The myth is that jobs are plentiful, the economy is geared for growth, and capital spending will pick up where real estate left off. The reality is something else on all accounts.
In Detroit 26,000 apply for 1,000 casino jobs.
About 300 lined up outside MGM’s new staffing center on Tuesday in Detroit to apply for 1,000 positions. Those without computer access can use one of the center’s 25 workstations to apply for one of the jobs at the permanent gaming complex, which will open this year.
More than 26,000 people have applied online for the 1,000 jobs MGM Grand Detroit intends to fill with the opening of its permanent $765 million hotel and casino complex later this year.
The deluge of applicants — a reflection of the region’s sagging economy — has come in the nearly three weeks since MGM Grand announced its hiring goals for the new entertainment complex at Third and Bagley streets.
MGM’s hiring has been a bright spot in an otherwise dour job market. Michigan has the nation’s highest unemployment rate, with the region reeling from the loss of thousands of manufacturing jobs in the automotive industry. The region, too, has been stung by drug giant Pfizer Inc.’s plans to close its Ann Arbor compound and pull more than 2,000 jobs out of the area, and by Comerica Inc.’s decision to relocate its headquarters and 200 workers from Detroit to Dallas.
Many in line at MGM on Tuesday weren’t concerned about the per-hour wage. They just want work and a paycheck.
“I’ll take anything that is available,” said Sharika Haywood, 21, of Detroit, one of the job-seekers in line Tuesday. “I’ve looked for a job every day. I’ve filled out applications but never get a call back. I’m hoping that something comes through here.”
‘I need a job’
MGM’s hiring efforts couldn’t come at a better time for Terry Pardon, a 45-year-old father of three who lives in Harrison Township and was laid off from a construction job a week ago. “I need a job that pays and has benefits,” he said. “I’m going to apply for a maintenance job. It’s tough finding a job anywhere in Michigan.”
Veneisha Boyce, 23, of Detroit was looking for a housekeeping or security position.
“But I’m looking for anything,” said the single mother of a 3-year-old daughter. “It’s tough finding a job. I need a job with benefits.”
Guy Janicki, 64, of Grosse Pointe Woods said he can’t afford to retire and would like a job as a dealer or cashier. For the past 10 years, he has been a cashier at a downtown parking structure.
“I’ve been looking for work, but I just can’t find any,” he said. “It’s pretty rough in the job world.”
- I’ve been looking for work but can’t find any.
- I need a job with benefits.
- I’m looking for anything.
- I can’t afford to retire.
Unfortunately this is not just Detroit I am talking about. Nor is this is a manufacturing thing. Areas where housing has been booming and jobs were more plentiful are going to get hit hard as well. Retail stores followed the home expansion and that provided additional sources for jobs. But few are looking ahead to see what happens when that retail expansion stops. Fewer still see the actual jobs contraction that is coming.
Pay close attention to point number 4 as well. We are going to hear more and more about it. Too many baby boomers are simply not prepared for retirement. Any number of things can happen even to those who think they are prepared: rising property taxes, insurance or medical costs may force some back out of retirement. Others may be hit hard in the next stock market decline. Penson plans that are under funded may renig on benefits. And far too many are dependent on their houses for a source of income.
With that backdrop it is fitting that Bill Gross at Pimco is talking about the Grim Reality.
It will not be loan losses that threaten future economic growth, however, but the tightening of credit conditions that are in part a result of those losses. To a certain extent this reluctance to extend credit is a typical response to end-of-cycle exuberance run amok. And if one had to measure this cycle’s exuberance on a scale of 1-10, double-digits would be the overwhelming vote.
Anyone could get a loan because shabby credits were ultimately being camouflaged within CDOs that in turn were being sold to unsophisticated foreign lenders in need of yield as opposed to ¼% bank deposits (read Japan/Yen carry trade). But there is something else in play now that resembles in part the Carter Administration’s Depository Institutions and Monetary Control Act of 1980. Lender fears of potential new regulations can do nothing but begin to restrict additional lending at the margin, as will headlines heralding alleged predatory lending practices in recent years. After doubling over 18 months between 2005 and the first half of 2006, non-traditional loan growth has recently turned negative, and lenders’ attitudes are turning decidedly conservative as shown in Chart 1. [Annotations by Mish]
Bulls and bears argue over websites as to the percentage of all lending that subprime and alternative mortgage loans provide but while important, the argument obscures the critical conclusion that tighter lending standards and increased regulation will change the housing outlook for some years to come. As past marginal buyers are forced to sell their home to prevent foreclosures, so too will future marginal buyers be restricted from buying them.
