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Leading Economic Indicators Up in July

September 23, 2004 --The University of San Diego's Index of Leading Economic Indicators for San Diego County rose 0.3 percent in July. Three components–initial claims for unemployment insurance, consumer confidence, and help wanted advertising–posted very strong gains during the month to lead the advance. The other three components–building permits, local stock prices, and the outlook for the national economy–were down but only moderately so.

	Index of Leading Economic Indicators  The index for San Diego County that includes the components listed below (July)  Source: University of San Diego	+ 0.3 %
	Building Permits  Residential units authorized by building permits in San Diego County (July)  Source: Construction Industry Research Board	- 0.94%
	Unemployment Insurance  Initial claims for unemployment insurance in San Diego County, inverted (July)  Source: Employment Development Department	+ 1.04%
	Stock Prices  San Diego Stock Exchange Index (July)  Source: San Diego Daily Transcript	- 0.63%
	Consumer Confidence  An index of consumer confidence in San Diego County (July)  Source: San Diego Union-Tribune	+ 1.47%
	Help Wanted Advertising  An index of help wanted advertising in the San Diego Union-Tribune (July)  Source: San Diego Union-Tribune	+ 1.49%
	National Economy  Index of Leading Economic Indicators (July)  Source: The Conference Board	- 0.49%

With July’s increase, the USD Index of Leading Economic Indicators has now increased for 13 consecutive months. The ratio of positive indicators to negative ones remains relatively neutral at three each, with the gain as a result of larger magnitude of the increases. The outlook is for solid growth in the local economy at least through the first half of 2005.

One topic that is on the minds of many San Diegans is the state of the local housing market. One concern is about whether we are in a housing price "bubble" after years of double-digit growth in prices. Some people worry about a repeat of the early 1990s, when housing prices dropped significantly after a large run up . The circumstances are much different today than they were back then. In the 1990s, we had just come through a period of huge residential construction, and the local economy was hit as the defense industry faced major cutbacks. Today, the supply of housing is much tighter after years of slow construction activity, and the local economy is experiencing solid job growth. Any weakness will likely be caused by a sharp increase in interest rates from the current low levels, which I don’t see in the short term. The outlook for the local housing market is for a flattening of prices and more difficulty in selling, i.e., a longer time on the market, but no significant drop in prices.

Highlights: The trend in residential units authorized by building permits remains weak, with permits now having declined for three months in a row, and four out of the last five months. . . July was a strong month for the labor market all around. Initial claims for unemployment insurance have now fallen for nine months in a row, the last eight by significant amounts. So job loss is not a problem in the local economy. On the other side of the labor market, hiring plans surged, as help wanted advertising registered its largest one month gain since March 2000. These positive developments may have presaged the sharp drop in the unemployment rate from 4.4% in July to 3.7% in August. . . Consumer confidence surged in July by the largest amount for the year so far. . . Local stock prices continue on a roller coaster ride with prices down in July and a gain in June. After being in positive territory for most of the year, local stock prices are now at roughly where they began the year. . . The national Index of Leading Economic Indicators fell for the second month in a row. The Conference Board reports that the weakness in the national Index in the last two months was "widespread."

July’s increase puts the Index of Leading Economic Indicators for San Diego County at 142.5, up from June’s revised reading of 142.1. Revisions building permits and the national Index of Leading Economic Indicators cause no change in the previously report change of +0.2%. The values for the Index of Leading Economic Indicators for San Diego County for the last year are given below:

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