Many economists and forecasters — including the Fed — have been calling for an acceleration in growth over the next year or so, for each of the past three years. This view largely rests on the obvious weights on the economy — chiefly housing and government — beginning to lessen and improve. While our office is in agreement with this general outlook, it is difficult to pick winners and pinpoint particular sectors or industries to drive growth. However, what if the answer to stronger growth lies not in any particular sector per se, but rather in geography, with more cities and counties sharing in the recovery?
Follow me on this thought experiment.
Here in Oregon, the pace of job growth has picked up in 2013 even as the Portland region’s growth has held steady. Notably the state’s two hardest hit housing metros — Bend and Medford, among the worst in the country — have begun adding jobs again, and at strong rates. Is this pattern replicable across the country?
What I did was take county level employment data from the QCEW since 1990 and merge with the USDA urban-rural continuum codes to classify all 3,000+ counties in the country. This allows for a ground level, or bottom-up approach to job growth in the country. What I found was surprising. Despite the recent USDA report on metro/nonmetro counties that looked at the household survey (why?), the share of individual counties and their growth rates so far in recovery are nearly back to the levels seen during the height of the housing boom/bubble in 2005 and 2006. This is also true in terms of outright job creation with metro counties in 2005 and 2006 created 2.05 million jobs annually while in 2012 and 2013 these same counties are creating 2.00 million jobs. Nonmetro counties are a different story with rates of job gains today of around 152,000 compared with a pace of 194,000 in 2005 and 2006.
Clearly there is room for improvement, however the growth rates and actual number of jobs being created is much closer to the peak of the previous expansion than many realize. With that being said, it is still lackluster as the mid-2000s expansion was weak when compared with historical episodes, making it a low hurdle to clear.
What the steady growth rates and share of counties masks are regional differences between today and the housing boom. In particular the Northeast and Midwest are performing just as well or better than in 2005 and 2006. Again, it’s not like these two regions of the country were doing all that well in the mid-2000s to begin with, but today’s growth is just as good or better. Where we are seeing slower growth is in the South (about half due to Florida) and in the West, where every state except California and Colorado are seeing slower gains.
At the individual county level about 45% of all US counties are growing at rates as good as or better than those experienced during the housing boom as shown below. Clearly the states most impacted by the housing bust are not currently doing better, with the exception of coastal California. (Map source)
What this speaks to are two things: housing and population. Western states and the Sun Belt have long benefited from stronger population growth, including domestic migrants from the Northeast and Midwest plus the outflow of Californians, which also fueled the demand for new home construction. Today, these regions are improving and adding jobs, however not nearly as strong as back in 2005 and 2006.
The good news is stronger gains are likely just around the corner for many of these areas. Just as in Oregon, the hardest hit housing metros across the country are now adding jobs at a faster rate than the nation overall. 33 of these 50 worst housing metros are located in the West, with an additional 13 in Florida alone, which bodes well for stronger regional growth moving forward as we’re still a couple years away from something approaching a normal level of housing activity. I am less confident in the strength of the migration/population rebound; these will certainly improve however are unlikely to get back to levels seen in the past couple of decades.
Summary: Should the economic expansion continue, and by all accounts it is expected to, it is likely that the West will see acceleration in employment growth over the next year or two, however for an improvement in the national rates the other regions of the country must maintain at least their current rates. If the other regions falter or slowdown then there may not be an improvement in the overall employment growth, due to the shifting composition of growth across the country.
Bonus: Since I did the work to categorize all counties by their urban/rural codes, I pulled together this graph. No only are the largest cities doing better economically (we know they turned around first), they’re also the only group so far to see an acceleration in their growth rate. Rural areas, along with small and medium sized MSAs are all recovering in aggregate and at a fairly steady rate.