U.S. Metro Economies - CBS News

U.S. Metro Economies

GMP and Employment Forecasts

Including Real GMP & Employment Growth Rates June 2011

Prepared for: The United States Conference of Mayors and The Council for the New American City

Prepared by:

The United States Conference of Mayors

The United States Conference of Mayors Antonio Villaraigosa

Mayor of Los Angeles President

Michael Nutter

Mayor of Philadelphia First Vice President

Tom Cochran

CEO and Executive Director

Published by IHS Global Insight (USA), Inc. Corporate Headquarters: 24 Hartwell Avenue, Lexington, MA 02421-3158 ? 2010 by IHS Global Insight (USA), Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved.

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INTRODUCTION

The U.S. economic recovery from the Great Recession will continue this year, creating jobs and boosting incomes across the country. The recovery pace, though, will be slower than those of typical recoveries in the post World War II world. The first few months of 2011 have represented a bump in the road of a prolonged and subdued recovery. Pressures from rising commodity costs, supply-chain disruptions from Japan's natural disaster, and extreme weather domestically have combined to slow the economy's momentum, and downside risks have become more troubling. However, we continue to believe that the current soft patch is not a precursor of a double dip.

A key reason the expansion remains so sluggish is that there has been, so far, no sustained upturn in housing activity. The U.S. economy is still struggling in the aftermath of the financial crisis brought on by the subprime mortgage crisis first evident in 2007. Improved employment growth has yet to curtail foreclosures, raise confidence in the market, and increase household formation sufficiently to revive demand and work through the backlog of excess supply. And with prices falling, buyers have a strong incentive to wait despite low interest rates. As a result, we have delayed the housing upturn in our forecast to 2012.

Looking forward to the remainder of 2011, our outlook is cautiously optimistic. Economic growth of 3.5% (on average) is expected for the second half of the year, after 1.9% growth in the first half. That improvement rests on several factors, including a return to normal levels of production in the vehicles sector, a flatteningout in nonresidential construction, and a temporary acceleration of business equipment spending to lock in full expensing before depreciation allowances become less generous next year. The second-half improvement is also conditional on the recent retreat in oil prices remaining in place, allowing gasoline prices to move below $3.50/gallon by the fourth quarter.

The need to raise the debt ceiling by the drop-dead day, currently August 2, remains a potentially disruptive wild card if posturing politicians take us to the brink and possibly beyond. Negotiations will likely go down to the wire--but the potential for disruption to financial markets will rest upon whether they are going down to the wire with an agreement in sight, or with the protagonists hopelessly deadlocked. The negotiators need to bear in mind that although the economy needs a credible longterm deficit reduction plan, it does not need an immediate dose of austerity. Aggregate demand is too fragile. The economic progress and marginal acceleration to job growth in the second half of the year are based on the assumption that the debt ceiling will be extended without any major disruptions to the national and global financial systems.

Job growth in 2011 will reach just 1.2%, only a bit higher than underlying labor force growth, resulting in an unemployment rate that only slowly retreats from its current rate of 9.1%. Unemployment will end 2011 at 8.6%, and not fall below 8% until late

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2013. Only in the first half of 2014 will employment in the U.S. match its previous peak level from early 2008.

The implications of this protracted slowdown are worrisome--large numbers of young entrants to the labor force not gaining job skills and work experience necessary for career advancement, millions of workers suffering the long term effects of unemployment and atrophied skills, and older workers delaying retirement after suffering the shock of home equity losses.

GROSS METROPOLITAN PRODUCT

In 2010, U.S. metro economies accounted for 89.8% of the nation's gross domestic product and wage income and 85.7% of all jobs--slightly down from 2008, but still the overwhelming majority of domestic product and wage and salary disbursements.

The New York metropolitan area ranked first, with 2010 gross metropolitan product (GMP) of $1.28 trillion, followed by Los Angeles ($738 billion), Chicago ($531 billion), Washington ($426 billion), and Houston ($379 billion). A full list of GMP rankings is included in Appendix Table 1. Notably rising in rank as government spending became more important during the recession was Washington DC, whose GMP now surpasses the output of such states as North Carolina, Georgia, and Virginia.

More noteworthy are the real GMP growth rates in the first year out of the recession. Following consecutive years of decline in 2008 and 2009, total real gross metropolitan product rose by 3.1% in 2010, with 347 metros experiencing increases--a stark contrast to last year's performance when 280 metropolitan areas saw it fall. Only fifteen experienced contraction in real gross metro product.

