Recession Seeps Into the Corners
Long before the recession made its national debut, it paid an early visit last year to Elkhart, Ind., a little industrial city that lives at the cutting edge of U.S. economic cycles.
Weeks went by before the chill winds swept through St. Louis and Chicago, as demand for a wide range of manufactured goods began to subside in late 2000. The downturn didn’t arrive in Dallas until the spring of 2001, when the technology sector’s travails descended on the city’s “telecom corridor.” It avoided Las Vegas altogether until Sept. 11, when the Strip suffered collateral damage from the attacks in New York and on the Pentagon.
Many economists expect this recession to be relatively shallow. Even so, the scar it leaves will be unusually wide. Unlike previous downturns that walloped some regions and left others untouched, this one has advanced in waves, spreading its pain to virtually every city, state and region in America.
“The defining characteristic of this recession is that it is so broad-based, across industries, across regions, across demographic groups and income groups,” said Mark Zandi, chief economist with Economy.com in West Chester, Pa. “Everyone has been touched, from the wealthiest to the poorest, from Boston to the Bay Area, from aerospace to the vehicle industry.”
To some extent, the broad contours of the downturn reflect successful diversification campaigns.
“Regional economies look a lot more like each other today than 10, 20, 30 years ago,” Zandi said. “We produce things now that have low transportation costs. You have chips in Phoenix, insurance in Des Moines, financial services in Jacksonville, [Fla.], credit cards in South Dakota. Businesses have set up shop everywhere.”
That could prove beneficial if it deters migration of people and businesses from one region to another, as occurred in the early 1990s as Southern California lost people to places such as Seattle and Denver, and the early 1980s, when huge numbers left Detroit for Houston.
Last week, the recession-dating committee of the National Bureau of Economic Research announced that the current contraction began in March, the point at which national employment started to decline. But its roots go much further.
Early last year, rising interest rates and higher energy prices were beginning to cool an economy that had grown like gangbusters for seven years. The turning point was the bursting of the high-tech bubble in March 2000, which ended the investment euphoria surrounding dot-com ventures and dampened expectations about profit growth in other industries.
Signs of Slowdown in Fall of 2000
The first wave of the slowdown rolled out in the fall of 2000 as consumers cut back on discretionary spending and businesses stopped buying equipment and started liquidating inventories. The effect was concentrated in the industrial Midwest and South, where layoffs gradually spread through traditional sectors such as autos, steel, textiles, furniture, paper and chemicals. Detroit, St. Louis, Birmingham, Ala., and Jackson, Miss., were among the initial victims.
Probably nobody felt the pain sooner than the 43,627 residents of Elkhart, where manufacturing accounts for more than 50% of the local job market.
Besides being the “band instrument capital of the world,” Elkhart churns out more recreational vehicles and mobile homes than just about anyplace else in America. Those are the kinds of big-ticket items that people stop buying first when the economy turns bad.
The recession knocked on Elkhart’s door a little more than a year ago.
“You had this company saying they were going to lay off 30 people and that company saying they would lay off 40. Then you would hear about another 50 or 60 jobs gone,” said Jerry Quatman, president of the United Way of Elkhart County. “It’s been a gradual thing.”
Two years ago, union workers in Elkhart went on strike because they were being forced to work too much overtime. Today, they are lucky to log 30 hours on their weekly time cards, if they can find work at all.
“Production fell off the table,” said Phil Harbert, regional president of 1st Source Bank in Elkhart. “There was a nervousness in the country about making big purchases.”
The pink slips started to proliferate in September and October last year. Sixty workers at the Coachmen Industries RV plant. More than 100 at Gunite, where workers machine wheel assemblies for big trucks. Thirty or so at CTS Corp., which makes electrical components for cars and computers. The list continues to grow.
Elkhart’s unemployment rate has more than doubled since the cycle began, from 2.4% in September 2000 to 5.7% last month. The number of homeless families has increased to 689 from fewer than 100, according to relief agencies.
“It’s going to be a long, hard winter,” said Chris Pollock of Heritage Group, an Elkhart financial services firm.
The second recessionary wave was caused by the virtual collapse of the nation’s information, computer and telecommunications industries in early 2001. Their rapid implosion clobbered technology-dependent metro areas such as San Jose, Portland, Ore., Boston, Austin, Texas, and Raleigh, N.C.
The tech downturn swept through the Dallas-Fort Worth area, where more than 600 telecommunications firms are clustered along U.S. 75 between Dallas and Richardson. Although the region is less reliant on technology than some others, the rout wiped out 15,000 jobs and pushed the local unemployment rate from 2.8% to 5.3%.
