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Who Will Lead The Recovery? Start With Texas Who Will Lead The Recovery? Start With Texas

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Who Will Lead The Recovery? Start With Texas

The debate between Richard Florida and Joel Kotkin on the future of the U.S. economy proves yet again that experts usually have trouble agreeing on anything. But when it comes to predicting what place will lead the country to a solid economic recovery, forecasters are all on the same page: Nobody's messing with Texas.

 

Although the economy has slowed in recent months, the prospects for a robust recovery are still looking up for the Lone Star State. Texas gained 14,000 jobs in June even as employment fell in 27 other states, according to the Bureau of Labor Statistics. That brought Texas's total for the first half of 2010 to 178,700 -- more than twice that of any other state.

The reasons for this success aren't unique. A key factor has been the state's energy production. "If you look at the first half of 2008, the U.S. [economy] had started to decline, but Texas was still growing," said Keith Phillips, a senior economist at the Federal Reserve Bank of Dallas. Oil and natural-gas prices were very strong, he explained, and so "we entered the recession late."

But more important is that Texas is not just an energy-producing state. "The best places are centers that use that energy resource to diversify their economies," said Doug Henton, the CEO at Collaborative Economics, a consulting firm.

 

High-tech centers in Austin and Dallas have created an economy ranging "from cow chips to computer chips," as the Fed's Phillips put it. A tech-heavy index of the best-performing cities in the country last year by the Milken Institute, an economic think tank, ranked Austin first and placed three other Texas locales -- Killeen and environs, McAllen, and Houston -- in the top five.

North Dakota, another energy-rich state, has also positioned itself at the forefront of the recovery. The state has taken advantage of its natural resources to increase funding for entrepreneurial activity and to promote overseas trade. Throw in a stable agricultural economy and North Dakota enjoys the lowest unemployment rate in the country: 3.6 percent, 6 percentage points lower than the national average.

Similarly, while oil and natural gas have boosted Oklahoma's economy in this recession, Oklahoma City has built the foundation for a more solid economic future by not relying solely on those resources for growth. The state's largest metropolitan area has made it a priority to diversify, revitalizing the downtown and attracting businesses in other industries, including computer-maker Dell.

The demand for high-tech innovation plus a weaker dollar, which bolsters exports, has put the San Francisco Bay Area in a position to prosper as the economy recovers. "Technology and innovation will lead the country," said Stephen Levy, the director of the Center for Continuing Study of the California Economy, "and the Bay Area is the center of that."

 

Past performance can be an indicator of future prosperity. The only sector of the U.S. economy that added jobs during every quarter of the downturn was health care -- nearly 737,000 positions since January 2008 -- and the demand will surely rise as the population ages. Right behind health care is education, which experienced positive job growth in 24 of the past 31 months. Both sectors should help the economy in and around Boston, with its slew of hospitals and universities. The Boston Conference of Hospitals estimates that one out of every six jobs in the city is related to health care.

The outlook is bright for Pittsburgh as well. Despite its heavy-manufacturing past, the Steel City has fared well by "shifting from more-traditional industries to more knowledge industries," said Henton of Collaborative Economics. The University of Pittsburgh and Carnegie Mellon University have attracted a strong biotechnology presence to the region. Similar growth is happening in San Diego, where the local University of California campus has helped make the city a leader in health care technology.

Besides medicine and education, a reliable source of job growth has been Uncle Sam. "Federal spending has never gone down since I began tracking it in 1970," noted Stephen Fuller, the director of the Center for Regional Analysis at George Mason University in Fairfax, Va. This bodes well for Northern Virginia, which depends on federal contracts and government services, as well as Huntsville, Ala., a major recipient of government funding for space and technology programs. The economies in both places rely heavily on defense spending, which has more than doubled since 2001. This leaves them vulnerable, however, to Defense Secretary Robert Gates's plans to tighten the military's belt. Fuller estimated that a 10 percent cut in the defense budget could hinder growth in Northern Virginia by as much as 50 percent.

But recent successes are not the only measure of future prospects. Look for economic growth in the unlikeliest of sectors: manufacturing, which began struggling decades before the Great Recession struck. "I think we're on the cusp of several years of good, solid job growth in manufacturing," said Mark Zandi, the chief economist at Moody's Analytics. "If you're a manufacturer and you've survived the last several years, you've got to be highly productive, very competitive, and have a market niche."

This growth, however, is more likely to occur in less urbanized parts of the South than in long-suffering Rust Belt states such as Ohio and Michigan. Tennessee and Georgia, notably, boast lower taxes and a less unionized workforce, which increase their appeal to large manufacturers. Foreign automakers that want to produce cars in the United States have already taken advantage of such Southern hospitality: Nissan's biggest North American plant is in Smyrna, Tenn., where the Japanese company's new all-electric vehicle will see the light of day.

The places that are leading the recovery share one thing above all: They avoided the crash in the housing market. Thus, these areas are poised for a stronger, faster recovery than elsewhere in the nation.

Still, a robust return to prosperity is far from a sure thing: A drop in the price of oil or natural gas, cuts in federal spending, or volatility in the global economy could quickly stymie a full recovery, even in these bright spots.

Ernie Goss, a professor at Creighton University in Omaha, put the situation of these promising lands in perspective: "The comparisons are pretty good for the recovery, but it's all still fragile."

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