‘Downshifting Economy: A Sign Of Things To Come?’
Dozens of readers spoke up on the topic of what the real estate downturn means to the economy. “Northwest Airlines passes out tips for living on a tighter budget including dumpster diving and never shopping while hungry. A sign of things to come?”
“Although I’m a big proponent of making hard choices if you’re serious about your goals, I’m thinking even with home price reductions the availability index is still going to be heading south for quite a while. I was wondering if we might do a thread on signs of the downshifting economy.”
A reply, “A lot of stories about TJ and Costco being relatively empty lately (I’ve noticed my shopping cart doesn’t bump as many people in both lately, too!).”
Another said, “Not having any problem getting any work done….Just signed a contract to re-roof 10 houses yesterday…They are starting on Tuesday….Try that a year ago….”
One pointed to plant closings. “Boeing planning closure of C-17 plant in Long Beach, CA, and laying off 6,500 high paid employees. Raytheon in S. Cal also laid off few hundred employees last month. Looks like the defense industry is going to exaggerate the downturn in S.Cal RE, just like it did in the 1990s.”
A reply, “How many of those Boeing employees [and subcontractor employees] invested in second or third home because they had a ’steady’ job? How many flipped homes? How many bought homes recently and was dependent on two incomes?”
One answered, “If its anything like where I work (also Aerospace engineering), it is an amazing number. I have one coworker with 5 ‘investment’ properties. Another coworker with 4 investments. We then have a smattering of those who will be smacked down in various geographic ‘condo crazes.’”
“But what’s scary is the shop floor… There are people who earn a fraction of what I do and ‘own’ two or three homes where I dream of buying but feel I’m priced out (as I’ll only use a 30yr fixed rate, etc.). I’ve found out that almost all of them put 2 or 3 homes where I dream of buying. But what do they own? With them typically putting 0% down, only their appreciation and so much of that has be HELOC’d to death. 1 in 4 of my coworkers is in speculative real estate!”
Another saw the effect in Texas. “C-17—–Texas takes a small hit, too. ‘In Texas, Vought Aircraft is the largest subcontractor for the C-17. Texas has more than 5,600 workers whose jobs are directly tied to the C-17.’”
The Phoenix Business Journal. “A national economic index is on the decline as a slowed housing market in Phoenix and other major cities begins to take a toll on the overall economy. The housing market in Phoenix, Las Vegas and other major metro areas has slowed down substantially in recent quarters with houses sitting on the market longer and prices declining.”
“The real estate and construction sectors very important to the Valley and state economies, accounting for significant business investment and job growth in recent years.”
“Los Angeles County’s civilian labor force receded by 30,000 to 4,850,000 in July, according to the state Employment Development Department. The job market may dip into negative territory as housing continues to cool, said economist Christopher Thornberg.”
“Real estate prices will likely trend down slowly and be weak for a long time to come, he said. When the real estate market falters, construction and other industries take a hit. Consumers were spending like mad over the past couple years because of the wealth from their homes, Thornberg said.”
“The economy in recent years was driven by real estate and consumer spending. ‘There needs to be more balance,’ Thornberg said.”
The LA Times. “Overall, the construction sector, which includes residential building, shed 2,100 jobs in July. That’s up from an average monthly loss this year of 1,843. Commercial builders attribute the net decline in construction employment to layoffs in home building that involve workers who have not moved on to commercial projects because they lack the skills, are discouraged by longer commutes or are otherwise uninterested.”
Many economist said it would take a recession to pull home prices down, (even Thornberg) while many here pointed out the economic reliance on real estate. Thanks to the many readers who posted on this topic, as it’s the sort of discussion that MSM won’t touch.
It’s inevitable. We can only sell houses to each other for so long while all of the real jobs are being shipped to China, India, or Latin America.
When an economists and politicians talk about job creation they fail to mention that most of these jobs are had by layed off employees of manufacturing jobs that now work two or three jobs to make a living. Wow, job creation! Look how many jobs the US economy is creating! We’re losing jobs, but for every one we lose we add three more! Now instead of working 40-50 hours per week to make a living, you can work 100+ hours a week. Are we going backwards?
Yup. Conservative talk show hosts love to crow about 4.8% unemployment rate (or whatever percent it is now). But yes, a significant percentage of the jobs created have been in construction. It’s a false economy, or a debt-based recovery from the 2001 debacle. America is headed up that creek without a paddle. It’s not just politicians fault. It’s the general public too. Politicians only reflect what the public wants. The public wants something for nothing. Politicians take the signal and tax the productive to give to the unproductive. The grasshoppers have been fiddling too long. China will make us all learn Mandarin. I won’t mind it. I have an affinity for some Chinese women. My last girlfriend is from Hong Kong. Quite a gal…
Nouriel Roubini has gotten quite bearish…
http://edit.rgemonitor.com/blog/roubini/139867/
Very good article, what is the background of Nouriel Roubini?
The bears have awakened from their hibernation and are just starting to dance.
Snakes, even on airplanes, don’t scare me, but that post came pretty darn close. What makes me lose sleep is being in cash when the systemic risk disaster happens. What follows that, for my cash?
Hopefully, it will be liquid and cash flow positive.
LOL.
