September 2009 — MetroMonitor: Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas

The Brookings Institution

September 2009 —

The American economy continued to weaken during the months of April, May, and June 2009, but it was no longer in free fall. Employment remained on a downward path—the nation lost nearly 1.3 million jobs during those three months alone—and by June, the national unemployment rate had reached its highest rate in more than 15 years, at 9.5 percent. But the pace of economic decline also slowed during the second quarter. Real Gross Domestic Product (GDP) shrank at an annualized rate of 1 percent, far less than the 6.4 percent rate of contraction during the first quarter of the year. And signs began to emerge that the housing market was stabilizing, with sales of both new and existing single-family homes rising throughout the spring.

While these national trends provide an important look at the country’s overall economic health, they mask the continued variable performance of America’s individual metropolitan economies. MetroMonitor exposes that diversity. The second report in what will continue to be a quarterly series, it provides an interactive picture of the extent to which the current economic downturn has affected America’s metropolitan economies, looking “beneath the hood” of national economic statistics to portray the varied metropolitan landscape of recession and recovery across the country. In doing so, it aims to enhance understanding of national economic trends and to promote public- and private-sector responses to the downturn that take into account metro areas’ unique starting points, weaknesses, and strengths for eventual recovery.

This edition of the Monitor examines indicators through the second quarter of 2009 (ending in June) in the areas of employment, unemployment, output, home prices, and foreclosure rates for the nation’s 100 largest metropolitan areas. It finds that:

Differences in economic performance among metropolitan areas remained stark. The 20 bestperforming metro areas over the course of the recession largely occupy the nation’s mid-section (with six in Texas alone) and parts of the inland Northeast and upper Southeast. They experienced average employment losses of 1.7 percent since their last employment peaks, and 17 of the 20 experienced house price increases over the past year. By contrast, the 20 weakest-performing metro areas lie primarily in Florida, inland California, and around the Great Lakes. They sustained average employment declines of 8.2 percent since their last peaks, and their house prices dropped an average of more than 11 percent in the past year.

The South is overrepresented among both the 20 metro areas that suffered the most in the recession and the 20 that suffered least. Eight of the 20 metro areas that had the worst economic performance in the recession are in the South, all in Florida. These areas suffered severe employment, output, and home value declines over the past year due to the broader housing fallout, the decline of long-distance tourism during the recession, and delayed retirement resulting from the general decline in financial wealth, which has reduced in-migration and housing demand. Yet 14 of the 20 metro areas that had the best economic performance during the recession are also in the South, half of them in Texas. These areas had less severe job losses and modest home price increases. Specializations in energy and government, large amounts of federal hurricane recovery funding for the Gulf Coast, and smaller increases in housing prices during the early and mid-2000s may help account for their better performance.

Only a handful of metropolitan areas showed early signs of full recovery from the recession. Just three metro areas—Austin, McAllen, and Washington—surpassed their pre-recession peak output (gross metropolitan product, or GMP) by the second quarter of 2009. These metro areas were among the least affected by the downturn overall. Yet no metropolitan area gained back all of the jobs it lost during the recession, and unemployment rates remained significantly higher everywhere in June 2009 than one year before.

Several metro areas showed signs of beginning to recover from the recession, and the rate of economic decline slowed in many more. The most positive signs occurred in GMP, where 20 metro areas (Albuquerque, Austin, Baltimore, Bridgeport, Cape Coral, Charlotte, Colorado Springs, Dallas, Harrisburg, Houston, McAllen, Raleigh, Richmond, Riverside, San Antonio, San Jose, Seattle, Tulsa, Virginia Beach, and Washington) posted at least small increases in GMP during the second quarter of 2009 and the remaining 80 saw output decline more slowly than in the first quarter. In addition, five metro areas (Akron, Buffalo, Columbia, Madison, and McAllen) stabilized or managed to add jobs in the second quarter of this year, up from two in the first quarter. An additional 60 metro areas shed jobs at a slower rate from March to June than in the previous three months. Left further behind were 35 metro areas, located in every region of the country, in which the rate of employment loss quickened in the second quarter. McAllen was the only metro area that gained jobs in both the first and second quarters of the year.

