Non-Residential Investment: Key Components
Submitted by
CalculatedRisk on Mon, 05/05/2008 - 8:38am (59 comments)
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What, no more strip malls? Where's an honest stripper supposed to work now? In RE?
Uno, dos,...
Would the blue line look like it did in the late 90's if GDP was altered?
I mean if GDP was actually significantly lower now, would the percentage of GDP push up the current office space spending line?
Conversly, could a rapid drop in GDP with large revisions change the appearance of the blue line?
Local anecdote: I was talking with some friends recently who have college-age children, and discovered that graduating within the traditional 4-year time-frame is getting to be a problem.
Reason: Not enough capacity in the college/university system to get students out the door in only four years, they have to wait an additional year in order to get all the courses they need.
My friends tell me that in visiting colleges they've seen some enormous construction projects going on.
Sebastia
CR,
I was looking at this the other day using your LT private construction spending chart. I think it is easier to forecast the hit to non-residential construction spending with that chartsince it's y axis is in dollars. My prediction is that the overbuilding and severe recession will bring the non-residential building down close to 1993 levels which is a decline of over $200 billion or over 3x your prediction based on your chart here.
Sebastian--
I'd take that line about not being able to graduate on time because of the school not offering the courses required to graduate in sequence with a very large grain of salt. Just about everywhere, the closer you are to graduation by hours already taken, the higher you are in the registration queue. While it's true that changing majors, etc., may push some into a fifth year, it's also true that there's a lot to be said for the student lifestyle, especially in a lousy job market for entry level liberal arts majors.
This is noted by a guy who was a liberal arts major who graduated into a lousy, 70s era job market, and as the father of two such people in the current era.
Please pass the salt.
Sebastian,
The baby boom echo is coming towards college age over the next couple of years, but after that it drops precipitously. Arizona State has been on a building streak for 20 years and will wind down in the next 2 years at the main campus. The 1st 12 years was teaching, computing and library facilities, the last 12 has been teaching, residential.
With all the condo complexes likely to go TU here, they won't need to build much resi for a long time.
A big reason why it takes longer is that Uni budgets are cutting close to the quick, most degree paths have a bottleneck or two at 300-400 level classes and they don't have enough teachers to handle the number of sections necessary.
Nowadays at a state school the only way to graduate in 4 years is by taking summer session classes the 1st 3 years.
Good thing college will be unaffordable for most American in the next five years.
Lots of "lodging" at the high end. Think Las Vegas, high end downtown and luxury resort construction. Yet another overbuilt category. Vegas, Scottsdale, Sedona, Miami welcome to Honolulu circa 1988.
Sebastian, here in California I can't even get my kids INTO the college. Both at community college and now we're applying out of state to even get them into a university. Granted their grades aren't stellar but their SATs are through the roof. With budget cuts the California schools are so impacted there are hundreds of apps for every open slot, it seems.
When I was in school it was the foreign students who are clearly on another level are far as math and science. Every student from Asia has taken Calculus for at least two years and college physics by the time they graduate high school. The US students had an advantage in that all the books were in English but the foreign students pick up fast. We need to expand science and math starting from second grade.
Bah, we don't need to teach math and science since our "best and brightest" are smart enough to become MBAs and financial analysts rather than engineers like the suckers
My daughter attends Florida State University. In the Business School ( (she is double majoring in accounting/finance on a five year track for masters in accounting), all of her 200 classes had 500 students in them. She mentioned that becuase of budget cuts the fall freshman class will be smaller than the prior class. She also mentioned that it is almost impossible to transfer to the school of your choice from the community college system.
Florida tax receipts are down 10%. This shortage is showing up everywhere but more so in the already lacking school system.
Below is a link to a budget statement by the President of the University of South Florida. Their budget is going to be chopped by 58 million over the next two years. All this in a period when Florida is graduating more students from HS than ever before.
http://www.usf.edu/About-USF/Administration/President/financial-crisis.asp
Could somebody help me come up with a good rumor for 2:30pm today?
