Posts Tagged ‘job creation’

Large Firms Driving the Downtown Boom

Wednesday, August 1st, 2012

Here’s a little news to buck up the real estate mavens weathered by the daily diet of recessionary news: Google has signed the largest lease in downtown Chicago in 7 years.

It is a familiar story – a marquee firm relocating downtown because of the hip, cosmopolitan appeal and amenities of a CBD — but it does contradict the usual pattern of a recession. Nationally we’re seeing large firms (more than 500 employees) moving downtown to compete for young workers with the effect that the CBD is doing way better than the burbs. According to National RE Investor (NREI) Magazine, since the advent of the labor market recovery in the first quarter of 2010, large companies have created 1.06 million jobs while small companies have created 823,000 jobs. Talk to an economist or your cycle-tested real estate broker and they will tell you that it’s not how things usually work.

In every recession we’ve tracked, the small to medium-sized businesses (SMBs) have led hiring during the first stages of a recovery only to be surpassed by large firms ramping up during the latter stages of a comeback.  According to NREI, during the economic recovery in 1992 and 1993, hiring by small companies outpaced hiring by large companies—roughly 1.95 million jobs versus 1.52 million jobs. Over the next seven years before the economy entered another recession, the trends reversed. From 1994 through 2000, large firms created 11.23 million jobs while small firms created 7.36 million jobs.

The same thing happened in the economic recovery of the early 2000s: During 2003 and 2004 as the labor market began to recover, hiring by small firms of 1.44 million jobs outpaced hiring by large firms of 592,000 jobs. During this period suburban vacancy fell by 35 basis points while CBD vacancy rose by 130 basis points. But then it reversed. Once again, large companies generated more jobs than small companies —  3.09 million jobs versus 1.89 million jobs.

So, why is it different this time? The answer is credit. Small firms can’t tap the capital markets the way they used to because banks are still cautious. As a result, they need to keep their real estate costs low which means remaining in suburban space. Concurrently, large firms have gone through a huge cost-cutting period which has warranted the restacking, redesign and relocation of their workspaces to utilize space more productively with fewer but more highly skilled workers. And invariably, it means being downtown. Looking at the 10 largest leases of the last 12 years, we see the types of firms that rely on younger, highly educated workers who want to be downtown  — law firms, large financial consulting firms and tech giants.

Bernanke Talks Tough on Bank Regulation

Wednesday, May 18th, 2011

The Federal Reserve is identifying risks in the financial system that could someday erupt into a new financial crisis, but regulators must be careful not to unintentionally hamper lending as they set up new oversight, according to Chairman Ben Bernanke.   “We want the system to be as strong and resilient as possible,” and more intense oversight and changes such as requiring banks to hold more capital will help, said Bernanke at the Federal Reserve Bank of Chicago’s Bank Structure & Competition conference.  “If we can’t arrest risks, we want to make sure the financial system is defending itself,” he said.  The Dodd Frank Act establishes governmental structures to analyze risk aimed at preventing another financial failure as harsh as the one that almost brought down the world’s economy in the fall of 2008.

Through the Financial Stability Oversight Council and within the Fed, regulators are still analyzing what can cause “systemic risk,” – identified as risk that can cause widespread financial failure, Bernanke said.  Similar actions are underway in other nations; Bernanke said that regulators worldwide are communicating with each other while implementing their own systems.  If the new structures had been in place previously, Bernanke said, the 2008 financial crisis likely would not have happened. The old system of regulation spread authority across too many entities, was poorly coordinated, and problems “fell through the cracks.”  As the Federal Reserve develops a structure for analyzing risk, Bernanke said the focus must go beyond “fighting the last war.”  Future financial threats may differ from those of the past, which is why the banking industry currently is facing new oversight.  When some banks announced plans to pay shareholders dividends, regulators applied “stress tests” to their finances to determine if the institutions would be sound even if the economy weakened.  According to Bernanke, the government’s new stress testing system has provided accurate assessments of bank finances.

Even so, the regulations – the first new ones in 70 years — will be written to encourage bank compliance.  “No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit,” Bernanke said.  “Regulators must aim to avoid stifling reasonable risk-taking and innovation in financial markets, as these factors play an important role in fostering broader productivity gains, economic growth, and job creation.”

Bernanke and Fed officials are trying to balance the need to diminish the risk of another financial crisis with the aim of stimulating the economy after the worst recession since the Great Depression. The Dodd-Frank Act gives the Fed the job of overseeing the biggest financial companies.  “While a great deal has been accomplished since the act was passed less than a year ago, much work remains to better understand sources of systemic risk, to develop improved monitoring tools, and to evaluate and implement policy instruments to reduce macro-prudential risks,” Bernanke said.

Lawmakers who solidly opposed the financial overhaul legislation, say Dodd-Frank goes too far and might make it more difficult for American banks to compete globally.  Some are working to cut funding for agencies established by the law and limit the scope of new rules.  According to the General Accounting Office, the law will cost nearly $1 billion to implement in 2011.

