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Boston Bubble Wrap: The Real Story for MA - Oct 2010
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Fri Dec 17, 2010 3:32 am GMT    Post subject: Reply with quote

Quote:
Defense is about to get crushed, and so are hospitals.


For tech work, defense is a huge mainstay for the state. See below ...

http://www.wbur.org/2010/12/06/defense-spending

It's provided up to ~50% of new hires for the past decade. I don't think any other sector is providing a type of Guns 'n Butter type of buttress on our tech workforce. Other sectors are looking into either offshoring or in-shoring work to save on overhead.
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CL
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PostPosted: Fri Dec 17, 2010 2:36 pm GMT    Post subject: Reply with quote

GenXer - I am not saying Boston is immune to unemployment. I am saying all else equal, from an employment perspective, towns like Brookline/Newton/Lexington is healther than MA, and MA is healthier than the nation average, driven by both educational level and by kind of occupation they are in. Thus the gloom and doom about 9%-10% unemployment rate you hear will not 100% translate to these towns.

There are 2 kind of unemployment - cyclical and structural. Both are unavoidable, but can be mitigated to a certain extent. Cyclical unemployment can be partially mitigated by diversifying to non-cyclical industries (healthcare, education, consumer staple, utlilties, etc). Structural unemployment can be mitigated by having a educated, young and mobile workforce (thus the advantage of having universities around pumping out graduates year in year out). I will argue that if GenXer is correct, Armageddon hits and everything fails, Boston will fare better than many other cities in the States.
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Fri Dec 17, 2010 6:56 pm GMT    Post subject: Reply with quote

Quote:
There are 2 kind of unemployment - cyclical and structural


I think the forces here at play are like no other time. The great plains states (see Iowa, Nebraska, Dakotas), have official unemployment in the 4% to 7% category. And these are Ag oriented states, not full of overeducated professionals. Ag's been considered 19th century and not a major contributor to a region's well being. I guess times have changed. And anecdotally, from people I know out there, the professions are having a tough type finding top recruits. I presume conservative Bostonians are welcome there, since many would be perceived as being top notch.

Likewise, in Texas, despite the higher overall unemployment, companies including defense contractors can expand, grow, and fill those spots as tech jobs relocate from more expensive northeast locations. If Congress cuts the defense R&D budget by 15%, what's a better way for a contractor to do that than to close shop in MA and expand in Dallas w/o needing to drop projects? We're already seeing it for private sector work. At some point, defense will follow.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Sun Dec 19, 2010 2:30 am GMT    Post subject: Reply with quote

I don't disagree that many towns will not see a high unemployment. It is the type of unemployment I'm having beef with. it is one thing if a stop and shop cashier is laid off, and another - if its a biotech PhD, or a PhD in Math/CS. Both of the latter has been laid off and are continued to get laid off in MA as we speak. Then there is the overpaid municipal employee. Those are the people who can afford the high priced towns. This will keep the pressure on the prices. The actual unemployment is much closer to 10% than anybody realizes. Many spouses don't work, and stay home for a very extended period of time, but are not counted. Have you ever been out on Walden Pond during the week? It is crowded with locals who simply don't work. It only takes one spouse to lose their jobs in these families to be in big trouble.

As far as Defense goes, Raytheon is only warming up. They have been hit hardest in 30 years or so, and are laying people off in MA (while hiring in other states). They have to change their business from R/D to production on a dime, and many layoffs are coming (despite the puff pieces on defense in MA). High end finance is also laying off as the money dries up. I'm not saying this will have an immediate effect, but there is absolutely NOTHING good going in MA, except maybe higher taxes, which will help drive businesses out.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Sun Dec 19, 2010 2:41 am GMT    Post subject: Reply with quote

Oh, I'm by no means voting for Armageddon. In fact, MA will be worse off, as compared to states where the suburbia is a lot more self-sufficient.

