Monday, January 26, 2009

Bay Area SOS

From the Sacramento Bee:

The recession has finally caught up with Silicon Valley and much of the Bay Area...The economy here escaped the worst of the housing market crash – but not the more recent slump in consumer spending. That's hitting the tech sector hard.
Sacramento is hurting because it's being starved of the eastward migration – of people, jobs and wealth – that occurs when the Bay Area is healthy.
State records show Intel Corp. laid off 200 workers at its 6,000-employee Folsom research park last year, and it continues to struggle...Hewlett-Packard Co...let 70 workers go at its Roseville campus last year, bringing employment to less than 3,500. As it integrates its acquisition of EDS Corp., it plans to lay off 24,600 workers worldwide over three years, which could affect Roseville and EDS operations in Sacramento, Rancho Cordova and Folsom.
From the Sacramento Business Journal:
Sacramento’s office market went backwards in 2008. The vacancy rate for Sacramento’s office buildings rose for the seventh straight quarter to end the year. And for the first time in two decades, tenants used less space at the end of the year than they occupied at the beginning, according to the region’s top brokerages.
Even traditionally stable areas have seen a drop-off. Nico Coulouras, vice president at Lowe Enterprises Real Estate Group, which controls about 700,000 square feet in the Highway 50 submarket, one of the best-performing areas in recent years, said leasing activity in that area was steady until November. “Then, it got quiet,” he said.
From the KCRA:
Home Depot Inc. said it is cutting 7,000 jobs and closing its smaller Expo chain, including a store in Roseville, as the recession continues to batter the nation's housing market.
From the Stockton Record:
...[San Joaquin] County's unemployment rate hit 13 percent in December, up 1.1 percent from November, according to data released Friday by California's Employment Development Department. It is the highest rate in the county in 12 years.
In recent months, [UOP economist Jeff] Michael had been saying that San Joaquin County employment numbers weren't as bleak as the national numbers and wondering whether that was a short-lived phenomenon. "Pretty clearly it was a blip," he said. "My reaction to (the new employment report) was, 'Wow!'"
From Business Week (hat tip RV6Flyer):
We asked AXIOMetrics, a Dallas-based apartment data company, to assemble a list of the 25 large metros where the rate of rent declines accelerated most in the fourth quarter.
Sacramento/Arden-Arcade/Roseville, Calif.
Rank: 24
Rent drop: -1.9%
Q4 2008 rent change: -3.9%
Q4 2007 rent change: -2.0%
From The Housing Bubble blog's Ben Jones:
We had...[a serious recession] in Texas when I was young. At first, lots of people hoped oil and real estate would bounce back and save our necks, but economics don’t work that way. We had a bubble and it didn’t come back.

What is frustrating to me is that the ongoing debate is headed by the fools that got us in this situation. Housing isn’t going to lead us anywhere. The fact is we’ve had the largest financial mania in history. It’s not going to return, and we better start working on how we will work and live in the future. Nobody can turn the clock back, and hoping that housing will lead a recovery is just as futile wishing oil would rebound in the 80’s.


Jacob said...

In previous busts there was some cause outside of realestate, such as military base closures, but this time it truly is different.

Home prices came down on their own and now they are taking jobs with them, and home prices still don't have a solid foundation for a bottom and will be taken down further by job losses, which will lead to more job losses. etc.

Another 60k or so layoffs announced today alone. The bay area and high end areas in general held off for a lot longer then the lower level homes which have been crushed. Now it is time for the next level of homes to adjust.

paranoid renter said...

The fun in the Bay Area is about to happen. Most people there need 2 incomes to pay their mortgage. Expect to foreclosures like never before. And these are expensive homes so the Banks' losses (taxpayer's loss?) are going to be much higher. Each house foreclosed in the Bay Area will cause as much loss as 2 or 3 houses in Sacramento.

What a mess.

I think I'm going to head for the mountains and seek the meaning of life.

Diggin Deeper said...

It's inconceivable that any area in California gets out of this mess without their fare share of damage. Goe's for the moated areas in Sacramento as well.

If Microsoft, with it's captive market, lays off 2000 people, Silicon Valley companies that have to compete will layoff at much higher rates...and those losses will equate to higher foreclosure rates, and lower revenue to the state.

This thing will just keep feeding on itself until there's just a core of necessary businesses serving weak demand until the economy finds it's footing.

The end result is that our state dependent economy gets another blow to the midsection which causes more downward movement in our fragile markets.

This negative feedback loop is a bear! Only the strong will survive.

sacramentia said...

I was on a management call yesterday and it was stated the layoffs are based on expectations and are forward looking. As in, we're getting rid of expense before the downturn so we can continue to make the profit numbers.

Great long term strategy. Just like stimulus spending and living of a Heloc, it will work until it doesn't and then there is nothing left.

What a mess.

And I think MSFT is using the economy as an excuse to restructure a bit - after so many years without a layoff there has to be quite a few people that are coasting and don't want to be there anyways.

paranoid renter said...

All companies are using this as an opportunity to restructure, but do you really think their management has a clue as to how to restructure?

Right now Wall Street will cheer with each layoff on the premise that companies are becoming more efficient. What they're missing is that the same management that steered these companies to their current bloated state is somehow expected to figure out the right people to let go of.

Instead, I think they will end up losing the people that do real work and will hold on to their politicians, sweet-talkers, and suckups.

It will take many years to clean out the has to start with getting rid of the top...

I work in technology. Most experienced people that were good at their jobs retired after the tech bust...they made a tidy package and didn't want to deal with crap that goes on daily at work.

The people that survived and rose to the top are the ruthless political types. Getting rid of them ain't gonna be easy, and finding good leadership to replace them will be even harder.

Plenty more plain ahead in all areas of the economy.

Cow_tipping said...

Here is a secret for you ... the people who are being let go, well, they were doing nothing but pushing paper. So are the next round of lay off's, and the next and the next and the next. The entire software industry has been outsourced to India and china. The high paying software jobs of the 80's and 90's - gone. Permanently to India, China or atleast overland park and austin. Nothing to justify the million dollar shack in bay area. We'll see a new world order now. BA is going to fare worse than anywhere else. Really nothing there is paying that well any more.

Deflationary Jane said...

I always found it ironic that so few with white collar jobs had a problem with NAFTA back when it was first being talked about but oh the indignation now.

sacramentia said...

No I don't think most managements are thinking long term enough. It is the same group that was doing massive stock buybacks a year ago with the extra cash. What a waste.

patient renter said...

Instead, I think they will end up losing the people that do real work and will hold on to their politicians, sweet-talkers, and suckups.


norcaljeff said...

So the Bay Area isn't "immune" huh? Is this news to anyone? Oh yea, it's probably news to all the haters who never would listen to common sense, telling me things like "they don't build land anymore, so home prices will never decrease." I love any sentence with the word "never" in it, since it almost always proves itself to be true, at some point. Glad to be proven right yet again. Like I've always said, being right is never popular.

Deflationary Jane said...


It went from 'it will never happen here' to 'it will never happen to me' and 'we're different' to 'i'm different'. I deal with it everyday as I try to help folks find places to crash. The folks in the first wave of layoffs are doing better then the folks in the 2nd and 3rd.

My other favorites are 'there is no shadow inventory' and 'rents will not decline'.

Diggin Deeper said...

As for Nafta, it's a good idea when everyone's got a job. Turn the tables and all of a sudden we're scrapping everything in the name of protectionism...Now if we could only find everything we need with a "made in the USA" label on it...

Maybe we'll retool in time to become the world's supplier of goods again...we've got the services thing down pat...

Dust off the cobbler hammer and nails...