Additionally, Bernanke cited the sovereign-debt concerns in Europe as an example where the analysis led to the May 2010 decision by the Federal Open Market Committee to authorize “dollar liquidity swap lines with other central banks in a pre-emptive move to avert a further deterioration in liquidity conditions.”

To listen to our podcast on financial reform with Anthony Downs of The Brookings Institution, click here.

Better Building Initiative Will Green Commercial Buildings

Tuesday, February 15th, 2011

President Barack Obama recently visited Penn State University to introduce his Better Buildings Initiative, an incentive program intended to stimulate energy-efficient retrofits to existing commercial buildings.  The initiative is also designed to create jobs in the construction and manufacturing industries.

Despite the long-term economic benefits of energy efficiency, many building owners often run into difficulty raising capital to make improvements.  To resolve this problem – with the aim of increasing commercial building efficiency by 20 percent by 2020 – the Obama initiative proposes loan guarantees and corporate tax credits for commercial building owners who retrofit their portfolios.  Additionally, it will reward local and state governments for taking leadership in requiring enhanced building performance.  Business and political leaders and industry groups agree that the initiative will create green jobs in the design, construction, and manufacturing industries.

Although several items on the president’s ambitious list require legislative action, federal agencies can take preliminary steps using existing authority, said Lane Burt, director of technical policy at the U.S. Green Building Council (USGBC). A pilot program guaranteeing loans for building owners could “run through existing programs at the Department of Energy,” he said.  Although tax credits for green upgrades will need Congressional approval, existing tax incentives like the Commercial Building Tax Deduction (CBTD) could be used almost immediately.  “The deduction was designed for energy-efficient new construction,” said Burt, so it can be difficult to claim the deduction for retrofits.  Burt said the Internal Revenue Service will clarify its guidance on using the CBTD for improvements, potentially helping more building owners deduct as much as $1.80/ft2 from their gross income on tax forms.

The White House highlights five points that comprise the building efficiency plan.  It didn’t say how much the program will cost, but at least four of the programs are likely to require new or expanded outlays, including: turning tax deductions for commercial building retrofits into tax breaks, a move the administration said “could result in a ten-fold increase in commercial retrofit take up”; boosting access to Small Business Administration loans; introducing Race to Green, modeled after the Race to the Top education program that would reward states and municipalities that encourage retrofits; and expanding job-training programs in energy auditing and building operations.

“That’s money that could be spent growing those businesses and hiring new workers,” Obama said.  The president argued that the U.S. needs to “out-educate” and “out-innovate” the rest of the world.  “In America, innovation isn’t just how we change our lives; it’s how we make a living,” he said.

Two groups that applauded news of the initiative are The National Multi Housing Council (NMHC) and the National Apartment Association (NAA). The organizations released the following statement about the Better Buildings Initiative. “We commend the Obama Administration for its focus on energy efficiency in commercial properties, including apartments, and for taking an incentive-based approach to achieving meaningful reductions in our building energy usage.  Energy consumption and energy policy are priority issues for the apartment sector.  The plan announced today includes several items long advocated by NMHC/NAA, most notably reforming the existing building efficiency tax incentives.  Many apartment firms have voluntarily established energy efficiency and green building programs throughout their portfolios, but many more have been stymied by the lack of sufficient tax incentives and financing for building retrofits.”

Illinois Governor Pat Quinn Antes Up $47 Million to Fund Jobs Program

Monday, January 3rd, 2011

Put Illinois to Work BlogIllinois Governor Pat Quinn’s efforts to keep the successful Put Illinois to Work program alive have come under fire from State Senate Minority Leader Christine Radogno (R-Lemont).  The issue is $47 million in bond money that Quinn used to extend the job-creation program through the first of the year.  The program was originally funded by the federal government through the stimulus program.  That money was used up by last September and Quinn has twice infused the program with state cash to keep it running. 

Since its inception, Put Illinois to Work has found jobs that pay approximately $10 an hour for 26,000 unemployed and underemployed Illinoisans.  Strategic programs by the Department of Transportation (IDOT), Department of Commerce and Economic Opportunity (DCEO) and the Department of Human Services (IDHS) have all supported continued improvement in the state’s economy.  Quinn had hoped that the federal government would provide new funding for the program, but that isn’t happening.  As a result, he decided to keep it alive through January by using money the state will receive from the tobacco settlement. 

 Curiously, Radogno said “Not only is it a waste of taxpayer dollars to expand the programs piece-by-piece without any plan or requirement that participants will ultimately see permanent employment, it’s cruel to the men and women who believe they’re working towards a long-term position.”  Quinn countered by saying “Putting people back to work is the best way to make our economy stronger.  I remain hopeful that Congress will extend the funding for the ‘Put Illinois to Work’ program, which has created more than 26,000 jobs in Illinois alone.  I am extending this program today to keep thousands of people in Illinois at work through the holiday season.” 