However, nothing of the sort is on the horizon. Just the same tax and spend politics as usual. MA is 'better' off now because the entitlement programs haven't grown like they have in NYC, CA and NJ, but we are catching up very fast, and I'd say in 2 years we'll start running multi-billion dollar deficits. The only problem is...the Congress will change to no-tax, no-spend policy starting next year, and in 2 years there'll probably be more of the same. If interest rates ever rise, MA will be in huge trouble, since we can't print money to pay for our debts. Our unemployment is not going to get a lot worse, but it won't get better either. Some sectors will do better, but nobody is 'rotating' anything - we get what we get, whoever still remains here after making a strategic decision to get out of this state.

'Education' is like 'stimulus' - it does not produce anything, while everything else is outsourced, including defense (to TX for example, as Boston ITer correctly noted). A defense job that is moved will not be created in MA again in many years - defense has a certain number of jobs that doesn't grows beyond the capacity to support them, and the next 5 years is when the number of jobs contracts for a long time to come). I didn't know that over 100k jobs in MA are defense-related. MA is non-diversified - finance (will keep getting hit), defense (is in the process of being relocated and re-targeted to production), and state employees (in the process of getting cut because of big budget shortfalls). So in short, I don't see any bright spots in the next 5-10 years.
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mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Sun Dec 19, 2010 3:50 pm GMT    Post subject: Reply with quote

GenXer wrote:
I don't disagree that many towns will not see a high unemployment. It is the type of unemployment I'm having beef with. it is one thing if a stop and shop cashier is laid off, and another - if its a biotech PhD, or a PhD in Math/CS.


I dont follow your logic. CL has just presented some data which shows
the unemployment rate in these towns is comparatively low. Its
presumably even lower in the groups you talk about since these towns
are not *exclusively* made up of high paid professionals.

So the unemployment in this group is much lower. What are you saying
with your (purely anecdotal, data free) argument ? If you agree these
towns will not see high unemployment, are you saying that these numbers
come off an even lower base ? Do you have any data to back that up ?

GenXer wrote:

www.litovskymanagement.com


I'll just say that I don't think a one-eyed world view is very helpful for a financial adviser. If you tend to focus only on one set of risks, you
inevitably expose your clients to other sets of risks.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Mon Dec 20, 2010 1:11 am GMT    Post subject: Reply with quote

Quote:
MA is non-diversified - finance (will keep getting hit), defense (is in the process of being relocated and re-targeted to production), and state employees (in the process of getting cut because of big budget shortfalls). So in short, I don't see any bright spots in the next 5-10 years.


It's not all doom and gloom out there. The MA based high-tech company where I work is hiring hundreds of people in state.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Dec 20, 2010 2:45 am GMT    Post subject: Reply with quote

Of course, they are hiring. The problem is the skill set is not there. They are hiring, yet they still have 'hundreds' of openings. I see exactly the same thing happening in many other companies in MA. The problem is, the only way they'll fill those positions is if they import people out of state (which I see is happening), but the only other state that can supply the type of workforce needed is CA...in short, many of these jobs will remain open. But again, open positions mostly excludes State employment, Defense, Biotech and several other industries that got hit (for example, construction companies who hired electrical designers). Most graduates in MA do not have the skills to hold many of these high end jobs. So they'll either have to rely on parents, or move out of state. So far they are relying on parents or pretty much making just enough to make the ends meet. This is not just about finding jobs for the laid off, which may be impossible since their skills don't match what's needed. Think about all of the newly graduated who will not have jobs as well. Most of the current graduates of law schools will be without work. At best, the new graduates will be underemployed, if they are lucky.

Actual 'unemployment' is probably 2x what the 'official' numbers are, because of everybody who stopped receiving benefits and because of everybody else who decided to stop working altogether (and receive social security). But even if Newton unemployment is 10% (it is probably even higher), the only effect of that is the added fragility in case of future shocks to the economy, since that probably means that less families have the 2nd spouse working (and have unemployed or underemployed kids to support as well). The canary in the coalmine will be CA - I do not think we'll outcrash them.