FIGURE 1: 2010 REAL GROSS METRO PRODUCT GROWTH, 100 LARGEST METRO AREAS

Highest (%)

Houston-Sugar Land-Baytown Oklahoma City El Paso Austin-Round Rock-San Marcos New Orleans-Metairie-Kenner Buffalo-Niagara Falls San Antonio-New Braunfels Dallas-Fort Worth-Arlington Poughkeepsie-Newburgh Chattanooga Rochester Tulsa Syracuse Albany-Schenectady-Troy Grand Rapids

Lowest (%)

7.6 Honolulu 7.5 Jacksonville 7.2 Fresno 6.7 Stockton 6.0 Ogden-Clearfield 5.4 Palm Bay-Melbourne-Titusville 5.1 Tampa-St. Petersburg 5.0 Phoenix-Mesa-Glendale 5.0 Birmingham-Hoover 4.9 North Port-Bradenton-Sarasota 4.8 Lakeland-Winter Haven 4.8 Sacramento 4.7 Tucson 4.6 Cape Coral-Fort Myers 4.6 Las Vegas

1.2

1.1 1.1

1.1 1.1

1.1

1.0 0.9

0.9 0.7

0.3 0.1

0.1 0.1

(1.1)

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The nation's metropolitan economies are powerhouses in terms of domestic production. Output from New York, Los Angeles, and Chicago is each ranked higher than that of 44 states, and the combined production of the 10 highest grossing metros is greater than that of the combined 36 smallest states. (For a detailed comparison of metro versus state production see Appendix Tables 3 and 4.) If metros were ranked with states in their contribution to gross domestic product, the top 50 would include 20 metros, from New York to St. Louis, which is itself larger in economic contribution than 20 states.

Our metropolitan areas are not just juggernauts of domestic production, but are also titans in the international landscape. The economies of Chicago, New York, and Los Angeles produce more than such countries as Switzerland, Poland, Belgium, Sweden, and Saudi Arabia, to name a few. Among international countries and U.S. metropolitan areas, New York ranks as the 13th largest economy (ahead of India and Mexico, which have GDPs in excess of $1 trillion), with Los Angeles 18th and Chicago 21st. Washington DC ranks as the 28th largest economy and sits above Norway, Iran, Austria, Argentina, and South Africa, while Philadelphia takes the 36th position and produces more than Thailand, the United Arab Emirates, Denmark, and Greece. Raleigh is perched as the 118th largest gross producer with output higher than Oman, Luxembourg, Belarus, and Cuba; Omaha captures the 128th spot, producing more than Slovenia, Bulgaria, Tunisia, Guatemala, and Uruguay.

Of the 100 largest economies in the world, 37 of them belong to metropolitan areas of the United States. Our 20 largest-producing metros individually gross more than the separate economies of Australia, Mexico, Turkey, South Korea, or the Netherlands, and united have a greater total product than 107 countries combined. The total GMP of our metro economies ($13 trillion) is equal to 27% of production of the largest 186 countries (excluding the U.S.), and is greater than the combined product of 168 of those countries. These statistics illustrate clearly that our metros play not just a tremendous role domestically, but are also pivotal players in the world economy. Their health and growth are vitally important to the future of the global economy, as they provide markets for international trade and foster the industries that will create innovations and inventions spurring further economic growth and development. Appendix Table 2 provides an in-depth ranking of U.S. metropolitan and international economies.

METROPOLITAN AREA UNEMPLOYMENT

Through April 2011, double-digit unemployment rates persists in 103 (28%) of the 363 U.S. metropolitan areas. This number, though, is down from 150 (41%) a year ago. Rates surpass 12% in 33 metros, half the total of 66 from the same time last year. Over the past year, noteworthy improvement has been recorded in the Midwest as the metros of the rust belt have been able to rebound from the severe manufacturing layoffs in 2008 and 2009. Yet, those areas hit hardest by the correction of the real estate market continue to suffer. Of the 25 metros with the highest unemployment rates, thirteen are located in California, and seven are dispersed across Florida, Nevada, and Arizona.

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FIGURE 2: FIRST QUARTER 2011 UNEMPLOYMENT RATES, 100 LARGEST METRO AREAS

Highest (%) Stockton Modesto Fresno Bakersfield-Delano Riverside-San Bernardino-Ontario Las Vegas-Paradise Lakeland-Winter Haven Sacramento-Arden-Arcade Cape Coral-Fort Myers McAllen-Edinburg-Mission Los Angeles Miami-Fort Lauderdale Tampa-St. Petersburg-Clearwater Providence-New Bedford-Fall River North Port-Bradenton-Sarasota

Lowest (%)

16.6 Tulsa

7.0

16.4 Harrisburg-Carlisle

7.0

16.0 Richmond

6.9

15.2 Albany-Schenectady-Troy

6.9

13.8 Austin-Round Rock-San Marcos 6.8

13.5 Virginia Beach-Norfolk-Newport 6.8

12.1 Little Rock-N. Little Rock-Conway 6.7

12.0 Lancaster

6.5

11.9 Minneapolis-St. Paul-Bloomington 6.3

11.8 Des Moines-West Des Moines

6.0

11.7 Washington-Arlington-Alexandria 5.7

11.6 Oklahoma City

5.7

11.4 Honolulu

5.3

11.4 Madison

5.2

11.4 Omaha-Council Bluffs

4.8

The metros of California continue to exhibit the highest unemployment rates, with Stockton, Modesto, Fresno, Bakersfield, and Riverside occupying the top five spots.

