American Property Managers Prepare for Possible Economic Recession
Source: Marc
Courtenay July 5, 2016 www.propertymanager.com
No one has a
crystal ball when it comes to the U.S. economy, but recent date suggests the
possibilities of an economic recession are increasing. A careful, timely
preparation plan makes good business sense.
First I want
to remind you that economic statistics are no always reliable. In fact they can
be very confusing. Let me give you a recent example.
On Friday
June 3 the U.S. Bureau of Labor Statistics announced an addition of just 38,000
non-farm payrolls during May 2016. Economists had been expecting 160,000. This
was a huge disappointment!
At the same
time the Bureau state that the U.S. unemployment rate fell to 4.7% in May from
5.0% in April. Economist know this was largely a function of 458,000 workers
dropping out of the labor force.
Are you
perplexed yet? So was I, so I turned to the economists at J.P. Morgan for
clarification. Their public response made it clear that these seemingly
contradictory numbers are rather foreboding.
The latest
employment numbers indicates to these economists a heightened probability of a
recession happening within the next 12 months. The current economic recovery
looks more vulnerable!
“Our
preferred macroeconomic indicator of the probability that a recession begins
within 12 months has moved up from 30% on May 5 to 34% last week to 36% today,”
J.P. Morgan’s Jesse Edgerton wrote.
“This marks
the second consecutive week that the tracker has reached a new high for the
expansion.” J.P.
Morgan’s proprietary model factors in the levels of several economic
indicators, including consumer sentiment, manufacturing sentiment, building
permits, auto sales, and unemployment.
J.P. Morgan
notes that non-farm payrolls are not a part of the model. Yet the unemployment
rate is. Surprisingly, a low unemployment rate can be considered an ominous
sign.
“The
unemployment rate enters the model in two ways,” Edgerton explained. “As a
near-term indicator, we watch for increases in the unemployment rate that occur
near the beginning of recessions.
“So [the
June 3] move down in the unemployment rate lowered the recession probability in
our near-term model. But we also find the level of the unemployment rate to be
one of the most useful indicators of medium-term recession risk. So the move
down in unemployment raises the model’s view of the risk of economic
overheating in the medium run and raises the ‘background risk’ of recession.”
What does
all this portend for those in the property management industry? Here are my
suggestions:
1. Now may
be a good time to reconsider your plans for growth and consolidation. Are you
prepared for the possibility of a sizable recession? Is your debt maintenance
sustainable?
2. No one wants to be a “bad news bear,” but now is an auspicious time to make sure your clients are not over leveraged or stretched too thin. Tactfully inform of your concerns and ideas.
3. Tighten up your screening process for residents. FICO scores and credit ratings can help you anticipate their financial priorities and the likelihood they’ll continue to pay their rent on time.
4. Replace problem clients with flexible, reasonable ones. If a client is a complainer during good times, what will they be like during an economic downturn? Save yourself from the aggravation.
2. No one wants to be a “bad news bear,” but now is an auspicious time to make sure your clients are not over leveraged or stretched too thin. Tactfully inform of your concerns and ideas.
3. Tighten up your screening process for residents. FICO scores and credit ratings can help you anticipate their financial priorities and the likelihood they’ll continue to pay their rent on time.
4. Replace problem clients with flexible, reasonable ones. If a client is a complainer during good times, what will they be like during an economic downturn? Save yourself from the aggravation.
Remember,
recessions begin when the economy looks robust and credit is cheap. It’s when
the unexpected events and data (remember 2007-2008?) surprise us that we’ll
realize we’re in a recession.
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the opinion of Pacific Coast Commercial.
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