Economy shows signs of stabilizing, but some regions may lag in a recovery
The strongest monthly home sales increase in a decade and an encouraging economic assessment from Federal Reserve Chairman Ben S. Bernanke have provided new support for the hope that recovery from the worst recession in decades may be at hand.
Wall Street celebrated by pushing stocks and commodities higher Friday.
The Dow Jones industrial average surged above 9,500 for the first time since November, and oil futures flirted with $75 a barrel before closing up 98 cents at $73.89, the highest settlement price of the year. The Dow rose 155.91, or 1.7%, to 9505.96, and the other big indexes gained more than 1.5%.
But Bernanke’s rally-sparking reassurance disguises the reality that many of the most populous states -- such as California and Florida, long accustomed to serving as dynamos of recovery and growth -- may not see much cause for rejoicing any time soon.
That’s because the recession’s grip on the nation has been so varied from one region to another that recovery is likely to be uneven, economists say. Factors that helped make some states powerhouses in the past -- such as migration from other states -- may not work for them this time.
Apart from Texas, the nation’s Southern economic heavyweights were among the hardest hit during the downturn, and the negative effects there may last for years. Trouble is likely to persist in the nation’s industrial midsection as well.
In the good news column, the National Assn. of Realtors said Friday that sales of existing homes rose 7.2% in July, the fastest monthly gain since record-keeping began in 1999 and higher than analysts had expected. But housing resale activity fell 1.7% over the month in the West.
California bucked the drop in sales for the region. Sales of all types of homes were up 14.1% in July from the same month a year earlier, San Diego research firm MDA DataQuick reported Friday. The median home sales price in California also went up in July by 1.6% from June, to $250,000, but the price was still 21.4% below the July 2008 median price of $318,000.
Striking a sour note, data released by the Labor Department on Friday showed unemployment rose to 11.9% in California last month from 11.6% in June, while Florida’s jobless rate stood at 10.7% in July -- and its June rate was revised upward to the same level.
Last month, California shed 35,800 payroll jobs and Florida more than 25,000; the two states have lost one-fifth of the 5.7 million jobs cut nationwide in the last 12 months.
Michigan, Illinois and Ohio have been pounded as well, largely because of auto and other manufacturing woes. The three states have lost more than 830,000 jobs in the last year, and their unemployment rates were well above the national average of 9.4% in July.
In recent economic cycles, the Great Lakes manufacturing region has been among the earliest to fall into recession, and this time prospects don’t look good for a strong rebound. Although deep recessions typically have been followed by robust recoveries, many of the manufacturing jobs lost in this recession are thought to be permanent.
David Huether, chief economist at the National Manufacturers Assn., said he was expecting only half of the nearly 2 million factory jobs lost to come back. “There’s going to be stagnation going on,” he said.
America’s breadbasket, by contrast, has weathered the economic storm, thanks to its reliance on energy and commodities -- making it a potential leader in a recovery.
By some measures Texas only entered the latest recession in the first quarter of this year, more than a year after the nation, and it added nearly 38,000 jobs in July on a seasonally adjusted basis, third after New York and Michigan.
Bernanke suggested that the economy seemed to be stabilizing, but he too foresaw no quick recovery. Speaking at the annual Fed conference in Jackson Hole, Wyo., Bernanke said economic activity “appears to be leveling out in the United States and abroad.” Although prospects for growth appear good in the near term, he said, a recovery was likely to be “relatively slow at first, with unemployment declining only gradually from high levels.”
The emerging recovery also could be different in another big way. Past economic expansions have tended to favor the South and West, said Chad Wilkerson, a Fed economist in Oklahoma City who studied the nation’s eight previous economic cycles from 1957 to 2003. Part of that trend was driven by heavy migration to the Sun Belt, which fueled demand for housing and services.
But the real estate plunge in Florida, Georgia and the Southwest has wreaked havoc. And losses in wages, housing wealth and retirement plans have sharply curtailed people’s migration plans. Older people from New York and New Jersey, in particular, used to flock to Florida every year. Not so much anymore. Florida’s population is now shrinking for the first time since the 1940s.
“Baby boomers are in between now. Even ones who could potentially retire are wary now,” said William Frey of the Brookings Institution’s Metropolitan Policy Program.
For the Sun Belt, he said, there won’t be a quick rebound. “In turning off the spigot of migration, you have a different model.”
Through 2008, many Sun Belt states, including Arizona, Nevada and Georgia, had more people move in than leave. But those numbers shrank sharply last year and are likely to fall further this year.
Migration patterns have turned more favorable in sparsely populated parts of America’s midsection, where unemployment was running as low as 4.2% in South Dakota and 6.5% or less in Iowa, Nebraska and Oklahoma. These and other states have been supported by demand for commodities such as natural gas and corn, but they also avoided the housing bust.
“Nobody really went on a binge, and so nobody went broke,” said John Schwietz, an Omaha man who found a new job recently as manager of international credit at Valmont Industries Inc., a maker of farm equipment and other products.
But Nebraska and other states like it are too small to drive growth nationally, and commodity prices are susceptible to wild fluctuations.
The Northeast also escaped the worst of the recession and looks better positioned today than in the wake of some past downturns. Fed economist Wilkerson said that may be partly explained by the region’s growing healthcare and education industries, which have held up relatively well in this downturn.
But with the government’s healthcare overhaul and consumer spending up in the air, economists say, those prospects aren’t clear either.
It’s very hard to tell which areas and industries will lead a recovery, said Jonas Prising, president of the North American operations of Manpower Inc., a labor supply firm.
“During other recessions, employers hired in anticipation of a recovery,” he said. “This time, they will hire when they see it.”
Times staff writer Peter Y. Hong contributed to this report.