Two cities illustrate divergence in regional economic growth

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two cities illustrate divergence in regional economic growth

Insight and Analysis of Construction Industry Trends

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Jim Haughey

RCD Chief Economist

Oct 29, 2009

Las Vegas, Nevada and Bismarck, North Dakota are now at opposite ends of the metro economic performance scale as the economy turns from deep recession to recovery. Las Vegas may be the most recession ravaged city in the country while Bismarck is one of the few cities that survived the recession with almost no damage. A few years ago Las Vegas was booming and Bismarck’s economy was struggling to stay near average growth. How one city collapsed and another one prospered in difficult times is useful lesson in anticipating how your geographic market will fare, relative to the whole country, over the course of an economic cycle.

The differences in economic growth between metro areas over a business cycle are far larger than the differences in national economic growth at different points in time during a business cycle. National economic trends impact every metro area but local economic trends can often overwhelm national trends.

The economic character of every metro area is defined by the mix of products and services that are exported outside of the metro area. Every city has about the same number of people employed in food stores, laundries and local services per 1,000 people. But is the dominant auto industry gives Detroit its economic characteristics and the dominant securities industry that sets economic trends in New York City.

	% change
	Last 3 months vs. year ago
	Bismarck	Las Vegas
Construction Starts ($)	42%	-36%
Jobs	-0.10%	-6.50%
Housing Permits	32%	-65%
State Spending FY ‘10	19%	-16%
State Economic Activity Index	1.40%	-16.00%
State Budget Reserves projected end of FY ‘10	$560M	$307M

The character of the Las Vegas economy is set by its large hospitality industry which serves the rest of the country as well as foreign visitors. Bismarck has a more diversified economy. But it does have relatively large government, agricultural, healthcare, services and wholesale/retail sectors for its role as a market center for a large areas of the northern plains.

Hospitality is a boom/bust market. It may be the most cyclical non-manufacturing industry because it services are extremely income elastic. Bismarck’s dominant industries are far more stable except for agriculture which is now cyclically strong. These differences in industry mix account for the huge current differences in income, job and investment trends in the two metro areas.

The lesson for managers of regional businesses is that the growth prospects for your region depend on the mix of products exported outside of the region. Those prospects are set outside the region, wherever the export markets are. Ignore developers’ plans to build facilities to provide local retail and services for people already living in the region. What is important are plans to add facilities to export more goods or services.

Oregon, for example, had a deep recession because of the collapse of its forest products industry with the housing market collapse. But it is getting a boost as single family homed construction picks up in the rest of the country. Similarly, California and Massachusetts are just now getting a boost from the worldwide revival in the technology markets.

Over the next six months, the growth markets most likely to add new employees and need new or renovated facilities are materials for single family and highway construction as well as materials and equipment for durable goods manufacturing. Some markets will decline further. This includes materials and equipment for non-residential, energy related and multi family construction as well as materials and equipment and much of non-durable manufacturing. Also, non-federal public employment is likely to decline due to collapsing tax increases and the end of federal stimulus plan support.

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