An excellent comment on Nouriel’s post by, presumably, one of his regulars:
Austrian Economic theory is that every crisis is broadly proportionate to the size of the excesses and imbalances that have accumulated during the prior boom.
by Dr. Kurt Richebächer, German Economist
” The unrecognized problem in the United States is that economic growth driven by a housing bubble is extremely credit and debt intensive. It needs, firstly, heavy borrowing to drive up the house prices and, secondly, further heavy borrowing to turn the resulting capital gains into cash.
Yet we are sure that the U.S. economy’s extraordinary debt addiction has other reasons unrelated to the housing bubble. One is the huge trade deficit, and the other is extensive and rapidly increasing Ponzi finance.
The crucial difference is in the ghastly difference between runaway debt growth and nonexistent real disposable income growth as the income component from which debt service has to be paid. In 2000, consumer debt growth of 8.6% compared with real disposable income growth of 4.8%. During the first quarter of 2006, private household debt growth of 11.6%, annualized, compared with zero real disposable income growth.
These numbers suggest that, in the aggregate, all debt service occurs through Ponzi finance. Essentially, borrowing against existing assets is required to service debt. Another striking evidence of extensive Ponzi finance is the unusually large difference between rampant credit growth and much slower money growth. Capitalizing unpaid interest rates adds to outstanding credit and debt while adding nothing to bank deposits (money supply).
To get an idea of the actual extent of Ponzi finance, we make a simple calculation. Total outstanding debts in the United States amount to $41.8 trillion. Assuming an average interest rate of 5%, this implies an annual debt service of about $2 trillion. This compares with an increase in national income before taxes of $616 billion in 2005. Consumer incomes are even stagnant.
Under these conditions, the only question is the severity of the impending U.S. recession. In this respect, we are a great believer in the axiom of Austrian theory that every crisis is broadly proportionate to the size of the excesses and imbalances that have accumulated during the prior boom. Our basic assumption is that the American consumer is bankrupt when house prices fall 20 - 30%.
What all these people overlook is, first of all, the vicious dynamics of Ponzi finance through compound interest on unproductive indebtedness. During 2000, total financial and nonfinancial credit and debt growth amounted to $1,606 billion. In 2005, it had accelerated to $3,336 billion; and in the first quarter of 2006, it has run at an annual rate of $4,393 billion, and this now with zero income growth. Note that this debt explosion has happened with little change in GDP growth.
Given this precarious income situation on the one hand and the debt explosion on the other, it should be clear that at some point in the foreseeable future, there will be heavy selling of houses, with prices crashing for lack of buyers.”
- Dr. Kurt Richebächer, German Economist
The American public may be stupid but not crazy. . .when it becomes clear (by October) that the collapse of housing market is causing a major recession, the Fed will be forced to agressively lower interest rates. . .but think Lucent - LU - the American public was burned on internet and telecom stocks, and did NOT rush back into the market to buy LU or Pets.com when the prices came down from $100 to $2!! And the American public will not rush back in to buy houses even if interest rates on 30 year fixed drop to 5%. They may buy them to live in, but not to speculate. . .the Fed will be “pushing on a string” as they said about the Japan Central Bank. . .it has been nearly 15 years of downward prices for homes in Japan.
They won’t be able to buy houses to speculate in unless they have a lot of cash and excellent credit. In the last credit crunch, the mortgage process was so intrusive and restrictive that you had to be unbelievably motivated to endure it. That is one of the reasons I didn’t buy anything in 1990 despite being offered some amazing bargains.
Another thing is, even when things “bottom,” that doesn’t mean values will make a V-shaped recovery to old highs. More likely, “bottom” means prices stop going down and over time, more people get up the guts to buy again. Long, slow process unlike what the blowhards on the SDCIA boards will tell you.
I’m beginning to think the 2005-2008 price action is going to look more like an inverted S with about a one-year “rollover” at the top (now completed) a rapid decline in which most of the losses take place from mid-2006 to mid-to-late-2007 and then a period along the bottom. But what it means (I think and I hope) is that fixer-upper types like myself who renovate as their major form of employment might be able to get back in to older SFHs at prices less than half they are now within as little as a year. Any thoughts?
Cutting rates will reduce demand for dollars. That is the opposite of a strong dollar policy. If it weren’t for massive debt, that could be a viable option. Because of the debt, cutting rates will create devaluation of the dollar. Anything priced in dollars (oil for one), will go quite higher to compensate for the decrease. Sounds like a really big conundrum.
Why isn’t oil priced in other terms?
It was in 2003 in Iraq when they were selling in Euros. We invaded, and oil was switched shortly thereafter back to dollars. It is a very important aspect of how America can tax the rest of the world. How can we be so enormously in debt and continue to have people have enough faith in our ability to pay back (without just creating more)? Maybe they don’t have the faith, but they need to buy oil. Is it just coincidence that the drumbeat of war is getting louder as Iran, Russia, Norway, Venezuela are attempting to sell oil in other than the dollar, or is it not?
Why is it that most experts on TV continue to say buy stocks with all the potential hazards that are out there? Could it be that they are simply salespeople? Could it be that if they don’t have individuals conintuing to pay them money to invest, they don’t have a livelyhood? Why do people who say they don’t believe the inflation figures continue to purchase bonds giving about 5%? I honestly don’t know.
