All Recessions Are Local

Anyone remember the mantra "All Real Estate is Local"? How long did we hear that as contagion spread from Florida, to Las Vegas, to Boston, to Phoenix, to San Diego, to Minneapolis, to Atlanta, to practically everywhere. Now that real estate generally sucks no matter where you go, we no longer hear that mantra.

It's time for a new mantra. How about "All Recessions are Local"? I talked about that in American Dream: Overbought & Overbuilt.

Florida's robust economy of 2001 to 2005 was driven by the thousands of well-paying jobs related to the real estate market and homeowners who used home-equity loans to pay for items such as boats and big-screen TVs, McCabe said.

"All those jobs are going away now, and we're seeing the trickle-down effect in declining sales in big-box retailers and home-furnishing manufacturers," McCabe said. "Florida is headed to a recession."

[Florida is headed for a recession or the US is? Perhaps some real estate agents want to tell us that recessions are local. Perhaps they are, except when they are national.]

Shortly after posting the above I see Job growth stalls in San Diego County.

Job growth has nearly ground to a halt in San Diego County, raising the risk of a recession later this year, two economists who track the local business climate said Friday.

The latest monthly employment report shows that woes in real estate and construction have spilled over into the local economy, said the economists, Kelly Cunningham of the San Diego Institute for Policy Research and Alan Gin of the University of San Diego.

The county's unemployment rose to an estimated 4.6 percent in June, from 4.2 percent in May, the California Employment Development Department reported Friday. The unadjusted rate was also 4.2 percent in June 2006. California's unemployment rate for June was 5.2 percent, the same as in May and up from last June's rate of 4.9 percent.

Unemployment normally rises during summer, as schools go out of session and students look for work, Gin and Cunningham said. But much more worrisome, they said, is that overall job growth has slowed down over the last three years. The number of jobs added for the year June 2006 to June 2007 increased by just 1,600, or 0.1 percent.

"This to me is a pretty bad report," Gin said. "Last year, we added 18,000 jobs. And the year before that, we added 20,000 jobs."

Cunningham said, "That's the worst job growth we've had since '93." That year was when San Diego was just beginning to emerge from recession.

Gin, who compiles a monthly index of leading economic indicators, said last month that his numbers indicated a recession was possible. His index has been fallen in 13 of the last 14 months, signaling a steady deterioration in San Diego's economy.

The chance of a recession is "getting higher," Gin said. "I wouldn't say over 50 percent, but it's not infinitesimal.

"The culprit is real estate," Gin said. "You've lost 7,400 jobs year over year in construction. And in the real estate side, you've lost 3,300 jobs there. The rest of the economy is OK fundamentally, but the problem is now this real estate fallout is spreading into other sectors."

Cunningham said that nonresidential real estate construction has also begun to slacken.

"The commercial side of it is starting to see slowing down," Cunningham said. "So both of those things together seem to reflect a slowing economy and perhaps pulling us into recession."

Obviously Gin is an optimist. Anyone who think the odds of recession are less than 50% is an optimist. The telling factoid is jobs creation dropped from 20,000 to 1,000 in the bat of an eye. Gin blames real estate. But it is going to spread far beyond real estate. Anyone who still has a job and also has no concerns better get religion. No job is really safe here.

One State Recession?

Back in April Stateline.Org wrote ‘One-state recession’ hampers Michigan.

The Great Lakes State has lost jobs for six consecutive years, Michigan’s longest run of workplace shrinkages since the Great Depression. Automakers are laying off tens of thousands. Pharmaceutical giant Pfizer is closing up shop in Ann Arbor and Kalamazoo. The state ranks among the top three in the country for home foreclosures and mortgage delinquencies.


Analysts at Comerica Bank, which is moving its headquarters from Detroit to Dallas, say Michigan is stuck in a “one-state recession.”

What About Colorado?

