[Sorry, the video for this story has expired, but you can still read the transcript below. ]
RAY SUAREZ: Today’s economic news on goods and services produced in the U.S. adds to a series of data showing the economy growing steadily in recent weeks/months. For the first quarter of 2004, the increase in the Gross Domestic Product was 4.2 percent. On the jobs front, the Labor Department reported today that the number of first-time jobless claims dropped last week. Earlier this week, new reports showed rising consumer confidence in April and strong housing sales in March.
But not all the news was good. There were new inflation numbers today raising some concern. A key measure known as the personal Consumption Index rose by 2 percent during the first three months of this year, the biggest increase since 2001.
Four views now of how the economy is faring in several sections of the country: Sam Zuckerman is the assistant business editor at the “San Francisco Chronicle.” Melita Garza is a business writer at the “Chicago Tribune.” Doug Heuck is the business editor at the “Pittsburgh Post-Gazette.” And Susan Strother Clarke is a business columnist for the “Orlando Sentinel.” Guests, of course, the GDP is, just like the name say, a gross measure of economic activity everywhere. Let’s go around the country and see if that measure looks about right where you sit. Sam Zuckerman in California?
SAM ZUCKERMAN: Well, on average it is about right, but there are differences in the state. Southern California has been doing very well in recent months. People know LA, of course, for its entertainment industry, but it’s also the largest port complex in the United States, and with booming trade with Asia and china, LA’s getting a lot of stuff pouring through that port. San Francisco is still recovering. We’ve got a morning after from the boom and bust that we’ve lived through after the five years. That ended in 2003. We’re just beginning to come back right now. A couple of normal years here wouldn’t be bad at all.
RAY SUAREZ: Melita Garza in Chicago?
MELITA GARZA: Well, I think the picture is about the same here in Illinois. It’s a varied picture, but overall across the board companies are doing well, everything from McDonald’s which showed 56 percent growth in its earning to Boeing which is showing strong sales for its military jets to Caterpillar, which is tripled its earnings in the first quarter and are citing global strength in all kinds of areas, construction, diesel generation. Exlon, the nation’s largest nuclear operator showed 12 percent earnings growth. So I think it’s very positive after a long period of not so positive news.
RAY SUAREZ: Susan Strother Clarke in Orlando?
SUSAN STROTHER CLARKE: Yes, I think that we look at that news as very positive, as well. In our community, one thing we were very interested to see was the jobless claim number. That also was a part of the national release today. And the reason why we were interested in that was for a couple reasons.
We’re a very large tourism community, of course, in central Florida and in the state overall. We like it very much when people are employed around the country, because of course that provides the customers for our very large tourism industry. And obviously a good employment picture is very positive for us just here in central Florida. For instance, in the last 12 months we’ve gained about 19,000 jobs just in the Orlando metro area alone. We’re outpacing most parts of the state, and, of course most, parts of Florida, I think, are probably outpacing the national numbers.
I will say that there’s one caveat with our strong jobs growth, though, and that is that we’re not always getting the kinds of jobs that pay really high wages. We have a large service and tourism economy here, and about half of that job increase we’ve seen has been in the tourism industry, which is historically low-paying.
RAY SUAREZ: And Doug Heuck in Pittsburgh?
DOUG HEUCK: Well, our economy now is one that’s slower to go into slowdowns and lag a little bit coming out, so we have a smoother more round curve. We’re seeing now a lot more optimism. We had a study a couple weeks ago showing that some 90 percent of small and medium-sized businesses feel that their sales and profits will be better in the next six months. 22 percent, which is up from a year ago, feel that they’ll be doing more hiring. The companies are doing well, the profits are certainly among the public companies doing very well.
I think you’re starting to see some of the hiring, some people who had been hunkered down in terms of waiting to try the job market are now thinking about moving, seeing a lot more resumes, more optimism in general.
RAY SUAREZ: Well, it sounds like the third-straight quarter of solid growth is being felt in all your various sectors of the country. What about what you’re seeing in some of the other numbers, the inflation scare that may be on the horizon, the continuing weak dollar? Is this something that hits your different economies in different ways, Mr. Zuckerman?
SAM ZUCKERMAN: We are seeing prices rising here in California. Food prices, prices of gasoline obviously, restaurants cost more, and we have had, of course, skyrocketing housing prices in the bay area in good time, bad times and in between times. Right now the average house in the San Francisco bay area costs $1/2 million. That’s way beyond the reach of most people, and it’s a pretty ominous trend, particularly if interest rates go up.
RAY SUAREZ: Susan Strother Clarke, you heard Sam Zuckerman mention gas prices. They’re very high in California. When you have a heavily tourist-based economy, is the summer of very expensive gas something that’s going to hurt Orlando in ways we’re not seeing now?
SUSAN STROTHER CLARKE: It’s certainly something everyone is concerned about. For practical matters, if you were to look at the increase in gas prices right now versus about a year ago, someone coming from the Washington area, driving into Orlando for a vacation is really only going to spend about $20 more on that trip, on their round trip here with the higher gas prices, so the actual effect, the dollar value isn’t all that large when you consider the average trip here, people spend about $1,500. However, it’s the perception. If people in other parts of the country believe it’s more expensive to come here or to go anywhere, they’re going to stay home.
RAY SUAREZ: And what about inflation? Economists like to say a little of it is pretty good but too much of it is a bad thing. How does that position Florida?
SUSAN STROTHER CLARKE: Well, the main thing we’re concerned about here with inflation is the other side of it, and that is what will it mean in the future about interest rates? If interest rates rise sooner rather than later, we’re very concerned about housing market, which has just been going gangbusters.
