U.S. & Global Economies

Economic Recovery Is Patchy

Upswing? It depends on where you are, and what you do.

By Jerome Idaszak, Associate Editor, The Kiplinger Letter

February 24, 2010

The national recession may be over, but not everyone feels the change. Some industries and regions continue to suffer. The tepid 3% pace of growth in this recovery means no rising tide lifting all boats.

Of our 50 states, about two-thirds remain in a recession, based on jobs, income, retail sales and industrial production. Continuing to struggle are those hardest hit by the housing boom and bust: California, Arizona, Florida and especially Nevada -- still deep in the throes of recession. Vacant houses don’t just depress housing prices. They also mean the population isn’t big enough to need as many nearby offices and retail shops -- so an overcapacity of them as well. Banks in those communities have been rocked, too. Of these four states, California should be the first to revive, says Mark Zandi, chief economist with Moody’s Economy.com. The Golden State’s diversified economy will help it along.

Meanwhile, the recovery is helping a broad swath of states through the middle of the U.S. In part, that’s because these states suffered neither the exhilaration of the housing boom nor the agony of its bust. Texas, Louisiana, Montana and the Dakotas are also benefiting from a pick-up in the energy industry.

A number of Southeastern states are on the cusp -- still not growing much, but no longer significantly shrinking. They’ll be helped by increased output in autos and in industrial equipment aimed at export markets. That will add jobs and boost incomes, fueling more consumer spending and a virtuous cycle of economic growth. In the Northeast, financial service woes continue to take a toll, though strengthening asset management activity will help Boston and New York.

Among the industries leading the pullout from the downturn: Manufacturing, especially makers of durable goods. Growth overseas is stimulating export demand for machinery and equipment. Energy firms, big oil in particular, are also benefiting. Automakers, too, as they claw their way up from the depths of 2009.

Other industries ahead of the pack in revenue gains include information technology, telecom services, medical supplies, biotechnology and clean energy. Plus, demand for mobile phones and consumer electronics will bolster semiconductor sales. Activity for home builders will also pick up sooner than other industries, but largely because construction fell so sharply in 2008 and 2009. Despite the upswing, 2010 still won’t be counted as a good year for them.

Among industries that are still suffering: Aerospace, financial services and publishing. Building materials and commercial real estate remain in a slump as well.

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