When will economic vigor return to the Southeast?
The New York Times published a story by Michael Cooper earlier this week titled "Deep Recession Sharply Altered U.S. Jobless Map." The article looks at differences among state unemployment rates and focuses on how the South's unemployment rates are higher than most other areas of the country. Cooper writes:
"The once-booming South, which entered the recession with the lowest unemployment rate in the nation, is now struggling with some of the highest rates, recent data from the Bureau of Labor Statistics show."
This is clearly the case, and the Times piece has a set of charts that illustrate the point. What the chart does not show is that apart from the 2002–7 period, the states that represent my part of the South (the Sixth Federal Reserve District: Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) had a similar or higher rate of unemployment than did the rest of the country between 1976 and 2002. The question that arises, and one that we continue to investigate, is whether the current period Cooper writes about is all that abnormal.
Getting back to the main point of the Times article, that the region's unemployment rates are higher than the rest of the country, Cooper spoke to a number of people in researching the article:
"Economists offer a variety of explanations for the South's performance. 'For a long time we tended to outpace the national average with regard to economic performance, and a lot of that was driven by, for lack of a better word, development and in-migration,' said Michael Chriszt, an assistant vice president of the Federal Reserve Bank of Atlanta's research department. 'That came to an abrupt halt, and it has not picked up.' "
Shameless plug notwithstanding, the point was that the driving force behind the region's economic growth was population gains, which in turn ignited development and, in the case of Florida and Georgia in particular, overbuilding in both residential and commercial space.
The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic deceleration. The above chart shows the difference between our region's growth rate and that of the rest of the country from 1970 to 2010. From 1970 to 2005 the region's rate of growth exceeded the rest of the country, but from 2006 through 2010 it was lower.
Richard Kaglic, my colleague at the Richmond Fed, had a great quote in the same Times article:
" 'If your nose is high, if you're climbing faster and your engine cuts out, you fall farther and it takes you a longer time to recover,' he said. 'The conditions we experienced in late 2008, 2009, are as close as you come to an engine-out situation in the economy.' "
I'm not a pilot like Richard, but we can use the same analogy for the states in the Atlanta Fed's district. We'll be digging deeper into the reasons behind the region's higher rate of unemployment, but it's clear that the major factor behind the Southeast's recent underperformance is the falloff in population growth and the resulting drop in residential and commercial real estate development that had been driving regional economic growth.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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