February 20, 2008
2007's "Tout" and "Spin"
(c)
View from Silicon Valley, 2008. All rights reserved.
As usual, the local paper's monthly table of statistics (Dec'07) was
headlined by touts and spin. However, there were also some useful data points we feel merit further attention.
For example:
"Non-residential project approvals outpaced residential in 2007 for the first time in five years.
The value of new projects approved for construction throughout Santa Clara County rose to $3.3 billion for all of 2007, up
12.9 percent fro the year before. The growth was paced by a 19.1 percent rise in the value of non-residential projects,
while residential approvals also rose by 6.8 percent."
Adding up the monthly results for all of 2007, non-residential construction
was indeed up-- over 25%! Over two years, non-residential
construction increased +40%!! Was a shortage of retail and office space suddenly discovered in 2005? Setting off
an economically-justified 40% increase? Or is it another bubble?
Along the way, February and March, 2007 were each up over +114% year-over-year.
Measured April-to-December, 2007's gain was only +7%.
For those wondering about the other side of the coin --residential
construction -- the 2007 total was -21%. It turns out 2006 was the peak year for residential
construction. 2006 was +13% over 2005's total. 2005 was +8% over 2004. All this during a time when population
was, at best flat, and jobs were actually falling!
BTW, the net off all this is 2007 residential construction was within
4% of 2004's figure. In other words, just like residential house prices falling to 2005 levels (http://www.viewfromsiliconvalley.com/id394.html), residential construction is now at 2005 levels. (Actually, 2007 residential construction was -4% lower than in 2004...)
"Jobs, unemployment both up in 2007.
The number of jobs in Santa Clara County reached the highest level since June 2002, while the number of unemployed rose to
the highest level since August 2005 and the unemployment rate reached it highest point since November 2005."
First of all, there is an issue with which benchmark you want to follow.
Using California's benchmark (available at: http://www.calmis.cahwnet.gov/file/lfhist/santchlf.xls), the "residents employed" figure runs in the range of 807K to 815Ku in 2007. This benchmark shows a net gain of less
than 1% across 2007.
The paper's monthly report apparently uses the "old" benchmark. Under
this benchmark, Santa Clara County "residents employed" did indeed last hit 839.0 in 2002. However, 2002's
instance of 839Ku residents employed was on a journey from 1,006.5Ku in December, 2000 down to 771Ku in September, 2003.
In other words, the initial loss was -235.5Ku of which 58Ku, or less than 25%, have now been recovered.
Keep this in mind the next time you read about a strong job market in Silicon Valley.
Last but not least, as even moderate-term readers are by now tired
of hearing from us, 839.0Ku Santa Clara "residents employed" matches levels seen in January, 1996. (BTW, we only
had 34,400 unemployed that month in 1996 --10.5Ku fewer than recorded in December, 2007.)
"Drop
in home prices accelerated in December. The decrease in the number of homes sold in Santa Clara County fell
to the worst level of the year in December when 721 homes changed hands, down 43.5 percent from the year before. In
January 2007, sales of single-family homes were off 2.9 percent."
The writer is mixing metaphors (or at least units of measure). He (or
she) switches back and forth between sales volume and sales prices. Along the way, they forgot to specify if the
figures refer to "All Homes," (which includes "Resale Houses," condominiums and "New Homes") or just "Resale
Homes." We mostly care about "Resale Homes" and will frame comments accordingly.
December, 2007 "Resale Homes" sales volume was indeed down hard: -41%
year-over-year. Over two years, the volume decrease is -51%. Over three
years it's -59%.
However, December, 2007 "Resale Homes" sales prices were still +4.1% year-over-year. "Resale
Homes" prices didn't reach negative territory until mid-January, 2008. (At risk of tooting our own horn, we published
the negative y-o-y cross-over ~10 days before DataQuick admitted to it in their press release...)
While it's true December prices were down vs. November, prices went up between October and November.
Therefore it is inaccurate to say the December data showed "drop in home prices accelerated." It turned out to
be true in January but the actual December data showed no such thing...
"Hotel
business held on to price gains. The average room rate charged by San Jose's hotels averaged $139.52 during
2007, up 4.1 percent from the year before an this highest amount since 2001. The hotels sold 914,902 room nights in
2007, up 0.5 percent fro the year before and the highest total since 1.03 million in 2000."
Short and sweet: hotels were able to raise prices in the face of flat
sales. This is good for the hotels, not to mention the city of San Jose's coffers, but not-so-good for business
travelers. Sarcasm alert: Who cares if business people can turn a profit, right?
"Airport
traffic down. The number of passengers flying through the Mineta San Jose Airport fell in 2007 for the third
year in a row, hitting the lowest level since 1998. Goods shipped through the airport fell to 90,000 tons last year, down
7.9 percent form the year before and the lowest level in at least a decade."
The year-over-year decline in airport passengers was only 0.7%. The
last five years of airport passenger traffic ranges from a high of 11.05 million (2004) to 10.64 million (2007).
Air freight traffic's -8% drop in
2007 is on top of (or is it underneath?) several years of falling numbers. Over our five years of tracking, the
peak was 114.96 million tons in 2004. Compared to 2007's 90.02 million tons, the three-year cumulative drop is
-21.7%.
Ten or eleven million passengers and 90 million tons of freight a year is
a nice base. Unfortunately, this lack of long-term growth does not seem appropriate for the 100s
of millions of tax and fee dollars San Jose wants to spend to boost up their egos --err, expand the airport.
"Year-end
commercial space for lease lowest since 2000. Silicon valley ended 2007 with 36.8 million square feet of office
And research-and-development space available for leasing, down by a million square feet, or 2.8 percent from the year before.
It was the lowest year-end level since 2000, when there was 10.4 million square feet for rent. However, space edged
up in December from the month before."
We pretty well shredded this statistic last month (please
see: Spinning the Stats (Nov'07), http://www.viewfromsiliconvalley.com/id391.html). Please also note, the paper does not cite a source
for the square feet of "space for lease" or percentage of "space available."
On top of last month's rant, we ask two questions:
1) When you drive around Silicon Valley, does it feel like ~83% of office space is occupied?
2) Does it seem plausible that $50B+ in new non-residential
construction since 2002 led to less than a 0.08% (0.000761) increase in office/R&D space available?
Given the breadth and depth of our issues with this statistic, the most rational tactic
would seem to be ignoring it. Given just a bit more data, we can probably prove it's false.
Not highlighted
by the paper but worthy of mention in our view:
+Bankruptcies filed were +91% over December, 2006. Total 2007 bankruptcies increased +59% from
2006.
+New business applications was -16% vs. December, 2006. The 2007 total
was -21%.
Why do these figures seem to only be highlighted when they're positive?
Conclusion:
If you want to divine the news in these statistics, you can't rely on the headlines chosen by the paper.
We plan to continue highlighting the more egregious examples of "spin."
Check back with us regularly to see the latest...
