It’s all about jobs

The “first stimulus” has only put out 10 percent of the dollars, and the results have been underwhelming. There is talk of a second stimulus, but along with a $1 trillion health-care plan, most folks realize that there are not enough dollars to go around. The optimistic projections for positive GDP growth by the fourth quarter of 2009 are being revised to some time in 2010.

Overly simplistically, it’s all about jobs. It takes jobs to fill buildings, to allow people to shop, go on vacation. This is clearly going to be a jobless recovery. Even the states that pride themselves on paying meager salaries but provide great benefits and stability to their employees are under serious stress. Even municipalities that have scratched out bare-bones budgets know that next year will be rough due to drastically reduced fee income and reduced property values, which will reduce assessments which means a lower “grand list,” which means the tax rate has to go up to raise the same revenue from the same property owners.

These are all immediate and short-term concerns, but the clock is ticking on the emergence of the Inflation Genie. We simply cannot borrow and print so much new money and not expect inflation. Those who had their fingers crossed, hoping for a quick economic recovery now face the reality that this is much deeper and longer.

The good news is that we avoided falling into the abyss of global economic meltdown. The bad news is that for every benefit there is a cost. A simple analogy or metaphor is that our economic bus was hurtling toward the canyon. We slammed the brakes to the floor, yanked on the emergency brake and threw the transmission into reverse. We did not hurtle over the cliff but the bus needs a new engine, a new transmission and all new brakes. All of these are expensive and take time to install.

We will need sustained annual growth over 2 percent to stabilize and then reduce unemployment. While it is easy to focus on the 10 million or 12 million unemployed, we also have to deal with the 25 million to 30 million underemployed, those working fewer than 40 hours per week or facing two- or three-week furloughs and having benefits cut.

Some banks are reporting profits or reduced losses. The community banks are open for business, lending and working with customers. But job growth, which has averaged over 20 percent per decade since 1940 is 0 percent since 2000 and likely to go negative before 2010.

What about those 7 million to 8 million lost jobs? Employment in this country will likely be less than what we saw in the last recession.

Caution remains

Existing home sales have improved modestly. Remember there are trillions of dollars of value/wealth associated with our homes. When those values drop 15 to 20 percent, $6 trillion or $8 trillion disappear. Foreclosures will continue. Each foreclosure resets values in a market, appraisals ratchet down, and homes over $350,000-$400,000 remain unsold. New homes now average 11.5 months to sell. The cost to carry is significant. We are starting to see discounting of prices to move both existing and new homes.

Let’s face it, rising taxes are just around the corner — federal, state, county, municipal and school taxes. This is going to fall squarely on the “rich,” which is defined as over $1 million annual income or $250,000 annual income or $125,000 annual income — depending on who is talking.

Now incomes are not rising. In fact they are dropping, so consumer spending is sliding. For example, department stores are down 12.2 percent. In the real estate world, we talk about annual sales per square foot. If a department store like Macy’s averages $600 per square foot each year in Bedford and sales are down 12 percent, that equals $72 per square foot. The store is 80,000 square feet, which equals $5.7 million. Ouch.

For the next several quarters we will continue to deleverage, we will continue to save and pay down debt instead of spending, we will be very cautious. This means we will not grow GDP 2 percent, so we will not create or restore jobs.

So we keep going to work, doing our jobs and waiting for enough pieces to come together to create positive momentum. Best guess is late 2010 or early 2011 before we see measurable growth. That is not optimistic, but it is real.

Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Fellow of the Royal Institution of Chartered Surveyors (FRICS). He can be reached at