A new study charts the business cycles of the nation’s largest metros across three periods of economic decline.
In times of recession, some cities are hit much harder than others. A new study published in the Journal of Urban Economics takes a close look at the uneven effects of the past several business cycles, including the Great Recession, on America’s metros. To do so, it tracks monthly economic activity for the nation’s 50 largest metros over the course of several recessions between 1990 and 2015, charting their effects on economic output, productivity, wages, and unemployment.
Some recessions are weaker than others, and their effects vary by geography. Slightly more than half of large metros (26 out of 50) experienced a recession during the national recession in the early ‘90s. Rustbelt metros like Detroit and Cleveland, hard-hit by deindustrialization and the contraction of the manufacturing industry, faced long and deep recessions, as did tourism- and housing-oriented metros like Miami, Tampa, and Orlando. Coastal metros like New York, Boston, Washington, D.C., and L.A., as well as Riverside, Providence, and Hartford, also experienced significant recessions in the early ‘90s. By contrast, western metros like Seattle, Denver, Portland, San Antonio, Austin, and Salt Lake City managed positive growth—perhaps because their housing prices remained relatively low and they were in the midst of developing knowledge- and tech-based economies.
The recession of the early 2000s was largely about the tech boom and the dot-com bubble. As a result, it clobbered high-tech hubs like San Francisco, Denver, Portland, San Jose, and Austin. But this recession again hit hard at manufacturing-dependent Rustbelt metros like Detroit and Cleveland and Sunbelt metros, whose economies were more exposed to the downturn in housing. Meanwhile, the Washington, D.C. and Virginia Beach metro areas saw positive economic growth during this time, perhaps buoyed by federal spending.
That brings us to the “Great Recession” in the late 2000s. This recession hit a whopping 49 out of the country’s 50 largest metros, sparing only Oklahoma City. The metros that suffered the most were devastated by the housing collapse—again, mainly Rustbelt metros like Detroit and sprawling Sunbelt metros like Miami, Las Vegas, Tampa, Orlando, and Jacksonville. Meanwhile, a combination of resource-rich metros (like Oklahoma City) and knowledge hubs like Austin and Denver were less hard-hit by the Great Recession.
The chart below sums up all three periods of national recession from 1990 to 2015, with each bar representing the severity of these recessions for a given metro. Overall, business cycles appear to hit the hardest in manufacturing-oriented Rustbelt metros like Detroit and Sunbelt metros like Miami and Las Vegas. That said, San Jose has also been hard-hit, especially by the 2001 tech crash.
The most interesting part of the study takes a close look at the factors that expose or protect metros from the effects of a business cycle. Two things seem to matter most: First, the study echoes a wide body of research that identifies the effects of human capital, talent, or a highly educated workforce on economic growth and development. Here, the study finds that less-educated metros suffer from more severe recessions, most likely because their workers have a tougher time finding or keeping jobs during a period of economic decline. Second, metro economies that are more dependent on housing (or have “lower housing price elasticities,” in economic terms) are also more vulnerable to recession. These metros are also far more vulnerable to swings in housing prices.
What’s more, the study finds that metros are affected by what happens to nearby and adjacent metros. In this way, the effects of economic cycles tend to “spill over” from one metro to another. On the one hand, the study finds, Northeast and upper Midwest metros like New York, Chicago, Detroit, Baltimore, Pittsburgh, Columbus, Hartford, and Buffalo are weighed down economically by their adjacent metros. On the other, places like Washington, D.C., Austin, and Providence are strong enough to weather a recession on their own.
Ultimately, the study boils down to a few main takeaways. For one, knowledge- and talent-based economies are the best defense against severe recessions, while manufacturing-oriented Rustbelt metros and housing-propelled or tourism-based Sunbelt metros are much more exposed to the ups and downs of the business cycle. Still, tech-based economies are not immune: They, too, can get hurt when the tech economy becomes overheated and tech bubbles burst.
In the end, the study reinforces our understanding of the U.S. economy that has emerged over the past 15 years: The divide between knowledge-based metro economies and everywhere else only continues to deepen.