….goes back to clever economists/bankers/politicians who finagled agreement w/Saudi to buy oil w/dollars…then recycle same back thru the U.S…… creating a de facto “petrodollar”….as in, you needed them to buy pretty much any old oil on the worldwide market…. Of course when Saddam made racket about starting an oil bourse in Iraq, we couldn’t have that, could we?…..Meanwhile back at the ranch…. Russia wants a bourse in rubles…and Iran has been working to open one primarily priced in euros… Could kick the old dollar upside the head…. Fascinating to watch…
Mark, excellent post. Your logic is very good. I have been worried about Fed attempts to ‘reflate’ this pig. But, your points, if extrapolated out further reveal that if normal people are buying that will be fine, I agree.
Prices will not go back up with people just buying to find a home. It is the speculators that drove this thing, and they will have either: (a.) have ruined their credit, or (b.) be so gun shy as to not want to reenter the market.
Good logic.
Don’t worry, with a weak dollar and cheap housing it won’t be long before overseas investors step in and mop up the RE market. Housing in most parts of Europe now is extortionate and they are always on the lookout for bargains.
Except that any recession (and I’m predicting depression) will be be echoed even worse over there. Depreciated dollar or not, they’ll be too busy trying to hold on to their own massively deflating properties.
You sound like a bundle of fun tj. Can I come to your doomsday party?
and you sound like a fool, QSS. Come up with counter-arguments or STFU.
What exactly do you suggest I argue against.
Tj & the bear is predicting a recession but gives no reason, predicts a depression but gives no reason, claims it will be worse in Europe but gives no reason and anticipates massively deflating properties but gives no reason.
I would have to be a fool to enter into a debate on those terms.
I suppose
>I would have to be a fool to enter into a debate on those terms.
You’re here, aren’t you?
Don’t worry, with a weak dollar and cheap housing it won’t be long before overseas investors step in and mop up the RE market. Housing in most parts of Europe now is extortionate and they are always on the lookout for bargains.
Hahaha! Nice one! I’m just sure that the Europeans, who are on the verge of their own credit collapse, are going to be coming over here in droves. They’ll willingly convert the Euro into a depreciating currency to snap up houses they can then rent to folks who can’t afford to buy them. I’m positive they will get the rent necessary to make it worth their risk and effort as well as dry up the excess housing that exists from years of flipperdom! You MUST own a RE office because only a Realtor could throw out such tortured logic as this and do so without a trace of doubt that it is true!
We are going into a depression. Deal with reality or it will deal with you.
Hahaha! Nice one! I’m just sure that the Europeans, who are on the verge of their own credit collapse, are going to be coming over here in droves. They’ll willingly convert the Euro into a depreciating currency to snap up houses they can then rent to folks who can’t afford to buy them. I’m positive they will get the rent necessary to make it worth their risk and effort as well as dry up the excess housing that exists from years of flipperdom!
Funny you should say that.
In case the link doesn’t work it is an article in Bloomberg news dated 10th August (titled East Europes soaring property prices fuel discontent within the EU) explaining how Western Europeans have been buying up cheap property in Eastern Europe (where the local currency is considerably weaker than the Euro and then renting them to folks who can’t afford to buy them) and are responsible for pushing up prices by over 100%.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a6FDxTuyhiAs&refer=exclusive_to_bloomberg
Don’t shoot the messenger. That goes for you too Betamax.
Do I own a Real Estate office no I don’t, nor have I ever met a realtor I would trust, nor do I own any property in the US.
With regard to a depression you may be right.
As for dealing with reality I wish I knew another way.
Replace California Equity Locusts with French/British equity locusts, and you’ll get a feel for what’s happening in Europe. Which of course does nothing to predict how things will progress over there once they start to see their own collapse (it’s already started in Britain, but not the rest of Europe yet).
Assuming there are investors overseas or anywhere!
Yeah. You know, the real estate bubble is in many countries, not just the United States. We have a regular poster from Austrialia, one from the Netherlands. So it keeps me wondering. Hyperinflation? Depression?
Hyperinflation: Evidence: Lots of money has been printed over the last few years in many nations, not just the U.S. The Dollar has been severely inflated. Precious metals are only beginning to recognize this fact. Oil prices rise. Health care costs rise. Housing prices rise. Starbucks coffee prices rise. Airline ticket prices rise.
Deflation? Evidence: Housing prices rise - no more! Boomers - let’s say 50,000,000 out of a world population of 5 billion people. What’s that? 1% of the world are baby boomers? As if boomers have an effect when they retire? How immodest.
The better deflationary pressure indicators are world competition per se - from India and China. More people can do for 1/10 the cost what many Americans can do. Combine that with Internet and you have deflationary pressure.
What to do? Since the fact is that the dollar devaluation is still going strong, buy gold, platinum, palladium, and silver. That protects you against inflation.
T-bills and 2 or 3 year notes are great investments to hedge against deflation. The strategy is to buy mostly 3 month T-bills for a year, then buy mostly 6 month T-bills, then buy mostly 2 year notes the third year, then buy mostly 3 year notes the fourth year, and so on, if you are a beginning Treasuries investor.
Rots of Ruck.
Rob and I are both from Calgary -> huge bubble here too. It seems to have “paused” in June, but I think it’s just a breather before continuing on its’ merry way (to disaster, just a year behind the US).
OTOH, wage inflation in Calgary is 10% annualized, and companies (fast-food) pay $9/hr for 14-year old students, so maybe it’s different here!! :p
A major Title Company just laid off a bunch of software engineers…
I am seeing a general slowdown everywhere I look, and yes, Costco did seem a LOT more crowded last year.