In October, the statewide unemployment rate fell again for the seventh consecutive month to 9.8 percent (seasonally adjusted) and the state created 8,000 new jobs.  Illinois has added more than 53,000 jobs in 2010, proof of a steadily improving economy.  Since January 2009, DCEO has created 103 business investment packages that have created and retained more than 23,900 jobs and leveraged $3.18 billion in private investment.  Additionally, IDOT is currently leading the largest road construction program in state history through the Illinois Jobs Now! capital construction program.  From 2009 through the end of this year the state will have invested approximately $7 billion to repair or rebuild 4,800 miles of roads and 500 bridges, creating an estimated 135,000 short-term and permanent jobs. 

Threats To the Economy Averted

Tuesday, October 19th, 2010

Good news for the economy!  Deflation is unlikely and jobless claims are shrinking.  Two significant threats to the economy are receding, although the recovery still has a long way to go. One of the threats was the specter of deflation – which has not occurred since the 1930s – now belied by the 0.3 percent inflation rate reported for August, and driven primarily by rising food and energy prices, according to the Bureau of Labor Statistics. The second is that another round of mass layoffs looks unlikely now, given the third drop in jobless claims in four weeks.

First-time applications for unemployment benefits fell by 3,000 to a seasonally adjusted 450,000 recently, the lowest level in two months, according to the Department of Labor.  In Illinois, for example, the unemployment rate fell to 10.1 percent in August, the eighth straight month that the rate was steady or declined.

Chris Rupkey, an economist with Bank of Tokyo-Mitsubishi UFJ, described August’s spike in unemployment claims a “false alarm.  The labor markets are stable and companies are not increasing layoffs.”  David Resler, chief U.S. economist at Nomura Securities agrees, noting that the August spike likely resulted from temporary census jobs that came to an end.

Cheer Down: 1st Quarter GDP Revised Slightly

Thursday, June 17th, 2010

1st quarter GDP growth downgraded to just three percent from original 3.2 percent estimate.  As George Harrison said in his 1989 song, “Cheer down.”  In a move that surprised many economists, GDP growth for the 1st quarter of 2010 has been revised slightly downward – from 3.2 percent to three percent – according to the Bureau of Economic Analysis.  Even with the downward revision, the 1st quarter was the second highest quarterly growth reported since late 2007 when the Great Recession began.

Writing in The Atlantic, Daniel Indiviglio notes that “The revision was caused almost entirely by the personal consumption expenditures portion, i.e., consumer spending.  Even though this got a lot better in the 1st quarter, it didn’t improve as much as originally thought.  It was responsible for 2.42 percent of the three percent growth.  The prior estimate reported a 2.55 percent contribution.  That 0.13 percent difference is responsible for the vast majority of the 0.2 percent revised drop.”  Spending on services – housing, utilities, food and accommodations — during the 1st quarter was overestimated in the original GDP report.

According to Indiviglio, “Of course, 0.2 percent isn’t much.  But it is a little disappointing where most of this revision came from.  Spending needs to drive the recovery to create jobs.  It’s also unfortunate that restaurants and travel was one of the most downwardly revised components; spending on these non-necessities is also an indicator that consumers are feeling much more comfortable opening their wallets.  This component, and spending overall, still showed a healthy increase compared to 2009, but these revisions make their progress a little less impressive.”

Trade estimates were revised upward to $27.3 billion from $22 billion.  At the same time, imports rose to $47.6 billion from $41 billion in the original estimate.  “So the net result is mostly a wash:  the two revisions approximately cancel each other out.  But it is good to see more exports than originally anticipated,” Indiviglio concludes.

Economy Is Recovering, Job Creating On the Rise: NABE Study

Thursday, May 13th, 2010

Economic indicators encouraging, according to National Association of Business Economists’survey.  A 2010 survey conducted by the National Association of Business Economists (NABE) released in April confirms that the economy is in recovery, with industry demand showing expansion for a third consecutive quarter.  There’s good news in the fact that expectations for economic growth have spiked significantly.  Approximately 25 percent of survey respondents believe the real GDP for 2010 will grow by at least three percent; 70 percent believe the economy will expand at a two percent rate this year.

In terms of job creation, the NABE survey noted the first increase in employment in two years.  The number of firms adding to their payrolls rose to 22 percent, compared with just 13 percent reported in January.  According to the survey, companies cutting jobs fell from 28 percent in January to just 13 percent in April.  The number of companies planning to add employees in the next six months rose to 37 percent, compared with the 29 percent reported in January.

“NABE’s April 2010 Industrial Survey confirms that the U.S. recovery from the Great Recession continues, with business conditions improving,” said William Strauss of the Federal Reserve Bank of Chicago.  “Industry demand moved higher compared to results in the January 2010 report, pointing to stronger growth in 2010.  While input costs have been increasing, prices have also been moving higher, allowing profits to continue to rise.  After more than two years of job losses,  job creation increased in the first quarter of 2010, suggesting a better outlook for hiring over the next six months.  Little of the improvement to date in job growth can be attributed to the stimulus bill enacted in February 2009.  Capital spending remained steady.  Tight credit conditions continued to negatively impact business conditions.”

To listen to an interview with the Fed’s Rick Mattoon about the recovery, click here.