The geography of recession

[flashl]

The latest national statistics are gloomy. Yet America's economic downturn will be felt unevenly



YOU won't hear the R-word much in the modest governor's mansion in Helena, Montana. The occupant, Brian Schweitzer, insists that Montana's economy is in better shape than it has ever been. It has had one of the fastest rates of job growth in the country. The state is prospering on the back of booms in mining and farming, as well as steady growth in tourism. Paul Polzin of the University of Montana forecasts that the state's economy will grow by 4.1% this year, the fifth consecutive year of growth above 4%. “We've been searching for realistic doomsday scenarios,” he says, “and we just can't find any.”

Go to Michigan, by contrast, and it is hard to find anything but gloom. The collapse of America's car industry, coupled with a nasty subprime mortgage bust, has left the state reeling. It has the highest unemployment rate in the country (7.6%) and the third-highest foreclosure rate, and was the only state to lose a large number of jobs in 2007. In the run-up to the state's Republican primary (which he won) Mitt Romney traversed Michigan, promising to save voters from a “one-state recession”.

...several factors suggest that even America's strongest states face tougher times ahead. The housing market is already weakening well beyond the bubble states. According to the S&P/Case-Shiller index, house prices fell in each of America's 20 big metropolitan areas in November. And, thanks in large part to the credit crunch, economic weakness is spreading well beyond housing. The Federal Reserve's quarterly survey of loan officers, released on February 4th, showed banks demanding tighter lending conditions from consumers and firms alike. And if, as futures markets suggest, house prices have further to fall, that credit crunch will only get worse.

A downturn centred on housing will have pernicious effects, even on the regions it hits least. That is because it constrains one of the biggest safety valves in America's economy: people's ability to move. Previous downturns spawned sizeable migrations from recessionary states to booming ones. In the early 1990s, for instance, people flocked from New England to southern states. This time, that mobility is hampered by people's inability to sell their homes. Unemployment may go on rising in California, even though Montana cannot get the workers it needs.

Economist

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