Posts Tagged ‘Great Recession’
Thursday, September 23rd, 2010
One unexpected side effect of economic hard times is a sharp decline in birth rates. In Illinois, for example, the birth rate has fallen to its lowest level since 1933 – and that was during the darkest days of the Great Depression. “Many couples are strained and don’t want to take on additional responsibilities,” said Dr. Kishore Lakhani, an obstetrics and gynecology specialist. Dr. Vijay Arekapudi, chairwoman of the OB/GYN department at the Division Street campus of Sts. Mary and Elizabeth Medical Center is in agreement, noting that “Especially for people who are working, if they already have a child, they are deciding to continue taking birth control.”
At present, Illinois’ birth rate is approximately 13.3 for every 1,000 people. That is a significant reduction from the high of 17.1 per 1,000 residents in 1990, according to Census Bureau statistics. By contrast, the 1933 rate was 13.9. According to the Illinois Department of Public Health and the National Center for Health Statistics, approximately 171,200 babies were born in Illinois in the year ending last November. Births are down five percent from 180,503 births in 2007, before the recession began, according to Census Bureau statistics.
“It’s not just the recession; it’s the way the recession is intersecting with these other trends” that has slashed the birth rate, said Arden Handler, a professor at the University of Illinois at Chicago School of Public Health. Illinois is not the only state impacted by falling birth rates, according to the Pew Research Center. The nonpartisan organization studied data from 25 states (Illinois was not one of them) and found that birth rates started shrinking in 2008 after reaching their highest level in 20 years. Gretchen Livingston, a Pew Center senior researcher, summed up the trend as “When things are tough economically, fertility goes down.
Tags: babies, birth control, Census Bureau, Great Depression, Great Recession, Illlinois Department of Public Health, Obstertics
Posted in Economics | No Comments »
Tuesday, September 7th, 2010
Washington, D.C.’s commercial real estate market – including its Virginia and Maryland suburbs – continues to be the nation’s most stable with vacancy rates far below the national average. The area’s vacancy rate stood at 10.4 percent at the end of the first quarter, far below the 17.3 percent national average, according to Reis, a New York-based real estate research firm. Effective rents have fared well through the Great Recession, sliding just five percent from their 2009 peak high of $41.43 PSF.
“There is a tremendous amount of domestic capital looking to invest in D.C. for obvious reasons,” said John Kevill, managing director in Jones Lang LaSalle’s Washington, D.C. office. “Aside from its solid fundamentals, investor demand is being stoked by the area’s dominant industry, the federal government. The office market is benefitting from continued government spending in areas such as healthcare, the war on terror and the economic stimulus package. That activity is really differentiating our economy from virtually every other economy in the country, which is why we are seeing an increase in transactional velocity”
As an example, Jones Lang LaSalle at present is listing twice the number of for-sale properties than just one year ago. A key selling point for an office building in Landover, MD, is a 10-year lease just signed with the General Services Administration (GSA) on behalf of the Department of Defense. The two-story Class B office building recently sold for a cap rate of 8.4 percent; the purchaser was the Government Properties Income Trust. Real Capital Analytics reports that cap rates for Maryland office properties averaged 9.4 percent over the past year.
Tags: commercial real estate, Department of Defense, Great Recession, healthcare reform, Jones Lang LaSalle, Reis, stimulus package, Washington DC
Posted in Development, Economics, Office | No Comments »
Tuesday, August 31st, 2010
The nation’s financial system needs significantly more regulation than exists now. The lack of tough regulatory powers strongly impacted the recent financial crash and the Great Recession that ensued. The good news is that the Obama administration is moving firmly in this direction with financial reform legislation a critical item on its agenda. This is the opinion of Anthony Downs, a senior fellow with the Brookings Institution and former President of the Real Estate Research Corporation. In a recent interview for the Alter NOW Podcasts, Downs said that between 1980 and 2007, the value of international capital markets – including bank deposits, assets, equities, public and private debt – quadrupled relative to the world’s GDP, lifting millions of people out of poverty. Although unprecedented, this growth relied heavily on borrowed money to finance higher living standards and highly leveraged loans with limited reserves backing them. In the end, the growth was unable to be sustained.
The financial reform legislation currently undergoing reconciliation by a Senate-House conference committee is not a reinstatement of the 1933 Glass-Steagall Act – which separated investment and commercial banking — because banks will still be allowed to deal with securities. Under the new law, banks will have to register derivatives with some type of formal exchange and maintain records on who is borrowing money and under what terms. This marks a significant change from before the Great Recession, when derivatives were traded with virtually no oversight.
