Monday Report
January 26th 2009

Public Policy Initiatives

What is carbon capture and storage?



  • Global Business Confidence
  • Global businesses remain darkly pessimistic. Sentiment was at its worst in mid-December, but has improved only marginally since then. European and South American businesses are most worried, followed by North American businesses; Asian companies are negative but less so. Confidence is poor across all industries, particularly business services. Hiring intentions remain very weak and pricing power has collapsed suggesting that deflation is increasingly likely. The intensity of the global economic downturn shows no sign of letting up.
  • US Business Confidence
  • Weak economic conditions have pushed confidence near its all-time low. Consumer confidence edged lower after remaining stable over the past three weeks. According to the ABC/Washington Post consumer confidence index, sentiment fell 4 points to -53 for the week ended January 18. No president has entered office with such a low level of consumer confidence since the beginning of the survey in 1985.
  • Risk of Recession
  • The chance that the U.S. will be in recession in six months inched lower to 55% in December compared with November's 60%. The economy is threatening to shut down as the recession is hurting nearly every industry, occupation, demographic group, and region of the country. The historic policy response will help heal the economy but it will take time. The economy is expected to contract through the third quarter of this year, but a self-sustaining expansion will not take hold until 2010.
  • Quarterly Household Credit Report
  • Household credit conditions deteriorated further in the fourth quarter. Delinquency and default rates rose for all loan categories. Taking all household liabilities together, delinquency and default rates are now much higher than they were in the 2001 recession. Balance growth fell further in the quarter although it remained positive.
  • Jobless Claims
  • nitial jobless claims increased by 62,000 to 589,000 for the week ending January 17. This increase was in line with expectations and offset the drop in late December. This adds further evidence that the labor market is rapidly deteriorating.
  • FHFA Purchase-Only House Price Index
  • The FHFA purchase-only house price index for the U.S. fell by 1.8% from October to November. The index is down by 8.7% from November 2007 and shows no sign of decelerating. Worse yet, the house price index declined across the board for all nine Census Bureau subdivisions, underlining the effect that the recession is now having on the housing market nationwide. The U.S. house price index is now where it was in March 2005, having fallen by over 10% from its peak in April 2007.
  • New Residential Construction (C20)
  • Homebuilding is sinking to new lows. Residential construction plunged again in December with a 15.5% m/m decline in total housing starts. At 550,000 annualized units, starts have descended to an unprecedented postwar low. The Census Bureau revised slightly upward construction starts for November. Permit issuance was down sharply as well in December compared with November. Exceptionally weak demand is constraining homebuilding. The main bright spot in this report is that slower construction will help clear the housing market of excess inventories.
  • MBA Mortgage Applications Survey
  • In the week ending January 18, the MBA market index fell, burdened by rising contract rates. The composite market index decreased 9.8% to 1,195.3. This was driven by a decrease in the refinance index, which fell 12.4% this week to close at 6,491.8. Continuing a pattern, the purchase index was the odd man out and rose 2.5% this week to finish at 303.1.
  • NAHB Housing Market Index
  • Despite a slight improvement in expectations, declining home sales led the NAHB housing market index lower in January. The overall index came in at 8, compared with the previous December's value of 9. The housing market index has again reached a new low, but slight improvements in sales expectations and home buyer traffic indicate that the index may at last be bottoming out.
  • Chain Store Sales
  • Chain store sales rebounded 1.1% in the week ending January 17, reversing a little under half the prior week's decline as consumers remain very hesitant to spend. The year-ago decline shrank modestly to 1.8%, but remains among the largest decline in decades.
  • Oil and Gas Inventories
  • Crude oil inventories increased by 6.1 million barrels during the week ending January 16, according to the Energy Information Administration, far surpassing expectations of a 1.4 million barrel build. Gasoline inventories surged by 6.5 million barrels, dwarfing expectations. Distillate inventories rose by a modest 800,000 barrels. Refinery operating capacity fell to 83.3% from 85.2%. Total domestic petroleum demand rose modestly. This report points to lower oil prices.

Luxury Slide Could Spur Closings, Consolidation

Last week's announcement by Saks Fifth Avenue that it plans to cut 9 percent of its workforce as a result of slumping economic conditions could portend things to come for the luxury retail sector, warn analysts. Little more than a year ago, analysts forecast luxury retailers would average annual growth of 6 percent, making the sector resistant to the effects of a downturn. But today, as wealthy consumers reel from the plunge in the stock market and mid-tier shoppers shift to discount retailers, luxury looks like the most vulnerable retail sector.

While most of the retail industry struggled in 2008 (same-store sales for all U.S. chain stores rose just 1.1 percent for the year), the luxury sector experienced same-store sales declines during 10 of the past 12 months, according to ICSC. Things got worse as the year went along as well. In each of the last four months of 2008, luxury retailers posted double-digit same-store sales declines, including a 10.5 percent decline in November and a jaw-dropping 17.4 percent decline in December. During those months, same- store sales for all U.S. stores declined 2.7 percent and 1.7 percent, respectively.