Are you talking about the HUGE First American campus in Santa Ana, CA off of the 5 and MacArthur?
Talk about a gold plated and expansive campus.
Almost 500,000 SF in (2004) on a 32 acre campus for freaking title insurance.
http://www.firstamres.com/pressrelease?page=detail&id=9
The permabulls are definitely wrong, the two newest corporate campuses in South Coast Metro are First American and Experian and both will be impacted significantly with RE job losses.
Like Thornberg said, OC is different, it will get hammered.
http://www.firstamres.com/pressrelease?page=detail&id=9
A major insurance company is going to layoff 13% soon.
Boeing, Ford, la dee da bye, bye jobs. We are going to see a huge retrenchment of decent jobs (think the gutting of the solid middle class and upper middle class).
Where to hide? The economy will be much worse than the dot com bust. That, as pointed out, hit the investing elite. This goes to the core of the American dream.
And if our solid, decent jobs evaporate, then what? What to do?
Even if you have cash, unless you have cash for 20 years’ worth of living, I would still be concerned.
I am very scared.
first comment - rumor - who knows if true? I also heard the one about the title insurance co. I hear something about a bank too.
I just read Ford is closing HOW MANY plants?
ps Lines at Costco are now only 2 deep. Not out the door deep like last year.
-Ed
One other aspect of slowing consumer demand, and the reason I am not out spending money right now is because there is nothing that I must have.
I have everything that I need and a shitload of stuff that I want. There are always refinements to be made to the stuff I want but I take it slowly, there will always be refinements to be made.
I just ate a homemade all organic lunch that cost much less than a meal out and tasted better.
I could run out and make the refinements to my wants portfolio with cash but why? There will just be more refinements to the portfolio of wants.
I liked another poster a couple of months ago that opened up his/her refrigerator and noticed that they had $50+ of expensive gourmet cheese in the fridge and they realized wow I can totally afford all this cheese.
I resemble this comment.
Exactly. Driving through San Diego a couple of weeks ago, I thought, “How many of these frivolous stores would dry up tomorrow in even a mild downturn? Do we really need entire stores dedicated to say, beanbag chairs, or dog grooming? When it comes down to keeping the lights on vs. taking Fifi to the local doggie beauty salon, I think most people will opt for keeping the lights on and throwing Fifi in the tub for a change and saving $25.
Don’t make Fifi angry. You wouldn’t like Fifi when she’s angry.
Read an article in the paper today, this ladies dog killed her when she tried to give it a bath.
Wow, I’d say then maybe it would be worth $25 to go to a pro.
On NPR’s, “Wait, wait, don’t tell me”, this morning. A caller called in and said she sold organic cosmetics. They were like what is there to sell except for maybe a leg hair comb. She said she sold green apple skins for facials. One of the commentators said, “Well if it is green apple skins you want you can stop by my compost pile anytime. And if you like the tops of the strawberries with the little green part on it, you can have those too.”
Two posts with no links didn’t go through? HMM…
Both there for me
My bad, patience on a Saturday morning.
More on California jobs and San Diego in particular…
http://www.signonsandiego.com/news/business/20060819-9999-1b19jobs.html
From the article:
‘On a seasonally adjusted basis, California added 900 jobs last month. ‘Nine hundred jobs is zero,’ said Christopher Thornberg, principal of Beacon Economics in Los Angeles. ‘We should be adding 25,000 jobs a month. But over the last five months, we’ve added a total of 40,000 jobs, which is almost no growth.’
‘The trend is clear,’ Adibi added. ‘The pace of job creation has slowed down since the beginning of this year, mainly because two of the strongest engines of job creation – construction and financial activity – have slowed down.’
I wonder what is it really like in DC. I maybe out of my job by end of this summer, and I am looking for a new one. And there are no jobs for CS in private industry. It is worse than 2000-2001 when I got my last one. Only IT (or any engineering) job in DC is government related or contracted. I heard of a lot of people talking about hiring freeze in DoD and other department. I dont remember the job hunt to be so bad as today. After IT crashed in 2000 around DC, only true hiring came from DoH, DoD, and real estate in past years.
A reply, “A lot of stories about TJ and Costco being relatively empty lately (I’ve noticed my shopping cart doesn’t bump as many people in both lately, too!).”
- Analyst watch Costco and Target very carefully. These are the stores that the Middle class and the Upper Middle class shop at. When these stores report lower earnings it means only one thing - the core consumer spenders are hurting.
GAP & Old Navy have taken huge hit in traffic also, of couse you could always balme that on fickle fashion styles but these are two of the cheaper retailers missing numbers while higher end like Banana Reupblic is still making their numbers barely
I work for a medium sized commercial printer in Phoenix — business has been slowing for the past 3 months. The summers of 2002-2005 were always very surprising, because there was hardly any slowdown at all. Looks like we’re reverting to Pre-Bubble conditions here.
One of our salesmen has a wife who works for Meritage homes. He echoed the sentiment that her business was absolutely dead. His attitude has changed alot recently — he laughed at me 2 months ago when I told him the market was going to turn very bad. haha.