Centers of auto and auto parts production continued to post sharp overall employment and output declines. The sharp drop in auto sales and the severe challenges faced by U.S. automakers and suppliers have clearly affected those metro areas that depend most on the industry for jobs. The 12 metro areas most highly specialized in auto and auto parts manufacturing (Charleston (SC), Columbus (OH), Dayton, Detroit, Grand Rapids, Indianapolis, Jackson (MS), Knoxville, Louisville, Nashville, Toledo, and Youngstown) shed an average of 5.6 percent of their jobs from the end of 2007 through the second quarter of 2009, compared to the national average of 4.1 percent. Because many of those lost jobs paid relatively high wages, eight of these metro areas (Columbus, Dayton, Detroit, Knoxville, Louisville, Grand Rapids, Toledo, and Youngstown) rank among those that lost GMP most rapidly over the course of the recession and during the second quarter of this year. In contrast, the large metro areas that specialize most strongly in manufacturing other than autos or auto parts (Akron, Chattanooga, Cleveland, Greensboro, Greenville, Milwaukee, Modesto, Portland (OR), Rochester, San Jose, Scranton, Tulsa, Wichita, and Worcester) lost an average of only 4.0 percent of their jobs since the end of 2007, slightly below the national average.

Metro areas that specialize in banking had less severe job losses than the nation as a whole since the end of 2007. Despite the financial services crisis that spurred the worldwide recession, large metro areas that specialize most highly in banking (Boston, Bridgeport, Charlotte, Des Moines, Jacksonville, New York, Philadelphia, Phoenix, and Salt Lake City) experienced employment losses below the national average (3.6 percent) from the end of 2007 to the second quarter of 2009. This may reflect the underlying economic diversity of very large metro areas like Boston, New York, and Philadelphia, which has helped shield them from severe job declines. In 21 other metro areas with strong financial services specializations other than banking (e.g., insurance, pension fund management) employment fell by 3.4 percent during the same time period.

Signs that the housing market is stabilizing were apparent in many metro areas, though rising foreclosures continued to weaken some metropolitan markets. From the second quarter of 2008 to the second quarter of 2009, 42 of the 100 largest metro areas experienced increases in inflation-adjusted housing prices, up from 36 during the year ending in the first quarter of 2009. Strong performance persisted in markets that largely sidestepped the housing price “bubble,” such as those in Texas, portions of the Southeast, and the inland Northeast. Meanwhile, house price declines, as well as rates of real estate-owned properties (REOs), remained significant in Florida, Arizona, and inland California metro areas. REO inventories continued to rise in many of these same metro areas during the second quarter, adding further uncertainty to their recovery prospects.

Pittsburgh, the site of the G-20 meetings on September 24 and 25, 2009, ranks among the U.S. metropolitan areas least affected by the recession. Pittsburgh’s specializations in higher education and health care, and its steady housing market over the course of the decade, shielded it from the worst effects of the recession. In addition, its specialization in supplying machinery and services to the global steel industry also helped make its economic downturn less severe than those affecting auto industry-focused metro areas. Its employment decline over the course of the downturn (2.6 percent) and in the last quarter (0.8 percent), along with its unemployment rate (7.7 percent), house price change over the past 12 months (up 3.7 percent), and rate of REO properties (1.06 per 1,000) all outperform national averages. Similarly, several other metro areas with specializations in higher education and/or health care and in some type of non-auto manufacturing (e.g., Rochester, Buffalo, Syracuse, and New Haven) escaped the worst effects of the recession.

As the national recession moved past the 18-month mark in June, a few metropolitan areas seemed poised for a rebound and the pace of economic decline was slowing in some places, but recovery prospects remained elusive for many others. While U.S.-wide economic indicators are no longer plummeting, great uncertainty surrounds key factors such as the stability of the housing market, the future of U.S. automakers and suppliers, and the health of state and local governments in the face of mounting budget deficits. Policymakers evaluating further steps to accelerate recovery should pay heed to the multicolored map of metropolitan economic performance and consider strategies that would help rejuvenate the communities in greatest danger of being left behind.