NYC Unemployment Surges
I have been promising a piece on financial sector employment, which I am working on. In the course of that work I've been collecting some data from the New York State Bureau of Labor Statistics....which may give me carpal tunnel syndrome before all is said and done. But I happened to have called James Brown at the New York State Department of Labor's Manhattan research office to ask some questions about available data and to get some preliminary comments on trends this morning. He told me "We see continually widening job losses and no indication that the losses are stopping". He also gave me the heads up that the latest data would be out yesterday, so I should keep my eyes peeled. Well here it is:
The state's unemployment rate reached a 16 year high in the month of May, with the number of unemployed exceeding 800,000, which is the highest in 33 years. The data above and the chart below (from the New York Fed) show that New York City, which going into this recession was growing faster than the rest of the country and held up better in the initial stages of the recession, has now started to catch down to the State of New York and the country overall. (Interestngly, this seems to be in keeping with the last recession).
A year ago, in May of 2008, the city's unemployment rate sat at just 5.1%, trailing the state by 10 basis points and the country by 40 basis points. By April of 2009, unemployment in New York City was running 60 basis points above the rest of the state (sans NYC) at 8%, but still trailing the rest of the country by almost 1 percentage point. In the month of May, unemployment in New York City surged a full 100 basis points to 9%, more than three times the increase of the rest of the state (sans NYC) . The big surge in May can't be viewed positively and of course accelerating unemployment is not good for residential real estate prices.
There has been some debate lately about whether job losses in New York City will actually be a fair amount lower than the worst expectations of a few months ago, due to the federal bailouts of the financial industry. Urban Digs readers know that for trading markets, results versus perceptions are quite important and the second derivative of change...even if its only "less worse"...can have a big impact. However, in the real world absolutes matter and the latest click on New York City unemployment is absolutely not a good thing, even if expectations were that things could be worse. Stay tuned.
Posted by Noah
Fri Jun 19th, 2009 08:19 AM
You know I must say that I thought the blood on wall street, on the jobs front, would have been much worse. Not to say its good, its not and there have been many layoffs, but not as much as the worst case scenarios running in my head were say 6-8 months ago when the world was a much scarier place.
With that said, we are neck deep in the local slowdown here, and no matter what green shoots occur in stocks, it wont feel that great here because of the local unemployment and trickle down effect that comes to retail, restaurants, etc. as people hunker down spending. Its healthy, its starting, it will proceed, and it will end. We must go through this and hopefully the powers that be can wiggle their way out of this without major damage to this great city. I know tax collections and revenue collections for the city/state are going to be brutal for a year or two more, so what happens there with our budget gaps and how they close them remains to be seen
Posted by Noah
Fri Jun 19th, 2009 09:05 AM
ps: food for thought
http://www.calculatedriskblog.com/2009/06/report-state-personal-income-tax-cliff.html
Posted by Fred
Fri Jun 19th, 2009 10:38 AM
Thx for focusing on this Jeff. It illustrates how NYC overreacts as a rule - to the upside as well as the downside - relative to State and National stats. The other thing that stands out of course is how both the severity of unemployment and delay, tend to keep NYC down longer when the rest of the country has essentially bottomed; this is why I tend to think "Armageddon" is really a mid to late 2010 event in NYC. We could in fact be securitizing non-agencies by then - I know, wishful thinking right - but it's totally possible. I guess the $64k question is can we realistically expect full employment to resemble the last 20 years in the city? My hunch says no, but you just can never know what changes can occur. A big one may in fact come in the form of regulatory changes around banks' restrictions on the residential and mortgage brokerage sides of the business. I know that pissing off the NAR is not a good formula for re-election but if you want to drive fees & jobs to the banks, brokerage is a no-brainer.
Posted by Noah
Fri Jun 19th, 2009 10:53 AM
Fred - excellent points. I wonder if Manhattan/NYC boroughs, usually lead out of recoveries, but in this crisis, will not as the end of this cycle plays out.
Its a worth discussion. I like the idea of securitization in non agencies sometime in 2010. However, I think WAVE 2 pain may come in 2010/2011 (cre, helocs, option arms, recasts, credit cards, lbos, off balance sheet acct rule changes, etc.) , so I wonder how the revitalization of securitization, after regulation Im sure, will play out from this crisis.
