Now and then: dissecting regional differences during recessions - Regional Focus

EconSouth, Spring, 2002

Looking at national and regional patterns in economic data during recessions can be useful in learning about their effects. But because of differences in the nature of recessions over time and variations in the economic environment across regions, comparisons of recessions can point out as many differences as similarities. A comparison of the 1990-91 recession and the one beginning in March 2001 highlights such similarities and differences and their effects on the Southeast.

Remarkable," "a dynamo," "a well-oiled machine" were some of the words and phrases used to describe the U.S. economy during the nation's longest post-World War II expansion, which began around April 1991. During 2001, however, a dramatic change occurred as the U.S. economy experienced a sustained contraction in aggregate economic activity, the first in a decade. According to the National Bureau of Economic Research (NBER), a peak in business activity occurred in March 2001, and while economic conditions were showing signs of improvement in early 2002, an end to the current recession had not been announced at press time for this article.

Defining recessions

A recession begins just after the economy reaches a peak of activity and ends as activity reaches a trough. Between trough and peak -- after surpassing pre-recession levels -- the economy is in an expansion. To determine the beginning and end of a recession, the NBER looks at several factors, including the pace of wholesale and retail sales and personal income less transfer payments like welfare. But the most important variable is the level of aggregate employment. In the current downturn, total payroll employment growth gradually began losing momentum (growing at a slower rate), from the summer of 2000. The number of jobs reached a peak in March 2001 and subsequently declined.

The level of aggregate employment is an important statistic for gauging the health of the national economy because it is the broadest available monthly measure. However, aggregate national data do not provide the full story of how individual regions weather a recession because national employment statistics do not equally represent regional economic activity. Each recession affects regions differently depending on the local economic conditions at the time. A comparison of the Southeast to the nation in the current recession as well as a comparison of the region's performance in the current recession versus the 1990-91 recession illustrates these types of variations.

Employment data reveal disparity

Chart 1 displays employment levels in the United States and the six states in the Southeast from fall 1999 until December 2001. To best compare turning points and the relative pace of change before and after the turning point, employment levels have been scaled so that employment is equal to 1 in March 2001.

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The data indicate that aggregate U.S. employment peaked in March 2001 although it did not decline significantly until September of that year. As is usually the case, a turning point in the level of economic activity is discernible from the data only well after the event.

In the Southeast, there was considerable diversity among the six states in the timing of peak employment levels. In Mississippi, for instance, employment peaked in August 2000 -- well before the beginning of the current recession -- whereas in Florida it did not peak until mid-2001. Louisiana's employment has been relatively stable during the current recession. However, the state started with a much weaker employment base, which has displayed little growth since mid-2000. In contrast, Georgia's employment was growing at about the same pace as the nation's before peaking in April 2001, but it has subsequently declined more sharply than the nation's.

If this type of disparity were typical of recessions, then it could be used to infer the likely regional effects. But recessions differ in their sources, depth and duration.

This difference is illustrated by comparing employment data for the period 1989 to mid-1991 (see chart 2) with data from the current recession. Like chart 1, the employment levels in chart 2 are normalized to 1 as of July 1990, which was the beginning of the last recession, according to the NBER. This comparison highlights several differences between the two most recent recessions. For example, in the last recession, employment at the state level, except in Louisiana, more closely tracked the national trend, with much less divergence in the timing of the peaks.

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An exception to this trend was Louisiana, where employment continued to rise during that recession. Louisiana's divergence from the national trend can be attributed to the state's economic dependence on the oil industry, which experienced a boom as a result of the higher prices for oil brought about by the Gulf War.

Manufacturing sparks different reactions

But there are other differences between the two most recent recessions. Part of this difference stems from the experience of the manufacturing sector.