Anyway, all of this is just speculation, and the usual disclaimer applies. I simply don't see house prices rising - if anything, rents have fallen by quite a lot, and now house prices have some catching up to do to get to where the rents are (take a look at Patrick's latest calculator - it is quite nice). The longer this type of economy continues, the more difficult it will be in the future to recover.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Mon Dec 20, 2010 1:28 pm GMT    Post subject: Reply with quote

Quote:
The problem is the skill set is not there. They are hiring, yet they still have 'hundreds' of openings. I see exactly the same thing happening in many other companies in MA. The problem is, the only way they'll fill those positions is if they import people out of state (which I see is happening), but the only other state that can supply the type of workforce needed is CA...in short, many of these jobs will remain open.


Talented people from all over the world come to MA to fill these positions. That seems like a good thing for the MA economy.
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Kaidran



Joined: 17 Mar 2010
Posts: 289

PostPosted: Mon Dec 20, 2010 1:32 pm GMT    Post subject: Reply with quote

I think the high tech unemployment is much lower than lower skilled. Apologies for the old data but there was an NPR story recently saying essentially the same thing looking at more recent data.

http://www.bls.gov/emp/ep_chart_001.htm

I'm not sure how companies taking people out of MA play into this. If this is not significant I'd guess this is one reason we are not seeing significant price drops in the nicer towns yet.

Also I think that it is a generally accepted strategy to maintain operations in many different states. That way you can dampen political efforts to cut spending on that sector. I think the data on how much defense work goes on in MA was paid for by the industry to stop MA politicians pushing cutting defense budgets. If they all move to TX that argument will no longer hold.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Dec 20, 2010 10:54 pm GMT    Post subject: Reply with quote

Some people do come to MA from all over the world, but its probably a small handful. You can't just work here without the right visa, and I'd say, good luck trying to get one - there are very few of these around.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Tue Dec 21, 2010 1:29 pm GMT    Post subject: Reply with quote

Quote:
Some people do come to MA from all over the world, but its probably a small handful.


There are currently 65K H1-B work visas issued each year, plus another 20K for foreign nationals holding a master’s or higher degree from U.S. universities. I imagine a good chunk of those are in MA.
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CL
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PostPosted: Tue Dec 21, 2010 1:39 pm GMT    Post subject: Reply with quote

As far as I know the last couple years there are surplus of H1 visas, so visa in itself is not the bottle-neck.

I don't think the housing will go up a lot too. But at the same time, I don't see a case where the bottom falling off, especially for these affluent/good school system towns. So if I am a potential buyer, with a range bound view in future home price, then the selection of home and level of interest rate becomes critical.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Tue Dec 21, 2010 3:15 pm GMT    Post subject: Reply with quote

I think that the MA economy is in a decent position compared to other states, but I don't think that means rising home prices. I think homes were overvalued at a national level, and the strength of the MA economy actually prevented steep drops like we saw in Florida and Nevada where the economy was based on housing. I think there will be a return to the historical mean, and it's just taking longer for MA to get there.
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GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Tue Dec 21, 2010 6:15 pm GMT    Post subject: Reply with quote

I think the point is that the 'strength' is relative, and we are yet to see what will happen when the state goes bankrupt like CA. While the house prices will probably not collapse, there is no telling where they will end up. We know for sure that it's only a matter of time until we are running huge deficits. Everybody knows that. While pension obligations may not be the highest, the waste that occurs in the state is so big that a protracted decrease in tax revenues (in part because of high taxes) will compound. I think this recession is just a start. If this 'new normal' continues and if there is another crisis at some point in the near future, I'm afraid that the house prices will not be range-bound anymore. Right now there is no shortage of 'greater fools' to buy that overpriced house in Newton, but another crisis could change that. What I'm saying is that nothing is getting better - it is getting worse, albeit slowly. It may take 5 or even 10 years for the whole thing to unwind, but unwind it will because expenses grow faster than the revenues, and we all know this is only a matter of time before this situation is either resolved or it will explode in our faces.
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