‘Fleetwood Enterprises laid off 38 managers and staff at its Riverside headquarters Friday, said company treasurer Lyle Larkin. The RV and manufactured housing maker also cut 122 jobs at other facilities across the country. Fleetwood Enterprises cut 160 jobs at facilities nationwide.’
‘Larkin blamed the layoffs on previously announced sluggish sales of recreational vehicles, particularly motor homes, but also on a decline in sales of travel trailers.’
‘He said about 550 people work at the Riverside headquarters. Manufactured housing sales are also lower than at this time last year, Larkin said.’
I’m surprised it hasn’t happened sooner, there seems to have been a surplus of RV’s and 5th wheels for several years now. Never buy one of these things new, they depreciate faster than cars do and there is always a huge inventory of used RV’s to chose from.
Yeah, I heard there are thousands of them on Ebay without bids.
I have mentioned it before - A friend has an RV client whose business net income and sales are down 75% over the last couple of years. The bank pulled his flooring and luckily another bank stepped in, unfortunately the covenants were much more restrictive.
- Is the IE ‘Center of the Universe’ developing a Black Hole?
more like a little brown ring, aka sphincter
Their company hdqtrs is, i believe, out in Roubidoux, in A sort of hilly rural area. Not too far from Riverside central city district. The IE certainly is a major region for RV and manufactured homes/trailers. This business must be getting killed with the high gas prices.
The Rise of Shrinking-Vacation Syndrome
SEATTLE, Aug. 19 — In August, when much of the world is hard at work trying to do nothing, Jeff Hopkins and his wife, Denise, usually take a week to chase fish in Olympic National Park — a ferry ride and two tanks of gas from here with a boat in tow. But this year, their summer vacation is dead, a victim of $3-a-gallon gas and job uncertainty.
The Conference Board, a private research group, found that at the start of the summer, 40 percent of consumers had no plans to take a vacation over the next six months — the lowest percentage recorded by the group in 28 years. A survey by the Gallup Organization in May based on telephone interviews with a national sample of 1,003 adults found that 43 percent of respondents had no summer vacation plans.
About 25 percent of American workers in the private sector do not get any paid vacation time, the Bureau of Labor Statistics reports. Another 33 percent will take only a seven-day vacation, including a weekend.
http://www.nytimes.com/2006/08/20/us/20vacation.html?hp&ex=1156046400&en=265e9edef63fb163&ei=5094&partner=homepage
My vacation time is at max and I need to take a day off here and there to not lose it. Schedules are too busy and have been since spring. Things should cool off in the fall.
Doesn’t sound good for the travel industry.
Yes, and here in Arizona, that knocks the tourism leg off our milk stool.
Are there any “Deals” to be had yet ? I like Arizona and would like to explore Sedona & Flagstaff.
Try any of the Pointe resorts (Hilton) $99 rooms. Our family goes there every year for 3-4 days right before school starts. We just returned yesterday…… honestly the place was DEAD! Two, three years ago it was booming. I told my husband when we were there “looks like all the HELOC money is drying up”. Absolutely the slowest I have seen it in 4 years. Both restaurants on the premise were empty and the pool chairs were virtually empty.
looks like a good time to go. I lived in a nice apartment complex just south and slightly downhill from North “pointe” (I hate to add that “e”). I hate crowds. I have an excess of money and a scarcity of time to be alone. Work 60 hours per week and will continue renting and buying T-Bills & gold.
I just heard on the Weather Channel that Arizona is on
‘Snake Alert’?
Took my week off, did a 1000 mile touring trip round the Sierra nevadas, stayed at Np/Nat forest campsites(the USDA runs excellent clean sites),ate in camp using a cheap backpack stove, average 25 mpg in a 4-cyn ex cab tacoma.
Total cost of trip-$380.00 gas portion-$140.00.
My company did not pay for my vacation. This is what you call an “extreme budget vacation”. As a footnote: evidence of reduced vacation volume in most areas i went to. And very reduced sightings of big Rv’s.
i have a real question — what happens to these families with 3 and 4 houses they’d hoped to flip. is there any alternative or possibility some type of legislation or can banks be pressured to renegotiate their outstanding loans, yet again. it would seem, anecdotally anyway, that this is a massive economic hit –how can congress not do something to prevent these thousands upon thousands of families being dumped on the streets..
in that wapo story, notice the industry who opposed any moves to restrict these lending practices — the banks: jp morgan chase and guaranty were mentioned as opposing as being unfairly singled out for oversight.
and in the meantime, that idiot son was just out at a photo op this week yammering on about the terrific economy. in a couple of months, when the obvious is no longer avoidable, this is so gonna come back to bite him in the ass. it’ll be a toss-up what will have people more angry/afraid about — their jobs or iraq.
man, i feel so incredibly fortunate to have just this past month gotten a position with a vastly well-endowed research institute. i fear what’s coming down the road..
“i fear what’s coming down the road ”
You and me both. I have a gov’t pension (military) so I should be ok but I’m certainly wondering about other folks.
The schools may be taking a hit soon. My SIL teaches, has tenure and even she is thinking things could get bad, they are laying off admin, teacher aids, some cleaning staff.
What makes you think your government pension is safe?
It’s completely safe. Unless they run out of money. That would suck, wouldn’t it?
SHOULD be ok.
I’m wondering just like you.
OTOH, if the gov’t pensions and social security go under that’d affect 50-60mil people at least, watch out. Recall elections nationwide.
