Suprisingly Weak Jobs Report Fuels Recession Talk
A: I have been bombarded recently with comments that I am a doom & gloom blogger, always talking negatively about the economy & housing, even when a very bullish Manhattan real estate report was published by the top firms (which I'll get into later today). After 2+ years blogging, I really hope most of my readers know me better than that! I am not a doomsday thinker, investor, or blogger. I am a realist; what you see is what you get. I try to tell you what I am thinking about on any particular day, and do my best to relate it and connect the dots to New York City housing. There is a lack of transparency in this industry and I'm trying to fix that with this site; so that you guys have a reputable source for front line information. With all that said, if sentiment is negative and red flags are waving, I will discuss it here without bias. Today's jobs report was so weak that we must now respect recession arguments and expect the fed to act a bit more aggressively at a time when the US dollar is so weak, oil prices are so high, and pipeline inflation remains a concern.
Lets get right into the news with a chart on the right showing you the Non-Farm Payrolls & percentage changes monthly/yearly (via The Big Picture). According to CNN Money, "Jobs Weak, Unemployment Soars":
There was a net gain of 18,000 jobs, according to the Labor Department report, down from the revised 115,000 gain reported in November. Economists surveyed by Briefing.com had forecast a gain of 70,000 jobs.While this report may be revised higher later on, it was still a very bleak economic report. The unemployment rate surged 0.3% from 4.7% to 5%, a big surprise to many economists and analysts, but not to Barry Ritholtz:
The unemployment rate rose to 5 percent, the highest reading since November 2005, from a 4.7 percent reading in November. Economists had forecast the unemployment rate would rise but only to 4.8 percent.
Unemployment rate rose to 5.0%, the highest in 26 months. As we have noted repeatedly in past months, to keep up with population growth requires ~150k new jobs to be created each month. Given the number of months we have seen below that level, an uptick in unemployment was inevitable.I'm not sure how the bulls will find any significant positive spins on this jobs report outside of wage growth.
This should not be a shock for UrbanDigs readers as Jeff & I (Jeff's recent post is below) have been discussing the coming wave of layoffs and job loss concerns for many months. As recently as Wednesday I stated:
"Not only will 2008 prove a very difficult year for these guys (financials) to generate revenue anywhere near years before the credit crisis hit, but we are about to head into a period of layoffs as efforts to cut costs and restructure the company is a must to restore investor confidence and bully the stock price.I understand why people consider me doom & gloom as it is no fun talking about a coming recession, potential job losses, stock losses, negative buyer sentiment, and pressure on Manhattan real estate; especially for a homeowner! But this is real people! Would you rather be advised by a broker who has no clue what is going on around them, or by someone that can keep you ahead of the curve?
In my opinion, its next year's bonus season that will prove to be much less than expected as generated revenue is way down in this post-credit crunch world. Add in the fact that job losses are inevitable, and you start to think reality rather than fantasy."
Now, while this jobs report is only one report and we must be careful not to dig too deeply into it, word on the street is that a wave of job cuts are coming at firms like Merrill Lynch, Citigroup, Morgan Stanley, etc.. in the coming weeks and months. Expect headlines on this topic.
Again, forget the past, this site is forward thinking as that is all that matters right now; either you adapt or you get slaughtered. The chain reaction that job losses and weak employment data will bring for Manhattan real estate starts at the psychological level. It will work like this for the majority:
JOB CUTS / WEAK JOBS DATA ---> UNCERTAINTY / CONCERN OVER JOB SECURITY ---> CONSERVATIVE MINDSET SETS IN ---> RISK APPETITE RESTRICTS ---> FEWER BUYERS JUMP IN ---> AMOUNT TO BE SPENT GETS CUT BACK ---> DEMAND WANES ---> SALES SLOW / INVENTORY BUILDS ---> PRESSURED HOMEOWNERS ADD TO INVENTORY
I didn't even talk about what it will do to those who lost their jobs and may have to sell their property. Its the same story that has hit so many local markets outside Manhattan already, that are not exposed to the same fundamentals (tight inventory, healthy buyer demand, foreign $$'s, trend to live closer to work, low rental vacancy rate / high rental prices, etc..) that help to drive our marketplace. But even our strong fundamentals are cyclical and NOT immune to a slowdown should a recession hit, and the biggest consumer concern with a recession is job losses, job security, affordability, risk management, and negative wealth effect with stock losses for the buyer. All these items will affect buyer psychology / confidence and that sentiment will spread with a herd-like mentality. Nobody likes a recession, not even Manhattan real estate. Which is why I pay attention to macro events so closely. Right now, my main concern is the psychological hit that will come with recession worries / job losses during a generally very active bonus season here in Manhattan real estate.
But for those that say I'm never positive, here you go. Two positives I can see from this report, wage growth & eventual fed action. Expect the fed to seriously consider a more aggressive 1/2 point rate cut for their next move. While we have pain to go through first, there WILL be brighter times in the years ahead as all this fed stimulus will eventually 'kick in' at a time when we are nearing the end of the worst housing recession since the Depression & the worst credit crunch since the Savings & Loan crisis. When will the opportunity present itself?
Posted by Barry Ritholtz
Fri Jan 4th, 2008 10:37 AM
Note that attacking you personally, they ignore the merits of your argument -- classic ad hominem.
There's an old legal joke:
"When the law is against you, stress the facts; when the facts work against you, argue the law.
But when both the Law and the Facts are against you, call the other attorney a schmuck.
Posted by Noah
Fri Jan 4th, 2008 10:44 AM
thx BR! Great to see you here. Looking forward to finally meeting you at the Inman conference! We need to get an email out about potential topics in the next few days, I'll get something going.
