A Void Of Government Data

Bradenton Webinar Registration⁠

 I’d iike to invite you to learn more about an exciting opportunity located in Bradenton Florida. Bradenton is next to Sarasota for those of you who are familiar with Florida. This market has an industrial moratorium that is driving one asset class to new heights, specifically light industrial. This 35 are property, right in the middle of Bradenton has an existing Charter School on 11 of those acres and 24 acres of land that we are developing.  We are hosting a webinar on Wednesday October 8 at 7PM Eastern time. This opportunity is only open to accredited investors residing in the US in compliance with SEC regulations. To learn more, click on the link in the show notes and we will see you on Wednesday evening at 7PM. 

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On today’s show we are looking at the continuing signs of weakness in the US economy. Of course with the government shut down , there are no numbers coming out of the BEA, or the BLS. Today would have been the monthly jobs report which consists of two reports. There is the headline employment report, sometimes called the establishment survey and the household survey. The employment report made headlines in a significant way when the numbers for the past year were revised down ward by over 900,000 jobs. 

The financial markets have come to rely on these reports when it comes to bidding on interest rate futures. The theory is that if the economy is strong and employment is strong, then the Fed will put more emphasis on suppressing demand by raising the cost of capital. This is the so-called hawkish stance where fighting inflation takes centre stage. If the economy is weak and jobs are disappearing, then the Fed in theory should take a more stimulative approach to reduce the cost of capital and encourage hiring. This was the stance in the last FOMC meeting which resulted in a 0.25% rate cut. 

So we have no data coming out and the market doesn’t really know what to do. But there is data coming from private sources that are well respected. 

Payroll processing company ADP produces are regular report based on the aggregated and anonymized payroll data of more than 26 million U.S. employees. This week’s report showed that the US economy shed 32000 in the month of September. ADP gathers their data weekly.

We can confidently predict another 0.25% rate cut at the next FOMC meeting at the end of October and then a further rate cut at the December meeting. 

For those of us in real estate, this is good news. It means those variable rate loans that are indexed to SOFR will see a reduction of 0.5% before the end of the year. 

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**Real Estate Espresso Podcast:**
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**Y Street Capital:**
 Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)  
 Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)  
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Episode Transcript

(00:01):
Welcome to the Real Estate Especial podcast.
Good morning, Shadow. What's new in the world of real
estate investing? I'm your host, Victor Minash.
On today's show, we're looking at the continuing signs of
weakness in the US economy and what that means for real estate
investors. But first, I'd like to invite
you to learn more about an exciting opportunity located in
Bradenton, FL Bradenton is next to Sarasota.
For those of you who are familiar with Florida in this

(00:23):
market as an industrial moratorium that's driving one
asset class to new heights and specifically that's industrial
and my development company, Y St.
Capital is working on this specific property.
It's a 35 acre property right inthe middle of Bradenton, has an
existing charter school on eleven of those acres and 24
acres of land that we're developing.

(00:43):
We're hosting a webinar on Wednesday evening, October the
8th, 7:00 PM Eastern Time. This is an opportunity open only
to accredited investors residingin the US in compliance with SEC
regulations, and of course, by prospectus only.
To learn more, click on the linkin the show notes and we'll see
you on Wednesday evening at 7:00PM Eastern.
On today's show, we're looking at the continuing signs of

(01:04):
weakness in the US economy. Of course, with the government
shutdown, there's no numbers coming out of the Bureau of
Economic Analysis or the Bureau of Labor and Statistics.
Today would have been the monthly jobs report, which
consists of 2 reports. There's the headline employment
report, sometimes called the Establishment survey, and the
household survey. The employment report made
headlines in a significant way last month when the numbers for

(01:27):
the past year were revised downward by over 900,000 jobs.
Now the financial markets have come to rely on these reports
when it comes to bidding on interest rate futures.
Theory is that if the economy isstrong and employment is strong
then the Fed will put more emphasis on suppressing demand
by raising the cost of capital. This is the so-called hawkish
stance when fighting inflation takes center stage.

(01:49):
If the economy is weak and jobs are disappearing than the Fed in
theory should take a more stimulative approach to reduce
the cost of capital and encourage hiring.
This was the stance in the last FOMC meeting which resulted in
1/4 point rate cut. So we have no data coming out of
Washington and the market technically doesn't really know
what to do, but there is data coming from private sources and
these are well respected. Payroll processing company ADP

(02:12):
produces a regular report based on the aggregated and anonymized
payroll data of more than 26,000,000 US employees.
This week's report showed that the US economy shed 32,000 jobs
in the month of September and ADP gathers their data weekly.
If we break it down based on company size, we saw that it's
in fact the small and medium sized companies that are in fact

(02:32):
suffering the most. Those with 1 to 19 employees are
down 19,000. Those 20 to 49 are down 21,000
jobs, 50 to 249 employees are down 11,000 jobs, and companies
under 500 employees are down 9000 jobs.
Only large employers having morethan 500 employees are up by
33,000 jobs. If we break it down by sector,

(02:55):
natural resources mining is up by 4000.
Construction is down by 5000, manufacturing services down by
2000, trade and transportation and utilities down by 7000.
Information is up by 3000, financial activities down by
9000, Professional business services down 13,000.
Education and health services are up 33,000.

(03:17):
A lot of that's tied to the start of the new academic school
year. Leisure and hospitality down
19,000 and other services down 16,000.
So the economy is clearly showing signs of weakness.
What are the chances that the ADP data would be showing
contraction of the labor market and the Bureau of Labor and
Statistics would be showing robust hiring?
I think the chances would be pretty low.

(03:37):
And if that did happen, that thereports contradicted one
another, which one would you believe?
So based on the private data, the bond market is signaling
what it expects interest rates to be.
So let's look at the various yields for the different
duration bonds. Let's start at the shortest
duration. There's the one month T bill at
4.129%. That's pretty much spot on

(03:59):
target with the Fed funds rate. If we go out to the three month,
the 90 day T bill, we're at 3.959, that's a little bit
lower. The six month 3.827%, it's gone
a little bit lower, the one year3.645 and then the two years at
3.574. So as you see, as we go out in
duration, the yield is dropping.That means that there's an

(04:20):
expectation that at that point in the future interest rates
will be lower. We only see interest rates go
back up when we get to the 10 year treasury that's at 4.12.
And then of course the 30 year treasury is a little bit too far
in the future. That's way over the horizon.
We can't predict that far. So based on all of this, we can
confidently predict another quarter point rate cut at the

(04:41):
next FOMC meeting at the end of October and very likely a
further rate cut at the Decembermeeting.
Now for those of us in real estate, that is good news.
It means those variable rate loans that are indexed to the
secure overnight funds rate willsee a reduction of half a point
before the end of the year. It also means the cost of short
term borrowing for things like construction loans will fall as
well. The same time we're seeing

(05:02):
people get laid off in construction and construction
activity has slowed significantly.
That means contractors and subcontractors are going to be
more aggressive in bidding for work, and owners can expect
better pricing when undertaking new construction projects.
Yes, there are markets experiencing softness.
Austin, TX, Las Vegas, Cape Coral are some of the most cited
examples. Austin is for sure oversupplied

(05:24):
with new product. Vegas has seen a significant
drop in tourism as one of the highest unemployment rates in
the country. If you're willing to be a little
bit of a contrarian and find those micro areas of strong
demand in the midst of the larger macroeconomic weakness,
you can probably do very well inthe current environment.
As you think about that, have anawesome rest of your day.
Go make some great things happen.

(05:45):
We'll talk to you again tomorrow.