galveston recession 2008

8/14/2019 Galveston Recession 2008

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Galveston: Recession 2008?by David Stanowski

14 January 2008

Its ironic that the controversy over whether the international-residential-real-estate bubble would bypass Galveston has now spread to a discussionabout whether the looming national recession will spare The Islandeconomy. The evidence on both counts seems to show that Galvestondoes not have the financial muscle to allow it to avoid problems effectingnational and international financial markets.

There are many different ways to define a recession, but fundamentally, itis a low growth, or negative growth period in the economy. Although thereis no overall measure of economic activity, for the City of Galveston, there

are data that can provide some insight into whether the local economy isgrowing.

For example, it could be argued that Galveston entered a recessionsometime in the 1980s, simply because the local population has beendeclining since then. Between 1980 and 2005, the U.S. population increased30% while the local population declined 7%! It certainly is possible for aneconomy to expand, while it is losing population, but if people are leaving acity, an economic decline will probably follow.

The loss of population did foreshadow future job losses, because thenumber of jobs in Galveston peaked at 30,387 in 1995, and by 2006 stood at25,912; a decline of 15%! During this same period, the State of Texas added1,936,038 jobs; an INCREASE of 21.55%. This means that the number ofjobs, in Galveston, declined at twice the rate as the population!

Unfortunately, I find myself in the camp shared by many independentanalysts, as well as Morgan Stanley, Merrill Lynch, and GoldmanSachs who foresee not only a bursting national housing bubble, but also arecession starting about now. Therefore, a more relevant question is If theU.S. economy enters a recession in 2008, will Galveston begin a new leg

down in its on-going decline?The stock market is a discounting mechanism that reflects the collectiveoutlook for business over the next 6-9 months. Using the Wilshire 5000Index (WLSH or DWC) as a benchmark: as of the close on 11 January 2008,this index made its high on 11 October 2007, and it is now down 13%, on ahigh to low basis.
http://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.htmlhttp://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Employment.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Employment.htmlhttp://www.morganstanley.com/views/gef/archive/2007/20071210-Mon.htmlhttp://www.post-gazette.com/pg/08009/847683-28.stmhttp://www.bloomberg.com/apps/news?pid=20601068&sid=aFwmcKcny2Jw&refer=economyhttp://www.bloomberg.com/apps/news?pid=20601068&sid=aFwmcKcny2Jw&refer=economyhttp://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.htmlhttp://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.htmlhttp://www.bloomberg.com/apps/news?pid=20601068&sid=aFwmcKcny2Jw&refer=economyhttp://www.bloomberg.com/apps/news?pid=20601068&sid=aFwmcKcny2Jw&refer=economyhttp://www.post-gazette.com/pg/08009/847683-28.stmhttp://www.morganstanley.com/views/gef/archive/2007/20071210-Mon.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Employment.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Employment.htmlhttp://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.htmlhttp://www.thefinancialhelpcenter.com/Real-Estate/The-Case-For-A-Housing-Bubble.html


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The outlook for Galvestons

major economic sectors

Tourism:The Dow Jones Travel & Tourism Index (DJUSTT) peaked on 01 October2007, and it is now down 28%, which means that this sector is in sync with,but weaker than the broad market.


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Marriott Hotels (MAR), the largest U.S. hotel chain, peaked on 17 April 2007,and it is down 39%.

National restaurant chains have been reporting lower sales for some weeksas consumers tighten their belts on leisure and entertainment spending, asdemonstrated by these two companies:

Landrys Restaurants (LNY), which has a strong presence in Galveston,peaked on 17 April 2006, and is down 58%.


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Ruby Tuesday (RT) peaked on 30 March 2006, and is down 82%.

While there are some members of this industry group that are doing betterthan these examples, the fact remains that the Travel & Tourism Index isweaker than the benchmark, as are MAR, LNY, and RT, which hardlysuggests that Galvestons tourism industry is going to help prevent thelocal economy from participating in a national recession!

Retail:The Dow Jones Retail Index (DJUSRT) peaked on 04 June 2007, and it isnow down 23%, so this sector topped before, and it is weaker than thebroad market.


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National retail data shows that consumers are running out of money, sothey are focusing their purchases on food, gasoline, and other necessities,but some people believe that more affluent consumers can save the day.However, an examination of Tiffanys (TIF) shows that it peaked on 11October 2007, and is now down 40%.

The weakness in retail sales is also confirmed by the fact that vacancies atneighborhood and community shopping centers just hit an at 11-year high.

Data through 2Q 2007 show that retail sales in Galveston peaked in 4Q
http://www.bloomberg.com/apps/news?pid=20601206&sid=aoG3CXkH9J_Q&refer=realestatehttp://ecpa.cpa.state.tx.us/allocation/HistSales.jsp;jsessionid=0000BftjbPXHMM_622p1e2nyfDp:-1http://ecpa.cpa.state.tx.us/allocation/HistSales.jsp;jsessionid=0000BftjbPXHMM_622p1e2nyfDp:-1http://www.bloomberg.com/apps/news?pid=20601206&sid=aoG3CXkH9J_Q&refer=realestate


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2005. With retail sales per capita running 28% below the average for theState of Texas, and weaker than the national trends, shown above; as itstands now, this is hardly a sector that can rescue the local economy froma recession.

