capital costs for businesses and an adverse impact on the local housing market due to higher mortgage rates. Whether these problems are enough to slow down the local economy remains to be seen.

January's gain puts the Index of Leading Economic Indicators for San Diego County at 147.9, up from December’s revised reading of 146.6. Revisions in various components led to small revisions of the overall Index for the months of July, September, November, and December, and to the previously reported percentage changes for October and December. The fluctuations of the Index of Leading Economic Indicators for San Diego County for the last year are given below:

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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.