Catch 22 -- Logical Paradox of this Recession and The Recovery

An Economic Catch-22 —A Logical Paradox for Job Growth?

A recent report from the UCLA Anderson Forecast issued June 15th 2010, predicts that the California economy is expected to grow a bit slower than the nation's economy for 2010, and only slightly faster thereafter. This slow growth rate will result in only modest inroads into the state's high unemployment rate.

The report titled “A Homeless Recovery,” concludes that this time around, the economy can’t count on free-spending consumers to boost it along. The report cites today’s “frugal consumers” and describes “If the next year is going to bring exceptional growth, consumers will need to express their optimism in the way that really counts; buying homes and cars. And that is not going to happen if businesses continue to express their pessimism in the way that really counts by not hiring workers.”

In another element of the forecast, the economists predict the recovery will be “rocky” in the commercial real estate sector. “There is just too much debt that has to be worked through”.

The report cites an “Economic Catch-22.” (A Catch-22, coined by the author Joseph Heller in his novel of that same name is a logical paradox wherein a situation exists in which an individual needs something that can only be acquired by not being in that very situation; therefore, the acquisition of this thing becomes logically impossible.) The challenge is that significant reductions in the unemployment rate require real gross domestic product growth in the range of 5% to 6%, compared with normal GDP growth of 3%. As a consequence, consumers concerned about their employment status are reluctant to spend and businesses concerned about growth are reluctant to hire.
UCLA Anderson’s forecast for GDP growth this year is 3.4%, followed by 2.4% in 2011 and 2.8% in 2012, well below the 5% growth of previous recoveries and even a bit below the 3% long-term normal growth. In the California forecast they indicate that the state “will grow slower than the US and a slow recovery in jobs will leave unemployment at 12.1% for the year.” “The latter part of our forecast (through 2012) calls for health care, professional and business services, exports, construction and technology-related manufacturing sectors to generate a bit more robust growth in California.”

The Anderson report is another estimate of a “jobless recovery”. Their conclusion is that the state will grow more rapidly in the following two years but that job creation will not be fast enough to push the unemployment rate below double digits until 2012. “Unlike other deep recessions, the rapidity of the recovery, at least on the unemployment front, will be muted”…

To read more here is a link to additional coverage from UCLA Anderson:
http://newsroom.ucla.edu/portal/ucla/ucla-anderson-forecast-u-s-recovery-160346.aspx

Commercial and Investment Real Estate is both a global and local investment that is influenced by many factors including macro economic conditions. If we can assist you with commercial real estate in northern California please contact us at JimandNahz@ctbt.com or call us at (916) 375-1500

Great Coach Great Teacher --Pyramid for Success

Good bye and thank you Coach…


Arose today to hear that John Wooden one of the most revered people in basketball, coaching, and leadership died at the age of 99. Thank you for all that you have done and rest peacefully.

Wooden’s life and legacy has inspired millions. I have read his books and became familiar with his Pyramid of Success. I am a huge fan of basketball and a huge fan of his lessons on Leadership, on Preparation, and on Life.


If you need some inspiration or you want to know more about the philosophy and teachings of Coach Wooden here are two links you will enjoy. http://www.coachwooden.com/ and http://en.wikipedia.org/wiki/John_Wooden

Wooden is famous for a seven point creed. Given to him by his father and printed on a card and carried in his wallet:
1. Be true to yourself.
2. Make each day your masterpiece.
3. Help others.
4. Drink deeply from good books, especially the Bible.
5. Make friendship a fine art.
6. Build a shelter against a rainy day.
7. Pray for guidance and give thanks for your blessings every day.

And here is a reprint of his Pyramid of Success.

Read The Headlines... There is good news there too!

Signs of Hope. Yes, if you look closely enough, right there in the headlines, there are glimpses of good news and maybe, just maybe, indications that a recovery is “around the corner”. It is pretty easy to get focused on all of the bad news but there is good news out there! You can see signs of hope and progress in the headlines. These indicators might not be “on top of the fold” but they are there, and they provide us with indications of our resilience and that things will get better. Here are a few recent examples worth noting.

California unsold home inventory down by half. This article sets forth the statistics showing that the housing market has improved in some regards. It was reported in the Sacramento Business Journal on February 26, 2009 that
· California had a 6.7-month supply of existing, single-family detached homes in January of 2009, less than half the 16.6-month supply it had in January of 2008 -- if homes were sold at the current rate -- according to a report released Thursday.
· The California Association of Realtors reported that the median number of days it took to sell a single-family home dropped to 49.9 days in January of 2009, compared with 70.8 days for the same period a year ago.
· Home sales increased 100.8 percent in January of 2009 in California compared with the same period a year ago, while the median price of an existing home fell 40.5 percent=
· Closed escrow sales of existing, single-family detached homes in California totaled 624,940 in January of 2009 at a seasonally adjusted annualized rate and statewide home resale activity increased 100.8 percent from the revised 311,160 sales pace recorded in January of 2008.