Arizona’s Maricopa Community College system (the largest CC system in the country): Enrollment for Fall is down and a big cause for concern within the administration.
I red article today about enrollment falling for many graduate schools in the field of physics, computers, and engineering.
Where does your SIL teach? I work for the Ventura U.S.D and our union is asking for an 8% increase in salary on top of the 4% we received in January.
NC. All the factories and plants gone in her area. Textiles now imported from China. People there are selling their possessions (as well as homes) just to have money for food and gas.
When was the last COLA in Ventura prior to 2005? We got the 5.2 in winter, with another 8.41 last month (South Bay, San Diego). I understand that it was money promised, but not delivered, in the past. I was not teaching in the states prior to 04, so I don’t know.
Costco is always slow in August. Who wants to big box shop when there’s a summer to be enjoyed. Lots of people away, especially at the end of August. Here in suburban Philly, Costo shopping kicks in when the weather gets cool and people start to nest and retreat inside.
Not true. Costco does huge business normally in summer, people don’t stop eating in the summer time. Plus it is barbeque season in the summer: ribs, steaks, dogs, burgers and all that goes with it, salads, ice cream, pies, beer etc…summer is normally big biz for Costco.
Dunno, I heard on another blog that in the hotter climes like Pheonix that sales do indeed fall off and they have layoffs. I’m in San Jose and thay are mobbed all the time, god help you on a weekend.
“A reply, “A lot of stories about TJ and Costco being relatively empty lately (I’ve noticed my shopping cart doesn’t bump as many people in both lately, too!”
I wrote this from my apartment in San Diego. It’s summer 5 months out of the year, spring about 6, and winter 1 (sometimes 1.5). I don’t see how August is any different than, say April or October.
I’m jealous; in Calgary, we have two seasons:
Winter, and July!
I live in the Philly burbs and VVV is right. See, around here things turn into a ghost town during summer months - particularly August. Why? Because so many people go to the Jersey shore for vacation. Bars, restaurants, and other venues do lose a lot of business during these months. We may not have summer 5 months out of the year (wouldn’t want it anyway, thank you) - but we sure make the most out of what we get!
(BTW - I lived in Chicago for 7 years. The joke out there is that they have only two seasons as well . . . winter and construction!)
By summer, of course, I mean 78 degrees F. Winter being 65.
Despite the extended pain of dealing with the concept of being “permanently” relegated to the renting underclass in LA (just due to bad timing), reading about the inevitable layoffs and economic downturn offers no relief my anxiety. I am very afraid for the future. I experienced layoffs after 2001 - and cannot really describe the suffering I went through to find decent employment during that time of high unemployment. Even after continued employment for several years now, I can never shake the feeling of insecurity…
Ground Zero, I hope that you are saving lots of money in money market funds and 3 month T-bills.
Ben,
Great blog.
Even better now that I’ve been quoted.
I cannot believe my workplace is the only site with rampant speculation in real estate. Oh… this is going to get ugly and fast. As I noted before in my last post, many of the “speculators” are unintentional speculators whom ‘own’ their current HELOC’d home and a retirement home.
My big worry will be when Starbucks starts to have declining same store sales. That’s a true sign the economy is dying.
Neil
My Father just retired from Boeing. He had told me about the C-17 shut down months ago. He also said that the Anaheim employees, 3500, will most likely be asked to locate to Huntsville, Alabama. Some will have positons in Huntington Beach and possibly Seal Beach but it is Boeing’s goal to shut down all operations in California and eventually have everything in Huntsville. Just with the recent announcements of 3500 employees in Anaheim, where my Father worked, and the 6500 employees at the Long Beach C-17 line, that is 10000 people directly affected. I often think about all the small businesses in and around these areas that service the employees such as lunch stops, gas stations etc….
Maybe we should buy up all those houses in Huntsville????
- I truely doubt that they will close the C-17 production line.
As soon as our State Senators Boxer and Finestein take a break from defending abortion, gay rights, illegal immigration they will
be sure to keep Boeing going with more orders.
Does anything ever get done?
OT
We lost our health insurance 2 years ago. There were 35 kids in my daughters 4th grade class last year, one teacher. 38 classified staff members were laid off in the Fountain Valley School District in June. Traffic is crazy. Food is expensive and it cost 9.25 to go to the movies. Wages flat. Middle class aint what it used to be.
Shannon, I’d say it can get a lot worse! Not to diminish the things that are happening in the OC (I lived there for 20 years), but I would have to say the infrastructure, the traffic, the relative prices to income, the schools, everything here in Miami is way worse!
Nothing gets done In Scal because our two esteemed Senators come from Northern california, and they do not give a rats arse about Scal except when it comes to election time and they need to fish for the Hispanic vote.
If you think that they do not prioritize spending based on northern vs Scal i will provide a tidbit:
The Sierra Nevada Mt/Eastern Sierra nevada valley Is a sparsely populated region,perhaps 100,000 total poplulation. Yet the roads and highways are maintained better there than here in Scal. Many roads/hwys in the Sierras have new asphalt surfaces, new painted lines,no potholes, and dedicated Cal-trans workers
That’s because maintaining SoCal infrastructure to the same level would require it to be shut down for repairs half the year. Wear and tear is significantly lower in rural areas without severe winters.
