Friday, July 24, 2009

New York City's Pain

One feels the pain of New York City Comptroller Bill Thompson, Jr. Not only does he have to deal with the continuing lunacy over in Albany and the still ongoing power struggle in the wake of Spitzer's abrupt implosion, but he has to scramble to contain the fall out in the world's most financially dependent city. His only wildcard: hope, whether it be preached by 1,000 billboards across America, or Obama appearing on TV every 15 minutes to remind Americans that the only way out of a credit crisis is to max out their credit cards, or by watching comedy channels disguised as financial reporting.

In the meantime, underneath the still glitzy veneer, is a hollow core that is starting to shrivel at such an alarming pace that the $16 billion in projected budgetary shortfalls will likely double within 12 months at the current rate of deterioration.

A good indication of the real state of micro economy is a cursory read of the most recent edition of NYC's "Economic Notes", the Comptroller's inside view periodic report on the real pain in New York City.

Here are the bullet points for the attention impaired:

  • Real Gross City Product fell at an estimated 4.1 percent annual rate in 1Q09, after a 6.1 percent decline in 4Q08.
  • NYC payroll jobs have fallen by 108,000 since their cyclical peak in August, 2008.
  • NYC’s unemployment rate rose to 9.0 percent in May, compared to 5.1 percent in May, 2008, representing its highest level on a seasonally-adjusted basis since 1997.
  • For the first half of 2009, the city’s payroll tax withholding, a good indicator of worker incomes, was down 14 percent from the equivalent period of 2008.
  • General city sales tax collections declined 7.8 percent for the first five months of 2009, compared to the same period in 2008.
  • The Manhattan office vacancy rate rose to 9.6 percent in 1Q09, the highest since 3Q05.
  • The number of Manhattan apartments sold rose 28 percent in 2Q09 over 1Q09, but were down 50 percent from 2Q08, according to a report by Prudential Douglas Elliman.
  • Ridership on NYC Transit, an indicator of the City’s overall economic activity, fell 2.2 percent during the first four months of 2009.

And here is Bill's condensed message:

After enjoying a period of historically low unemployment, the city is experiencing a surge in joblessness. The recession’s impacts have fallen most heavily on men, on African Americans, on prime-age workers, and on the relatively well-educated. Income losses from unemployment are likely to be cushioned somewhat due to the preponderance of multi-earner families and an increase in self-employment, but thousands of families will see their incomes plunge.

Here is one for the PR specialists:

The severity of the current recession raises fears that the city’s job losses will match or exceed those of previous downturns. Except in 1980-82, the city always lost proportionately more jobs than did the nation, and national job losses have been mounting at an alarming rate for the past six months. If the city had merely suffered a proportional rate of job loss as has the nation since the beginning of 2008, it would have already lost about 165,000 jobs.

A point on unemployment:

Unemployment is usually measured at the individual level but its impacts are often felt by entire households. Nearly 70 percent of the city’s workers are heads-of-household, or are the householder’s spouse or partner. The rest are the child of a household head, the sibling, the unrelated housemate, or one of a variety of other relations. All told, the average New York City worker lives in a household with 2.2 other people, so each instance of unemployment typically affects the economic circumstances of at least three individuals.

And this:

During 2006 and 2007, new initial claims for unemployment compensation in the city averaged about 7,000 per week. During the first half of 2008 they rose to about 8,000 per week, and during the second half of 2008 they exceeded 9,000 per week. During the first half of 2009 they were averaging over 12,700 weekly. By February, 2009, the total number of beneficiaries in the city had risen to almost 119,000, an increase of 57,000, or 93 percent, over the previous February.

The conclusion: Strip club valuations are going down... way down.

Even if the city’s jobs base stabilizes, however, unemployment is likely to continue to increase, and by mid-2010, some 400,000 New Yorkers may be unemployed. That suggests that over one million residents will be living in households whose incomes are severely diminished by unemployment and underemployment.

So yes, while it is easy to wave the magic wand of generalization and hope at the overall broad and nebulous economy which is "stabilizing" simply due to a short squeeze in the markets, a drill down in regional areas exposes a lot more of the same truth that brought the market to its March lows. Alas, hope as a policy can and will only persist as there is one more marginal shorter whose forced buy in can lead the market that much higher. The question is what after.

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