My investment career could be coming to a quick end if I don't come up with something very clever and convincing.
Needs to create at least a 150 point move on the DOW. And preferably about 40 on the NAZ.
I'm sure CR will give his take on it but just in case, and for those who had forgotten about it, the Senior Loan Officer's Survey is out:
Senior Loan Officer Opinion Survey: April 2008
I'm still reading it but this is the opening para:
In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on a broad range of loan categories over the previous three months. The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey. Compared with the January survey, the net fractions of banks that tightened lending standards increased significantly for consumer and commercial and industrial (C&I) loans. Demand for bank loans from both businesses and households reportedly weakened further, on net, over the past three months, although by less than had been the case over the previous survey period.
Emphasis added by me - I'm still puzzling over it and the main doc may help in understanding that.
-K
A few minutes ago, oil hit $120 a barrel for the first time in history. If this is a new paradigm, it will put a damper on a lot of commerical real estate projects.
CR said: "If the imminent slowdown in non-residential structure investment is similar to the percentage declines during the '90/'91 and '01 recessions, then non-residential investment could decline as much as 15% to 20% over the next four quarters..."
I would have bet money that since the recession argument is taking so much water over the side because of the positive real GDP growth for Q4 2007-Q1 2008 and this:
ISM - ISM Report - November 2009 Non-Manufacturing ISM Report On Business®
...that the (negative) expectations would have been walked-back a little bit.
Sebastia
Prepare for flying chicken -- Pilgrim's Pride prepares to pass the price of feed along to consumers
Pilgrim's Pride Loss Widens on Soaring Feed Costs (Update4) - Bloomberg.com
Essentially the entire world is now paying the price of misguided public policy on biofuels and rising international demand for grain,'' Credit Suisse analysts led by Robert Moskow said in an April 21 note. <b>Earnings will hit a bottom in the March quarter and accelerate from there as pricing picks up.''
Construction spending relating to multimerchandise shopping is allready affecting the construction industry with new order volume significantly slowing. Concrete suppliers have been hit hard with the SFH builders and now shopping malls and big box stores. I spent last week at two trade shows talking to various construction companies and all were expericing lower sales volume, very tight margins and its early in the cycle.
"Could somebody help me come up with a good rumor for 2:30pm today?"
The Justice Department announced shortly after 2pm today that investigators have infiltrated a ring of Al-Queda-financed sympathizers at the New York Times, economic blogs and websites, and within the BLS and the Commerce departments. Indictments are expected to be handed down later this afternoon.
FBI director Mueller stated that the conspiracy was dedicated to spreading false negative information about the US economy, hoping to stimulate a recession or even a depression. In fact, Mueller stated, employment is at a 60-year high, inflation has remained stable at .03%, oil prices have dramatically declined, and housing prices have in fact been rising rapidly over the past year, and not declining as the terrorists have asserted. President Bush released a separate statement praising the investigation."
rich writes:
A few minutes ago, oil hit $120 a barrel for the first time in history. If this is a new paradigm, it will put a damper on a lot of commerical real estate projects.
It'll put a damper on a whole lot of things. Good for the persian gulf/russia plus our own oil patch, and maybe good for treasuries as oil money is recycled, but more bad news for all other spending, not least mortgages.
Banks squeezing credit to consumers, businesses
Consumers and businesses found it harder to borrow money over the past three months, the Federal Reserve reported Monday, a sign that the historic credit crunch now hitting the economy is still worsening despite Herculean efforts by the Fed.
More than half of the banks surveyed by the Fed said they had tightened the screws on commercial and industrial loans, commercial real estate loans, residential mortgages, and home-equity lines of credit. Almost no banks eased credit terms for any type of loan, the Fed said in its quarterly senior loan officer survey...
