Up Front

The Scouting Report Web Chat: Metro Areas and the Uneven Economic Recovery

Alan Berube

About 8 million jobs have been lost to this recession—the largest decline in percent terms since the Great Depression. We’re unlikely to see any robust gains in consumer spending any time soon and the housing market continues to be in a state of oversupply.

What stands in the way of recovery? Alan Berube, senior fellow, research director of the Metropolitan Policy Program at Brookings, and co-author of the new Brookings Index, How We’re Doing: What’s Blocking the Recovery, says that fully understanding the barriers to an economic rebound in this country requires a closer examination of its regional diversity.

On November 18, Alan Berube and Politico Senior Editor David Mark answered  questions about how the nation’s large metropolitan areas—including Washington, DC—have fared in the downturn. The transcript of this chat follows.

12:30 David Mark: Good afternoon everybody. I’m David Mark, a senior editor at POLITICO. I’m happy to be joined by Alan Berube, senior fellow and research director of the Metropolitan Policy Program at Brookings. We’re discussing how urban areas are faring during this prolonged economic slump. We welcome your questions.

12:30 Alan Berube: Hi everyone – pleased to be with you today and looking forward to your questions. Let’s get started.

12:30 [Comment From Jason:] In terms of economic recovery, what are some basic regional differences you’re seeing?

12:32 Alan Berube: Like most recessions, there’s a good deal of underlying variation in performance across the country. The best-performing areas tend to be in the middle part of the country, stretching from Texas up to the Dakotas. The weakest areas are the housing “bubble markets” in interior parts of the West and in Florida. Unlike most recessions, everywhere has suffered to some extent–just not by the same degrees.

12:32 David Mark: Why does the Washington, D.C. region seem to be holding up better than other metropolitan area. Virginia’s unemployment rate is among the nation’s lowest, with Maryland not far behind.

12:34 Alan Berube: How regions have done over the course of the recession has a lot to do with what they “do,” so to speak. One of the better-performing industries has been government, and that’s clearly a big sector in the DC region. Add to that the new administration in town, and the related activity in services like legal affairs, contracts, etc. and it’s really cushioned the DC area.

12:35 [Comment From Adam Paul: ] The new Brookings “How We’re Doing index” and some of your online comments rightly point out the large cost associated with falling house prices but have there been any measurable gains to renters or other non-home owners from falling real estate prices?

12:37 Alan Berube: That’s a good point. There’s a large economic overhang with the bursting of the housing bubble, since so much economic activity was spurred by the run-up in housing wealth. But the silver lining is that it’s made homeownership much more affordable in the big coastal markets (NY, DC, CA) for first-time buyers. There’s a big oversupply in some metro areas, though, that will take a while for those buyers to soak up. But if you want to rent a condo in South Beach, there are a lot of developers and owners dying to talk with you.

12:37 [Comment From Ryan Bouma: ] Have the population growth trends observed between 2007 and 2008 continued into 2009? If not- what is different and where?

12:38 Alan Berube: There was a big drop in internal migration–moving from one metro area to another–in 2007 and 2008 thanks to the slowed housing market. All indications are that’s continued into 2009, especially with the very weak job market. That’s really hurting the places in the Sunbelt that had relied on in-migration for economic growth (e.g., Phoenix, Las Vegas, Orlando).

12:39 David Mark:Are there any particular regions that are particularly poised for growth once the national economy improves, because of investments in infrastructure or other policies adopted in recent years?

12:41 Alan Berube: On regions poised for growth, it seems that the ones that have suffered the least during the downturn are emerging first–DC, most metros in Texas and the “Heartland,” some others in interior parts of the Northeast. What they had in common is that house prices never got so overheated there in the first place. And many in Texas benefited from the relative lack of speculative, subprime lending that first gave rise to the foreclosure crisis and subsequent Wall St fallout.

12:41 [Comment From Lisa M: ] When you speak of regional diversity, is that the sole indicator why one area outperforms another? Washington, DC, for example, doesn’t have a very diverse economy.

12:43 Alan Berube: Diversity isn’t the sole indicator of good performance, though it’s always a cushion against the worst effects. But Wichita, for example, has a much less diverse economy than most, but the stable demand for aerospace and energy–two of its specializations–means that it’s done pretty well over the downturn. Washington, DC is actually a pretty diverse economy by most measures. We do government, sure, but we’ve got lots of other specializations–business services, telecommunications, education, health, etc.

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12:44 [Comment From Guest:] Can you discuss the economic recovery in California and its long-term prospects? The economic/budget situation continues to worsen, yet some of the construction markets are expected to be fairly strong relative to other parts of the country.

12:45 Alan Berube: Yeah, there’s been a lot of doom and gloom about whither California. It reflects the state of government and the body politic there more than anything else. But if you want to know where the next economy is headed–innovation in services, low-carbon, high-skilled–California’s a good place to look. This was what Mike Grunwald concluded in a recent TIME article: http://www.time.com/time/nation/article/0,8599,1931582,00.html

12:46 David Mark: We continue to hear concerns from economists about a “jobless recovery.” What metro regions would fare the worse under this scenario?