Shannon, what are the biggest reasons Boeing is moving? Is it to escape a negative or restrictive business climate where their plants are now? Social costs (tax, fringes) too onerous? Something else, like too-high wages? The environuts driving them crazy?
Reason I ask is, if Boeing is fleeing one or two big conditions, other employers there might too. I assume that to some extent they all face the same pressures.
My best guess is too high wages. The Huntsville plant is well established. My Father has worked there over the past 5 years but his base was Anaheim. The Anaheim facility has been around since 1960 or sooner. I remember swimming there as a kid because there was a little community inside the plant with rec-rooms, pool, baseball fields, large park, bbq. This was when the facility was owned by Rockwell. Employees were treated like family. Fast Forward, everything was sold off years ago and only the work facility exist. I’m quite sure the land is valuable and Huntsville has a much lower tax basis as well as offering lower wages to skilled workers because the housing issues aren’t as prevailant. If workers decide not to re-locate, they will find it very difficult to find jobs in this area that will keep up with their current wages and benefits. If skilled workers aren’t available in the US Boeing will take advantage of the skilled work visas and bring in qualified engineers from other countries, additionally keeping wages down. Many companies now freelance jobs to keep costs and benefits down, as well as exposure to internal law suits that range in variety, pass the buck pass the responsibility. From what Dad said, it is a done deal.
Huntsville is an interesting place. I was there for 4 years (Army), and before that Ft Monmouth (40 mi from NY), Ft Meade before that (just outside DC).
If you’re into the big city life, this isn’t the place. It is a good place to live though, slow paced, schools actually pretty good, friendly neighbors (if you fit the layed-back mold). Cheaper housing also, day-to-day living kinda expensive. Lots of conservative politics there but also many are from other parts of the US.
Good restaurants. The best pizza joint in the world - Terry’s Pizza - just closed after 40 years (owner died) but there are other good places.
I think a lot of people transferring to Huntsville might be pleasantly surprised. Not for everyone though.
In a nutshell it costs Boeing too much money to do business in CA. The CA employees make the highest wages within Boeing and it is VERY difficult to get people to move to CA because even with the highest wages in the company, someone coming from somewhere else simply cannot afford housing.
CA will continue to lose its professional and middle income jobs because of housing affordability issues.
I would not be surprised to see Seattle start losing jobs too for the same reasons although not to the same degree as CA.
Yes when is Starbucks going to fade? 3.00 coffee drinks would seem easy to replace with something cheaper?
Every ghetto slum has bill-boards advertising high-end liquor. It is easy to be a high roller…for a little while.
Rents Are Rising Rapidly After Long Lull
According to government data, in both June and July average rents across the country were 3.5 percent higher than a year earlier, the steepest gains in almost four years. And it is feeding into a broader rise in inflation.
The rise in apartment rents is in many ways a consequence of what has happened to home prices. As mortgage rates have begun to creep up and as home prices have soared out of reach of many Americans, many renters who a couple of years ago might have bought a home are staying put. This is tightening the rental market to the point where apartment owners now have more leverage to demand higher monthly payments.
In July, rising rents nationwide accounted for more than half of the 2.7 percent increase from a year earlier in so-called core prices, the Fed’s most closely watched gauge of underlying inflation, which excludes food and energy costs.
“The buoyancy of rental rates is a very big force determining the direction of core inflation,” said Richard DeKaser, chief economist at the National City Corporation, a large bank.
“Right now, properties are reporting they are 98 percent full; they are turning away renters,” said Mike Wade, a broker at Atlanta Apartment Connection. “As apartment locators, we’re having to tell people, ‘We’re going to have a hard time finding you a place to live.’ “
By this June, with the returns to landlords improving, condo conversions fell to 3,400 units.
Prospective tenants are in for a shock. Take Manhattan, arguably the tightest rental market in the country. According to Citi Habitats, a big rental agency in town, the median rent for a two-bedroom apartment in Manhattan rose to $3,599 in July from $3,100 in June.
http://www.nytimes.com/2006/08/19/business/19rents.html?pagewanted=2&_r=2&ref=business
Mr. Bernanke made a mistake this month.
Here in San Francisco today I drove by a large rental arartment complex offering 2 month’s free rent as an inducement for people to lease.
Yeah, in Canada, people in Toronto either think that the country revolves around them, or that it should.
From what I’ve seen, heard, and read, people in New York have that same problem, but on a far larger scale.
Here in Flagstaff, AZ the rental market is tighter than I’ve ever seen it. My complex is at close to 100% occupancy and has been that way for a year. Just a few years ago there were empty apartments all around me and my rent actually decreased as an incentive to renew my lease. Today it takes a couple months to find an apartment and the rental supply looks to decrease even further as there are several large complexes in town going condo (mine included). I’ve been half-heartedly looking for another apartment and it’s very discouraging.
The rental market gets tighter when the college students come back for Fall semester but I’ve never seen it this bad. I suspect that the condo conversions and insane house prices have a lot to do with it.
Which is rather less than the rate of inflation. Let me know when there’s news, will ya?
I am very offended and saddened by Northwest Airlines telling their employees to ‘dumpster dive’ to survive. Working in corporate Amerika, I know many of these executive bastards live lavish lifestyles with company credit cards and expense accounts. Yet, these MFuc*kers want their employees to survive from pulling dog food from garbage dumpsters. We, as a nation, are going to drown in our own crap. Unless we take control of our lives and our society, we will go down as a nation of greedbags and thieves. Sorry, I have to be so dramatic. But I just had to express my point. High housing costs is just an example of what we have become.