Essentially the entire world is now paying the price of misguided public policy on biofuels and rising international demand for grain,'' Credit Suisse analysts led by Robert Moskow said in an April 21 note.Earnings will hit a bottom in the March quarter and accelerate from there as pricing picks up.''
It's strange how biofuels are driving up the prices of non-biofuels and metals too (in past months anyhow).
Funny how that works out.
Cap rates on commercial RE got stupid low during the housing boom. I was seeing sub 5%. That implies low returns from CRE without a consumer led recesion.
P.S. I've heard the schtick that leases are below market and can be raised. Still not a buyer at those cap rates.
That $120/bbl oil has me spooked. Same with 4% inflation.
I have no intentions of increasing my discretionary spending. NONE!
My expectations are "well anchored" thanks to the fed.
donna writes:
Sebastian, here in California I can't even get my kids INTO the college. Both at community college and now we're applying out of state to even get them into a university. Granted their grades aren't stellar but their SATs are through the roof. With budget cuts the California schools are so impacted there are hundreds of apps for every open slot, it seems.
My kid only got into 4 having been turned down by Berkeley. The reason for the extraordinary rejection rate has to do with a demographic baby boom echo that has the Class of '08 by far the largest ever with nothing but declines going forward from here. Two years from now the UC system will be begging for students. Paying students that is. Money has not just evaporated, it has been freeze dried and desiccated, vacuum packed and placed in cryostasis. It is amazing just how very few can afford California's Constitionally mandated free college education.
spock to kirk:
captain oil in the delta quadrangle has passed 120 dollars a barrel
scotty to kirk:
captain i donno how much more of this she can take? she's gonna blow
McCoy to Kirk
Jim, i can't save it.. i'm a doctor not a petroleum engineer!
Kirk to Scotty
damn it scotty...give me all the gas you got...we're gonna blow this galaxy
We don't need a rumor to go up, just some nice spin. Oil hit $120 today, but the stock market didn't immediately go down, so it had to go up!
Also, I liked today how the ten year and oil were rallying at the same time.
Lastly, I took all the advanced placement courses in high school and tested out of 36 hours of college credit. Changed my major twice and still graduated in 4 years with honors in physics. I know I'm not normal, but graduating in 4 years is possible if you try.
I know a kid who just graduated in a year and two summer sessions, because he had so many AP credits out of high school. Moral: Make your kids take all AP classes their junior and senior years and college will be much cheaper. (Although your kids could miss out on some of the best 7 years of their lives).
It is amazing just how very few can afford California's Constitionally mandated free college education.
Rob Dawg,
Could you explain that?
Elvis,
Heh - scene from 'Animal House' - the ejected sophomore laments "Christ, seven years of college down the drain!"
"Could somebody help me come up with a good rumor for 2:30pm today"
"Buffett to buy Yahoo!"
Will that do?
Uh oh. Less hotel development? Has somebody notified Al Gore yet of the inconvenient truth that ***** ***** won't be opening their next location? Will he have to serve himself cheese? It's a recession when somebody else loses their servants. It's a depression when you lose your own servants!
Sebastian -
I am on the board of trustees at a smaller liberal arts college in the northeast. We just scrapped plans for over $50 million of capital construction based on a pull back in financing available. We are also seeing annual gifts run materially behind last year. If this keeps up we'll have to cut back futher. Meanwhile our enrollments are up and we're near full capacity on higher average tuition - the problem is that tuition doesnt even cover the cost to operate and we depend donations to not only cover a meaningful part of our operating cost but for all of our capital projects too (as is the case with almost all private colleges and universities). I know other schools are facing the same dilemma. With tax inflows down in most states you will see the same thing happen in the public university system. I've seen it happen like clockwork over the past 4 decades.
short's are such sucker's
they will be punished.
why they ever fight the FED is beyond me.
Angry Saver writes:
It is amazing just how very few can afford California's Constitionally mandated free college education.
Rob Dawg, Could you explain that?
