October 2, 2009
A flurry of economic data was released this week. Contrary to the recovery that many are talking about, the data is heading in the opposite direction for the most part. We’re seeing some signs of stabilization in some numbers, and actual rebounds in others. Long story short though, no rebound is yet consistent enough to be considered meaningful – at best, all of it can be seen as stabilizing or perhaps forming a bottom.
For us, the fundamental indicator really is job creation when looking at commercial real estate. Secondly, you have to look at the indicators that set the groundwork for growth – interest rates, lending capacity, capacity utilization, etc.
Unemployment numbers out today indicate that things are in fact continuing to get worse. US unemployment is up to 9.8% – the highest level since 1983, with payroll numbers coming in below what was forecast by most.
On the inflation/deflation front, job losses pushed yields on treasuries down even further. Now we are beginning to see reports come out of companies that earnings are flat to down because of inflation. We anticipate this trend to continue to increase, and potentially setting off a wave of wages – thereby fueling further deflation.
One only needs to look at spreads between treasury securities. Spreads are extremely low, and in some cases negative on the shorter end securities indicating that inflation is not a threat at all and that deflation is in fact the expectation in the short term.
Now this is terrible news, as debt stays fixed while incomes fall – households, companies, and real estate laden with debt will all suffer.
This is why deflation is dreaded by the Federal Reserve, and interest rates near or at zero for at least the foreseeable future.
- San Francisco Consumer Price Index (CPI) Update
- Bill Gross’s Investment Outlook
- California and Silicon Valley Unemployment Rate Numbers
- Government Expands Financial Stability Act to Include CMBS
- Richard LeFrak on CNBC With a Wait and See Attitude