July 14 2009|11.20 AM UTC

Stan Reybern

Predicting a ‘Modest’ Recovery Soon

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The most positive thing to be said of recessions is that they eventually end. As bad as the Great Depression and other downturns were – and for as long as they lasted– the country ultimately emerged stronger, and grew more prosperous after each one. This has led some to wonder if a recovery from today’s recession is on its way. We are not out of the woods yet, but certain data and media reports do seem to indicate a modest recovery in the not too distant future.

Where Will The Recovery Begin To Be Felt?

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Forbes has done some impressive research regarding which regions of the US are likely to recover first. Calling upon GDP data from Moody’s, home affordability data from the National Association of Home Builders, and employment data from the Bureau of Labor Statistics, Forbes has predicted recoveries for a number of cities around the US. Many of them are located in the southeast, especially in Texas.

The Austin-Round Rock region of Texas has the highest hopes of all regions surveyed. In the face of a 9.7% national unemployment rate, Austin has held theirs to 5.8% and the areas GDP is projected to grow $5 billion (from $72.4 billion to $77.7 billion) by late 2010. Forbes attributes Austin’s resilient and improving economy to, “…the city’s diverse economy, home to Dell, the University of Texas and the Texas state government.”

The Fayetteville-Springdale-Rogers region of Arkansas is another potential bellwether of recovery. With local unemployment rates holding at  5% and GDP forecasted to rise from $13.9 billion to $14.5 billion by the end of 2010, the Fayetteville region owes the bulk of its economic vitality to being the headquarters of what many consider to be a “recession-proof” business: Wal-Mart.

Technology has always been somewhat resistant to recessions, and it is fitting that the Seattle-Tacoma region of Washington is slated to come roaring back. According to Forbes, the area’s, “…high-tech economy is poised to start growing again.” Additionally, Moody’s has estimated that their economy, “…will reach a new peak in the third quarter of 2009 and keep growing from there.” GDP is projected to rise from $168.3 billion to $179.8 billion by the end of 2010.

Dallas-Fort Worth-Arlington is another region of Texas poised for a return to prosperity. Boasting a current unemployment rate of 6% (nearly 4 points below the national average) and projected to see its GDP rise from $274.6 billion to $287.9 billion by the end of 2010, Forbes links the area’s prosperity to, “A combination of technology companies like Texas Instruments, communications firms like AT&T and energy companies like TXU.” San Antonio is also expected to grow due to its, “…rapidly growing health care and education sectors”, seemingly constant throughout Texas.

The recovery is not totally limited to the southeast, however. According to PennLive.com, the Brookings Institution conducted a study of the nation’s top 100 metropolitan areas to determine how they are coping with the pains of recession. One promising finding of the study was Harrisburg-Carlisle region of Pennsylvania, which ranks among the country’s “top 20 strongest-performing areas.” Howard Weil, the Brookings fellow who co-authored the study, offered an explanation that applies to Harrisburg and most of the regions predicted to recover by Forbes: “The Harrisburg area did not experience the big housing boom, so it has not suffered from the big housing bust.” Gainful employment in health care, education, and state government are cited as causes of the stable economy in Harrisburg, as it was in several regions of Texas.

Nationally, some nominal growth has been predicted by the International Monetary Fund, who sees the US economy growing 0.75% in 2010 (rather than the 0% they originally forecasted), according to the BBC. The IMF also envisions unemployment, “…peaking at close to 10%,” next year rather than continuing to rise at the current pace.

Which Industries Will Lead The Way?

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The recovery stories of the above regions offer hints about which industries are instrumental. One of the big ones is technology, an industry which, in the words of venture capitalist Paul Graham, “…progresses more or less independently of the stock market.” We have already seen technology-related businesses at the heart of recovering economies in Seattle and Texas, and Reuters reports that the Consumer Electronics Association unveiled the “The Tech Industry Plan for Economic Recovery” on June 16. The report lists six criteria by which the CEA is urging President Barack Obama to judge all proposed laws, including whether a bill, “…encourages the best and brightest to come to the United States…an…rewards innovation and investment.”