US Bancorp was writing about Colorado as well as the US in general way back on Sept 12, 2006 in their 2007 economic forecast.

Colorado's economic growth will slow in 2007, as a late-year recession interrupts a five-year period of national economic expansion, according to the "U.S. Bank 2007 Economic Forecast," prepared by Tucker Hart Adams, Ph.D., U.S. Bank's Rocky Mountain Region chief economist.

"Consumer financial stress in the face of rising interest rates, along with the potential for housing prices to flatten or fall are the big threats to the Colorado economy in 2007," Adams writes in the annual forecast. "There is a 75 percent probability that a national recession will be underway before the end of 2007 - driven by falling consumer spending.

Nationally, the U.S. economy can expect a recession to occur in the second half of the year, with annual output growth slowing to 2.1 percent, according to Adams' forecast. A 12.3 percent decline in U.S. housing starts and a 2.4 percent drop in automobile and truck sales are projected for 2007.

Looking back it was an interesting forecast. Certainly a 12.3 percent drop in starts was overly optimistic. Also there was no recession yet (except locally of course) if you believe official government numbers about the GDP.

What about Ohio?

In Ohio Jobs vanish and incomes plunge. Interestingly enough the article talkes about the Ohio recession of 2000-2004. That's a lot longer than the rest of the country. Did Ohio, like Michigan ever really recover?

The Economic Policy Institute on July 11, 2007 reports Michigan and Ohio labor markets still struggling to recover.

Since November 2001, the end of the most recent recession, the economy has created more than 7 million new jobs—increasing employment by over 5%. Although this growth is not especially strong relative to past recoveries, and weak wage growth shows that the labor market is far from strong, it is growth.

However, the growth has not been evenly distributed throughout the country. Three states, in fact, have lost jobs since the recession ended: Massachusetts, Michigan, and Ohio. Massachusetts, though it has not yet broken even with November 2001 jobs levels, has seen consistent job growth since January of 2004.

But Michigan and Ohio have continued to lose jobs. The problem, not surprisingly, is in manufacturing. Michigan and Ohio have lost 159,000 and 136,000 manufacturing jobs, respectively, since November 2001. Ohio's losses add up to just under 15% of the state's manufacturing jobs, while Michigan has lost about 20%—or one in five—of such jobs.

What about Indiana?

I was inclined to put Indiana in the list of states already in recession based on manufacturing but there is little discussion on that point so far. I am however quite sure that Indiana localities dependent on auto parts manufacturing are indeed in recession.

However, I did come across this interesting article asking Is Indiana is prepared for a recession?

Should a recession occur before 2010, Indiana will not be ready. At the start of the last recession the state had balances of almost two billion dollars. This reduced the need for tax hikes and budget cuts. If a recession occurs before 2010, tax hikes and budget cuts will have to be considered right away.

The small balances mean that achieving fiscal health will still be a task in the next long session of the legislature, in 2009. In the 2010-2011 budget, revenues will have to exceed appropriations by $450 million to get there.

In a sense, the General Assembly has made a gamble. The risk is being unprepared for the next recession. The payoff is higher education spending. For the sake of education, we’re gambling that our current expansion will last at least nine years, through 2010. That would make it the second longest expansion in U.S. history, after the expansion of the 1990’s.

States in Recession

• Florida
• Michigan
• Ohio

States Possibly in or Quickly Headed to Recession

• California
• Indiana
• Arizona
• Nevada
• Colorado

States Eventually Headed to Recession

All 50

States Prepared for a Consumer Led Recession

Zero

The stunning fact that nearly everyone is missing is that we are clearly headed into a recession with unemployment (if you believe the official rates) near all time lows. What's will happen if the official unemployment rate rises to a mere 6%? By the way, 6% was a number not too long ago thought to be the very bottom achievable before inflation would massively kick in.

The Fed will try and fight this upcoming recession tooth and nail. On that I have two predictions:

1) It won't work.
2) It will be good for gold.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/