Looking forward I see little chance that housing has bottomed. Not only are credit standards tightening significantly but the process has barely started timewise. Between 1991 and 1994 we saw a 45 point drop in roughly 3.5 years. We are only half a year in the credit tightening process and we still have not see the effects of mortgage ARMs resets. This was the biggest housing bubble in history. Can credit standards tighten or stay high for another 3 years? 6 years? Why not? Better yet, why shouldn’t they?
There has never been a national housing (credit/debt) bubble as big as this one. Indeed, because of the carry trade and loose economic policy everywhere, this is an international fiasco. We are in uncharted territory and the good ship “Credit Bubble” is taking on water fast. It can capsize at any time.
The ongoing myth is that capital spending will pick up where housing left off. The theory is truly inane as I have stated many times. Why should businesses expand when consumers are pulling back. It makes no sense.
Two years ago there was nothing but denial culminating with Time Magazine’s cover “Why we are gaga over real estate”. Is anyone of merit denying the housing bubble anymore? The capital spending myth will likely perpetuate as well until it shatters just as various housing myths were shattered one by one.
The Disposable Workforce
There was an interesting article in Bloomberg today Circuit City to Fire 3,400, Hire Less Costly Workers.
Circuit City Stores Inc., the second-largest U.S. electronics retailer after Best Buy Co., fired 3,400 of its highest-paid hourly workers and will hire replacements willing to work for less.
The company said its eliminating jobs that paid “well above” market rates. Those who were fired can apply for the lower pay, company spokesman Bill Cimino said today. He declined to give the wages of the fired workers or the new hires.
“Firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale,” Colin McGranahan, an analyst with Sanford Bernstein & Co., wrote in a note today. “The question remains as to whether Circuit City can rebuild in time for the all-important holiday season.”
The fired employees will get severance pay. Today’s job cuts, as well as plans announced last month to close 600 stores and cut 400 jobs, will result in a $145 million pretax charge in the fiscal 2007’s fourth quarter.
Circuit City pays about $10 to $11 an hour, on average, said Rick Weinhart, an analyst with BMO Capital Markets Corp. in New York. Entry level pay probably is close to $8 for inexperienced workers, he said.
Chief Executive Officer Philip Schoonover was paid $8.52 million in fiscal 2006, including a salary of $975,000. Best Buy CEO Brad Anderson received $3.85 million, including a $1.17 million salary.
Circuit City, along with Best Buy, was forced to slash TV prices during the 2006 holiday season after Wal-Mart Stores Inc., Home Depot Inc. and CostCo Wholesale Corp. began selling flat panels for less.
The job cuts are “one of the most brazen examples of corporate America run amuck,” said Greg Tarpinian, executive director of Change to Win, which represents seven unions and about 6 million workers. “It’s workers as disposable commodities, put in and put out based on whatever happens to the stock price.”
- Workers are being fired simply because they make too much money not because they are no longer needed. While this has happened before, typically under the guise of some sort of “rightsizing” effort, this is the first explicit massive public disclosure of this nature on this scale that I can think of.
- There are price wars on retail goods involving Walmart, Circuit City, Costco, Home Depot and Best Buy. So much for the idea that input costs are rising so prices on stuff will follow suit.
- There is unrelenting pressure on wages. That pressure has now expanded outside the automotive/manufacturing sectors to jobs paying as little as $11 an hour. Think raising the minimum wage will do any good? If so, think again. An increase in the minimum wage is going to cost jobs, 100% guaranteed.
- The second largest electronics retailer is closing 600 stores. Can anyone say “overexpansion”?
- Kiss those capital spending savior thoughts goodbye.
Unemployment is going to skyrocket and the fuse is already lit. I have been asking for months what exactly we need more of that is going to cause corporations to expand capital spending. That’s now the wrong question. The right question is “How big are the cutbacks going to be?”
Mike Shedlock / Mish/