Latest Regional Economic Outlook

Regional economies are slowly improving. The South has made the most credible gains in employment so far this year, already making up 30% of the job losses incurred during the recession. Florida and Virginia lead the improvement. Even in the Northeast and the Midwest, which have been hardest hit during the downturn, employment seems to have hit bottom and some tentative gains have been made in recent months. Income growth, which bottomed out at the beginning of 2002, continues to trend upward in every region of the nation. Much of the West and Southwest is largely out of recession, with a few exceptions such as the San Francisco Bay Area, Denver, and Dallas.

While the West has been least affected by poor labor market conditions, it also has not benefited in the aggregate from any acceleration for the last five quarters. Moreover, the larger California metro areas, which had maintained above-average growth rates, are now faltering.

As with the broader macroeconomy, regional economic conditions will only rebound when business investment shows consistent improvement. The South will continue to lead the economy into a stronger recovery through the rest of this year and next year. Near-term strength will be concentrated among the defense-intensive economies of southern California, the Southwest, portions of the Southeast and the Gulf Coast, and the greater Washington, DC area.

Other sources of growth are also emerging. Distribution services and improved travel patterns by this fall will contribute to recoveries in Orange County, CA, Fort Worth, Atlanta and Miami. Improved demand for software and computer services will drive some tech production centers—Austin and Oakland, for example—by early next year.

Improved demand for telecommunications services and money management will generate the beginning of a turnaround by the second half of next year in Boston, Denver, San Francisco and Kansas City. The Midwest will be reined in by a slower pace of auto production and traditional manufacturing, however, delaying a stronger turnaround until early-2005. While the region will improve in step with national trends, the pace is expected to lag the U.S. both in the near term and longer term.

In the Northeast, the Mid-Atlantic region from New Jersey to Washington will have the better prospects, as New York and southern New England await improvement in financial services and money management. The region’s strength in its housing market, however, indicates that income growth may be accelerating faster than anticipated, improving confidence and generating some upside potential on the heels of renewed merger and acquisition activity and reinvigorated equity markets.

Source: Economy.com