12:48 Alan Berube: Probably those that lost the most jobs! In all seriousness, the manufacturing belt–especially metros in MI, OH, and IN that had specializations in auto-related industries–face the prospect of weak demand for years to come absent a strong recovery. They’re having a bit of an existential crisis…and I think that’s in part why you’re seeing the Obama administration putting on this jobs summit in a couple of weeks. That’s an important part of the country economically and politically.

12:48 [Comment From Lester:] I believe that many states have laws mandating that they have a balanced budget. How much is this hurting cities and states?

12:50 David Mark: Is there any evidence that federal stimulus money has helped metro regions to add jobs and generally improve their economic situations?

12:51 Alan Berube: You’re absolutely right–all states have to balance their budgets, unlike the federal government, which can basically print more money. Absent another round of federal fiscal relief for states, which was part of February’s recovery package, this could be the other shoe that drops and sends some metro areas on a less positive trajectory. Look out, state capitals like Oklahoma City, Madison, Boise.

12:52 [Comment From Susan: ] How is the MetroMonitor tracking of the regions and their economies different from the Fed’s so-called beige book?

12:53 Alan Berube: Great question–the Beige Book looks at “super-regions” that align with the Federal Reserve’s 12 districts, e.g., New England, the mid-Atlantic, the West Coast. They’re really useful for taking the pulse of businesses and consumers at the broad scale; however, they might mask some of the disparate metro performance levels you’d see in, e.g., California. The Bay Area and San Diego will probably rebound well before the Central Valley (Sacramento, Fresno, Bakersfield) do.

12:54 [Comment From Texan: ] I think the argument is tenuous, at best, that the stimulus has done anything to stem the tide of job losses in the United States.

12:56 Alan Berube: This is the challenge that faces economists in the public realm–the lack of a “counterfactual.” That is, it’s hard to say with certainty how effective the package has been, because we don’t know exactly what would have happened if we hadn’t adopted it. Perhaps the unemployment rate would be 16% right now. The administration’s analysis, and several independent ones, suggest that it’s been pretty effective, but that doesn’t mean that we should be happy about 10.2% unemployment. Certainly if you’re in Texas, things never looked as bad as they did in other parts of the country.

12:56 David Mark: You mentioned earlier that several Texas metro regions are surviving fairly well during the recession. What are they doing that others aren’t?

12:58 Alan Berube: They’re doing several things that aren’t all that intentional. First, they are part of the “energy economy,” and at least through part of the recession, that’s been a good place to be. Second, they largely side-stepped the housing bubble and subprime debacle. Part of that is due to the fact that they build a lot of housing–there aren’t as many land-use restraints as in some coastal markets, and they’ve got lots of room to build–but it’s also a lesson they seem to have taken from the S&L crisis, to avoid speculative real estate lending.

12:59 [Comment From Paul: ] Do you have any thoughts on infrastructure development? This seems like a great way to create jobs and also accomplish much-needed projects, especially in the realm of public transportation.

1:01 Alan Berube: I do think we’re going to see a bigger push for more infrastructure spending coming up. Those dollars from the recovery package actually hit the streets pretty fast, and in visible ways. I think the challenge will be whether we can spend those dollars in places, and on projects, that deliver good long-term economic value. In a lot of metro areas, expanded public transportation would meet that test–but the plans have to be on the table and, as they say, “shovel ready.”

1:01 [Comment From Ryan Bouma: ] In which east coast, mid west and sun belt cities will the federal government invest the most in 2010? Any guesses?

1:04 Alan Berube: Well, a lot of the recovery package dollars are determined by formula, and have a slight bias towards worse-off places (mostly states). So CA, FL, MI, OH should get at least their fair share. But a lot of the assistance goes to individuals and families that are suffering–like Unemployment Insurance, Medicaid, Food Stamps–so it won’t necessarily spur new economic development, though it will help those families and lift demand in those markets generally.

1:04 [Comment From Greg Schuckman: ] How have HS graduation rates, as well as postsecondary degree attainment rates, correlated with those metropolitan areas that seem to be weathering the storm better than others?

1:06 Alan Berube: Excellent question. There was a lot of talk of this being a “white-collar” recession because it started on Wall Street, but if you have a 4-year college degree, your unemployment rate is 5%. If you have only a HS diploma, it’s 10%. If you don’t have that, it’s 15%. So the short answer is that educational attainment has paid off during the recession. That also means that highly-educated metro areas–Washington, Boston, New York, San Francisco, Minneapolis–don’t seem to have been hit as hard, and may recover more quickly.

1:06 [Comment From Catherine:] At what geographic level is the unemployment rate a useful measure of economic pain that could be used in a formula for targeted federal relief?

