wolfhounds (< 20)

The "Child Care Index" reflection of the economy

June 16, 2009 – Comments (0) | RELATED TICKERS: LZB , BAC , RTH

First, a thank you to all the Fools who kept me busy this miserably rainy weekend in NY with your insiteful and contrary views of where the economy and market is heading. After listening to the LZB podcast this morning, the article I read recently about child care businesses declining put things into focus.

I make no claims of knowing how long this recession will continue. I do think there is evidence nobody knows.

In the lower Hudson Valley, comprising Westchester, Rockland, and Putnam counties, the unemployment rate at the end of may stood at 6.5%. At first blush that is much better than the national average, but it's up 40% in 12 months. Major child care facilities in the area point to a continuation of job losses and virtually no new jobs available. At the Community YMCA of Northern Wesrchester, the number of children who dropped out during the school year jumped from 30 to 125. The Director attributed this to the financial hardship of a parent losing a job. She states that the job losses are increasing each week.

The Director of the New Rochelle Day Nursery, who didn't provide numbers, stated that there has been a large increase of families who are behind in their payments. One stated bluntly, "either I pay you, or I pay the rent". After losing her goverment child care subsidy because she's not working, both children were pulled out. The Child Care Council of Westchester is offering scholarships to newly unemployed parents so they can look for work. Without the money from a Social Services subsidy, these people would be in a double bind.

The same stories flow from the White Plains YMCA, and the Palisades Schoolhouse in Blauvelt. Enrollment drops do to job losses run 25-40% there. 

This issue is close to home for me because my son in law lost his child care business due to parents losing jobs. As grandparents, my wife and I now have to provide much of the after school child care while he is unemployed. Like numerous people mentioned in the article, there have been some interviews but no takers. 

Does it get better? I mentioned the LZB conference call this morning. I decided to tune in after the BBY earnings report that stated that sales continue to fall. This after CC went belly up. Same for BBBY sales after Linens went belly up. Back up the truck and we load up on EBHI, Extended Stay Hotels (bankrupt today - WFC and BAC on the hook), Six Flags, Filene's; well you get the picture. LZB is surviving the same way it's bigger brethren are - cutting inventory and their VIE dealer network. Management admits this hasn't provided much benefit. This allowed them to post a profit, but the devil is always in the details. And the details point to pains of survival as consumers disappear. Management believes that sales may stabalize after a severe downturn the past nine months. (The patient survived the operation but may die of complications). LZB has a large valuation reserve for deferred tax assets (read NOL losses) that will written off. In English, this means the possibility of realizing the benefit of these loss carryforwards is zero.

LZB's fortunes are the result of consumers misfortunes. They aren't the largest retailer, but reflect what I dubbed the "Child Care Index". One can gauge consumers willingness to part with what money they do have to what they need for survival. That won't appear in any 50 day MA line, but will continue to appear in the monthly unemployment figues. It appears in monthly housing data that shows multi dwelling units up and single family units in the toilet. Renters are increasing, and they are forced to do with less. Those are the facts.