"I'm not as happy now as I was last year," says George Dunn, a stockbroker in the Dean Witter, Reynolds' office on K Street NW. "My level of tension is up--a downturn like this is uncomfortable."
Dunn estimates that his business--or what brokers call "production"--is down about 25 percent from last year. Since he's paid strictly on commission, Dunn's income suffers when his customers aren't buying and selling stocks.
The nine-year veteran of the highly cyclical securities industry says his situation is like that of most brokers: Stock trading and commission income is down considerably, but life is not as bleak as it was in previous recessions.
"I remember driving home in 1974 and thinking, 'My God, the world is coming to an end.' " Now, Dunn says, nothing approaching those thoughts is crossing his mind, "I'm not worrying about having a job."
A sampling of stockbrokers--from small Washington offices to the biggest in the business--indicates stock trading volume is off 10 percent to 25 percent from last year.
Volume on the American Stock Exchange, where 70 percent of the trading is down by individual investors, was down substantially over last year. For the first five months of 1982 a total of 487 million shares were traded, compared with 666 million shares for the same period in 1981.
New York Stock Exchange volume is actually ahead slightly over last year, rising from 4,976 million shares for the first five months of 1981 to 5,374 for the same period this year.
Statisticians at both the New York and American Exchanges report the volume of small trades down substantially. The New York Exchange's gain in volume is attributed to a 50 percent increase in large block trading, primarily carried out by institutional investors who do not use retail brokerage houses.
On the New York Exchange trading in blocks larger than 10,000 shares was up from a total of 1.4 million shares in the first five months of 1981 to 2.1 million shares during the same period this year.
While retail trading is down sharply, profits in the brokerage industry are also off substantially. The 400 New York Stock Exchange members who do business with the public reported pretax profits in the first quarter of 1982 were 75 percent lower than in the first quarter of 1981.
Return on equity also plunged. In 1981 the industry averaged a 19.2 percent after-tax return on equity; for the first quarter of this year the figure was 5.4 percent.
Merrill Lynch Pierce Fenner & Smith, Inc., the largest publicly held brokerage house in the country is suffering along with the rest of the industry.
Its profits were off about one-third from the first quarter of 1981 to the first quarter of 1982. Net earnings dropped from $45 million or $1.17 per share to $30 million or $.76 per share.
Merrill Lynch recently announced that it is closing its Bethesda office, laying off eight brokers and transferring 23 others. Representatives of Merrill Lynch say, however, that the office is being closed because its lease expired and no new location can be found. They say that the decision has nothing to do with the depressed state of the brokerage industry.
No other layoffs or office closures have been announced or planned by major brokers doing business in the Washington area.
(Profit data for major brokerage houses Bache Halsey Stuart Shields, Inc. and Dean Witter have been unavailable since their acquisitions by Prudential Insurance Co. of American and Sears Roebuck, & Co. respectively.)
Industry analysts expect the depressed profits to continue through the second quarter and, unless the economy recovers soon, well into the fall.
But the securities industry, which traditionally suffers during economic downturns, is far more diversified now than it was in the 1974 recession--the last major slump in the economy. That diversification has apparently enabled the industry to avoid the heavy losses, exodus of brokers, and high personal toll which have previously been the rule during recession.
Instead of handling only stocks and bonds, brokerage firms now do an increasing share of their business in so-called "off-board" investments. These include money market funds, insurance, individual retirement accounts and tax shelters such as real estate partnerships, equipment leasing and oil and gas exploration and development.
"The diversification in the industry is certainly mitigating the effects on individual brokers," says Julian Gillespie, executive vice president of the Washington-based brokerage firm Johnston-Lemon.
Perrin Long, an analyst with Lipper Analytical Distributors in New York, says such non-traditional business now accounts for about half of the average broker's production, up sharply over the last few years. And that off-board business, brokers say, frequently does better during recessions when people search for alternative ways to invest.
"It's really been very encouraging to see that you can do a substantial amount of business even in the worst of conditions--and believe me, it's the worst," says Mike Roberts, a broker with Bache in Chevy Chase.
Despite the relief which diversification has brought, morale among most local brokers is low. "I sense quite a lot of pessimism among my brokers," says Carol Rollinson, who manages the Chevy Chase Bache office.
Although Roberts says he is "encouraged," he acknowledges, "this is a very tough time to persuade people to buy stocks."
The plight of Washington's brokers is considered less severe than that of their counterparts in some other parts of the country. In the New York brokerage community, says John Burnham, executive vice president of Drexel Burnham Lambert, "The gloom is so thick here you can cut it with a knife."
Local brokers say Washington's traditional resistance to recession helps provide a cushion for the securities industry here. "We'll be off a little less than the rest of the country," says Melvin Wright, Dean Witter's regional director.
Brokers here are also estimated to make about 25 percent more than the national average, with a good broker with several years of experience expected to make between $50,000 and $60,000 per year.
Perhaps the most troubling development in the brokerage industry has been the drop in stock trading by individual investors, the so-called "little guy."
Fifteen years ago these retail clients made up about two-thirds of the trading volume on the New York Stock Exchange. Now they account for no more than 30 percent--and by some estimates, even less. Declares Drexel's John Burnham, "The retail client is just gone from the market."
That's bad news for brokerage houses who have traditionally depended upon trading by "little guys." Most of the major brokerage houses still do the bulk of their stock business with individuals. Dean Witter's Wright says that 80 percent of its stock trading is with individuals.
Individual investors have largely fled the stock market to higher yielding money market funds, but since many brokerage firms also offer money market funds, the money remains in the same hand. But the profits of managing a money market fund are far less than a firm can earn buying and selling securities and brokers are not paid commissions for handling money market funds.