The layoffs began at telecom giants AT&T; Corp., and MCI, progressed to Nokia Corp., Ericsson, Nortel Networks, Lucent Technologies, Texas Instruments Inc. and WorldCom Inc. and finally cascaded to a host of smaller start-ups and support companies.
“It was pretty swift,” said Scott Grout, president of Chorum Technologies, a fiber-optics firm in Richardson that has weathered the storm.
The recession’s final wave was unleashed by the Sept. 11 terrorist attacks, which devastated the nation’s transportation and tourism industries along with much of lower Manhattan.
Besides New York, the casualties included tourist hot spots such as Orlando, Fla., and Honolulu, airline hubs such as Fort Worth and Denver, cargo hubs such as Memphis, Tenn., and Louisville, Ky., and aircraft manufacturing sites such as Seattle and Wichita, Kan.
The mono-economy of Las Vegas felt the effect in spades. Air traffic dropped, casino revenues fell and hotel occupancy declined to about 50%. Hotels and casinos laid off or cut the hours of about 15,000 workers.
“We were just standing around doing nothing,” said David Fusaro, a bellman at the Paris hotel-casino. “A lot of people became really concerned for their jobs.”
Altogether, the attacks have cost Las Vegas an estimated $20 million a day in lost revenues. While the visitor count has begun to recover in response to big reductions in room rates, it remains far below normal.
“Never before has this city taken such an economic hit,” said Keith Schwer, director of the Business and Economic Research Center at the University of Nevada, Las Vegas.
Besides the direct damage to travel and tourism, the shock of Sept. 11 has caused consumers to curtail their spending even more, leading to another round of production and employment cuts among traditional manufacturers.
Some metropolitan areas, such as Chicago, Nashville and Los Angeles, have been touched by more than one recessionary wave. In some cases, the cumulative damage has been substantial.
In Chicago, employment declined in the fall and winter of 2000, recovered in early 2001 and then took big hits in June and September. By October, its 12-month job losses totaled 27,700, exceeded only by New York and Detroit.
“Chicago typifies what’s happened to this economy,” said Zandi, whose firm specializes in regional analyses. “It got pulled down notch by notch. Now it’s in a full-blown recession.”
Atlanta, which shed 27,100 jobs over the last year, is not far behind. The city’s technology industry took a big hit in the spring, and its transportation and tourism sectors suffered after Sept. 11. Delta Air Lines alone has cut 3,500 positions.
Portland, with its heavy concentration of high-tech employers, was hurt badly by this year’s tech meltdown. But the first signs of trouble actually appeared in mid-2000, when the Northwest’s aluminum industry was jolted by electricity price spikes and Freightliner, a big truck manufacturer, began laying off employees.
Recession Felt Before Announcement
By the time the National Bureau of Economic Research got around to certifying the recession, 263 of the nation’s 331 metropolitan areas were recording higher jobless rates than a year earlier. Unemployment rose in all but one of the 50 biggest metropolitan areas. The largest increase was recorded in San Jose, where the technology bust boosted the jobless rate from 1.6% in October 2000 to 6.4% last month.
In a report issued last week, all 12 of the Federal Reserve’s district banks cited signs of widespread economic weakness in October and early November: Attendance at a North Carolina furniture expo was down 30%. West Coast home builders reported cancellation rates of 20% to 40%. A car rental firm in South Florida filed for bankruptcy protection. Traffic at a Montana airport fell to a 20-year low. A wood products plant in Wisconsin shut down. The Gulf Coast drilling rig count plummeted. Layoffs, furloughs and pay freezes were prevalent from coast to coast.
The egalitarian nature of this recession contrasts with the slumps of the mid-1970s and of 1980-82, which were caused in large part by higher energy prices that dealt a heavy blow to the industrial Midwest but boosted the fortunes of states with oil and gas production. Similarly, the recession of 1990-91, which featured overbuilt real estate markets and shrinking aerospace and defense work, hurt California and the Northeast but left the Mountain and Southwest states largely unaffected.
This time, Zandi said, “we’re all sharing in the pain, and no one’s bearing the preponderance of the suffering.”
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Vieth reported from Washington and Simon from St. Louis. Times staff writer Tom Gorman in Las Vegas and researchers Edith Stanley in Atlanta, Lianne Hart in Houston, Lynn Marshall in Seattle and John Beckham in Chicago contributed to this report.
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A Wide Slump
This U.S. recession has struck virtually every region. Metropolitan areas with the biggest numerical job losses over the last 12 months:
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Jobs lost New York 58,700 Detroit 38,200 Chicago 27,700 San Jose 27,300 Atlanta 27,100 Portland, Ore. 17,900 St. Louis 16,500 San Juan, P. R. 15,100 Phoenix 14,600 Milwaukee 12,500
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Note: Payroll jobs lost for the
12 months ending October 2001
Source: Bureau of Labor Statistics