Downs believes that former Federal Reserve Chairman Alan Greenspan contributed to the financial crisis in two ways. In 2001, when Greenspan was informed that there was fraud in the subprime housing market and that he should do something about it, he refused to take action because he didn’t believe in regulation. According to Downs, “that was a terrible mistake and meant that all the horrible loans made in the subprime market could continue unchecked.” Greenspan’s second error was to maintain low interest rates for as long as he did at a time when an enormous amount of capital was coming into the United States economy from overseas. Because investors were avoiding the stock market, they put their money into real estate. That drove the price of properties sky high and destroyed the concept of intelligent underwriting and evaluating the risk before approving the loan.
Anthony Downs On Financial Reform:
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Tags: Alan Greenspan, Anthony Downs, Ben Bernanke, Brookings Institution, derivatives, Federal Reserve, financial crash, financial reform, financial regulation, GDP, Glass-Steagall Act, Great Recession, Obama administration, reconciliation, securities, subprime
Posted in Development, Economics, Financing, Industrial, Office | 1 Comment »
Wednesday, August 4th, 2010
As the nation gradually recovers from the Great Recession, several years are likely to pass before lending returns to pre-crisis levels, according to Federal Reserve Governor Elizabeth Duke. The return of credit growth is far slower than during any business cycle of the last four decades with the sole exception of the 1990 – 1991 recession. At that time, consumer credit required three years and commercial real estate nearly nine years to recover, Duke said in a recent speech.
Since December of 2008, the Fed has kept its target interest rate at zero to 0.25 percent in an effort to reduce the cost of borrowing and help the economy recover from the Great Recession. Even so, loans held by commercial banks slid by approximately five percent in 2009. “Just as the causes for the decline in lending are multifaceted and complex and took time to evolve, the solutions will likely be equally difficult and will take time to fully work,” Duke said. She is the sole former commercial banker to serve on the Fed’s Board of Governors. “We at the Federal Reserve, meanwhile, will continue to do everything we can to encourage a return to a healthy credit environment.”
According to data released by the Federal Reserve, consumer borrowing increased in April for the first time in three months. The Fed’s Open Market Committee notes that household spending is restrained by “high unemployment, modest income growth, lower housing wealth and tight credit.” Duke said that “Just looking at the statistics, it is not hard to construct a scenario in which consumer demand for credit remains sluggish for quite a while. Household net worth dropped about 25 percent during the crisis, about 20 percent of mortgage borrowers lack equity in their homes and consumers are quite burdened by debt payments.”
Tags: Ben Bernanke, Conference Board, Department of Commerce, Elizabeth Duke, Fed, Federal Reserve, George W. Bush, Great Recession, Gulf of Mexico, household spending, interest rates, lending, National Fedearaton of Independent Business, oil spill, unemployment
Posted in Economics, Financing | No Comments »
Thursday, July 29th, 2010
It’s ironic that — even in the depths of the Great Recession — the number of millionaires around the world grew by 17 percent to 10 million. Their collective wealth surged 19 percent to $39 trillion, according to the latest world wealth report from Merrill Lynch-Capgemini. “We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth,” said Bank of America Corporation wealth management chief Sallie Krawcheck.
India, China and Brazil are home to the majority of the world’s newest millionaires, despite the fact that they were some of the hardest hit markets in 2008. Asia now has three million millionaires – meaning it has caught up with Europe – thanks to a 4.5 percent economic expansion rate. Their combined wealth soared 31 percent to $9.7 trillion, outstripping Europe’s $9.5 trillion.
North America’s wealth grew by 18 percent, while the number of individuals considered rich climbed 17 percent; their wealth totals $10.7 trillion. Last year, the United States boasted the most millionaires – 2.87 million. Japan was next with 1.65 million; Germany had 861,000; and China 477,000. Switzerland boasts the highest concentration of millionaires, with approximately 35 for every 1,000 adults.
According to Lyle LaMothe, Merrill Lynch’s U.S. wealth management chief, “The wealthy allocated, as opposed to concentrated, their investments.” In other words, they put their money into fixed-income investments that provided predictable cash flow. The trick now is to convince the wealthy to return to higher risk investments that have a higher income potential. “There is still a hesitancy,” LaMothe notes. “Liquidity is incredibly important and people need cash flow to preserve their lifestyle – but they want to replace that cash flow in a way that does not increase their risk profile. Investors are open to areas they hadn’t thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle. To me, the report underscored that clients are involved and they’re not inclined to stay in one percent savings accounts.”
Tags: Asia Pacific, Bank of America Corporation, Brazil, China, Germany, Great Recession, India, Latin America, Merrill Lynch-Capgemini, millionaires, Switzerland, United States, wealth management
Posted in Economics | 1 Comment »
Thursday, July 15th, 2010
Banks are starting to hire again as they return to structuring CMBS, a sign that the financial markets are gradually returning to normal. “I see lots of friends who used to be employed, and weren’t for a while, and are now being rehired by institutions,” said Jonathan Strain, debt capital markets director at JPMorgan Chase’s CMBS division.
