Officially the Northeast’s been out of the recession more than five years but economic recovery from the “Great Recession” is far from complete and questions still remain. Business is better, but full recovery, a recovery approximating the years leading up to 2008, is still elusive. There is a growing confidence in the numbers but what’s in store next could be as fickle as the weather during a New England spring.
“The only function of economic forecasting is to make astrology look respectable,” John Kenneth Galbraith, Harvard economist.
Officially, the Northeast states left the “Great Recession” behind over five years ago, but like the recent spring Nor’easter reminded everyone in the region, the calendar is more of a guide than a meteorological reality.
Qualitatively, since the end of the recession in 2010 the GDP (Gross Domestic Product) of the individual New England States has risen every quarter, as has the per capita personal income, a key statistical confirmation of the end of the recession. Further, according to a recent report by the Bureau of Labor Statistics, “New England’s unemployment rate declined to 6.7% in January…Regional Commissioner Deborah A. Brown noted New England’s jobless rate a year ago was 7.1%,” again good news.
So here in the first quarter of 2014, why in the Northeast doesn’t the recovery feel like a recovery? What unique regional components make the economic temperature feel like it is missing the wind chill factor.
A Northeast Recovery
Part of the problem in the post-2009 economy is determining what constitutes a “New England” or “Northeast” economic recovery. At what level, with what benchmarks, should a New England or Northeast economy be performing at now and expected to perform, over the next two or three years?
The Federal Reserve Bank in their “snapshot” of the New England Economy in December of 2013 summed up the economic situation, “While New England’s economy continued to make moderate advances in 2013, the region experienced smaller gains in economic activity than the nation. Labor market indicators reveal slower growth in employment regionally than nationally and smaller improvements in unemployment. Home prices in the region started rising again on a year-over-year basis in early 2013, following roughly 6 years of declines. The housing recovery began earlier, in mid-2012, for the U.S. as a whole. The Massachusetts and Vermont economies led the region along most indicators in 2013.”
While the lag in recovery relative to the US as a whole is evident, the reasons are not always clear. Even in the boom years the New England economy was a mystery and there are many contradictions in the post-recession economy of the region.
The region is home to twenty-eight of the Fortune-500 businesses yet the business community has often complained that government regulation and taxes inhibit business growth and creation. The region has long been a recipient of the Federal government’s largesse, particularly with defense spending. The region has annually over $62-billion in direct and indirect defense related spending but the sequester and political quagmire in Washington has slowed the flow of government related contracts and puts the immediate future of the sector up in the air. The uncertainty has already led to the loss of high paying jobs.
And jobs are still a big issue for the six state region. For example, Rhode Island’s unemployment rate is still high at around 9%, which is far from recovered levels, even though the per capita income is still over $40,000, which would look good to many states. Jobs are still a big issue. Maine isn’t expected to return to pre-recession employment until the fourth quarter of 2016.
In fact, on a per capita income basis, Massachusetts at over $53,000 is one of the nation’s best, yet there are still many endemic economic problems, especially in the inner cities, that gaudy averages haven’t been able to address. In Massachusetts and Connecticut, the jobs lost during those years haven’t necessarily been replaced with jobs of commensurate salary and benefits. The extended New England region is full of similar economic and cultural conundrums.
All told there are around 13-major metropolitan areas in the Northeast, some of which are multi-state in nature. Connecting the dots of these metropolitan areas draws an interesting map of the Northeast.
Very roughly the entire Northeast region would be about as large as Great Britain with a GDP similar to the Netherlands at $772-billion compared to a GDP of $721-billion for New England by itself (estimates put the Northeast at $750-billion).
In economic terms, Vermont isn’t Maine or New Hampshire (although they share a significant agricultural sector) but probably closer to upstate New York. Albany in many respects is an important extension of New England with rail, road and the Hudson River connections. For example, Albany is nearly equidistant between Boston (170-miles) New York City (155-miles) and only 115-miles to Hartford, Connecticut. New Englanders are also very close culturally and economically tied to Nova Scotia and New Brunswick, which partly accounts for the fact that year in and year out, Canada is easily New England’s number one trade partner.
The Providence, Rhode Island area is very close to the neighboring cities of Fall River and New Bedford in Massachusetts, and in some ways represents a metropolitan region unto itself. So close in fact, that some high school students from that area of Massachusetts cross into Rhode Island to get to their schools in Massachusetts. Connecticut is also perplexing, as the State is split economically almost along sporting lines. West of New Haven, is largely Yankee territory (with some Mets fans) while the Eastern part of the State, favors the Boston Red Sox. While this is an inexact socio-economic analysis, behavior would suggest the Western part of Connecticut is in many respects an extension of the greater metro New York region, rather than New England or the Northeast.
Hub & Spokes
Boston, (really the gold leaf covered Massachusetts State House) was given the sobriquet the “Hub” of the solar system, which was later expanded to the “universe” by Oliver Wendell Holmes. A plaque was placed in the sidewalk in front of Filene’s store at Downtown Crossing in Boston, just in case someone wanted to know exactly where the Hub of the universe was located. In 2006, Filene’s was sold to Cincinnati-based Macy’s, which begs the question whether the Hub of the universe was secretly spirited away to Ohio. In fact much of the economic clout that Boston once enjoyed has shifted to Midwest cities like Cincinnati, St Louis, Chicago or more recently to the Southeast and of course, the real magnet, New York City.
Still there are compelling reasons for the nickname, from a New England perspective. Boston, is the Hub for New England commerce and it is estimated that 40% of New England’s GDP is located in the greater Boston area. Boston is New England’s largest city and has the region’s principal airport, Logan International, main seaport facilities, Massport’s Conley International Container Terminal as well as being home to numerous financial and educational institutions.
It is the financial power of Boston that still keeps the Hub and New England spinning. While much of the traditional manufacturing has moved to other parts of the country or abroad there is world-class financial strength (Liberty Mutual and State Street Bank are both Boston-based Fortune 500 companies) coupled with R&D (with new interest from the bio-sciences and bio-pharma sectors) oriented companies and numerous educational institutions within the Route 128-belt. The influence of the City radiates out far not only throughout New England, but quite literally to every corner of the globe. It is one of the most “international” regions in the US for this reason. In many respects how goes Boston, is how goes New England.
Ross Gittell, vice president and forecast manager for the New England Economic Partnership (NEEP) remarked, “The greater Boston area has been a bright spot in the New England economy, leading the region in job growth, and more than recovering the jobs lost in the recession. The strong Boston economy has Massachusetts leading the New England states in economic performance.”
Rising Tide Lifts All Boats
The oft-used expression “rising tide lifts all boats” is often attributed to President John F. Kennedy, but it really was his speech writer Ted Sorensen, who himself lifted the expression (from the New England Council) during JFK’s senate years to describe the New England economy and impact of free trade.
The expression still applies to the region. As the US international trade in goods and services rises, so does New England’s economic performance. While the growth in essentially domestic economic activities, such as medical, hospitality and others, investments (direct and indirect) and actual participation in foreign trade (although not always through New England itself), is much larger and the impacts are felt in nearly every corner of the region.
The forecast for 2014 and beyond for the Northeast is still uncertain. But if the favorable economic trends continue, the expression “play ball” means as much in Washington and the rest of the country, the worse may this time really be over and the Northeast economic bloom in place.