For decades, the South was the place to be for business – a haven from high taxes, labor unions, and stifling regulation. Indeed, the South – and I am talking more specifically about the Southeast — was booming largely because of its pro-business climate and aggressive economic developers who were willing to play harder.
I liken economic development in the South to SEC football – hard and fast – with the Midwest and Northeast slow and even complacent by comparison. In the South, the overall mindset of economic development is “what will it take to make this deal happen?”
Whereas in the North, it’s been more process driven – “Fill out this 35-page incentive application and we’ll get back to you in two weeks to see if you might qualify.” The West often falls into this same camp or mentality as well.
Now these are generalizations, oversimplifications which are always unfair because there are always exceptions to such blanket statements. Certainly, there are communities nationwide that will go to great lengths to incentivize a project that brings the prospect of future job growth.
But now it would appear the worm has turned. Or at least something has happened. The South, which entered the recession with the lowest unemployment rate in the nation, is now struggling with some of the highest rates, according to recent data from the Bureau of Labor Statistics.
Indeed, unemployment in the South (9 percent) is now higher than it is in the Northeast (8.1 percent) and the Midwest (8.5 percent), which include Rust Belt states that were struggling even before the recession. According to latest statistics released by the BLS on Nov. 22, of the states with the 10 highest unemployment rates, five are in the Southeast. My initial reaction: Whaddup with that?
Mississippi’s October unemployment rate was 10.6. For South Carolina, it was 10.5 and for North Carolina, it was 10.4. For Florida, the jobless rate was 10.3 and for Georgia, it was 10.2. Now from experience, I can tell you that all these states, with the possible exception of Florida (and that’s changing now) have had very pro-business climates with aggressive state and local economic development organizations well versed in the art of the deal.
So what has happened to my Sweet Sunny South? (Which is the name of a traditional song that dates back to the 1850s.) And that begs another question: Are we seeing a megatrend, some sort of reordering of the nation’s economic fortunes? Will the Great Lakes region, for example, make a comeback while the South revert into a region where growth stagnates?
Well, I am no economist nor do I play one on TV, but I will offer up some ideas for you to chew on.
A recent Brookings analysis found that many auto-producing metropolitan areas in the Great Lakes states are seeing modest gains in manufacturing, while Sun Belt and Western states are still suffering with sharp drops in home values. And therein may provide us with some answers.
We know this much — when factories in the North began shutting down and relocating to non-union states in the South, many people followed. That in-migration of people, and along with the resulting residential and commercial development, characterized economic growth in the South.
Georgia is a prime example of what went wrong fast. Georgia’s pro-business environment coupled with a great climate and aggressive economic development initiatives led many businesses to relocate there. The resultant housing boom propelled Atlanta into the top tiers of national growth.
Many new homes built and sold to first-time buyers, the riskiest group of borrowers. But as the recession kicked in, many of these homes began to lose value, and the first-time buyers, who were carrying higher debt loads and often employed in occupations more exposed to wage cuts and layoffs, found themselves way over the heads. And that’s when the good-times bubble done got popped.
The steady flow of people moving to the South is now sputtering, a sobering experience for those states that counted on more people moving in than out. For it is now becoming increasingly clear that a bad economy tends to keep people in place.
Net population gains from Americans moving to Arizona, Nevada and Florida from other states have been largely wiped out, according to migration data from the IRS. Mobility rates, as high as 20 percent in the 1960s and hovering around 18 percent in the ’80s, have been on a downward slide, hitting a low of 11.8 percent in 2008.
So it would appear that the South has to some degree been a victim of its own success. Will the South rise again? (I’m sorry, I could not resist.) Well, it has to. It has too many things in its favor not to rebound and resume a leadership role in the nation’s economy, despite occasional boneheaded moves by state legislatures that reinforce perceptions of intolerance and racial persecution. Yes, Alabama, I’m referring to you. (See Oct. 30 Barberbiz blog “Let Reason Prevail.”
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But I cannot stress enough how the housing crisis in this country has dampened or thwarted an economic recovery for the nation as a whole.
As housing prices continue to fall, more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth. That negative equity is the single greatest problem facing the housing market today, because it not only creates or causes foreclosures, but it also stymies consumer spending and traps potential home buyers and sellers in place.
Negative equity rose to 28.6 percent of single-family homes with mortgages in the third quarter of this year, according to Zillow. That’s up from 26.8 percent in the second quarter. In real terms, that’s 14.6 million borrowers.
But 14.6 million might be a low number. That’s because it doesn’t factor in “effective” negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.
Mortgage analyst Mark Hanson contends that over 50 percent of all mortgaged households in the US are now effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. And because repeat buyers have always carried the market as the foundation, this is why demand has not come back.
The fact is that today’s buyers are not-only skittish and skeptical, they are under no particular pressure to move the deal ahead. And that has translated throughout the national economy, where caution and fear continues to reign … at kitchen tables and in boardrooms.
But yet there are certain tantelizing hopeful signs that the U.S. economy could grow. Factory output expanded last month. Retailers reported a strong start to holiday sales over the Thanksgiving weekend, consumer confidence surged in November to the highest level since July, and Americans’ pay rose in October by the most in seven months.
Car sales also rose sharply in November, normally a lackluster month for the auto industry, with Chrysler, Ford, Nissan and Hyundai all reporting double-digit gains compared to a year ago.
But the debt crisis in Europe still lingers and coming presidential election in the U.S. make it difficult to predict the level of economic expansion. Michael White, chief executive officer of DirecTV, the largest U.S. satellite-TV provider, told Bloomberg last month that the uncertainty caused DirecTV to “slow our growth rate.”
“We’re tightening our belts in terms of spending,” White said. “We’ll cut back on overhead, hiring and programming.”
The labor market may be gradually healing, as the unemployment rate is edging down. The unemployment rate declined to 8.6 percent from 9 percent. But the decrease reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force.
“You’d like to see the unemployment rate coming down when people are coming into the job market, not disappearing,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, told Bloomberg. “That’s probably exaggerating the trend in unemployment.”
Well, at this point, we will take what we can get. Any good news, no matter the caveats, should be welcomed. Maybe, just maybe, our long national nightmare is coming to an end.
We can only hope.
Need a partner in results-oriented site selection? Contact me, Dean Barber, at 972-890-3733 or at email@example.com Barber Business Advisors, LLC, is a site selection and economic development consulting firm in Plano, Texas. Please visit our website at www.barberadvisors.com