Reversals Of Fortune

As the U.S. real estate market continues its downward slide, commercial construction firms are suddenly finding themselves on the other side of the looking glass. For the past several years, builders of retail space benefited from a booming market as retailers expanded and developers built shopping centers, lifestyle properties and mixed-use complexes wherever there was an empty patch of land. The biggest issue for contractors had been inflation in materials prices brought on, in part, by tremendous global demand. That trend came to a head in early 2008 when the price of a barrel of oil eclipsed $140 as part of a broad run-up in prices in all sorts of commodities.

Now, however, the situation has reversed.

Circuit City To Liquidate

It's official. Circuit City will liquidate its 567 stores.

To date in 2009, here's a summation of the major announcements from retailers. In the bankruptcies and liquidations section I'm listing the number of stores the chain owns and not necessarily how many the company is planning to close if they have not disclosed that yet:

Bankruptcies and Liquidations:

  • Jan. 7, Goody's liquidates, closing 287 stores
  • Jan. 8, Against All Odds files for bankruptcy protection, operates 64 stores overall, plans to close West Coast stores
  • Jan. 13, Shane Co. files for bankruptcy, operates 23 stores
  • Jan. 14, Gottschalks files for bankruptcy, operates 58 stores
  • Jan. 16, Circuit City to Liquidate, closing 567 stores

U.S. Retail Absorption Vs. Completions

Grubb & Ellis's 2009 Forecast Report predicts continued softness for retail real estate. The firm expects net absorption to end the year at negative 12 million square feet. Completions are also expected to decrease to 20 million square feet. However, the slowdown in development won't be enough to keep the vacancy rate from increasing. The brokerage company expects the vacancy rate to end 2009 at 9.9 percent up from 9.1 percent at the end of 2008 and for asking rates to drop up to 10 percent this year.

Conditions Remain Cloudy for Apartments

Conditions in the apartment sector continued to be less than favorable, according to the January survey of multifamily industry executives by the National Multi Housing Council (NMHC) based in Washington, D.C.

However, based on factors such as sales volume, availability of debt and equity funding, the industry seems to be coming out of the lows hit in the October survey, even as it continues to feel the impact of job losses in the current recession. Ongoing job losses - 524,000 in December - have dampened multifamily vacancies and rent growth, while the credit crunch is also taking a toll on the financing side.

"Once again, apartment firms are facing tough market conditions not of their making," says Mark Obrinsky, chief economist of NMHC. "Earlier in the decade the bubble-induced rise in homeownership eroded apartment demand. Now the economic and financial collapse caused by the bursting of that bubble is taking a toll."

JP Morgan 2009 Forecast: Watch Prices Fall

Although the current commercial real estate cycle has seen relative supply restraint compared with previous cycles, that won't be enough to bail the industry out of a deep recession, which is causing demand to fall off more than expected.

During a media briefing on the 2009 outlook for commercial real estate in New York last week, Michael Giliberto, a JP Morgan senior real estate portfolio manager, said considering that real estate lags the economy, even after the economy picks up later this year, rents in all the major commercial real estate property sectors will be down about 6% by December 2009.

While JP Morgan expects all property types to be hard hit, Giliberto predicts that retail properties are likely to face a protracted reversal as consumers stop taking on additional debt and try to manage existing debt. "A huge hammering is going on in the consumer discretionary sector," according to Giliberto.

Source: Retail Traffic, January 2009


  • Carbon Capture and Storage
  • Public Policy Initiatives
  • PE & Apprenticesip Grants
  • Economic Notes
  • This Weeks Leads

