Brookings: McAllen Metro Leading Nation's Recovery
Article courtesy of The Brookings Institution
Nationwide, the recession is over—at least in the view of most economists in light of third quarter 2009 indicators. They revealed a real U.S. gross domestic product (GDP) increasing at a 2.8 percent annual rate, after four consecutive quarters of contraction. Most interpreted that rate of output growth, along with other signals such as increasing housing prices, as indication that the economic recovery is underway.
Yet the recovery seems fragile. The output increase may have resulted largely from the replenishment of manufacturing inventories and from temporary federal policies: the “cash-for-clunkers” program (already over), the first-time homebuyer tax credit (now extended through April 2010), and the American Recovery and Reinvestment Act’s economic stimulus. As the effects of these policies recede, the recovery could slow or give way to yet another recession or a prolonged period of economic stagnation.
Real recovery in the labor market, moreover, remains elusive. Although output grew between July and September of 2009, the total number of U.S. jobs continued to decline. Payroll employment dropped by about 600,000 during the third quarter (about half the decline of the previous quarter), and the unemployment rate climbed to 9.8 percent by September. While the most recent national-level report showed a significant slowing of job losses in November, and a slight downtick in unemployment, the national economy still seems a long way from posting the sustained job gains that would meaningfully lower unemployment and boost incomes.
Focusing on national aggregates, however, overlooks the fact that just as the American economy is not the same everywhere, neither is the recovery. The U.S. economy’s performance is driven largely by that of its major metropolitan economies, some of which are recovering and some of which are still in recession. Several of the nation’s 100 largest metropolitan areas posted signs of robust economic growth in the third quarter of 2009, most showed a mixed though improving performance across their headline indicators, and some remained mired in recession with no signs that recovery is around the corner.
The MetroMonitor, an interactive barometer of the health of America’s metropolitan economies, looks “beneath the hood” of national economic statistics to portray the diverse metropolitan landscape of recession and recovery across the country. It aims to enhance understanding of the local underpinnings of national economic trends, and to promote public- and private-sector responses to the downturn that take into account metro areas’ distinct strengths and weaknesses.
This edition of the Monitor examines indicators through the third quarter of 2009 (ending in September) in the areas of employment, unemployment, output, home prices, and foreclosure rates for the nation’s 100 largest metropolitan areas. It finds that:
Metro areas continued to register highly disparate economic performance even as the nation showed early signs of recovery. Several communities in the nation’s manufacturing belt that suffered large job and output losses since the recession began posted relative gains in the newest index. But the strongest performing areas in the Monitor’s overall index (that is, those that have suffered least or shown signs of having the strongest economic recoveries since the start of the recession) remained in the country’s southern midsection, especially Texas. A few new bright spots appeared in Upstate New York and the Heartland. The weakest performers shifted even more strongly toward California, in part because of large recent increases in unemployment. Florida still is home to several of the lowest-ranking metropolitan performers nationwide.
Six metro areas—Albuquerque, Austin, McAllen, San Antonio, Virginia Beach, and Washington, DC—had regained their pre-recession peak level of output by the third quarter. Just one metro area (McAllen) regained its pre-recession peak employment level. No metropolitan area had a lower unemployment rate in September than it did one year earlier, though increases over that period ranged widely, from a little over 1 percentage point to more than 8 percentage points.
Recovery seemed to be underway in most metro areas, but job growth remained spotty. In line with strong GDP growth nationally, gross metropolitan product (GMP) expanded during the third quarter of this year in 92 of the 100 largest metro areas, up from just 20 that had GMP growth in the second quarter. Only 13 of those metro areas, however, posted employment gains as well. Ten metropolitan areas (Greenville, Jackson, McAllen, New Orleans, New York, Omaha, Raleigh, Syracuse, Washington, and Worcester) managed to post faster growth in both jobs and GMP in the third quarter than in the second quarter. Two-thirds of metropolitan areas saw GMP growth accelerate, and job losses decelerate, between the second and third quarters. Metro areas that lost both jobs and GMP were Albany, Cape Coral, Chicago, Portland (OR), and four regions in Pennsylvania.
