No Lifeboats In This Economy
By Steve Cochrane
10/24/01 12:00 PM ET
There are no lifeboats among the regional economies. Parts of the South and the West, which were providing the only remaining buoyancy to the national economy earlier this year, are beginning to sink.
Yesterday's release of state and metro area employment data for September show a number of economies on the Pacific Coast, Mountain West, and Southeast with declining employment in the third quarter. A large part of the Northeast also declined, and much of the Midwest remained in recession.
Few areas show any strength, and even this may be fleeting as the economic impacts of September 11 begin to be reflected in the regional data. The Southwest continues to expand, but with oil prices now down in the low $20/bbl range due to waning demand for jet fuel and a slowing global economy, there is little to maintain growth in the region's energy sector. Florida is still expanding, but with leisure travelers now staying close to home, Florida's near-term outlook has reversed course. Similarly, the northern Mountain states will lose steam very soon as tourism and energy exploration subsides. Only in Virginia, now one of the few remaining states on the East Coast exhibiting measurable job creation, is there some potential for near-term growth as federal military and civilian payrolls begin to expand with federal fiscal stimulus and defense-related programs.
The only good news to be gleaned from the September employment figures is that stability is now evident in parts of the Midwest and industrial Southeast, the very regions where the recession began one year ago. Conditions are not necessarily improving, but employment is at least stable in Ohio, Kentucky and Tennessee among other states in the region.
It is not yet possible to infer any impacts of September 11 from the regional employment data. In fact, September data for New York indicate a rise in employment, even though it is estimated that up to 100,000 job losses will likely result. The monthly employment estimates are based on surveys taken the week that includes the twelfth of the month, much too soon in September for any respondent to take into account post-attack changes in payroll conditions. Thus, this still leaves us with only a few regional indicators that can provide any glimpse yet of what the post-attack regional economies will look like. So far, it appears that no region will be spared any negative impact.
First, retail sales for the month of September fell nearly uniformly across the four regions. Data from the Bank of Tokyo-Mitsubishi survey indicate that sales were off for the month by a range of 1.7% (in the South) to 2.5% (in the Northeast). Thus, the initial impact upon consumer confidence and spending was spread broadly across the nation.
Indeed, regional indexes of consumer confidence also fell nearly uniformly across the regions. Only in the Plains states did the index rise in September, which is consistent with the observation that the Plains region has the farthest economic distance from the September 11 attacks. In other words, the industries put most at risk by this tragedy, such as air travel, tourism and recreation, securities brokerages, and property and casualty insurance, have little unusual concentration in the Plains states. At the other extreme, confidence fell the furthest in the Mid-Atlantic states, which are close in geographic as well as economic distance from the World Trade Center.
Finally, weekly layoff announcements since the week of September 11 have risen nearly uniformly as well. As tabulated by HRLive.com, firms located or headquartered in the Midwest, South and West have announced between 70,000 and 90,000 job cuts. Only in the Northeast is there any difference, where cutbacks have amounted to just 15,000 so far, likely due to the fact that firms closely associated with the September 11 attacks were loath to lay off workers so soon after the disaster.
Admittedly, these layoff figures are a less-than-perfect measure as corporate cutbacks are often assigned to headquarters locations (a particular problem for airline cutbacks), and the layoffs that are tabulated are limited to those mentioned in news reports. Thus, there is a bias toward layoffs in regions with many corporate headquarters, or where there are large firms whose layoffs are deemed newsworthy.
However, the results are somewhat counterintuitive, with low layoffs in the Northeast where there are many headquarters, and high layoffs even in the South where there is a greater predominance of smaller firms. Nevertheless, one should expect the Northeast figures to begin to rise in the very near future. Already, a number of financial and business services firms in the region have recently announced layoffs, including the 10,000 that will be cut from Merrill Lynch's domestic and international operations.
The dominant factor underlying the regional pattern of this recession, and which differentiates this cycle from previous recessions over the past three decades, is that all four regions are behaving similarly. There is no single area that is performing well now, and it is possible that the regions that have been performing strongly over the past year, such as Florida, the Mountain West, New England and the mid-Atlantic, will be hit among the hardest by the economic impacts of September 11. This is bad news for the coming six months or so. It does mean, however, that pent-up demand nationwide may build up rather quickly, generating potential for a very strong spending and investment spree once the economy begins to turn around.
