U.S. may not be in recession, but 170 metro areas could be

McClatchy NewspapersAugust 10, 2008 

WASHINGTON — The broad U.S. economy appears to have escaped a recession, most mainstream economists say, but that's of no comfort to most parts of the country, where economic pain is being felt virtually everyplace but oil-rich Texas and Oklahoma.

In fact, one respected economic forecaster estimates that 170 U.S. metropolitan areas could be considered technically in recession, and another 116 are at risk of economic contraction.

The national economy reflects the sum of many regional and local economies, so at any given time there are always winners and losers. But today's slowdown is unique. It isn't driven by the usual business cycle; it was brought on by severe nationwide problems in the housing sector, which have spread to banking and finance, drying up consumer lending.

That's why a lot of metro areas are losers right now, even while the broader economy technically isn't in recession.

"Usually in national recessions, there are one region or two that get completely crushed and everyone else holds up well. . . . That's not the case this go around," said Mark Zandi, the chief economist for Moody's Economy.com, a forecaster in West Chester, Pa. "The only big economy that has held together well is Texas. Everywhere else it is shades of black."

The culprit in many regions is clear.

"The two key common denominators are housing and autos, but it is broadening out now, and financial services are becoming more of a problem in more states" because of the growing pullback in consumer lending, Zandi said.

Moody's Economy.com compiles a monthly state-by-state list of metropolitan areas and gauges whether they're in expansion, at risk or in recession. Moody's latest reading shows that nearly two-thirds of the nation, based on economic statistics, is in or very near recession.

Using June data, Moody's estimates that 170 metro areas are in recession. Together they make up about 43 percent of metropolitan employment nationwide. That's up from 142 metropolitan areas in May.

Moody's research suggests that 116 metro areas are at risk of recession, about 25 percent of metropolitan employment nationwide. That leaves roughly 32 percent of the nation's biggest metro areas, 94 of them, with expanding economies. In May, 106 metropolitan communities were expanding.

The biggest losers include industrial Midwestern states such as Ohio, Michigan, Indiana and Wisconsin. Deep problems in auto manufacturing, exacerbated by bad bets on SUV production as gasoline prices rose, have hurt those states. The housing crunch has made a bad situation worse.

"Michigan is either the weakest or second weakest economy, mostly due to the misfortunes of the auto industry," said Mark Vitner, senior economist for Wachovia, the big national bank based in Charlotte, N.C. "Aside from Michigan, the rest of the Midwest is generally struggling with weakness in the auto sector and other consumer durable goods."

Other obvious losers include Florida, Nevada and Arizona, states that are experiencing the biggest collapse in home prices after the biggest run-up in prices during the boom of 2001 to 2005. Their turnarounds will depend largely on when the housing freefall bottoms out.

Just when that will be remains a vexing question.

"What's scary to me is I can't get a handle on that," said Miami Mayor Manny Diaz, whose city is among the hardest hit by the housing slump.

The nation's most populous state, California, is a mixed bag. It has four metro areas in expansion, the two big agriculture centers of Bakersfield and Hanford and tech-heavy San Francisco and San Jose.

Most of the rest of the state is suffering hard times, thanks to the severe housing crisis, with 16 metro areas in recession and eight at risk.

As for hard-hit Florida, under the Moody's Economy.com list only one metro area in the Sunshine State — the Sebastian/Vero Beach area — is expanding. Areas such as Bradenton, Tampa and Miami are considered in recession, while tourist-filled Orlando is at risk of recession.

States or metro areas that make up the few winners in today's national economy tend to have their fortunes hitched to energy or technology. High oil prices have benefited Texas and parts of Oklahoma.

Moody's lists virtually all of Texas as in expansion except for a few areas along the border with Mexico and the northern and western cities of Lubbock, San Angelo and Amarillo.

The health-care industry and higher education are two of the few job gainers in the national economy, and health- and education-heavy economies such as Massachusetts and Maryland have largely been in expansion.

Export-driven metro areas such as Seattle and Dallas also are doing well. Washington state benefits not only from exports of Boeing's aircraft but also natural-resource commodities such as timber and produce.

"Anything related to technology and aerospace has held up, because that's export-oriented and kind of fits the story line," Zandi said.

Areas of the Southeast with newer foreign-auto manufacturing operations and technology hubs also are doing well.

"North Carolina, Tennessee and Texas all appear to be gaining. . . . Exports are up, however, particularly for capital equipment and forestry and mining products," Vitner said.

"In addition, production is being shifted back to many of these states from overseas. BMW is downsizing in Germany and expanding in Spartanburg, S.C. Volkswagen just announced a new plant will be built in Chattanooga (Tenn.), and Kia is building a plant near LaGrange, Georgia," he said.

These Southeastern states also tend to have escaped the worse of the housing crunch.

"The Carolinas, Tennessee, Georgia and Alabama are holding up better than many other parts of the country because their housing markets never really got overpriced, like Florida, Washington, D.C., and California," Vitner said.

"As a result, population growth has remained strong and actually accelerated in the Carolinas. Increased foreign direct investment has been an added plus, particularly in Alabama and Georgia," he said.

By Moody's measure, six North Carolina metro areas, including Charlotte and Raleigh, are in expansion, while five are considered to be in recession and two — Greenville and Wilmington — are at risk.

The Federal Reserve's 12 district banks assess regional business conditions eight times a year in a publication called the Beige Book. The latest edition came out July 23. In it, the five eastern Fed districts reported softening or weakening economies. Chicago described its region as sluggish, Kansas City cited a "moderation in growth" and San Francisco reported "little or no growth."

Some areas saw tepid growth. St. Louis noted "stable" economic activity, while Cleveland and Minneapolis described slight increases in economic activity. The only one of the 12 Fed banks to tout a strong regional economy was Dallas, which described growth as "steady and moderate."

The Fed district banks reported almost unanimously that consumer spending — which drives about 70 percent of economic activity — was sluggish. They said demand for services was mixed at best, with some increase in information technology and health care. Manufacturing activity fell across the board except for products being made for export, thanks to the weak dollar.

On the Web:

The complete metro survey by Moody's Economy.com

State-by-state recession risks

The Fed's latest Beige Book

More from McClatchy:

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Mounting job losses point to more economic troubles

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