1:08 Alan Berube: This is a good follow-up to the earlier question about federal funds for cities. We think that statistics like the unemployment rate have the most meaning at the level of the labor market, which the Census-defined metropolitan areas approximate. Often, though, federal legislation tends to look at this stuff at the county level, even though there’s a ton of cross-county commuting. The result is that rather small counties, often rural ones, show up high on the “need” chart, even though they may not contain many jobs or residents in the first place. Metros would be a better approach.

1:09 [Comment From Gary:] What metro areas seem to be having the hardest time recovering from the recession?

1:12 Alan Berube: We won’t know for another quarter or two what regions are really going to lag in the recovery. I certainly think that the auto-dependent communities–with Detroit as the poster child–may never post a full recovery in terms of jobs or output. For some of them, they may need to find a way to love being smaller, more productive regions. Then the overbuilt markets, in parts of AZ, NV, and FL, will probably be suffering the hangover from the housing crisis for some time. They need to find ways to further diversify their economies beyond that sector.

1:12 [Comment From susan:] What innovations are we seeing around the country in areas trying to recover?

1:13 Alan Berube: We’re really interested in regions that are trying to use stimulus dollars in innovative ways that produce jobs in the short term, but also pave the way for more sustainable future economic growth. We’re seeing this in some regions around infrastructure spending (e.g., high-speed rail, smart grid, broadband), health information technology, and skills development for green jobs. Regions that “act” like regions in deploying the spending are often the most innovative. We’re tracking some of their stories here: https://www.brookings.edu/metro/implementing_ARRA.aspx

1:14 David Mark: Has the $8,000 first homebuyer tax credit had any discernable effect in terms of home purchases in metro areas?

1:16 Alan Berube: On the tax credit, we haven’t yet seen the metro-level breakdown on applications; we’ll probably get that at the end of the year. One issue with the credit (there are many) is that it’s a pretty blunt tool given the diversity in house price trends across the country. Some markets are on the way up, some still on the way down, some were never down in the first place. I wrote about how we might do it differently here (but they extended it anyway): https://www.brookings.edu/opinions/2009/1008_tax_credit_berube.aspx

1:17 [Comment From Matthew:] How has Joe Biden been about working with states and cities on how they’re using stimulus money? He’s been overseeing that, right?

1:17 David Mark: Illegal immigration continues to be a hot topic among politicos in Washington. Has the ongoing recession depressed migration from other countries, particularly in California? If so, how has that affected local economies?

1:20 Alan Berube: You’re right, the VP is effectively overseeing implementation of the recovery package from the White House. I think he’s done a good job of drawing attention to the “gazelles” out there that are using dollars in smart and inventive ways, as well as getting out there and showing where the dollars are hitting the ground (which is more of a PR thing). I think the tension is that they’ve placed a lot of emphasis on reducing fraud, waste, and abuse, and maybe not enough on helping regions be really thoughtful and innovative in how they use the dollars. Anyway, Biden came to Brookings to talk about this a couple months ago: https://www.brookings.edu/events/2009/0903_recovery_biden.aspx

1:23 Alan Berube: On immigration, we’re definitely seeing a slowdown in the US generally, and in metro areas in states like AZ and CA where they had been drawn by the building boom. 2007-2008 was the first year in decades that the Census Bureau recorded no increase in the number of foreign-born US residents. We’re also seeing apprehensions at the border drop, a reflection of the weaker demand for low-skilled immigrant labor. Exits are down, too, though, which means there’s still a lot of slack immigrant labor (legal and unauthorized) out there in search of employment.

1:24 [Comment From Greg Schuckman:] I have been told that the US has had 8 recessions since 1980 and that in each recession, a larger percentage of the jobs that were lost would never come back (many in the manufacturing sector). BLS has apparently said that 60-70 percent of the jobs lost in this recession are never coming back. So what options do those metropolitan areas have for emerging from this recession in the next few years?

1:26 Alan Berube: I don’t think we’ve had as many as eight recessions (5 perhaps?) but that’s an interesting point about the increasing rate of jobs that “don’t come back.” Of course, there’s churning in the economy all the time (30-40M jobs a year), it’s just that the number of jobs created normally exceeds the number destroyed. But to my mind, it’s an argument for greater investments in training and re-training than we might have made in the past. Community colleges in particular are being overwhelmed right now and need/deserve support for the critical role they’ll play.

1:26 [Comment From Matthew:] Word on the street is that the WH is considering cutting the deficit. Is this a good idea? It seems to me like we should be spending more to put people to work.

1:28 Alan Berube: I think most economists would say that this is not the time to put the brakes on federal spending. We still face a big demand gap. What I think more voters and investors should look for is, after further needed investments, will we put in place a medium- to long-range plan for deficit reduction? I think the administration is (wisely) considering ways to make that happen.

1:28 David Mark: Thanks for joining us on the chat today. See you next week.

1:29 Alan Berube: Hey, I enjoyed the exchange everyone. Thanks for the terrific questions, and stay tuned for the next Brookings Metro Monitor on 12/15.