Posted by uwsider
Fri Jan 4th, 2008 10:59 AM
What is your opinion on what sector will benefit in this environment (lower fed rates, potentially even weaker dollar, potentially fanning inflation).
I noticed gold went down today which seemed surprising to me (last time it unexpectedly dropped was selling for liquidity reasons)
Posted by Noah
Fri Jan 4th, 2008 11:03 AM
i bought gold today..I got to believe that gold, oil, agriculture, and plays that benefit from fed stimulus, safe havens plays, and weaker dollar that are not exposed to consumer spending, housing. Its very possible gold goes nutz in 2008.
Im sure you'll see a tradable rally in beaten down sectors too, but I wouldnt mess with that unless you are familiar with trading ranges/risk.
Posted by Justin
Fri Jan 4th, 2008 11:36 AM
gold is a difficult one. I think it is a proxy for commodity prices on small time scales but an inflation hedge on a macro scale.. I suspect oil has retreated a bit from $100 and gold followed. (Yes in fact oil has retreated 1.5% today).
As the recession grows more plain the idea that commodity prices will fall gains traction: if the recession is exported to the world demand drops, how can commodity prices stay at record highs?
Long term, however, the rising gold trend is very much intact:
see:
http://www.the-privateer.com/chart/gold-pf.html
I fear this steady move up represents the real american inflation rate (decline of the real value of the USD) and the greenspan asset bubble. Since practically every asset class is a bubble now, gold benefits from money seeking something not likely to crash overnight. Even at $850 an oz I'd rather have a decent chunk of my savings in gold than chinese stocks, art works, property or equities!
Posted by Noah
Fri Jan 4th, 2008 11:44 AM
agreed completely with Justin; Im definitely shifting to more and more gold holdings right now. A bit late, but I think there is much room for gold to move.
Oil will prob be impacted by recession, while gold will be considered a safe haven play during recessions, and will be boosted by fed cuts as well.
Posted by Kenny Alex
Fri Jan 4th, 2008 12:15 PM
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Best regard
Posted by Colgin
Fri Jan 4th, 2008 12:19 PM
Noah,
I saw the attacks against you on streeteasy and they were unfair, infantile and nonresponsive to your comments. They also put words in your mouth which is the classic disingenuous way to argue with someone.
Keep up the good work and keep telling it as you see it. A lot of us appreciate it.
Colgin
Posted by Noah
Fri Jan 4th, 2008 12:30 PM
ha, you saw that..thx Colgin..it really only was spunky
Posted by Rich
Fri Jan 4th, 2008 01:38 PM
Noah..
I follow your blog closely and, as one who is looking to buy, I appreciate the macro-ec perspective you provide. I don't want fantasies and hooplah and hype of the sort that has gotten our nation into an historic bind. For those who simply don't want to face the fact of an economic slowdown, perhaps they expect these downturns to arrive with a loud crash. I think what we are seeing instead is a slow and powerful unwind like an inexorably turning screw that will shear away a large percentage of asset value wqhen it is finished.
Posted by Them
Sat Jan 5th, 2008 08:52 AM
Noah,
You refer to the recent Manhattan brokerage Q4 reports and that you will get to them later.
Hopefully this means you're taking a look at the underlying data in order to discern meaningful trends and analysis, rather than simple averages/medians. In other words, trying to normalize the trends by backing out the Plaza, 15 CPW, etc. I can tell you that that is information everybody would be very interested in seeing.
Posted by Noah
Sat Jan 5th, 2008 10:07 AM
THEM - I got too busy yesterday to post on it. But yes, if you remove those 2 bldgs, it drops from like 51% to 13% or so. Still not bad. But it was more the trends from 3rd qtr to 4th qtr I wanted to discuss..
Ill have to wait until Monday to get into it.
Posted by Noah
Sat Jan 5th, 2008 10:19 AM
That's great. I also had been thinking about Q4 vs Q3 as opposed to y-o-y, so I'm looking forward to your post next week.
Posted by Them
Sat Jan 5th, 2008 10:25 AM
Oops - in my hungover state I put the addressee in the name box.
It wasn't you who just posted, Noah, it really wasn't.
Posted by Dave
Mon Jan 7th, 2008 10:03 PM
These figures do not surprise me at all. Further, this is reflected in the New York City real estate market which has become very difficult for real estate developers and sellers and in all likelihood will become progressively worse throughout this new year. In our case, we started to develop a medium sized property in a secondary area in Queens, when the market was still sizzling hot. Unfortunately, as the building neared completion, the bottom fell out. In our case, we hired an outside real estate consulting group which provided us with a very interesting perspective and ideas which greatly helped us sell the units. For example, our showroom had been in a temporary structure and while it was well built and representative of the apartments, the location and the temporary nature of the structure was akin to a trailer home. What they suggested may seem obvious now, but it was not when they presented it to us. We were told to rent a temporary showroom in the best area of the borough, hire well dressed, very attractive and more importantly, professional sales people and then provide limousine service from the show room to our yet unfinished building. Further, the limousine was only to come to the building at certain times, when the lighting was just right, when traffic was minimal and by a particularly scenic route, all the while having the sale person explain all of the interesting things in the area. This worked well and we were able to quickly sell almost all of the remaining units. The consulting group that we dealt with consisted of a former public relations executives and several former developers. They also revamped our sales literature and advertisements to reflect a new vigor. Their website is www.LastLifeboat.com, though there is not much information on it. My advise to other developers is to rethink and regroup your marketing strategies.