August 5, 2023 | Jobs Report, Job Openings, Shopping Malls, Trucking Company and Reviewing our Home and Auto Insurance

Smart Investing with Brent & Chase Wilsey

Jobs Report
The Jobs report showed nonfarm payrolls grew by 187,000 in the month of July, which missed the estimate of 200,000. The unemployment rate ticked down to 3.5% vs the estimate it would hold at 3.6%. Areas of strength included healthcare and social assistance (+87,100), construction (+19,000), and leisure and hospitality (+17,000). Healthcare in particular has been on fire lately as it has accounted for 35% of the job gains in the past 3 months. There were some areas of weakness which included manufacturing (-2,000), professional and business services (-8,000), transportation and warehousing (-8,400), and information (-12,000). Professional and business services were weighed down by a loss of more than 22,000 jobs for temporary help services. Wages were a positive in the report as average hourly earnings grew 4.4% compared to last year which surpassed the estimate of 4.2%. At this rate I would say the growth is not excessive, but it is always growing above the recent inflation rate which is good for consumption. Overall, I would say this report is not very exciting as it really doesn’t show us anything new. The labor market is softening, but it still remains in a good spot.

Job Openings
Job openings in the month of June of 9.58 million were below the estimate of 9.7 million and they were at the lowest level since April 2021. Compared to last June they were down 12.6% or by 1.4 million openings. This sounds troubling, but it is important to understand there are still 1.6 job openings out there for every available worker. Also, even with the decline we still have a very strong labor market. Looking back to February 2020, job openings totaled just 7 million and in 2019 they averaged just 7.2 million per month. Layoffs were a positive in June as they came in at just 1.5 million. In February 2020, before Covid, layoffs were close to 2 million and in 2019 they averaged 1.8 million per month. The labor market will likely continue to soften as the economy normalizes from the Covid disruption just a few years ago.

Shopping Malls
It’s no surprise that malls that were big 10 to 20 years ago are now struggling. This has caused a problem where malls are now worth 50 to 70% less than the valuation peak back in 2016. Roughly 20% of all malls financed through commercial mortgage-backed securities are underwater because the loans are much higher than the value of the property. What has been hurting the malls is large anchors like Macy’s, JCPenney and Sears have closed nearly 900 department stores between 2018 and 2020. This is a big jump from the 175 they closed from 2016 to 2017. Not all malls will go out of business. What has worked is newer, well located properties that have strong tenants and have generated healthy traffic. A good comparison here in San Diego would be North County Fair in Escondido, which looks like a ghost town compared to Fashion Valley, which is in the middle of a remodel, and still has a good amount of traffic in stores worth going to. I would caution investors to be wary of trying to pick up bargain prices on these properties. I’m sure some will survive, but I would say overall in five years we will see many less malls and in my opinion they are not worth risking capital on as an investment.

Trucking Company
The trucking company Yellow was forced into bankruptcy because of three things in my opinion. The first was bad management, which caused the second problem of acquiring companies and piling on debt. This includes acquisitions like in 2003 when they bought Roadway for $1 billion and just two years later USF for nearly $1.4 billion. Number three was labor costs that were pushed to high levels by unions and their 22,000 workers. Approximately 7,000 employees were nonunion. This company filed bankruptcy in 1951 then again in 2010 they wiped out most of the shareholder value to get the union to agree to cuts of benefits and pay. They also had issues with bankruptcy in 2014 and once again during Covid in 2020. The company may still continue to operate in bankruptcy, but the shareholders will likely lose most if not all of their money. Old contracts are worthless and the bond holders may get some type of a deal. Roughly half of the companies $1.5 billion in outstanding debt was owed to the federal government who loaned the company money during Covid to keep them afloat. This is why at my investment firm, Wilsey Asset Management, we pay close attention to the balance sheet and debt levels.