Health care is also a source of stability and job security in most recovering regions. In Texas as elsewhere, health care is always in demand no matter how the broader economy is doing. This is a well-documented historical trend. ResumeBear.com’s “Top 50 Recession Proof Industries” series lists many segments of the health care market (including medicine, medical equipment, and health insurance) that grew faster than the available workforce during the 1990, 2001, and 2007 recessions.

Education has been named as a prosperous industry in virtually all recovering areas and in all past recessions. College enrollment is up nationwide despite harsh budget cuts at community and state colleges, and history suggests this should continue. ResumeBear includes junior colleges, elementary education, and private universities as industries that have thrived in the last three recessions.

Forbes concurs that, “…cities with robust technology sectors are poised for stronger recoveries than manufacturing or finance centers,” further speculates that, “…cities with high-tech capabilities like Seattle, Huntsville, Ala., or Boulder, Colo., could see quick recovery in coming months.”

Is The Stimulus Driving A Recovery?

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While still early, President Obama’s American Recovery and Reinvestment Act of 2009 does not appear to be making a significant contribution to long-term economic recovery. According to Fox News, a July report by the bipartisan Government Accountability Office found that the money is being used to, “…prioritize short-term projects and needs more ambitious goals.” For instance, rather than building new infrastructure (a much-touted purpose of the stimulus bill), the GAO reports that, “…half the money set aside for road and bridge repairs is being used to repave highways” instead.

The New York Times quoted Wachovia economist John Silva voicing his criticism of the stimulus on July 9th, days after it was revealed that unemployment had risen above 9%:

“The stimulus has probably stabilized income, but it has not moved the economy forward,” said John E. Silvia, chief economist at Wachovia Corporation. “It’s a finger in the dike. But in terms of getting the economy going, there’s no evidence of that yet.”

It’s The Market

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Rather, the best explanation for any modest recovery that is beginning to occur is found in the market, specifically in industries like health care, technology, and education that are and always have been more resistant to economic downturns than others. These industries are thriving most in southeastern and rural areas that were less involved in the housing bubble, as well as certain technology hubs like Seattle. Further prosperity is most likely to emanate from these industries and regions.

The Consumer Confidence Index, while down from its year-long peak of 54.8% in May, is still markedly higher – at 48.9% – than any other month dating back to October 2008.

Where Will The Recovery Be Slow?

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In short, regions that were heavily involved in the housing boom, the financial sector collapse, or the automotive industry will lag behind other regions in the recovery. Much of California is hurting from the housing bust. A telling example is the city of Fresno, which currently has a 15.5% unemployment rate and is not expected to return to its former economic vitality until the third quarter of 2010 at the earliest, according to Moody’s.

New York City has been hit hard by the recent wave of financial scandals and bankruptcies. According to Forbes:

“…once the capital of finance, [New York City] is now saddled with Wall Street-induced unemployment and homes that are completely unaffordable for most of the region’s residents. The NAHB’s Housing Opportunity Index reports that only 14% of homes in the New York-White Plains-Wayne area are affordable on the area’s median income–by far the least affordable region measured by NAHB.”

Detroit is also reeling due to its reliance on the flailing automotive industry. CNN Money reports that Detroit’s unemployment rate hit 14.9% in May (the worst among all major US cities) before General Motors filed for bankruptcy on June 1. Youngstown, Ohio is said to be battered by auto industry fallout as well.

Of course, there is still hope for these beleaguered industries and regions. ResumeBear’s recession-proof industries series lists financial services as being traditionally resistant to recessions, and with smart changes to the US auto industry (like less unionization), regions currently suffering can potentially recover down the road.

Is It Too Early To Expect A Recovery?

Some will cite the still-rising national unemployment rate and the never-ending barrage of media and politician negativity as reasons why it is premature to expect a recovery. They are partially correct in that things could get a bit worse before getting noticeably better. However, the improvements taking place in certain parts of the US are cause for cautious optimism. It would be foolish to expect a dramatic and immediate recovery, say, this year. But it may not be far-fetched to expect a marked change for the better by the middle of 2010.

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