Posted by Fred
Fri Jun 19th, 2009 10:54 AM
Noah - quick question, the stats above right are essentially from late Fall 2008, right? thx
Posted by Noah
Fri Jun 19th, 2009 11:35 AM
Fred - you mean the widget?
Posted by nikki
Fri Jun 19th, 2009 01:06 PM
I actually think that this is pretty bad. If NYC is down to 9 percent and we are not a large auto state--then this is pretty bad. While some states maybe reaching 10 percent, NY has arrogantly assumed that it won't get that bad here as many believe that the worst to the financial sectors is already come. Since this is a real estate blog which wonderfully demonstrates how real estate is inextricably tied to the stock market, I think that it is important to look at the ebbs and flows of history. Traditionally, during a downturn, the r.e. market bottoms 18 months after a stock market crash. This bottom is also tied to joblessness. The problem is that with the TARP funds we have created an unprecedented artificial bottom that will invariably have aftershocks for years to come. I am sorry, but I believe that we are in for more layoffs and any relief that the numbers are not that bad is not taking into account the whole picture and the next year ahead.
Posted by nikki
Fri Jun 19th, 2009 01:06 PM
I actually think that this is pretty bad. If NYC is down to 9 percent and we are not a large auto state--then this is pretty bad. While some states maybe reaching 10 percent, NY has arrogantly assumed that it won't get that bad here as many believe that the worst to the financial sectors is already come. Since this is a real estate blog which wonderfully demonstrates how real estate is inextricably tied to the stock market, I think that it is important to look at the ebbs and flows of history. Traditionally, during a downturn, the r.e. market bottoms 18 months after a stock market crash. This bottom is also tied to joblessness. The problem is that with the TARP funds we have created an unprecedented artificial bottom that will invariably have aftershocks for years to come. I am sorry, but I believe that we are in for more layoffs and any relief that the numbers are not that bad is not taking into account the whole picture and the next year ahead.
Posted by Fred
Fri Jun 19th, 2009 02:43 PM
Noah - yes, the widget. thx
Nikki - tarp is not the problem. tarp helped and without it, you most likely would have seen a systemic failure in retail banking. so, call it artificial or whatever, it was necessary. i would also point out that tarp funds are being repaid - I guess they may be using the proceeds to retire t-bills LOL. the key to understanding what a recovery may feel like, is to erase the last three years from the data and normalize based on historicals.
Posted by In Debt We Trust
Fri Jun 19th, 2009 02:44 PM
I think its worse than what you show. I don't have the hard figures but am coming across chatter on a marked shift among employers to contract workers. Even though NY is an "at will" employment state, employers are shifting to contracts to avoid the paperwork associated w/normal employment contracts.
Among other things, contract workers are responsible for their own health care expenses. This could lead to a marked increase in higher savings rates among workers and correspondingly less consumer spending in other sectors.
Posted by Noah
Fri Jun 19th, 2009 03:08 PM
ahh, the widget is REAL TIME, updated daily AFTER the streeteasy wee hours mass update they run. After this SE update, we get sent an update.
Posted by Fred
Fri Jun 19th, 2009 05:18 PM
Fred,
I respectfully disagree. The government intervention is exacerbating the problems.
What needs to happen is debt deflation: pay down and default. What needs to happen is a correction of residential real estate so that it is affordable based upon real income.
We need to eliminate the drag on the economy that is posed by high taxes (to pay for the intervention) and high rents.
Until this happens, capital will continue to be Malinvested.
Finally, I think these troubled institutions should have been allowed to fail immediately, and the 7000+ smaller players allowed to step into the breach and raise capital instead of getting crowded out by Government and Tarp recipients.
Posted by thisson
Fri Jun 19th, 2009 05:20 PM
The above comment should be attributed to me, Thisson. I don't know why it says it was posted by Fred (maybe I typed it wrong - sorry!).
Posted by In Debt We Trust
Fri Jun 19th, 2009 06:02 PM
I have a suggestion for a potential piece. What about a story on the smaller retail tenants in NYC commercial real estate? Specifically, I was thinking of the restaurant sector.
Anectdotally, I've noticed more restaurant closings and longer vacancies between newer tenants.
Higher taxes, tighter credit lines from suppliers, and lower rates of consumer spending on discretionary items should all be combining in a perfect storm to hurt the small mom and pop stores.
I'm not sure where to get access to research but here are some possible sources: the NRA (National Restaurant Association; a lobbying group) and the NYC Dept of Consumer Affairs.