This industry-wide hiring is evidence of the banking sector’s effort to recover from the depths of the Great Recession and rebuild the capability of providing liquidity to refinance commercial real estate owners who need to recapitalize their portfolios. Industry leaders believe that CMBS may never recover to its 2007 origination peak of $237 billion. So far this year, CMBS originations total just over $1 billion. According to one banker, the CMBS market may eke out $10 billion in 2010; that could ultimately grow to a total of $100 billion annually several years down the road.
According to Lisa Pendergast, managing director with Jeffries Group, Inc., “Supply will be far less than what we were accustomed to.” Pendergast also is president of the CRE Finance Council, the industry’s leading trade group.
Tags: Bank of America, banks, CMBS, CRE Financial Council, Great Recession, hiring, Jeffries Group, JP Morgan Chase, Wachovia, Wells Fargo
Posted in Economics, Financing | No Comments »
Thursday, June 24th, 2010
Is there something special in the water in Texas? After surviving the Great Recession in relatively good shape, the Lone Star State can claim that it has more jobs than it did two years ago, as well as the lowest unemployment rate of the 10 largest states at just 8.3 percent. According to the Texas Workforce Commission, the state has created more jobs in the private sector – 724,300 in December of 2009 alone — than any other state in the last 10 years. Boasting the world’s 11th largest economy, Texas reported a gross state product (GSP) of roughly $1.25 trillion during 2009 as it expanded its presence in knowledge-based industries. Additionally, Texas leads the nation in export revenues for the last eight years, shipping $163 billion in product last year.
“Texas, so far, is the big winner,” said William Frey, a demographer with the Brookings Institution. “Big Texas metros are doing well because they avoided a lot of the pitfalls of the housing boom and bust.” Frey specifically points to Austin, Dallas, San Antonio and Houston as high-growth cities with expanding economies, particularly in energy, technology, government and education. Austin, Dallas and Houston are expected to experience a seven percent job growth rate over three years. San Antonio, which is close to four military bases, is expected to experience an 8.32 percent increase in employment over the next few years. What sustained Texas through the recession? Civic leaders think it was the diversified economy, low taxes, reasonable regulatory rules, government incentives and funding, as well as a skilled, highly educated workforce.
Austin, for example, has long been a magnet for entrepreneurial businesses that thrive in Texas’ capital. “There’s an old saying in Austin: If you come here and can’t find a job, start a new business,” notes Rebecca Melancon, executive director of the Austin Independent Business Alliance. Austin’s Small Business Development Program is extremely supportive of would-be entrepreneurs with databases to research demographics, free counseling and even classes on how to operate a business. Additionally, the “Keep Austin Weird” support for unique cultural events supports local businesses. “The biggest thing our city does to promote local business is not something that city hall does. It’s our culture. We don’t want to be Anywhere, U.S.A, and we work hard not to be,” Melancon said.
Tags: Austin, Brookings Institution, chemicals, coal, computers, Dallas, electronics, Great Recession, GSP, Houston, Lone Star State, petroleum, San Antonio, Small Business Development Program, Texas, Texas Emerging Technology Fund, Texas Enterprise Fund, Texas Workforce Commission
Posted in Development, Economics, Industrial, Office | No Comments »
Wednesday, June 23rd, 2010
Federal Reserve Chairman Ben Bernanke is warning that – even as the nation struggles to recover from the worst recession in 75 years – Congress must deal with an “unsustainable” level of debt. “Our nation’s fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession,” Bernanke said in testimony before the House Budget Committee.
Although Bernanke admits that the deficit was a necessary evil designed to bring the nation out of a deep recession, it has to be addressed in the long term because of the European debt crisis. The budget deficit gap will narrow as the economy improves and stimulus programs are phased out. The Fed chairman still sees several drags on the economy. First and foremost is the jobless rate, which stands at 9.7 percent nationally, as well as the housing market that is plagued by foreclosures and short sales – of which 4.5 million are expected this year. The good news is that the Fed’s recently updated Beige Book found that consumer and business spending are up slightly. There is limited growth in the manufacturing, non-financial services and transportation sectors.
The housing market is expected to remain flat, thanks to the expiration of government-funded subsidies. According to the Mortgage Bankers Association, the number of people applying for mortgages has fallen to its lowest level in 13 years. Tourism also is down, partly because of the Gulf of Mexico oil spill. Inflation also is low, making it probable that the Fed will keep the benchmark U.S. interest rate close to zero.