The first-time homebuyer tax credit appeared to boost economic growth in nearly all metro areas. Real estate output (GMP), which includes payments to real estate brokers, appraisers, and other workers and companies whose earnings come largely from real estate sales, grew in the third quarter in all but five (Cape Coral, New Orleans, New York, Palm Bay, and Portland (OR)) of the 100 largest metropolitan areas, compared to only 35 metro areas in the second quarter. Moreover, the growth rate of real estate GMP was higher in the third quarter than in the second quarter in all but two metro areas (Palm Bay and Cape Coral). Although there are many factors that influence the housing market, these developments may have resulted in part from accelerated use of the first-time homebuyer tax credit in the third quarter, particularly in anticipation of its scheduled expiration in November 2009 (Congress subsequently extended the credit through April 2010). Because the homebuyer tax credit probably affected GMP in nearly all metro areas, the credit did not boost the overall rankings of metro areas that suffered from the collapse of their housing markets during the last few years.
The “cash-for-clunkers” program boosted economic growth in most metro areas, and probably accounted for the improved rankings of auto production-specialized metro areas. Output (GMP) in auto and transportation equipment manufacturing increased in 59 metro areas in the third quarter— including seven of the 12 metro areas that specialize most strongly in auto and auto parts manufacturing (Columbus, Dayton, Indianapolis, Jackson, Knoxville, Toledo, and Youngstown)—compared to just 23 in the second quarter. Even in metro areas where auto and transportation equipment output fell in the third quarter, it fell at a slower rate than in the second quarter. These developments probably resulted from the cash-for-clunkers program and perhaps from some inventory replenishment that might have occurred anyway. Of the 12 metro areas that specialize most strongly in auto and auto parts production, only one (Detroit) was among the 20 weakest-performing metro areas in this MetroMonitor’s overall ranking, compared to five (Dayton, Detroit, Grand Rapids, Toledo, and Youngstown) in the previous edition of the MetroMonitor.
The rate of metropolitan job losses in construction, manufacturing, and administrative services slowed considerably in the third quarter. The vast majority of metro areas continued to shed construction, manufacturing, and administrative services jobs, although at a slower pace than in the second quarter. The slowing of job losses in construction probably reflects the impact of the first-time homebuyer tax credit, while the moderating pace of job losses in manufacturing probably reflects the influence of the cash-for-clunkers program and some inventory replenishment. Hospitality employment across the 100 largest metro areas actually grew modestly, after declining more than 2 percent in the second quarter. Most metro areas added jobs in education and health care in the third quarter. More worryingly, retail job losses accelerated, and the government sector failed to grow after expanding in the second quarter. The latter trend reflects newly declining government job levels in several metro areas that include state capitals, likely in response to deteriorating state budget conditions.
Home prices stabilized or grew in an increasing number of metro areas, but inventories of real estate-owned properties (REOs) continued to mount overall. In 49 metro areas, home prices in the third quarter were up from their levels one year earlier, an increase from 43 metro areas in the prior quarter. What effect the federal homebuyer tax credit may have had on these trends was unclear, as a similar improvement occurred in the second quarter compared to the first quarter. Four metro areas in Ohio—Akron, Cleveland, Dayton, and Toledo—joined the list of those posting year-over-year price gains. These and 78 other metropolitan areas, however, saw increases in REOs during the third quarter, signaling potential threats to sustained home price growth. Florida metro areas, in particular, saw mounting REOs between June and September. REOs declined precipitously in most California metro areas, likely reflecting impacts of that state’s new foreclosure law.
Widespread output growth at the metropolitan level during the third quarter of 2009 was a sign of a nascent nationwide economic recovery. However, the potential duration and long-term strength of the recovery should not be overstated. In nearly all the 92 metro areas that had GMP growth in the third quarter, at least some of the recovery seemed to be the result of temporary factors. Relatively few metro areas gained jobs during the quarter. In addition, vast differences in performance continued to separate the strongest and weakest performing metropolitan areas.
As the administration and Congress consider new proposals to improve the nation’s dismal jobs picture, they must be alert to differences in labor market performance among metropolitan areas. In particular, they should craft policies that provide the biggest employment boost to places that need new jobs the most. The nation’s Cape Corals and Detroits need more help with job creation than its McAllens and Austins, and strategies to foster a broad national economic resurgence should recognize and address recovery’s metropolitan underpinnings.