On the other hand, with Galveston retail sales running far below theirpotential, this is probably the one economic sector that has the most roomfor improvement, and with a renewed effort to turn it around, could actuallyexpand during a national recession!

Home building:The S&P Homebuilding Index (SPHB) peaked on 15 July 2005, and is nowdown 80%, so the homebuilders topped long before, and are much weakerthan the broad market!

Looking at two components of this index finds Beazer Homes (BZH)peaked on 06 January 2006, and it is down 94%.
http://ecpa.cpa.state.tx.us/allocation/HistSales.jsp;jsessionid=0000BftjbPXHMM_622p1e2nyfDp:-1http://www.thefinancialhelpcenter.com/Galveston-Economy/Retail-Sales-Per-Capita.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Retail-Sales-Per-Capita.htmlhttp://ecpa.cpa.state.tx.us/allocation/HistSales.jsp;jsessionid=0000BftjbPXHMM_622p1e2nyfDp:-1


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Centex (CTX), developer of Pointe West, peaked on 01 July 2005, and isdown 78%.

Obviously, the homebuilding stocks are not giving an indication that thissector will have the strength to support the Galveston economy.

Financial Services:This sector includes banks, insurance companies, stock brokers,Realtors, title companies, appraisers, etcetera. The Dow Jones Financial


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Services Index (DWCFSV) peaked on 05 February 2007, and is now down34%, which means that the financials topped long before, and are muchweaker than the broad market!

Looking at publicly-traded Realtor Zip Realty (ZIPR), it peaked on 01December 2004, and is down 78%, which is not a good sign for thisbusiness in 2008.

The Port:


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There is no index made up of just ocean-going-shipping-company stocks,but the Dow Jones Transportation Index (TRAN) has been leading thebroad market lower since it peaked on 16 July 2007, and it is now down26%.

The Baltic Dry Index is a number issued daily by the Baltic Exchange, aLondon-based organization whose members arrange for ocean transport ofindustrial bulk commodities from producers to end users. Every day theysurvey brokers around the world to find out how much it costs to book

cargoes of raw materials on a variety of shipping routes. The answers arethen reformulated as the Baltic Dry Index. It tracks the actual cost ofshipping raw materials, by sea, based on real cargo bookings, for theworld's 24 key shipping routes, and is therefore considered a pretty goodindicator of global trade volumes.

On 10 January, the BDI had its biggest one-day plunge since 1989,plummeting 384 points (4.6%) to 7,949. The BDI is now 28% lower than its13 November 2007 record peak of 11,039.
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Since the general trend in all shipping is down, and the BDI appears to becollapsing, it is unlikely that the Port of Galveston will be a major boost tothe local economy during a national recession.

Oil and Gas Service Industry:The Dow Jones Oil Equipment, Services & Distribution Index (DJUSOQ)peaked on 15 October 2007, and has rallied off its November low, so it isonly down 9%. This is the only sector, in Galveston, that is outperformingthe general market, but it is hard to say if it is a big factor in the localeconomy.


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Government:With six out of the top ten local employers providing government services,this is the dominate sector in the Galveston economy. This may seem like asector that is safe from trouble during a national recession, but this is notthe case. Local governments, in other housing-bubble areas, like Arizona,California, and Florida, are already experiencing financial crises, due todwindling sales, income, and property tax collections. These same woesare very likely to happen here.

Conclusion:After considering what the stock market is projecting for the major sectors,of the local economy, there seems to be little reason to believe thatGalveston will weather a national recession better than most areas of thecountry, because all of the private-sector components, with the exceptionof oil equipment and services, are showing below average strength.

Is the situation hopeless? No, not if action is taken to make improvements.

Apparently, some years ago, the city government was in a financial crisis,so it set off on a course to build up its property tax base. The idea was toincrease its operating income, and to bolster reserves, as well as toinsulate it from the ups and downs of the income that it receives throughsales tax. This plan has been fairly successful, but it has strained thepartnership that the City has with local businesses. Now that it has partiallyinsulated itself from the local business cycle, the City seems to beindifferent to how well local business is doing, since it believes that its
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fortunes do not depend primarily on sales tax revenues any longer.

This disconnect has created a situation where the City government notonly does not assist local business, but places many obstacles in its path.This condition can be reversed by identifying the problems that the city

government is creating, using an Ease of Doing Business survey, makingthe necessary changes, and then getting the City to build and implement acomprehensive marketing plan through its agency, the Park Board.

If changes are not forth coming, Galveston will not only experience therecession that is sweeping across the country, the next leg down in thedecline, that started in the 1980s, is going to be very painful.

For more information on the Galveston Economy: CLICK HERE

David Stanowski lives in Galveston, and is a financial analyst, investor, andthe publisher of TheFinancialHelpCenter.com.
http://www.thefinancialhelpcenter.com/Galveston-Economy/Ease-Of-Doing-Business.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Marketing-Plan.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy.htmlhttp://www.thefinancialhelpcenter.com/Index.htmlhttp://www.thefinancialhelpcenter.com/Index.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Galveston-Marketing-Plan.htmlhttp://www.thefinancialhelpcenter.com/Galveston-Economy/Ease-Of-Doing-Business.html

galveston recession 2008

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