LA TIMES!

I meant to share this earlier, just bombarded with work in the past week. I believe the economy here in LA is improving, simply because I am busier this year over last at this same time.

A sample size of 1 isn't very valid, but most of the other researchers I talk to are saying the same thing.

Anyway, last weekend the LA times released their Commercial Real Estate Quarterly.

This is usually a pretty frustrating piece for me to read; our numbers have been done for a week but they chose to use the numbers of our competitors. Sometimes they will use older numbers.

But this quarter, I got a passing mention with my killer title.

Real estate brokerage Colliers International tellingly headlined a recent report: "2009: End of a year gone bad."

You can read the rest of the article, but that is the only time Colliers is mentioned. Which is fine by me, they probably have not mentioned us in the CRE quarterly since I have been here, but now I am making inroads.

Allen Group Files Chapter 11

On of my least favorite chapters. Here is the article.

They moved from San Diego to Dallas to take care of their 6,000 acre distribution hub. Think the Inland Empire on sterioids. The project was built as an inland port and is a great concept for rail, they have 2 different rail lines going through the park, the only one of its kind in the country.

The comments at the bottom of the article are pretty humorous

You need someone like Hillwood to step in and finish this project. Perot Jr definitely has the resources to finish this deal - and he'd basically own NW Fort Worth and SE Dallas! LOL

Trucking Companies Face Modest Recovery

From Business Week:

Unlike air freight carriers, and intermodal companies that use metal containers that can be transferred from railroads to ships in place of trucks, trucking companies are entirely dependent on the domestic economy, which isn't expected to recover as quickly as the global economy.

Improvement in trucking revenues between the first and second halves of 2009 wasn't sustainable, says Larkin, since much of it was due to fiscal stimulus programs like "cash for clunkers" and the $8,000 tax credit for first-time homebuyers. Market optimism toward the sector will likely wane as the reality of still-harsh economic conditions sinks in, he says.

"The modest recovery, combined with current lean inventory levels, makes it less likely that we will experience the sharp increase in freight volume that we have experienced in previous recoveries," Larkin wrote in a Jan. 5 research note. Without a major reduction in capacity, the return to a constrained supply-and-demand balance that would drive stronger pricing could take longer than many investors are now discounting in freight transportation and logistics stocks, the note said.

How much capacity does the trucking industry need to shed? Little has been taken out in the past 12 months, as banks and leasing companies are reluctant to put trucking firms into receivership or bankruptcy because they don't want to own a lot of devalued truck assets they can't sell, says Larkin. With freight volumes down 22% from their peak in 2005 and rebounding slowly, he doesn't project a tighter supply/demand balance until at least mid-2010 and maybe not until 2011.

Over the longer term, the "new normal" level of demand is likely to be higher than the current level but still depressed relative to the demand boom in 2004 and 2005, according to the Keybanc note. Rising fuel prices, tougher safety, security, and environmental regulations, and inadequate funding for infrastructure or development of an integrated nationwide freight transportation plan will likely increase transport and logistics costs over the next decade, the note said.

New ISM numbers

December 2009 Report: Click Here.

The PMI is up 2.3% to stand at 55.9, the highest level since 2006. This suggests that the economy is growing, and has been for the last 8 months.

Good news: New orders +5.2, Supplier deliveries +1.1, Production +0.9, Employment +1.2, Inventories +2.1, Prices +6.5,

Bad News: Consumer Inventories -2, Prices +6.5

Growth in the PMI reports that 55.9 of responses were favorable. To my knowledge, this report does not count non-responses, that is, companies that went out of business. This suggests that the companies that are still in business are doing much better than in previous months.

New orders are the most important stats for manufacturers, since that will lead to increased production down the road. This huge spike will be hard to follow in upcoming releases and there are a couple of reasons for it.

1. Restocking, we have talked about this before and maybe finally it is happening.

2. Consumer spending increases, increase in domestic consumption.

3. Export led boom. American goods are being shipped overseas.

For our interests here in the Inland Empire, one stat that does not get talked about is delivery times. Basically, 16% of respondents reported slower delivery times, and 6% reported faster delivery times. Slower is better for 2 reasons:

1. There is greater demand for products and it takes longer for these products to be secured and shipped.

2. This demand for product shipment will lead to favorable conditions for the nations carriers.

Now for the bad news: Customer's Inventories are still low. This may mean that inventories are still shrinking at the highest consumer demand months in the year. Silver lining: low inventories will be restocked in the future, but it kills the restocking argument in our increased new orders case. This suggests that the entire supply chain is lean and risk adverse, retailers do not want to stock what manufacturers are making. This is bad news for the Inland Empire, since we are basically the storage unit for Southern California and the Western United States. If consumers were buying goods, then retailers would not want to be caught with their pants down so they would be forced to restock, then this number would be going up. This kills the #2 argument in our new orders case. American consumers are not purchasing tons of goods.

Which leads us to the third and final piece: Prices. Prices increased a scary +6.5. This is good, right? Increased demand leads to increased prices ... except when inflation is caused by some other source. What sources may you ask?

1. Monetary expansion (inflation being a monetary phenomenon)

2. Supply shock (drop in aggregate supply due to unforeseen circumstances)

If raw materials are purchased on a world market with low transaction costs, and the demand for American dollars declines, (a weak American dollar) goods would seem more expensive for Americans, but cheaper for foreigners. This supports the third case for increased orders, increased exports.