Majority of States Now in Recession

In March, 5 states were in recession; now there are 27 with 14 more at risk.

October 20, 2008, 6:22 PM

Oct. 21, 2008— -- What started out as a housing problem in a few states has now exploded into a full-fledged recession with a majority of states now in or dangerously close to recession.

Just this weekend, President Bush's top economic advisor used the much-avoided word "recession" to describe the economies in some states.

"We are seeing what I think anyone would characterize as a recession in certain parts of the country," Edward P. Lazear, chairman of the Council of Economic Advisers, said on CNN's "Late Edition."

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Back in March, Mark Zandi, chief economist and co-founder of Moody's, said that only five states were in recession: Arizona, California, Florida, Michigan and Nevada.

Now, he said that 27 states are in recession and another 14 are near recession.

"There's no way around the map. It says the nation is in recession. The recession is coast to coast," Zandi said. "Just a handful of states are expanding at this point. One of the unique features of this downturn is how broad-based it is, regionally."

What happened between March and today?

"The job market has eroded measurably and industrial production has weakened sharply in the last couple of months. Those are the two key things. The other thing is that retail sales have also sharply weakened," Zandi said.

The one bright side is part of the middle of the country. Agriculture and energy are still strong and providing jobs.

Maryland, Massachusetts and New Hampshire are still growing and that is because of health care and educational services.

"In the past, in recessions, you saw people moving from areas that were hard hit, to areas that were holding up better, looking for jobs and better incomes," he said. "Now, there is nowhere to go."

High Unemployment

David Wyss, managing director and chief economist at Standard & Poor's, said the worst problems are in the old rust belt, Michigan being the worst hit. The state now has the highest unemployment in the country.

"The recession began, really, with the housing sector and then also very quickly with automobiles," Wyss said. "The states that have been hardest hit have been the manufacturing states, in large part because of what happened with cars."

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Now the recession is spreading to other states where the housing bubble never burst. For instance, Wyss said, the Boeing strike is starting to drag down Washington state's economy and spread over into Oregon.

"The exception is the part of the country between the Mississippi River and the Rockies, which is still doing pretty well," he said. "High farm prices are good if you are in Iowa. High oil prices are good if you are in Houston."

Peter Morici, an economics professor at the University of Maryland, said a decline in manufacturing is really hurting the rust belt. That said, the economy still is very regional and industry-specific.

"It always varies. Even during the Great Depression, there were people that hardly felt it," Morici said. "Recessions and depressions always have varying effects on people and locations."

Agriculture is doing well because of ethanol development and a growing demand for grains by people in Asia.

Budget Shortfalls

Several state governments already face major budget shortfalls.

"The state governments are an exercise in irresponsibility. Through the property boom, they enjoyed the increase in people's assessments," Morici said. "They are just not structured to handle the cynical movements in their revenue the way they should be.

"Just like companies, municipalities can behave irresponsibly in good times, not shore up any money for bad times and then go crying to the federal government when they need cash," he added.

Casey Mulligan, an economics professor at the University of Chicago, said a lot of regions have a few industries. When those industries suffer, the whole area tends to. Take New York City, which is now hurting because of troubles in the financial sector based there.

One bright spot on the economy: consumer goods. Brands like Coca-Cola and General Mills are doing well, Mulligan said, in particular, thanks to strong international growth. The large high-tech companies also appear to be doing well.

"It's true in all recessions and booms," he added, "that there are some places that don't participate."

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