Downturn Cuts an Uneven Path Across Nation : Economy: New England and New York are already in a recession, but some analysts believe that the Northwest and Southwest may be spared a serious slump.
The widely predicted economic downturn appears to have begun in earnest, but its impact so far appears to be spotty.
Pockets of the country, notably the Southwest and Midwest, so far have avoided a severe slump, while New England, New York and a few other areas have already fallen into a recession, a report by regional Federal Reserve banks showed Wednesday.
California, meanwhile, seems to fall in between. The state’s economy continues to grow but at a much slower pace than a year ago, economists said.
The patchiness of the current slump appears to be almost the reverse of the so-called bi-coastal boom that the American economy experienced in the 1980s, when the Northeast and California were growing far more rapidly than the rest of the nation.
The Fed’s new report confirms that the Northeast and the Middle Atlantic states began to experience a downturn early. “The East Coast looks pretty terrible right now,” said Gordon Richards, economist at the National Assn. of Manufacturers in Washington.
Still, although economists say that the overall national economy is probably in a recession, many analysts believe that at least a few regions--including parts of the Midwest, the Pacific Northwest and the long-suffering Southwest--may be spared any serious slump.
Some economists believe that these wide variations among individual regions may help prevent the current downturn from turning into a deep recession, because so many areas are expected to hold up well and thus buoy the overall economy.
The good economic news is coming from some surprising places: Cleveland, for example, which lost many jobs during the recession of the early 1980s, is enjoying fast growth in its manufacturing industries, which are benefiting from strong export sales.
Texas also seems a likely candidate to avoid the worst of the current downturn. Its economy began turning up in the late 1980s, after real estate, energy prices and employment all hit bottom.
Now, that state’s economy is far more diversified than it was during the energy crisis of the late 1970s and early 1980s and should be able to avoid another boom-bust cycle.
“The slump in the rest of the nation has hit worst in areas closely tied to the financial services and real estate markets, and we have already hit bottom in those areas and now we have stabilized,” said Harvey Rosenblum, an economist with the Federal Reserve Bank of Dallas. The Pacific Northwest is clearly the strongest area in the nation, led by the surging economy of Seattle. Job growth in the Seattle area has been running at a 6% annual rate, led by gains in the computer software and aerospace industries.
“The Northwest is going to cool off but I still think it is going to be the hottest region throughout the 1990s,” said Jerry Jordan, chief economist at First Interstate Bank in Los Angeles.
California, despite the ongoing slump in real estate and job cuts in defense, is also still showing some strength.
A new forecast by First Interstate predicts that the Los Angeles-Long Beach area and the state as a whole will continue to add jobs throughout 1991. The rate of employment growth in Southern California “is coming down fast, but growth is still positive,” Jordan said.
Areas such as the Great Plains states and the Great Lakes, which never experienced the real estate speculation of the 1980s, so far have avoided the steep declines in property values that have depressed investment and spending on the East Coast.
By contrast, in New York and New England, economists are bracing for a deep and long recession. The new Fed report found that homes in New England now remain on the market an average of 150 days before being sold--compared to an average of 30 days in the mid-1980s.
“We expect the recession in this region to continue until the summer of 1991 at least,” warned Sara Johnson, an economist at DRI-McGraw Hill, an economic forecasting firm based in Lexington, Mass.
She noted that the economic woes of the Northeast are not confined to Massachusetts and New York. New Hampshire, for example, has suffered a 7% decline in the number of jobs since the end of 1988.
Yet, even within some regions, there are wide variations in economic conditions.
Although Cleveland and Chicago both remain healthy, other Midwestern cities--especially Detroit--are feeling the effects of layoffs in the auto industry resulting from the downturn in consumer spending.
“Michigan is in a slump,” David Littman, an economist at Manufacturers National Bank of Detroit, said flatly.
“The residential real estate market has remained relatively strong in the state, because we never had the excesses that plagued the Northeast,” Littman added. “But it is still very difficult for Detroit and the Midwest in general to continue to grow for long if national consumer spending stops.”
“I would describe the economy now as like an engine, with some pistons rising while others are falling,” said First Interstate’s Jordan.
“The New England states and New York are certainly already in a recession,” Jordan said. “They are losing employment. But the West Coast, especially the Pacific Northwest, is quite strong. And I was just in Dallas, where people (are) saying: ‘Hey, we already had a recession--two years ago.’ ”