  • Public Policy Initiatives
  • NH - Lynch Tackles State Budget Crisis Head On.
  • Here's an example of what Gov. John Lynch means when he says the state budget crisis and the economic downturn will be his "single- minded focus" for the foreseeable future. Gov. Lynch spent the entire day in budget meetings - and then, like the movie "Groundhog Day," he did the same thing again. "We are going line by line, dollar by dollar and person by person," Lynch told the News-Letter when asked about the task of finding the final $75 million to $100 million of the estimated $250 million 2009 budget deficit. "This is going to be a two- to three- year problem, and we need to do our best not to hurt the state five to ten years from now."
  • OH - Strickland Announces Public Works Funds.
  • Washington is just starting to debate its economic stimulus plan - but public works money from a state stimulus package already is starting to flow to Greater Cincinnati. "We recognized, quite frankly, there was an economic crisis developing in the country and it was going to have an impact on Ohio," Strickland said. "I think we were the first state to try to help ourselves by passing a stimulus bill." Strickland signed the $1.57 billion stimulus in June; $120 million of it was just for public works projects. Now, more than 300 road, sewer and other municipal construction projects are set to get started statewide. 80381
  • MO - Nixon Provides Details on Bipartisan 'Show Me Jobs' Plan.
  • Gov. Jay Nixon detailed his Show Me Jobs initiative, a bipartisan plan to get Missourians back to work and support small-business growth. "For Missouri's economy to get back on the right track and for us to create good-paying jobs, we must do everything we can to encourage the development and growth of small businesses like this," Gov. Nixon said. "That's what my Show Me Jobs plan is all about - putting Missourians back to work and supporting small- business growth during these difficult economic times." d/33289/
  • NJ - Editorial: Corzine Works to Protect Homeowners.
  • New Jersey homeowners in danger of being cast out into the cold can take comfort in a law signed last week by Gov. Jon Corzine. The legislation authorizes $40 million for two programs to help keep them from losing their homes. The plan allocates $25 million to help homeowners refinance first mortgages in imminent danger of foreclosure; the rest of the money will go toward providing that those already in foreclosure can remain in their homes as tenants while saving to buy back their houses. "The magnitude of the foreclosure crisis has made many New Jerseyans feel that maintaining their dream of homeownership is beyond their control. It shouldn't be," said Gov. Corzine.
  • KY - Beshear Acts to Ensure Unemployment Benefits.
  • Gov. Steve Beshear announced the formation of a bipartisan task force to recommend long-term changes to the Unemployment Insurance (UI) Trust Fund to ensure its long-term viability. Due to the enormous demands of the global economic crisis, Kentucky, like many states, is now depleting its UI Trust Fund at an accelerated rate. Kentucky now has about $50 million in the fund, representing more than two weeks of payments on claims. "This is merely a short-term solution to a long-term complex issue," said Beshear. "By taking this initial step, we can assure those who are eligible for unemployment insurance benefits will continue to receive assistance. No one will see a disruption in their benefits." Benefits/.cspx
  • MA - Patrick Sets Goal of Increased Wind Energy.
  • Providing further support to a package of previously passed legislation impacting renewables development, Gov. Deval Patrick set a goal of developing 2,000 megawatts of wind power capacity by 2020. "With the growing interest in wind turbines we see in communities across the Commonwealth of Massachusetts and the abundant wind resource we have off our coast, wind power is going to be a centerpiece of the clean energy economy we are creating for Massachusetts," said Patrick.
  • ME - Baldacci to Open New England's Largest Wind-Power Facility.
  • A wind-energy project that will produce the equivalent power needs for 23,500 homes officially goes on line next week when Gov. John Baldacci attends an opening ceremony for the Stetson project in eastern Maine. The 38-turbine, 57-megawatt wind farm along Stetson Mountain's ridgeline is the second in the state completed by First Wind, whose Mars Hill project has been until now New England's largest commercial wind power project. First Wind says Stetson alone will produce the equivalent energy to what would be produced by burning about 331,000 barrels of oil, avoiding emissions that cause global warming. storyid=99130&catid=2
  • NJ - Corzine Helps Buildings Go Green.
  • Public buildings that can't go green because they lack the green to pay for the work have a new way to finance these projects through a law enacted yesterday. Hailed as a way to get more New Jerseyans back to work, the program was designed to help public entities make their buildings more energy efficient while saving taxpayers the expense of the work and the energy inefficiencies. "Towns, schools, counties and public colleges can now become more energy efficient and save money when they retrofit their buildings and enter into long-term energy contracts with no additional costs," Gov. Jon Corzine said. oll=1

  • What is carbon capture and storage?
  • Executives and public policy makers should familiarize themselves with the technologies involved in carbon capture and storage (CCS) as they work toward reducing carbon dioxide levels in the atmosphere.

    Climate change has businesses, governments, and nonprofits examining how to stabilize atmospheric greenhouse gases while still maintaining economic growth. In plotting the course to a low-carbon economy, they will weigh a number of methods for addressing the various risks and opportunities. Carbon capture and storage (CCS)-or more accurately, the sequestration of carbon dioxide- is an important topic in the emerging field of climate change. It represents one possible approach for stabilizing atmospheric greenhouse gases-although there are many economic, technical, and legal barriers to its implementation. As background for informed discussion, the interactive depiction of the technologies involved in CCS is available below:

    Source: McKinsey & Company, January 2009

    Carbon capture and storage
  • Grants
  • Improve Physical Education!

    Carol M. White Physical Education Program

    • POSTED: 1/16/2009
    • FUNDING SOURCE: Dept. of Education
    • ELIGIBILITY: LEAs and nonprofits
    • $ AVAILABLE: No appropriation yet - last year was $33,850,000
    • MAX GRANT SIZE: $500,000
    • DEADLINE: 3/6/09
    • DESCRIPTION: Funds to initiate, expand, or enhance physical education programs, including after- school programs, for students in kindergarten through 12th grade.

    Improve Apprenticeship Programs!

    Advancing Registered Apprenticeship into the 21st Century: Collaborating For Success

    • POSTED: 1/15/2009
    • FUNDING SOURCE: Dept. of Labor (DOL)
    • ELIGIBILITY: Industry, employer, labor- management, and other national organizations
    • $ AVAILABLE: $6,500,000
    • MAX GRANT SIZE: $650,000
    • DEADLINE: 3/15/09
    • DESCRIPTION: Grants to promote the adoption of the 21st century Registered Apprenticeship framework through the development and/or adaptation of national guideline standards that incorporate competency- based progression; hybrid-style progression; and/or interim credentials. .

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