Regional and Industry Recession Effects

Patrick Jankowski, the Vice-President of Research for the Greater Houston Partnership, spoke Tuesday about the recession and its effects, both nationally and in Houston. His lecture was informative and fascinating, as it reminded our group of an important point about economics – local economics are influenced by national economics, but are not directly controlled by it. That is, while the entire nation is in a recession, different regions, industries, and demographic classes are effected by that recession, and the recovery from that recession is of varying lengths and difficulty, as well.

Take Detroit, for example. Detroit stands out among U.S. cities because, according to economic data, the city has been losing jobs (that is, fewer jobs have been created than have been lost in consecutive months) since May 2000, and currently suffers a 22.2% unemployment rate, one of 13 metropolitan areas with unemployment of 15% or higher, and 117 with unemployment at or above 10%.

This gives Detroit the unfortunate distinction of having one of the highest unemployment rate among metropolitan areas in the United States, as well as the longest recession specific to a metropolitan area. El Centro, California, has the worst unemployment at 30.1%, but El Centro is about one-three-hundredth the size of Detroit and has been in a condition of recession only since 2008.

It’s interesting to note that El Centro’s job base is agricultural, with significant retail and service sectors, while Detroit’s job base was heavily committed to the auto and truck building industry.

The flip side would be to consider those metropolitan areas which are not suffering badly from the recession. 12 metropolitan areas have unemployment rates ranging from 4.8% down to 2.9%, which would be envied by most of the nation. Three cities in North Dakota, two in Nebraska, two in South Dakota, two in Iowa, and one each in Utah, Kansas, and Montana make up that happy club.

It is reasonable, on the available data, to say that smaller towns have handled the recession with lower unemployment and shorter duration of job loss than have the major cities.

Industry matters in unemployment, as well. The highest unemployment by industry is in construction, durable goods manufacturing, leisure and hospitality services, business services and information technology, in that order. As a sector, government workers have by far the lowest unemployment rate, at 4.2%.

The landscape from the industry unemployment shows that all businesses are cutting non-essential costs, including research and development, growth activity, and service activities. Government, following its historical pattern, is making no effort at all to scale back costs or headcount. The problem there is that as foreclosures rise and tax revenue from income and sales falls, an inevitable shortfall will occur at most government levels, creating an incentive to raise tax rates at the time when taxpayers would most resent such actions. Possibility of a political backlash increases significantly for the 2010 and 2012 election cycles.

Mr. Jankowski also presented his forecast for economic recovery from the recession. In general, the recession will technically be over for most of the country by mid-to-late 2010, meaning that the economic conditions which define a recession will no longer be in place, but the effects of the recession will linger for some time afterwards. Specifically, Mr. Jankowski warned that it will take from one to four more years for the jobs lost in the recession to be replaced in full, to the extent that each metropolitan area will produce GDP equal or greater to what it was prior to the recession. That means it will be anywhere from 2010 to 2013 before the jobs lost in this recession are replaced at the same professional and wage level. And that cheery projection does not address the loss of career growth; the projection is that people who lost/lose their jobs in 2008-2012 will spend between 12 and 48 months finding a position equal to where they were when they lost their job; the savings lost while unemployed and the career growth which ordinarily would have happened in that time will be permanently lost, which may have significant meaning when the individual retires. Young workers will be competing with people still younger and cheaper than themselves, but with no superior experience or position to use to their advantage, and older workers will have to delay retirement or forget it altogether, as their savings decay from the cost of being unemployed. As a result, the effects of this recession will be felt by many people for a long time to come. In many situations the damage may be permanent.