In central Florida and throughout the state, we have situations that are continuing to hit records, month after month — both of existing home sales and of re-sales. In fact, we had a story in our paper a few days ago about the re-sale market. It’s going gangbusters here. We have homes that are on the market for a day and just get half a dozen offers. And things are moving very quickly. We’re concerned obviously if interest rates increase that the refinancing boom will come to a slowdown and should that occur people will have less money to spend on the cars and furniture and clothing that is helping so many of our retailers.
RAY SUAREZ: Melita Garza, the pages of the Tribune would indicate that the housing market is pretty robust in the Chicago market, too. If there are rising interest rates, and they cool off the price rises in residential structures, wouldn’t that make Chicago a more attractive place to move, as well? Aren’t there silver linings to some of these economic measures?
MELITA GARZA: Well, yes, in general our housing market also has been very strong, but not quite as strong as either of the coasts, so the way we like to look at it is we never actually go to the party, so we never get the hangover, but we might get a slight buzz if the market does turn down for housing.
I think the big concern is the one that Susan mentioned, which is that people have been trading up in their houses, spending a lot more money on their homes and have very little equity. In fact, equity in homes is at its lowest level in 50 years. That’s what people have been using to fuel the economy, that’s where this great consumer spending has been coming from. What does that mean for businesses in the Chicago area if people have less money to spend? I would say that that’s a huge concern, what will happen with interest rates.
RAY SUAREZ: Is Pittsburgh different in that regard?
DOUG HEUCK: Well, Pittsburgh is not one of the big, booming population centers, and so we’re different in some regards, not insofar as people refinancing and taking that money and putting it into the economy. I think, however, that a change in terms of seeing the economy grow, you see these refinancing when the economy is slow and when rates drop so far as they have.
Now that the federal government has pretty much used every stimulus it can, I think seeing some inflation in perhaps what’s inevitable a Fed rate increase is actually what most people would say is appropriate. Now you’re seeing some more real economic growth so that hopefully the wages and salaries which actually haven’t really risen in three years will start to see that and so you’ll be generating more actual wealth and capital as opposed to kind of taking it out of the nest, so to speak, with the house.
Interestingly, labor force here, labor force participation is finally ticking up. And I think that even though the rates may worry some, it certainly worries the stock markets, I think it’s a sign that profits and strength are at hand. I think compared to that kind of worry, of course the markets always worry, I think that kind of worry is much better than the period we’ve been through where there is actual fear of deflation.
RAY SUAREZ: What about the idea if people find it more expensive to buy capital goods, to expand their business, a time of rising inflation and rising interest rates may also cool off a job market that some hope is now beginning to gather some steam.
DOUG HEUCK: Yeah, I think that… that’s precisely the reason for it. Some tempering on the national scale is probably not a bad thing. The rates are still very low and for somebody who is interested in borrowing and starting a business, it’s very attractive. I don’t know that a gradual Fed rate hike would tend to stop somebody who has been eyeing – starting a new business at this point.
RAY SUAREZ: Sam Zuckerman, defense spending is up 15 percent. California’s economy used to be much more heavily tied to that indicator than it is today, but is it still an important area for your state?
SAM ZUCKERMAN: It is much less than it used to be. Southern California lost its dominant status in that industry. Most major production isn’t done in the state anymore. There is a very interesting tie between military spending and technology, though. Military innovations drive some technology innovations, and that was an important source for Silicon Valley during 2001, 2002 and 2003.
Right now I’d say the tech industry is able to get on its feet by itself. It doesn’t need that injection from the federal government. So all in all military spending is less of a factor in California. The real issues for us are, particularly in the bay area, is whether consumers and businesses are going to continue to step up their increasing purchases of technology products.
RAY SUAREZ: Going to another fast growth area in Florida, Susan Strother Clarke, it’s been mentioned that Florida is growing 250,000 to 400,000 people a year. This influx even continues during bad times and good times. How dependent are you, is your state on other parts of the country doing well or doing badly? Do people stay put if the places they’re coming to Florida from start to do better?
SUSAN STROTHER CLARKE: Well, I think we’re very dependent on that influx. You make an excellent point. Obviously when people move here, they bring their families. They need to move into new homes. There need to be schools. There needs to be a great deal of building and construction that we have the industry here to support. For when people move because they demand services when they come here.
Actually, a couple of years ago, when the economy was in such a difficult position, we saw our population growth rates slow a bit. It was still climbing, certainly compared with other parts of the country, but we saw some slowness there. Fortunately that has turned around, and obviously, I mean, it’s pretty logical to assume when people are moving here, you know, they’re not only demanding homes, but they’re also demanding stores to buy their furniture or their clothes, and all sorts of things like that. So we’re very dependent on that.
RAY SUAREZ: In Chicago it’s been portrayed for a long time as a place people have been moving away from to other parts of the country. Has that situation stabilized?
MELITA GARZA: Well, I think to some degree it’s still true, and, in fact, I think that’s one of the reasons why we have more affordable housing than in other big cities, also we can always just roll over and bulldoze another farm, which is hard to do in California, where you’re bounded by the mountains or the ocean or the Northeast, which is already so densely populated. I think that makes this area a very livable and affordable place to live relative to the coast.
I think down the road questions arise about sustainable growth, if technology and jobs and people keep moving to the coasts, what does that say long-term about Chicago? Having said that, we are having revivals in many respects. Our downtown, as you know, Ray, is one of the most beautiful, livable places in the country. Our film industry, believe it or not, is thriving. The concept of Chicago and the Midwest as a rust belt economy is about 30 years old. I think it’s a mixed picture. We’re growing more slowly. We are growing.
RAY SUAREZ: Melita and guests, thank you all.