NYC Job Loss Estimates Rise To 243,000 Through 2010

Posted by urbandigs

Fri Jan 9th, 2009 12:37 PM

A: As I discussed in my 2009 predictions piece, '2009 will be a dark year for the city's economy'. Based on the latest report issued by the NYC Independent Budget Office, the city faces job losses of approximately 243,000 through 2010, and now faces 'swelling budget gaps'. The job loss revisions are 40% higher than previously estimated only a few months ago, and put it higher than the 222,000 jobs the city lost in the last recession. As I said a few times already, any broker, brokerage executive, or chief economist at a major brokerage firm that starts talking about bottoms or recoveries at this point in time, has little to no fundamental data to back up their argument other than that prices have started to fall.

According to NYC Independent Budget Office report:

"After several years of amassing large budget surpluses, New York City now faces swelling budget gaps as a long and deep recession erodes jobs and tax revenues. IBO projects that the city will lose 243,000 jobs from the peak during the first quarter of 2008 and tax revenues will fall by $2.8 billion in fiscal year 2009 to $34.7 billion and then decline by $380 million more in 2010.

Recognizing that the city will not be generating large surpluses to cover the shortfall between recurring revenues and expenses, the Bloomberg Administration and the City Council have ended the property tax rate cut six months ahead of schedule, taken steps to generate additional revenues, and cut spending. Despite these efforts, the city faces daunting budget gaps beginning in 2010—the upcoming fiscal year.

Based on IBO’s estimates of revenue and expenses under the November 2008 financial plan, adjusted for the tax measures adopted last month, we project that the budget gap for fiscal year 2010 has grown to $4.3 billion (10.4 percent of city-funded revenues). With little recovery of the local economy anticipated before the end of calendar 2010, we expect the fiscal year 2011 gap to reach nearly $7.0 billion (15.9 percent of city-funded revenues)."
The city lagged into this housing slowdown cycle (that saw the nationwide housing slowdown start around early 2006), and in my opinion is now experiencing the adjustment phase at a much faster rate than I originally expected. Unfortunately, jobs are a major driver of housing affordability and the overall health of buy side demand for any local marketplace. Given that the worst is ahead of us in terms of job losses, it is quite silly to start talking about a bottoming and outright ridiculous to start talk about a near term recovery simply because prices started to fall and there are 'sideline buyers' waiting to swoop in. If the argument does come up, ask what fundamentals are in place right now to support a rapid pickup in demand and affordability based on today's asking prices. I'd love to know. There will be time to discuss a recovery, but for now I just don't see any fundamental reasons to start.

Forecasts for our local economy continue to be revised downward, and unfortunately the worst is ahead of us, not behind us in terms of job losses. Talk about federal aid is sure to pop up soon. We are yet to see any drastic effects of changes in quality of life due to massive service cuts from budget issues, but clearly there will be some in the years to come. It takes time for the perception of quality of life in a given area to change, and I just hope the current powers that be can minimize damage to the quality of life that we got used to here in Manhattan. My greatest fear is damage to the perception of Manhattan as a 'great place to live and raise a family', but again, something like this takes time to both occur and diagnose.

What is interesting to me is the total revenues collected from mortgage recording taxes (MRT) and real property transfer taxes ((RPTT) compared to 2007's record collections year:

2007 --> $3.3 Billion and having grown 24.6% annually since 2001
2008 --> $2.6 Billion; down 21%
2009 (estimated) --> $1.6 Billion; or estimated to slide down 51% or so from peak levels in 2007

Budget gaps are projected to be $4.3Bln in FY2010, $6.9Bln in FY2011, and $7Bln in FY2012; so clearly there are no predictions for a local economic recovery anytime soon:

budget-gaps.jpg

For now, we are dealing with the initial stages of the down cycle where bids seem to just disappear and the initial snapdown from peak levels occurs. This is the fiercest phase of the cycle and price discovery will occur over the next 2-4 months on where deals took place during the 4th quarter of 2008. What will the new benchmark be?

For what its worth, I am seeing an uptick in demand on the buy side for the past week or so but it is way too early to tell if it will hold or follow through via confidence in bidding levels. Some brokers I am talking to are also reporting a pickup recently. I generally don't feel comfortable devoting a piece to topics like this until I see the pickup sustain itself for a minimum of 2-3 weeks; so lets just take this as a grain of salt. It is very likely that bids will still come in 15-20% below peak levels and price in near term 'downturn risk' that is perceived to be ahead of us. Time will tell.

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