Economic Analysis

May Jobs Figures Reveal a Tale of Two Countries

The Sun Belt, benefiting from over one decade of bustling economic growth and a milder COVID outbreak, has vastly outperformed the rest of the country economically over the last several months. The April 2020 BLS jobs report showed that Sun Belt regions experienced 50 to 75% fewer job losses than their Northeast and Midwest compatriots.

The recently released May 2020 figures reveal the same trend. Job losses continue to be disproportionately concentrated in Rust Belt markets across the Northeast and Midwest while the Sun Belt remains relatively unscathed. The longer these economic discrepancies persist the more likely it is that businesses and populations migrate south.

Year over year job losses in Sun Belt and Fly-Over states ranged from 5 to 10% in May. Northeast and Midwest markets hovered in the 15 to 20% range. The West Coast has also experienced issues, with California, Oregon, and Washington losing roughly 12% of jobs year over year.

Employment losses at the metro level follow a similar trend to the states, although some interesting differences begin to emerge. The most striking area of job losses in the country is in the Rust Belt area stretching from Central New York to Michigan. Most of these cities had modest COVID impact yet maintain job losses of close to 20%.

Myrtle Beach, Orlando, and New Orleans stand out as metros experiencing heavy job losses in regions that were otherwise relatively unaffected. The high share of tourism in these economies, which is virtually non-existent during COVID, likely explains their struggles relative to the areas around them.

The interior of North Carolina is also facing issues, with Greensboro, Hickory, and Asheville all posting employment losses above 15%. This is in contrast to the 10% average levels experienced across the rest of the state.

Among large metros (those with a population of at least 1 million), Las Vegas tops of the list for year over year job losses at 22%. Like New Orleans and Orlando, a large share of Vegas’ economy is predicated on tourism and leisure. Expect Las Vegas to be at the top of this list for the foreseeable future.

Detroit, Buffalo, Grand Rapids, Rochester, Cleveland, and Pittsburgh highlight the struggles faced by Rust Belt economies with old populations and a heavy manufacturing base. While some of these metros made impressive recoveries over the last decade, the underlying structural weakness of their local economies is showing itself.

On the other end of the spectrum are Phoenix and Dallas, the two best performing economies over the last two months. While 5% year over year job losses are still quite severe, they pale in comparison to the 15-20% levels experienced in the Northeast and Midwest. Salt Lake City, San Antonio, Birmingham, and Denver are other large metros that have performed comparatively well.

Some of this better economic performance could be attributed to timing. Through May most Sun Belt areas had yet to experience COVID outbreaks and thus didn’t shut down their economies as severely. Recent outbreaks in Arizona, Utah, and Texas will test the resiliency of these local economies.

However, there is reason to believe that the younger and less densely populated regions in the Sun Belt will be less susceptible to COVID over the long run. This built-in structural advantage against the virus could further accelerate the movement of economic activity from the north to the south.

The impact of these regional economic differences is being masked by federal stimulus checks that are disproportionately going towards areas in the Northeast and Midwest. At some point, these stimulus checks will abate or go away entirely, at which point local real estate cash flows and valuations will begin to feel the effect of these differences.

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