Yeah, the State Constitution forbids charging tuition and promises to provide a state college berth for anyone qualified. UCLA is tuition free. Of course 1/3rd of a dorm room for 9 months works out to luxury penthouse prices and there are these things called fees. Because they are fees they aren't tuition even if they look like a duck and quack like a duck. Thus UCLA is only $19k for the free education.
Good rumor -- "Scandalous, Compromising Bernanke Pictures Force Resignation -- Bush to Appoint Angelo Mozillo as Head of Fed." Due to pictures of Ben Bernanke dressed in crotchless leather chaps and getting spanked by Marv Alberts found circulating across the internet Monday, the Fed chief has issued his resignation immediately. Angelo Mozillo has been named...
elvis-
that actually happened to the President of the FIA....
F1 Boss Max Mosley Caught With Five Hookers In "Nazi Orgy" Video Scandal - Clips - Jalopnik
Like anyone from this administration would be affected by public outrage
Too bad the above wasn't with greenspan
Ciao
MS
Newly sworn in President Pelosi urges calm after a tragic accident...
Interesting to see once the condo market dried up everyone moved into condo-hotels. Those will go down as the best investment ever. Trump amazingly is unable to close on the units he just completed in Vegas. What are those peple thinking backing out.
Colleges can building new buildings with corporate funds that cannot be used by undergrads. Professors are unwilling to teach undergrads. The universities do not have budgets to hire temp professors to teach classes. Crazy
donna writes:
"Sebastian, here in California I can't even get my kids INTO the college" ??????
I am a high school teacher in Idaho and we got graduating seniors who are waltzing into California schools. Maybe your kid's SAT scores are as good as you think!
Donna,
Look at the Arizona schools(ASU, UofA, NAU) Automatic admission with SAT's above 1100 or so or 24 ACT for out of state students.
That being said, good test scores but so-so GPA does not bode well(I was one of those.)
So much of coursework is showing you can be a good worker bee. At ASU there's more than a few distractions during 16 week semesters, so there needs to be some sort of support network. Luckily @ ASU there's also more than enough classes where you just have to read the assigned materials and show up 8 or 9 times(1st two days, day before + midterms and day before + finals) and still do well enough.
With some early english classes, perhaps taking a course during summer session would help; a 5 week window doesn't allow for distraction.
The other challenge at ASU is that because it's such a huge school the business programs have stricter requirements and the accounting classes are bloodbaths.
Biggest problem is that deadlines for guaranteed admission has passed, after that it's space available.
Here in north jersey, the number of "for lease' signs in office parks and strip malls is plain scary.
Buffett Says Fed Not Obligated to Warn of Asset `Bubble'
buffett working his book.
MiTurn writes:
I am a high school teacher in Idaho and we got graduating seniors who are waltzing into California schools.
Total Resident Budget\t$24,538\t
Total Nonresident Budget\t$44,158\t
Gee, a $20b budget gap and you think it is because your kids are smarter? Jeez.
We were in San Mateo for the Maker Faire this weekend. Missed the turnoff for 101 at Hillsdale on the way home and cruised down El Camino Real for the hell of it, through Redwood City, Atherton, Menlo Park, Palo Alto.
The amount of vacant retail was amazing, even in well-off communities. New retail developments cannibalized the older ones, and many are just sitting there, empty. This in a very wealthy area.
There is too much retail.
Bob Dobbs: We were in San Mateo for the Maker Faire this weekend.
The Maker Faire is great. People doing something constructive with their time. Gives you hope for humanity... until you turn the news back on.
To all those people that haven't produced anything of any useful value, you suck.
Rob Dawg said: "Newly sworn in President Pelosi urges calm after a tragic accident..."
"...today near President Bush's ranch in Crawford, Texas."
"As he often does for his "man-of-the-people" outdoor exercise, the former President was cutting back some underbrush using his favorite chain-saw."
"Visiting guest Vice-President Dick Cheney, unbeknownst to the President, was out hunting on the property and had chased his quarry into the same underbrush in which the President was working."