Posted by jeff
Fri Jun 19th, 2009 07:56 PM
In Debt,
Thanks for the suggestion....always appreciate good ideas for articles. I actually have a couple NYC restaurant connections and I can tell you, it's very tough out there, especially the high-end segment that is driven by business lunches and closing dinners. I will try to get more info. At the same time many are getting excited about getting a good basis cost in some NYC retail leases. I have an update piece coming on the related subject of hotels.
Thisson,
I agree that they are going to make the whole process worse by propping up institutions and incentivizing people to try to wait out the downturn....I don't see "waiting it out" as a great strategy. Meanwhile capital for potential useful purposes is trapped, plus there isn't enough equity for people to buy the bad debt that's around without new lending, a real catch 22.
Posted by cfranch
Sat Jun 20th, 2009 08:52 AM
I wonder what re-employment is going to look like when this mess is finally over. It always seemed many NY companies were oversubscribed with employees. I think many of them will be leaner as we stabilize, depending more on productivity gains that actual staffing. Wherever we ultimately end up on unemployment figures I cannot imagine that number improving with much velocity.
Posted by Scott
Sun Jun 21st, 2009 09:07 AM
Yes, the unemployment rate is bad. The recovery in our economy is going to depend on the labor market. Once a lagging indicator is now a leading indicator. Overall mentality is getting better, but real estate is going to fall much further. Unemployment has not fully set in yet and the "save money" mentality is spreading quickly. I am in Hoboken and I believe that there is still a lot of room for adjustments.
Posted by MeekSheep
Sun Jun 21st, 2009 06:00 PM
I also wonder about the employment market once it all washes through. How will the new IT staffing laws affect financial firms? Will they still be able to abuse the H1 Visa thing? If they're not, what will that do to housing if all of a sudden all those people earning 45k a year are being replaced by people earning 65k+?
Posted by Fred
Sun Jun 21st, 2009 09:22 PM
Thisson - TARP didn't float RE values - it only increased banks' capitalization ratios. What you seem to be referring to is the delay in banks taking their hits on residential mortgages but therein lies the conundrum - banks don't really have direct exposure to residential the way they do with commercial. Most of the resi exposure is either agency (FNM and FHA) or CDOs. CDOs will simply run out to maturity (or default) and the process will be what the process is. The real impact is just starting to be felt in NYC - the medium term adjustment to fully amortizing, conservatively underwritten loans that the lender will continue to service on its own balance sheet. It's kind of like being hobbled. We are learning to walk again and price discovery has a life of its own. The gov't can throw all the money it wants at the problem (whatever that may be?) but price discovery will continue until supply and demand meet at the affordability intersection. We out entirely too much faith in gov't to solve market problems, and both sides of the issue are guilty of this. If you are a believer in lower prices (and I think you are), then enjoy the ride because NYC prices will in fact revert back to the late 90s. Folks who are buying today do not understand the time value of money. My best guess is the wave will start when regulators tell banks to start unloading commercial loans, maybe late summer but definitely by year end. The reason why commercial matters so much in NYC is that the toppling of new Class A multi and condo development will be inescapable, everything down the line will fall in price commensurately.
Posted by LP
Mon Jun 22nd, 2009 06:08 PM
Fred,
Could you explain the dynamics of banks unloading commercial loans. I'm actually looking to buy in NYC in near future but also of an opinion that prices have a long way to fall yet. I know that commercial RE got hammered but if it's held to maturity by banks they don't have to mark to market and write off losses. Or you are saying that regulators will make them mtm held to maturity assets in near future?
Posted by Thisson
Tue Jun 23rd, 2009 01:24 PM
Fred,
My beef with Tarp is that it is preventing the liquidation of the large banks at the expense of the small banks and taxpayers.
These large banks are insolvent and need to be wound down, not propped up. Only through these massive banks' failures will we get the political backlash necessary to re-align incentives in the banking sector.
Moreover, the wind-downs would force the sale of the banks' debt holdings at market clearing prices, so we can get the price discovery now without having all the banks hold their (mal)investments until maturity.
The sooner this happens, the sooner housing prices decline, the sooner housing becomes affordable enough for labor to accept lower wages, and the more competitive US domestic businesses will be with the rest of the world.
Fixing the economy is as simple as allowing housing prices to crash, public debt to be repudiated, and public spending to be severely curtailed so that taxes can be lowered. In short, we need massive deflation across the board to correct the excesses of the past 10 years.