The GOP presidential candidates will duke it out on Tuesday for a primary victory in two of the hardest-hit economies in the nation. Unemployment rates in Arizona and Michigan climbed into the double-digits in 2009 and remain uncomfortably above the national average today.
Although the recession dealt serious blows to both states, the lead-up to the downturn could not have looked more different in each. In Arizona, a growth-fueled housing bubble went "pop" along with the nation’s. Michigan, on the other hand, started its economic decline at the turn of the millennium. The recent recession simply accelerated its downward course.
Now, Arizona is biding its time until the economy returns to normalcy. Michigan is wondering what its new normal will look like. The Republican hopefuls need to prove that they can chart the course there, but that could be a tough sell given both Mitt Romney’s and Rick Santorum’s hands-off approach to the states’ core industries.
Arizona: No Such Thing as Too Much Growth
Arizona was booming in 2007. The Arizona Republic cheerily declared at the end of the year, “Leaders predict economic upswing in 2008.” The state population was climbing and money was flowing into real estate. One out of every five jobs was related to growth, said Marshall Vest, director of the Economic and Business Research Center at the Eller College of Management at the University of Arizona.
“Arizona is all about growth,” he said. “It’s the state where growth is good and too much is just right.”
A steady migration of Americans to Arizona’s warmer climate made the state’s growth rate roughly three times that of the country in typical economic times, according to research professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School of Business at Arizona State University.
When the recession hit and housing bubble collapsed, the state hemorrhaged jobs--close to 11 percent of its workforce, and, as a percentage, nearly twice that of the nation, said McPheters. Population growth slowed. Public-sector spending dropped as layoffs soared.
But Arizona economists are optimistic that the prerecession days can return. The lack of population growth is tied to the national housing slump; people are less likely to pack up and move to the Grand Canyon State when their current homes are underwater. Once the housing market picks back up--which economists expect it eventually will--migration to Arizona should resume and the economy should return to its normal, high-growth state.
Using past recessions as a guide, “I think it would be reasonable to expect that by 2015, Arizona will probably be one of the top five growth states [in the country],” McPheters said. “Within three to five years, I think population growth will recover, housing will recover, and [in] the long-term outlook … nothing really changed.”
Michigan: Whither Manufacturing?
Michigan’s long-term outlook is much hazier.
The state’s economic downturn began about a decade ago, spurred by changes in the motor-vehicle industry that caused the market share of Michigan’s automakers to fall. Advances in manufacturing made the sector more productive, requiring fewer workers and demanding greater skills from those it did employ. The changes were exacerbated by the 2001 recession, and Michigan lost about 860,000 jobs between 2000 and 2009--a sizable chunk of the approximately 4 million to 5 million workers that make up the state’s labor force.
The next recession only worsened the blow. “Michigan was in pretty bad shape already when the recession began in 2007,” said Sophia Koropeckyj, an economist at Moody’s Analytics.
The Big Three auto makers were brought to their knees in the fall of 2008, and General Motors and Chrysler ended up receiving bailouts from the Bush and Obama administrations. And even though Michigan wasn’t a big player in the national housing boom, the state was hit “disproportionately hard” by the bust as a result of its rapidly declining employment, the Michigan Treasury Department concluded in May. The state unemployment rate climbed from 7.2 percent in December 2007 to 14.1 percent in Aug. 2009.
Since reaching that peak, the economy has added approximately 100,000 jobs, and the unemployment rate has fallen to 9.3 percent in December 2011, the most recent month for which data is available. But even as new jobs are added, the state won’t return to its manufacturing heyday.
“I don’t expect Michigan to ever recover from all the losses that it incurred during the past decade,” Koropeckyj said.
The nature of manufacturing has changed, and Michigan is preparing to adapt. That’s why state leaders describe a new path forward rather than a return to normal. Gov. Rick Snyder has a plan to “reinvent” Michigan, rather than regenerate it, through “more and better jobs.” His predecessor, Jennifer Granholm, said in 2009 that “there is no other long-term course for Michigan in the 21st century than to diversify.” How it will do that remains to be seen.
A Tough Sell
Romney is essentially tied with Santorum for Michigan’s support but has a double-digit lead in Arizona, according to NBC News/Marist polls released on Wednesday.
Neither Romney nor Santorum supports Michigan’s auto bailout, which economists like Koropeckyj say probably prevented economic calamity in the state. Nor do the GOP hopefuls think the housing market needs extra assistance; both have said they believe the market should do the work to restore it. Arizona and Michigan have some of the highest foreclosure rates in the nation, according to market researcher RealtyTrac.
As the states had their terrible recession-era fates in common, so the candidates share a potential messaging problem: their tough-love attitude on the auto and housing industries could be hard to sell on Tuesday.