Shopping Center Economics Deterioration Slowing in Q2 2010 But Still Negative
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The Wall Street Journal reported today a slowing rate of increased vacancy at large shopping centers (albeit slight going from 8.9 to 9 percent in Q2) and declining lease rates (down 0.2 percent, though the smallest drop in seven quarters) in the top 80 U.S. markets. In general, experts are looking for a turn to positive in improved vacancy levels and lease rates sometime in 2012. And some are even looking all the way into 2016 for that positive information.
The bottom line is that until we get sustained employment growth and income levels, there will be no improvement in commercial real estate—and that is for all types except perhaps rental housing. It’s all about jobs, and then news thus far is not good. In June, while the private sector ginned up 83,000 net new jobs, the governmental sector cut 225,000 temporary Census worker jobs, for a net 125,000 decline in total jobs for the month. And there remains 339,000 temporary Census jobs yet to cut. While the government claims a gain of 882,000 jobs year-to-date, there remains 7.7 million fewer jobs today than at the end of December 2007 (on a seasonally-adjusted basis, so we are indeed talking an apples-to-apples comparison).
Yet even with a decline in the total number of jobs, the government reported a reduction in the unemployment rate. To achieve such an improved unemployment level, the unemployment report indicated that 652,000 people dropped out of the workforce (and remember, this is June, when workforce numbers typically grow).
8.6 million people worked part-time in June but desired full-time employment.
Average hourly earnings declined a miniscule 2 cents an hour to $22.53, and total hours worked dipped six minutes a week to 34 hours and six minutes.
Given the number of net new individuals entering the workforce, most economists argue that just to stay even requires from 100,000 to 120,000 net new jobs per month to be created. At the end of June 2000 (10 years ago) there were 131.84 million jobs in the U.S. Ten years later in June 2010, there were just 130.47 million jobs. So in a period when the U.S. should have created 12 million net-new-jobs (120 months at 100,000 per month), the country lost 1.37 million jobs. Thus, just to get back to where we were a decade ago, we need to create 13.37 million net additional jobs.
So let’s recap June employment data:
- 125,000 fewer total jobs in June 2010 than in May 2010
- 339,000 temporary Census jobs yet to cut
- Slightly lower pay per hour (albeit miniscule)
- Six minutes less work per week
- 652,000 people drop out of the workforce
- 8.6 million work part time that desire full-time jobs
While economists are declaring the recession is over — and they do so by defining a recession as two or more consecutive quarters of decline in Gross Domestic Product (GDP) — I offer a different perspective. I believe we should define a recession as six or more consecutive months of job losses and not declare the recession over until we have six or more consecutive months of job growth. And the only reason that GDP has grown is government spending. In the most simple form:
GDP = C + I + G
Where C = Consumption
I = Investments
G = Government Spending
The only growth component is Government Spending—and that is all borrowed money.
So goes jobs, so goes real estate, so goes the economy. And the country continues to flounder with respect to jobs.
In my opinion, there is no such thing as a jobless recovery.
Of the $787 billion stimulus package passed in early 2009, we have spent $396 billion and have little, if anything, to show for it. Divide the $396 billion by the 882,000 total increase in jobs and you find that we have spent almost $449,000 per net new job—and that includes the temporary Census positions. If you delete the known coming reduction of the 339,000 temporary Census jobs, the cost per net new job escalates to more than $729,000 per net new job. Thus, for what we are spending per net new job created we could have paid ten times as many people more than $72,000 for the year. The economics of the stimulus simply make no sense.
Until we create jobs, we remain in a recession in my opinion.
Economically speaking, it’s going to be a long, hot summer.