"According to eye-witnesses, the shotgun went off, the President yelled, and the chainsaw flew free from his hands, striking the Vice-President."
"A national day of BBQ has been declared for tomorrow..."
S.
"I am a high school teacher in Idaho and we got graduating seniors who are waltzing into California schools."
Probably half of their families moved to Idaho from California
.
Honestly, back in the early '90s, a lot of California techies who wanted more housing for their buck moved to tech jobs in Idaho.
One positive byproduct of the rise in gas and oil prices: this will probably cut into the amount of damage that irresponsible OTV owners will inflict on natural areas. I have no problem with OTVs/OHVs that obey the rules, but any national or state park ranger will have plenty of stories to tell about the havoc that the lawbreakers are creating.
Sebastian,
I don't care what everybody says, you do have a sense of humor. Unfortunately you have -my- sense of humor. Tibi condoleo! Accipe meam condolentiam!
bluestatedon writes:
One positive byproduct of the rise in gas and oil prices: this will probably cut into the amount of damage that irresponsible OTV owners will inflict on natural areas. I have no problem with OTVs/OHVs that obey the rules, but any national or state park ranger will have plenty of stories to tell about the havoc that the lawbreakers are creating.
While I agree they do damage you'll have to change the National Parks mission to curtail it.
This whole idea of the exurbs abandoned and the hinterlands left to the wolves is just silly.
Probably half of their families moved to Idaho from California
.
So true. We're originally from California and after the first test my daughter took here in Idaho the teacher said to her "you're not from here, are you."
Black Monday... For Yahoo! & CFC shareholders.
Yahoooooooooo!
Hey All,
While everyone's on the topic of college admissions, I just wanted to throw in my 2 cents about what's happening at the nation's ostensibly number-one university. For the past 5-10 years, finance has been the career path of choice for the better part of 60% of graduates from my school - everyone from Art History majors to Econometrics whizzes were singing the praises of going to Wall Street and rolling in the dough. Anyways, the gravy train has stopped - summer internships (which usually pay 13-20k for 10 weeks of work) have been cut by 2/3 at the major investment banks/private equity firms, and according to our "office of career services", full-time hiring is going to be absolutely brutal come this fall. Anyways, just wanted to give y'all a picture of the credit crunch at the top.
-Ivyleaguer
P.S. I've been following this blog for past 6 months or so, kudos to everyone who posts and to C.R. and Tanta for putting it together...absolutely phenomenal job
I've done some work on the comparison of the S&L crisis and the securitization crisis of today - Reggie Middleton says... | The Asset Securitization Crisis vs. the S&L Crisis - pt 2 - This is part 2 of Reggie Middleton on the Asset Securitization Crisis - Why... | Reggie Middleton's Boom Bust Blog | Market, Mbs, Abs, Which
as well as CRE and retail in general http://boombustblog.com/component/option,com_myblog/show,GGP-seeks-alternative-financing-Ah-hah!.html/Itemid,20/
and both attempts at digging for some enlightenment tell me that the next few years will make the S&L crisis look like a walk in the park. The S&L thing hit the CRE market particularly hard in the southwest and northeast.
At ASU there's more than a few distractions during 16 week semesters, so there needs to be some sort of support network.
For that reason and that reason alone I'd suggest you send them to the University of North Dakota instead... there is absolutely nothing to do in Grand Forks except watch the snow blow & ice freeze then wait for it to thaw again seven months later (with the bonus that maybe the Red River of the North will flood and classes will be canceled - wooo hooo! - snow & cold won't cancel school up there).
Plus UND is pretty cheap.
Oh BTW - kids from Minnesota call UND 'Gulag U' - has a nice ring to it.
Newly sworn in President Pelosi urges calm after a tragic accident...
Rob Dawg | Homepage | 05.05.08 - 3:27 pm | #
Now theres a headline that would cause a 1000 point rally