FIGURE 3: FIRST QUARTER 2011 YEAR-OVER-YEAR DECLINES

UNEMPLOYMENT RATE, 100 LARGEST METRO AREAS (Decline, Percentage Points)

Detroit-Warren-Livonia Grand Rapids-Wyoming Youngstown-Warren-Boardman Chicago-Joliet-Naperville Greenville-Mauldin-Easley Toledo Charlotte-Gastonia-Rock Hill Milwaukee-Waukesha-West Allis Dayton Greensboro-High Point

3.5 Las Vegas-Paradise

1.7

2.6 Charleston-N. Charl.-Summerville 1.7

2.5 Raleigh-Cary

1.6

2.1 Akron

1.6

2.1 Indianapolis-Carmel

1.5

2.0 Portland-Vancouver-Hillsboro

1.4

1.8 San Jose-Sunnyvale-Santa Clara

1.3

1.8 Columbus

1.3

1.8 Tulsa

1.3

1.8 Columbia

1.3

Among the largest 100 metros, nine of the twenty greatest declines in unemployment rate over the last year occurred in depressed metros in the Midwest, with Detroit, Grand Rapids, Chicago, and Youngstown rapidly reversing some of the steepest layoffs of the recession. The current surge in manufacturing payrolls is not anticipated to last, and by the latter part of the decade the sector is expected to be in secular decline again.

By the end of 2011 the unemployment situation will improve modestly. IHS Global Insight anticipates that at the close of 2011, jobless rates will exceed 12% in 25 metropolitan areas, be in the double digits in 75, and surpass 8% in 193 (53% of all

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metros). (See appendix table 10 for a detailed list of all metro unemployment rates in 2011.) The metros of California's Central Valley will maintain the highest unemployment rates (see Figure 4), while the more stable economies of Washington DC and Oklahoma City will continue to be among the large metros with the lowest jobless rates. The sputtering housing market is certainly having a significant negative impact on the California metros, as well as Las Vegas and the struggling metropolitan areas of Florida. These areas were highly dependent on inflated real estate markets, and the housing collapse has resulted in very high unemployment.

FIGURE 4: 2011 END OF YEAR UNEMPLOYMENT RATES, 100 LARGEST METRO AREAS

Highest (%) Stockton Modesto Fresno Bakersfield-Delano Las Vegas-Paradise Riverside-San Bernardino-Ontario McAllen-Edinburg-Mission Cape Coral-Fort Myers Lakeland-Winter Haven Sacramento Miami-Fort Lauderdale Detroit-Warren-Livonia Palm Bay-Melbourne-Titusville Tampa-St. Petersburg-Clearwater Providence-New Bedford

Lowest (%)

16.2 Provo-Orem

6.9

15.9 Virginia Beach-Norfolk-Newport

6.8

15.7 Salt Lake City

6.8

14.8 Harrisburg-Carlisle

6.8

13.4 Richmond

6.7

13.3 Albany-Schenectady-Troy

6.7

11.8 Tulsa

6.6

11.7 Lancaster

6.5

11.7 Minneapolis-St. Paul-Bloomington 6.2

11.6 Des Moines-West Des Moines

6.1

11.3 Washington-Arlington-Alexandria 5.6

11.3 Oklahoma City

5.5

11.1 Honolulu

5.1

10.9 Omaha-Council Bluffs

5.0

10.9 Madison

4.9

The large number of metros with stubbornly high unemployment highlights the protracted period to recovery and is a sharp contrast to the swift velocity at which the economy deteriorated. Most metropolitan areas will suffer persistently high unemployment beyond 2011, and, for many, into the middle and latter part of the decade. At the end of 2007, prior to the recession, only 50 metro economies had jobless rates above 6% (see Figure 5). This number is miniscule when compared with the April 2011 unemployment data in which 331 metros had unemployment rates greater than 6%.

The unemployment situation will improve, albeit with slow and deliberate strides. In 2012 we anticipate the number of metros with jobless rates greater than 15% to fall under 10 (see Figure 5 below), those with rates greater than 10% will be under 70, and those above 6% will be about 300. By the close of 2012, 48% of our nation's metropolitan areas will still have unemployment rates greater than 8%, a tremendous improvement over the 75% that exceeded the same measure in 2009. The prolonged descent of unemployment is a result of middling 2011 and 2012 employment growth, forecasted to expand by 1.3% and 1.8%, respectively. All in all the labor markets will tighten slowly; as a result, by the mid-point of this decade, in

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2015, we expect 198 metros (55%) to still be suffering unemployment above the 6% mark, with 17% still above 8%, and 13 metros above 10%.

FIGURE 5: THE UNEMPLOYMENT RATE ACROSS METRO AREAS

(Number of Metros, End of Year)

Rate Over 15% Over 12% Over 10% Over 8%

2007 1 2 4

12

2009 20 68

141 271

2012 8

20 69 173

2015 2 8

13 61

Over 6%

50 340 311

198

RETURN-TO-PEAK EMPLOYMENT

The vast majority of employment gains the U.S. will experience in the coming years will be provided by metropolitan areas. In 2011, metros will add more than 1.2 million jobs; through 2015 metros will account for 86.4% of the nation's payroll additions.

FIGURE 6: METROPOLITAN AREAS' RETURN-TO-PEAK EMPLOYMENT

PEAK 2009 to 2011q1 2011q2 to 2012 2013 to 2014 2015 to 2016 Past 2016

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