Richard Florida

The uneven US economic growth

Senior Editor, The Atlantic; Director, Martin Prosperity Institute, University of Toronto, Oct 02, 12.

Turns out the United States economy grew substantially more slowly than initially estimated between April and June of this year, a torpid 1.3 percent. Lagging growth is not just a short-term problem. America’s economic growth has been sluggish since the onset of the Great Recession and even before, so much so that leading economists and commentators like Paul Krugman and PIMCO’s Mohamed El-Erian suggest that America is facing a “lost decade” of economic growth.

But America’s overall economic growth rate is essentially a composite of its many different cities and regions. Last week, TIME’s Rana Foroohar noted as much:

I think that post election, the economics and job creation focus is going to move to cities and what’s happening at the local level. ... We’ll move from a simplistic conversation about tax cuts versus spending, and we’ll start admitting that we really have no idea why US GDP growth is as slow as it is, and there’s no one way to explain the 2 percent economy (which is really a 5 percent or 0.5 percent economy depending on where you live). And, we’ll have to start experimenting with lots of different paradigms. That will happen at the city level.

It’s important and useful to look under the hood of national economic growth, and identify the variation in growth occurring across America’s more than 350 metros. Which metros have grown and which have faltered over the past decade? How has the geography of growth changed since the onset of the Great Recession?

Using data from the U.S. Bureau of Economic Analysis, my colleague and collaborator José Lobo of Arizona State University charted economic growth across U.S. metros over the past decade, 2001 to 2010, as well as for the post-crisis period, 2008 to 2010. Zara Matheson of the Martin Prosperity Institute mapped the results. The green dots indicate positive GDP growth, the red dots negative.

The map above charts the economic growth of metros over the past decade (2001 to 2010). For the U.S. as a whole, GDP grew at an average annual rate of 1.46 percent this period, with the average rate for all metros being slightly better, 1.63 percent. More than half (53 percent) of metros (194 of 366) were above the national average. Most metros posted positive GDP growth (there are far more green dots than red), but the red dots are concentrated in and around the Midwest.

The table below shows the 10 large metros (with populations of more than one million people) that posted the best economic growth rates over the past decade. More than half of these large metros (58.8 percent or 30 out of 51 metros) had average annual GDP growth that outpaced the national average.

Large Metros with the Highest Rates of Economic Growth, 2001-2010
Rank Metro Average Annual %Change in GDP
1 Portland-Vancouver-Hillsboro, OR-WA 4.65%
2 Austin-Round Rock-San Marcos, TX 4.49%
3 San Jose-Sunnyvale-Santa Clara, CA 4.19%
4 Raleigh-Cary, NC 3.25%
5 Orlando-Kissimmee-Sanford, FL 3.11%
6 Washington-Arlington-Alexandria, DC-VA-MD-WV 2.97%
7 Las Vegas-Paradise, NV 2.77%
8 Phoenix-Mesa-Glendale, AZ 2.59%
9 Salt Lake City, UT 2.54%
10 San Antonio-New Braunfels, TX 2.47%
Source: U.S. Bureau of Economic Analysis

But what has happened since the economic crisis? The map below charts the change in average annual economic growth for metros over the post-crisis period 2008 to 2010. Now the red dots far outnumber the green.

...

The crisis hit hardest at sprawling Sun Belt metros like Phoenix and Las Vegas, as well as many of their smaller counterparts in Arizona, Nevada, and Florida, whose development was premised on real estate development and expansion — a process of “growth without growth.”

All of this leads to a final question: Are there metros that defy the boom-bust pattern, where growth has remained relatively consistent before and after the crisis?

Among large metros, those that have performed well over both periods include big diverse metros like New York and the knowledge- and resource-based metros mentioned earlier, as well as San Antonio, Dallas, Nashville, Philadelphia, and Salt Lake City.

More or less the same pattern holds for small- and medium-size metros. College towns and knowledge regions like Ann Arbor, Michigan; Boulder and Fort Collins, Colorado; Champaign-Urbana, Illinois; Logan, Utah; Portland, Maine; and Rochester, Minnesota have posted consistent growth before and after the crisis, as have resource-rich locations, as well as Casper, Wyoming, Fargo, North Dakota, and Charleston, South Carolina.

It’s time to recognize that the U.S. economy is not only made up of industries which grow and decline at different rates, but hundreds of metro regions that do so as well. There is a great deal national economic policy makers can gain from studying the factors that underpin the metros with more consistent and resilient growth.

Foroohar points out that after the 2012 election we are likely to see a shift to a new kind of economic policy where cities in effect “become the petri dishes in which we do different growth experiments.” The data on the geography of economic growth we have compiled here suggests that two kinds of metros have shown more consistent growth over the past decade — those with god-given endowments of natural resources and those with man-made endowments of knowledge resources (economists consistently note the key role of human capital in economic progress).

The lesson for national economic growth is rather simple. It makes sense to focus the future economy less around housing, roads, and physical capital, and more toward the accumulation of human capital and knowledge assets.