Sacramento is No. 21 in the U.S. in energy efficient buildings. We firmly believe that “you won’t change it if you don’t measure it and report it”. An important phenomenon to watch is that green buildings will reduce our carbon footprint while at the same time lowering expenses to tenants and raising returns for landlords. . It was reported in the Sacramento Business Journal on March 3, 2009 that
· According to the U.S. Environmental Protection Agency, Sacramento has the 21st-highest number of energy efficient buildings in the country with 45.
· Los Angeles has the most buildings with the EPA “Energy Star” rating, with 262, followed by San Francisco with 194 and Houston with 145. Those cities are followed by Washington, D.C., Dallas-Fort Worth, Chicago, Denver, Minneapolis-St. Paul, Atlanta and Seattle.
· “Energy Star buildings typically use 35 percent less energy and emit 35 percent less greenhouse gases than average buildings,” said EPA administrator Lisa Jackson, in a statement.

Community Banks Growing Amid Recession. Unfortunately we have been too focused on the “big banks”, and the creation of or the need for a “bad bank”. Here are excerpts from an article on the growth of regional and small community banks from the Sacramento Business Journal on March 10, 2009. The Independent Community Banker Association of America released a survey of their members.
· It shows that the majority of the banks have seen an increase in deposits as a result of getting new customers, while only 17 percent have seen customers draw down deposit accounts.
· “While the financial crisis has affected banks of all sizes and in all regions, community banks continue to lend and are typically faring much better than the larger banks because they didn’t participate in the high-risk activities that led to problems we are experiencing,” said Camden Fine, president of the ICBA. “This survey clearly shows that the vast majority of community banks are well-positioned to survive the economic downturn and, perhaps, even reclaim some of the customers from larger banks.”
· The survey found that 55 percent of banks increased deposits as a result of new customer acquisition.
· Community banks are getting new customers at a faster rate than in the past, the survey found, with 57 percent of respondents getting an increase in new retail customers during the second half of 2008, compared to the first half of the year. The survey found 47 percent of independent banks saw an increase in new business customers.
· And the survey found that community banks are making new loans, with 40 percent of respondents experiencing an increase in loan origination compared to the year earlier

California will get $51 Billion in stimulus funds. The Sacramento Business Journal of March 10th Reports “The Keynesian relief package will soon arrive and be put to use in the Golden State.”
· California and its residents will receive an estimated $50.7 billion from the American Recovery and Reinvestment Act signed by President Obama February 17th 2009, including $18 billion in federal dollars that can be used to offset General Fund expenses.
· Funding in the stimulus package is intended for various purposes.
· Funding designated for California in the stimulus package includes $11.2 billion additional funding for Medi-Cal, the state health care program for the poor. There is also about $5 billion in educational block grants.

Construction costs continue to drop. This is really good news for any investor or business person willing and able to pursue construction or development activities at the present time. The Sacramento Business Journal reported on March 10, 2009 that
· Commercial building construction costs decreased 5.77 percent in the first quarter, compared with the fourth quarter, according to Turner Construction.
· Construction costs have dropped 2.59 percent since first-quarter 2008, according to the index.
· “The cost of construction has come down as construction spending has decreased and competition in the industry has increased,” said representatives of Turner.
· However, construction activity in the education, health care and public sectors have continued to show strength.
· Investments are also up in "green" building across all segments. Green building projects could potentially benefit from the federal $787 billion stimulus package signed into law last month.
· The index is determined by several nationwide factors, including labor rates, productivity, material prices and the competitive condition of the marketplace.

Public transit use jumps 4 percent in 2008. This is good for the environment and good for the budget and shows signs that will sustain public transportation. This article was reported in the Sacramento Business Journal on March 10, 2009 that
· Although gas prices plummeted in the second half of the year, a report by the American Transportation Association shows that Americans took 10.7 billion trips on public transportation in 2008, a modern record.
· Those trips represented a 4 percent increase over the number of trips taken in 2007 on public transportation, while at the same time, vehicle miles traveled declined by 3.6 percent in 2008, according to the U.S. Department of Transportation.
· The ridership record continues a long-term trend of ridership growth. Public transportation use is up 38 percent since 1995, a figure that is almost triple the growth rate of the population -- 14 percent.

Keep your eyes open and notice the good with the bad. The business cycle is back and the best opportunities emerge from tough times. We believe that it is important to be realists and to not get paralyzed with fear. If you would like to discuss this blog post with us or if we can help you with a commercial or investment real estate transactions, please call or email us at Jim Gray (916) 617-4255 jgray@naibt.com or Nahz Anvary (916) 617-4257 nanvary@naibt.com. “Build on the power of our network” visit our website at http://www.naibtcommercial.com/