THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, July 11, 1995 TAG: 9507110240
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
TYPE: Analysis
SOURCE: ECONOMIST NEWSPAPER LTD.
DATELINE: WASHINGTON LENGTH: Medium: 96 lines
Just a few short weeks ago, it seemed that America's economic bubble had burst. After more than a year of unstoppable growth, a series of dire announcements by the government's number-crunchers had many businessmen holding their breath.
With good news beginning to appear again, they have begun to exhale, and many now expect growth to pick up later this year.
But while all eyes have been turned to the national economy, different parts of the country have continued to turn in starkly different performances.
States in the southeast and the west have been helped most by the economic expansion. During the past year, most Southern states have enjoyed job growth of well over 4 percent. Many Western states have done even better.
Over the past few months, as nationwide economic growth has softened, the impressive performances of these states have begun to moderate.
But they will probably continue to outpace the rest of the country for the next couple of years, as large cost advantages and structural changes in the American economy continue to attract new businesses from other regions.
These trends are nothing new. One of the biggest is the evolution of high-tech industries, which has made it easier to manufacture products such as semiconductors using mass-production technologies.
This has allowed Southwestern states such as Arizona, New Mexico and Utah to take jobs as well as people from the regional basket case, California.
And although the mass migration from California has finally begun to subside, the new structure of these states' economies should allow them to continue to boom.
The Southeast appears equally unstoppable, for many of the same reasons. Low wages and taxes, along with improvements in infrastructure, should continue to pull in new jobs at a healthy clip.
And many companies in Southern states have added to their cost advantages by concentrating more intently on export markets, especially those in Latin America.
In 1994, firms in Arkansas, Georgia and Tennessee increased their exports by more than 20 percent, compared with an increase of only 9 percent for the country as a whole. These states have little to fear from a mild national slowdown.
The Atlanta region in particular will continue to thrive, boosted by its preparations for the 1996 Olympic games.
Texas is another magnet for the country's jobs. State officials rein in tax and regulatory costs fanatically, preferring to let the other 49 states worry about environmental and welfare policies.
As a result, the state's high-tech manufacturing businesses, as well as the huge petrochemical industry along the Gulf of Mexico, have continued to thrive.
And although the peso's plunge has cut into the state's exports, companies have continued to build new plants inside Mexico to take advantage of the resulting cheap labor. This, in turn, has given a boost to the towns on the Texas side of the border.
All this will sound gloomily familiar to Californians and Northeasterners, who have been coping with the industrial exodus for years.
But having suffered through the necessary shakeouts, coast dwellers had hoped that their economies would be poised for a boom, and were counting on the strength of the national economy to propel them swiftly along. A nationwide slowdown may hobble them at exactly the wrong time.
This is particularly true of California. For much of the early 1990s, the state's unemployment rate stood more than three percentage points above the national average, due largely to cutbacks in defense and aerospace.
This gap was beginning to narrow as the state continued to add jobs in research and development, early-stage high-tech production and business-related services.
But a national slowdown could dampen demand for local products, and rising interest rates during the past year have now choked off a resurgence in the California property market. Another round of closures of military bases, if it comes, would make matters still worse.
The Northeast has not fared much better, especially the mid-Atlantic states.
Employment in New York state, for example, has grown less than 1 percent during the past year, as the financial industry has consolidated and many high-tech manufacturers have fled. If George Pataki, the state's governor, does not succeed with his tax-cutting ambitions, this trend is not likely to abate.
Neighboring New Jersey and Pennsylvania have also had trouble shaking off their torpor. Although these states have lagged behind the country during the recent expansion, economic activity in them dwindled several months before it did in the remaining regions. These states, too, have vulnerable military bases.
Thus, while the economy-wide slowdown is beginning to look milder than many people had feared, some parts of the country still have trouble ahead.
The sunniest place to be, as for several years now, is in the resurgent Sunbelt or the Rocky Mountain West. by CNB