One of the greatest parts of all the different types of jobs I’ve held – from musician, to teacher, to natural resource analyst, to financial analyst – was the opportunity to travel.
As a direct result, I’m fortunate enough to have friends and colleagues in just about every major city across 5 different continents.
And man, do I miss seeing them this year.
Although I’ve been able to keep up with most people virtually, it’s just nowhere near as much fun as my tried-and-true ritual of heading to the airport, ordering a Bloody Mary at the bar, hopping on a plane, grabbing a taxi to a meeting, giving a presentation, grabbing dinner afterward, and heading back to the airport for the return trip.
Full disclosure: there’s almost certainly another airport Bloody Mary on the way back… it’s kind of a thing.
With Broadway shut down and live music pretty much nonexistent, several friends from back in my musician days have ditched their NYC digs and have at least temporarily moved back to their hometowns in West Virginia, Pennsylvania, Ohio, Virginia, and Maryland.
Several friends from high school have done the same.
Even the finance sector is seeing a mass exodus from the Big Apple, evidenced to some degree by James Altucher’s overly histrionic post on LinkedIn – one that drew a pretty scathing response from legendary comedian and NYC native Jerry Seinfeld.
But these trends are starting to show up in the data, and it’s not looking particularly good.
NYC Metro Transit Authority ridership, for instance is still down 75% year-on-year, as everyone is working from home.
Source: MTA, Bloomberg
But because so many are working from their childhood home, total NYC rental listings have increased almost 200% over a year ago, pushing rental vacancies to a new record.
Source: Miller Samuel Inc., Douglas Elliman Real Estate
In total, the vacancy rate in Manhattan is 5.1% compared to just 1.9% a year ago, despite rents falling by nearly 8% and landlords offering concessions like free months and payment of brokerage fees on more than half of newly signed leases.
In addition to the residential market, commercial real estate is also under fire, with myriad retail locations – even some iconic ones – being sued for unpaid rent.
That indicates that the pressure on residential real estate markets isn’t going to ease up anytime soon, because if stores can’t pay their overhead costs, they almost certainly can’t pay employees, who in turn can’t pay rent.
Take This Job and Shove It
In total this week, nearly 1.6 million people applied for unemployment benefits of some kind – whether through traditional means or the so-called “Pandemic Unemployment Assistance” program.
Source: Department of Labor
In total, that brings the number of people receiving aid to 29.6 million people – or 18.4% of the total US workforce.
It’s honestly hard to find much of a bright spot in there, but some analysts have started to watch the number of people who quit their job to get some clues on exactly what’s happening in labor markets.
In total, some 3 million people told their bosses to “Take This Job and Shove It” during the month of July – up 344,000 from the month before and inching closer to 2017-2018 levels.
Source: Bureau of Labor Statistics, Bloomberg
And perhaps resulting from this type of dynamic, total job openings also rose to 6.6 million, about 12% lower than the pre-pandemic peak.
Source: Bureau of Labor Statistics, Bloomberg
Now, I’ve seen some comments about how this is a good sign. In particular, Mizuho Securities chief economist Steven Ricchiuto remarked, “Can I say the number is definitely the number it should be? No, but it makes me think the labor market is healthy.”
But while I do see modest increases across all industries, the bulk of both jumps came from the retail sector. And to me, that is confirmation of the same trends we’ve seen unfolding here for quite some time – people aren’t going out as much, and they’re spending less, which leads to more unemployment.
So while I’d like very much to interpret this data as positive, I really think the drivers here are a reluctance to be exposed to COVID-19, and working parents (particularly women) quitting their jobs to care for their children.
We’ll get some more clarity in a couple of months when we see how employment has fared during back-to-school season. But for now, I think the current trend persists – unemployment holds steady, the labor force shrinks, people continue to ratchet back spending, and urban real estate continues to flag.
That means our counter-trend play on rising real estate prices and rental rates in less populous areas is still intact, and our stake in Sun Communities (NYSE: SUI) remains solid. In fact, shares pulled back a little during the market’s recent jitters, so picking up another ¼ stake at this level seems like a reasonable thing to do.
In the meantime, there’s a 30-year bond auction shortly, we get another release of Federal Reserve data tomorrow.
And next week, we will see such a deluge of releases on inflation, industrial production, housing, and retail sales that I will probably need several airport-quality Bloody Marys to get through it all.
To that end, if anyone out there wants to make one for me, I will happily accept… extra horseradish, please!
All the best,