Tags: Beige Book, Ben Bernanke, benchmark lending rate, congress, debt, deficit, European debt crisis, Federal Reserve, foreclosure, Great Recession, Gulf of Mexico, House Budget Committee, inflation, Mortgage Bankers Association, oil spill, tourism
Posted in Economics | No Comments »
Thursday, June 17th, 2010
As George Harrison said in his 1989 song, “Cheer down.” In a move that surprised many economists, GDP growth for the 1st quarter of 2010 has been revised slightly downward – from 3.2 percent to three percent – according to the Bureau of Economic Analysis. Even with the downward revision, the 1st quarter was the second highest quarterly growth reported since late 2007 when the Great Recession began.
Writing in The Atlantic, Daniel Indiviglio notes that “The revision was caused almost entirely by the personal consumption expenditures portion, i.e., consumer spending. Even though this got a lot better in the 1st quarter, it didn’t improve as much as originally thought. It was responsible for 2.42 percent of the three percent growth. The prior estimate reported a 2.55 percent contribution. That 0.13 percent difference is responsible for the vast majority of the 0.2 percent revised drop.” Spending on services – housing, utilities, food and accommodations — during the 1st quarter was overestimated in the original GDP report.
According to Indiviglio, “Of course, 0.2 percent isn’t much. But it is a little disappointing where most of this revision came from. Spending needs to drive the recovery to create jobs. It’s also unfortunate that restaurants and travel was one of the most downwardly revised components; spending on these non-necessities is also an indicator that consumers are feeling much more comfortable opening their wallets. This component, and spending overall, still showed a healthy increase compared to 2009, but these revisions make their progress a little less impressive.”
Trade estimates were revised upward to $27.3 billion from $22 billion. At the same time, imports rose to $47.6 billion from $41 billion in the original estimate. “So the net result is mostly a wash: the two revisions approximately cancel each other out. But it is good to see more exports than originally anticipated,” Indiviglio concludes.
Tags: Bureau of Economc Analysis, consumer spending, Daniel Indiviglio, GDP, Great Recession, job creation, The Atlantic
Posted in Economics | No Comments »
Wednesday, June 9th, 2010
The economic upheavals of recent years have changed Americans in ways that we are still coming to terms with because it marks the end of an era. The Great Recession was anything but an ordinary downturn and the way we live and work has been transformed. Construction and auto jobs have declined by one-third; retail and banking employment is down eight percent. Some of those jobs will return as the economy improves, but Americans must face the new reality that the era of cheap credit, cheap oil and runaway consumerism has vanished – and likely will remain that way at least for the foreseeable future.
Writing in The Economist, Greg Ip, a senior writer for The Wall Street Journal, says that “The crisis and then the recession put an abrupt end to the old economic model. Despite a small rebound recently, house prices have fallen by 29 percent and share prices by a similar amount since their peak. Households’ wealth has shrunk by $12 trillion, or 18 percent, since 2007. As a share of disposable income it is back to its level in 1995. And if consumers feel less rich, they are less inclined to spend. Banks are also less willing to lend: they have tightened loan standards, with a push from regulators who now wish they had taken a dimmer view of exotic mortgages and lax lending during the boom.”
Consumer debt was 129 percent of disposable income in 2007, a rise over the 80 percent reported in 1990 – an untenable situation that was destined to come to a bad end. Over the next six or seven years, Americans will slash their debt to more controllable levels, according to the McKinsey Global Institute. Ip notes that “The effect on the economy of deflated assets, tighter credit and costlier energy are already apparent. Fewer people are buying homes, and the ones they buy tend to be smaller and less opulent. In 2008 the median size of a new home shrank for the first time in 13 years. The number of credit cards in circulation has declined by almost a fifth.”
The recession was caused by a financial crisis that harmed the financial system and saw consumers and businesses weighted down by surplus buildings, equipment and debt acquired during the boom. With recovery now in its ninth month, the GDP has grown at approximately four percent and unemployment remains at generational highs. Innovation is being scaled back, because tight credit makes it impossible for start-ups to get the cash they need. Despite the glum news, there is reason for optimism. The Conference Board has reported an increase in consumer confidence, rising to 63.3, an increase over the 57.7 reported in April.
According to Lynn Franco, Director of The Conference Board Consumer Research Center, “Consumer confidence posted its third consecutive monthly gain, and although still weak by historical levels, appears to be gaining some traction. Consumers’ apprehension about current business conditions and the job market continues to slowly dissipate. Consumers’ expectations, on the other hand, have increased sharply over the past three months, propelling the Expectations Index to pre-recession levels (August 2007, 89.2). The improvement has been fueled primarily by growing optimism about business and labor market conditions. Income expectations, however, remain downbeat.”
Tags: American economy, deflated assets, economic recovery, GDP, Great Recession, Greg Ip, macroeconomic shift, McKinsey Global Institute, The Conference Board, tight credit
Posted in Economics, Financing | No Comments »