What ails the economy does not afflict every community equally, but the recession has reached nearly every corner of the nation. A new index of economic health shows the recession spreading to 93% of the metro areas in the U.S., and 44 of the 50 states, by the end of January.
The new measure, the Adversity Index, is produced by Moody’s Economy.com and msnbc.com. Each month, the index will take the economic temperature of every metro area and every state. Each one will be judged to be either expanding, at risk of recession, in recession or recovering. The index uses federal data and Moody’s estimates on employment, industrial production, housing starts and house prices to track changes in jobs, industrial output, investment and wealth.
The recession has hit hardest in Elkhart, Ind., a struggling Midwestern city that msnbc.com is focusing on, as part of a special project to tell the story of the nation’s economic suffering. By January 2009, employment in the Elkhart metro area had fallen 9.4% from a year earlier, the worst decline in the nation. Industrial production fell 21.9%, also the worst, according to The Elkhart Truth.
Only six states — Alaska, North Dakota, Oklahoma, South Dakota, Texas and Wyoming — were not in recession in January. But the Adversity Index designates each as at risk of recession, meaning they were in transition from expansion toward recession.
Looking more closely at metro areas, 93% were in recession by the end of January 2009. That’s 353 out of 381, up from only 88 a year earlier.
Of the 28 metro areas not in recession, most were in energy-producing areas of the Southwest and West. Of those, only one, the inland port of Laredo, Texas, was still expanding in January, boosted by strong trade with Mexico. But even in Laredo the news was mixed: Its employment levels and home prices were still rising, although industrial production had fallen. The rest of the 28 areas were judged to be at risk, meaning they appeared to be in transition toward a recession.
The area that has been in recession the longest, according to the Adversity Index, is Detroit, which fell into that category in August 2005. It was followed over the next year by Flint, Saginaw, Ann Arbor and a host of their Michigan neighbors.
A manufacturing downturn reached the carpet-making areas of northwest Georgia by the summer of 2006, then later that year took hold in parts of Indiana and Ohio.
“It’s kind of two recessions at once,” said Andrew Gledhill, an economist for Moody’s Economy.com. “A lot of these industrial Midwest areas, especially those linked to automobile manufacturing, have really been suffering since 2000. It had been slow, then really was exacerbated.”
The downturn spread rapidly in 2008. That January, the index showed only two out of 10 metro areas in recession. By April, it was three in 10. In July, five out of 10. Then came the worst of the financial market turmoil, in September and October. By the time voters elected a new president in November, eight out of 10 metro areas had been hit. As of the end of January this year, the figure was nine out of 10.
The downturn arrived in Elkhart by December 2006, as sales slowed of its biggest product, recreational vehicles. The recession fell heavily on Elkhart, not only because of high gas prices but also because RVs are a big-ticket, discretionary purchase, often among the first expenses cut from household budgets.
Dependence on manufacturing stands out as a key problem in Elkhart. Of all the metro areas in the U.S., Elkhart-Goshen had the highest share of its workforce in manufacturing jobs, according to a Moody’s estimate based on Bureau of Labor Statistics data for 2007.
While 10% of workers nationwide held manufacturing jobs, in Elkhart that figure was 48%.
And second place wasn’t even close.
“You could easily make the argument that Elkhart is the least economically diverse area of the nation,” Gledhill said. “It makes you vulnerable.”
“You would have some advantages at the same time, such as being a cheaper place to do business,” Gledhill said. Indeed, labor, taxes and other business costs in Elkhart were only 88% of the national figure, according to the Cost of Doing Business Index from Moody’s Economy.com. And affordable housing is abundant in Elkhart, which had no housing bubble.
It will probably take Elkhart longer than the nation in general to pull out of the recession, Moody’s forecasts. It anticipates unemployment rates of 16.9% for this year, 16.5% in 2010, 14.0% in 2011 and 13.6% in 2012.
“Elkhart’s economy will deteriorate further over the months ahead,” Moody’s economist Jimmy Jean wrote in a February report. Because of the dependence on manufacturing, Elkhart “is expected to be one of the nation’s weakest performers over the forecast horizon.”
It’s not as though times have been hard in Elkhart forever. From 2002 through 2006, the metro area was adding manufacturing jobs.
“It was working for them,” Gledhill said. “But conditions can often change very quickly.”