Businesses boost inventories, lifting the economy

By Buck Wargo

Fri, Feb 12, 2010 (3 a.m.)

Job losses and the time it will take to replace those jobs make this recession hurt more than most, but the American economy will show more signs of recovery in 2010, according to the Mortgage Bankers Association’s chief economist.

The recession ended last summer, and the gross domestic product grew more than 5 percent in the fourth quarter, said Jay Brinkmann, senior vice president with the bankers’ group. He was in Las Vegas last week for the association’s commercial real estate finance conference and spoke about trends to watch for in 2010.

Brinkmann says the latest recession isn’t as bad as the one in the early 1980s in terms of depth, but this recession is magnified by job losses and that “makes it look a lot worse.”

The first quarter of 2009 marked the lowest point of the recession, and the economy turned around because businesses increased inventories, Brinkmann said. That was such a strong factor in the fourth quarter that without it, GDP growth would have been 2.4 percent, he said.

He says GDP growth won’t reach 4 percent again until 2011, which means there might be political pressure to do something about the economy when first-quarter numbers are released.

“When reports come out for the first quarter and say economic growth was half of what it was in the fourth quarter, there will be a public relations problem,” Brinkmann said. “There will be concern that the economic growth is stalling, and we are dipping back into a recession.

“The answer is there is no evidence of that, but I think it is going to impact Washington more than Main Street in terms of reaction to the slowdown.”

Brinkmann said people can’t expect a return to where the economy was before the recession because that wasn’t normal. The economy and therefore consumer spending were artificially stimulated by people drawing equity from single-family homes in the middle of the decade, he said.

“The idea of California getting back to where it was in the middle of the decade, I think you are dreaming,” Brinkmann said.

The economy lost 7 million jobs from December 2007 to last December with more than half of those in construction, transportation or manufacturing, Brinkmann said.

Professional, business, financial and information services lost 28 percent of the total, which is why office vacancies have risen to the levels they have in places such as Las Vegas, Brinkmann said.

Nevada ranked No. 1 in the nation by losing 10.7 percent of its jobs in that time span, Brinkmann said. Arizona was second with 9.8 percent.

“That is bad news for Nevada, but as far as the rest of the country is concerned, it is not that big of a deal because Nevada is not that big.”

Nevada was No. 3 in the nation for lost service jobs with 11.2 percent, Brinkmann said. Arizona was first with 12.4 percent.

Nevada, which has a 13 percent jobless rate, is closer to 21 percent when those no longer looking for work because they are discouraged are included, he said.

It will take at least two years for jobs to return to levels at the end of 2008, Brinkmann said.

The good news about the jobs market is that new claims for unemployment declined in most of 2009 and that is expected to continue through this year and reach pre-recession levels, Brinkmann said.

That will be a huge boost for the economy, he said.

“If you have a job now, you are much more confident that you are not going to lose it because you are no longer seeing the layoffs,” Brinkmann said. “Those are the ones who are going to be much more likely now to spend money, increase consumer consumption and travel more.”

The concern is that 40 percent of the unemployed have been without jobs for six months or longer, by far the record since statistics started being kept in 1951, Brinkmann said.

Those workers have seen their skills erode and more and more are dropping out of the workforce, Brinkmann said. That will create hangover effects for communities with high numbers of unemployed or undereducated workers, he said.

The economy hasn’t received as big a boost from the federal stimulus package as many were promising, Brinkmann said. One reason was that of the $787 billion appropriated, only 33.4 percent had been spent by the end of 2009.

About half of the boost ($399 billion) will be in the fiscal 2010 federal budget, Brinkmann said.

The stimulus has had a limited effect on job creation because of how the money has been spent. Twenty-three percent was for payments to states and 22 percent for unemployment benefits. Another 21 percent was on tax credits, including the first-time homebuyer credit. Only 16 percent went to transportation and other infrastructure projects, he said.

In the commercial market, vacancy rates continue to struggle but the longer leases have helped cushion that sector during the downturn, said James Woodwell, vice president of commercial real estate research for the Mortgage Bankers Association.

One problem the office market faces is that many companies have laid off workers and already have excess space to fill, Woodwell said. That means they won’t need to lease new space when the jobs start returning, he adds.

Interest rates should hold steady this year and in early 2011 because there is no sign of inflation, Brinkmann said. With unemployment high, the Federal Reserve is unlikely to move interest rates, he said.

In other news

• The Ethan Allen Design Center has opened at the World Market Center.

• The Nevada Foreclosure Taskforce has launched an anti-fraud campaign targeted at consumers who are behind on mortgage payments or threatened with foreclosure. The campaign is designed to alert homeowners to scams and encourage them to seek help through a Housing and Urban Development-approved counselor. The ads are airing on television.

• The Greater Las Vegas Association of Realtors donated $2,500 to Habitat for Humanity International’s effort to help Haiti after the earthquake that left thousands homeless.

• U-Haul announced the addition of a self-storage reuse center at the U-Haul Center, 3969 N. Rancho Drive. The reuse program, one of the company’s sustainability initiatives, was developed to provide a redistribution network for unwanted, gently used household goods, furniture, sporting equipment, bikes and clothing that formerly were destined for landfills.

• Cox Communications has leased 84,397 square feet of industrial space in the Hughes Cheyenne Center in North Las Vegas.

The long-term lease is valued at $5.5 million, which Buchanan Street Partners and CIP Real Estate tout as one of the largest leases signed in Las Vegas since 2008. Cox said it will use the building for warehousing and distribution of construction and service materials. Cox will also install a cable-testing lab.

Buck Wargo covers real estate, retail and banking for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.