Representative government. right?
I just returned from CA’s central valley. Lots of new homes surrounded by worn-out infrastructure; it’s beginning to look like many Latin American places.
Comment by The Learning Man
2006-08-19 18:22:57
I am very offended and saddened by Northwest Airlines telling their employees to ‘dumpster dive’ to survive. Working in corporate Amerika, I know many of these executive bastards live lavish lifestyles with company credit cards and expense accounts. Yet, these MFuc*kers want their employees to survive from pulling dog food from garbage dumpsters. We, as a nation, are going to drown in our own crap. Unless we take control of our lives and our society, we will go down as a nation of greedbags and thieves. Sorry, I have to be so dramatic. But I just had to express my point. High housing costs is just an example of what we have become.
I agree with you.
I am also extremely disgusted by NW Airlines telling their employees to dumpster dive in order to save a buck. Guess which airline I won’t be flying ever again?
I see evidence of people downsizing expenses in their lives everywhere. A few neighbors on my street have taken to turning their AC off over the summer to save money, leaving all the windows and doors to their homes open. And this is in Las Vegas. IN THE MIDDLE OF THE FREAKING SUMMER.
Local Starbucks are empty, and most of my coworkers have stopped going there on their breaks. And the public library is overcrowded like never before.
Oddly enough, my husband’s business has been doing quite well. He’s been extremely booked up (he’s only had one weekend off all summer), often having to get another friend to go along with him to help him handle all the business. At this rate, he says, he may need to hire a permanent extra employee. What is his business? Home repair and plumbing. He attributes all his recent business to the fact that all these newer tract homes (like 5 years or less) are starting to fall apart. The people living in them now are stuck with them, can’t sell them, and since they have to stay put, grudgingly put out money for home repairs. Quite an interesting situation indeed.
Try to make sure his customers pay cash. When a serviceman (or woman) goes to a new house with lawnchairs or inflatable-couches for furniture, and the client pays by check, you know there’s a problem…
“I see evidence of people downsizing expenses in their lives everywhere. A few neighbors on my street have taken to turning their AC off over the summer to save money, leaving all the windows and doors to their homes open. And this is in Las Vegas. IN THE MIDDLE OF THE FREAKING SUMMER.”
I’m late in reading this comment, so I have no idea whether you’ll see my reply, but boy is this ever an indicator that things have gone awry. My husband’s aunt lives in Naples, FL. She’s been retired for close to 20 years now, so she was living very comfortably there despite the recent run-up in housing prices.
Note that I said “was.” The last time we went to visit her, it was August (what can I say? that’s when we were on vacation) and she had the air off and the ceiling fans on. When we asked why she wasn’t running the air, she said that she’d taken a hit in the dot-com stock market dive and was trying to save money. She told us that all of her friends were doing the same thing.
Sure enough, we went with her to a party at the home of a neighbor who shall remain un-named because he is very famous (her area was inexpensive when she purchased but now is considered exclusive because of its proximity to Port Royal). This is guy who I would have thought would have plenty of money for airconditioning, and he was running the ceiling fans, too. And everyone at the party was remarking about how smart he was to be enjoying the “Florida breezes” instead of pay for air. Say what? Breezes? August in south Florida is a sauna! You’ve got to get rid of that humidity if you want to be comfortable.
We are planning another trip there this September. It will be interesting to see whether anything has changed amongst the rich and famous.
“August in south Florida is a sauna! ”
Sorry. Meant to say “steam room.” I’ve got Vegas on my mind. LOL
Last week’s stock rally might be attributable to housing investors who got out in time needing to put their money somewhere. I’m not an economist but part of my investment strategy is to try and predict where this glut of cash is going to end up after leaving the housing market.
The federal deficit is small compared to the “free money” banks give out as loans when their reserve requirements are close to 0.
We’re all just polishing brass on the Titanic. It’s all going down anyway.
Sure enough, we went with her to a party at the home of a neighbor who shall remain un-named because he is very famous (her area was inexpensive when she purchased but now is considered exclusive because of its proximity to Port Royal). This is guy who I would have thought would have plenty of money for airconditioning, and he was running the ceiling fans, too. And everyone at the party was remarking about how smart he was to be enjoying the “Florida breezes” instead of pay for air. Say what? Breezes? August in south Florida is a sauna! You’ve got to get rid of that humidity if you want to be comfortable.
I’ve been to Florida quite a few times over the summer (I have family in that state, and what can I say, I like to occasionally visit The Mouse).
“Florida Breezes”? Hhaahah, where? In the summer?! I’ve never experienced them, unless there was a hurricane involved. But it does get sauna like there over the summer.
And seriously, all these people turning off thier airconditioning because they can’t afford it disturb me. Heat stroke is no joke. In areas like Florida and Vegas, I considere air conditioning necessary for a person’s health and sanity. (I’ve always told my husband the day we can no longer afford to pay our AC bill in Vegas is the day we pack up our bags and move somewhere with cooler weather. Ditto for Florida if I lived there).
I wonder how many people are going to die off of heat stroke from no air conditioning in their homes over the summer in these really hot places like Florida, Vegas, Arizona, Texas, and parts of Southern Cali?