Tags: Recovery | Economy | us | regional

Experts: Pockets of Regional Recovery Fail to Lift Broader Economy

Monday, 16 Jul 2012 11:57 AM

Pockets of recovery taking place in regions around the country aren't strong enough to push the overall economy further along the road to lasting economic improvement, economists say.

Parts of the Midwest are seeing improving manufacturing sectors and rising incomes, the Wall Street Journal reports, citing government data.

Plains states such as Nebraska and Texas are enjoying high food, oil and other commodities prices thanks to demand in China.

However, until bigger economies like New York or California grow at a more sustained pace, recovery will continue in pockets around the country while the broader economy limps along.

"It's not enough to have pockets of industrial rebirth," says Jim Diffley, chief regional economist at IHS Global Insight, The Wall Street Journal reports.

States like Michigan and Ohio "are not going to be pulling everyone else along, though it's great that they're gaining. We still need to have consumers and banks complete the process" of whittling away bad debts in order to start spending and lending more.

Many economies are just too small.

North Dakota, Wyoming, Montana and Nebraska contribute only about 1.4 percent of the country's gross domestic product — about the same as Connecticut contributes, the Journal adds.

North Dakota's unemployment rate stands at 3 percent, the lowest in the U.S. and well below the national rate of 8.2 percent.

"As rising global incomes drive more demand for protein, it creates a runway of opportunity that expands for more than a decade," says Hugh Grant, chief executive of seed company Monsanto on a call with analysts last month, the Journal adds.

Monsanto reported a 35 percent jump in profit in its fiscal third quarter.

However, California, which accounts for 13 percent of the country's gross domestic product, has seen its economy fail to keep pace with the national average from 2009 to 2011, while the unemployment rate today stands at 10.8 percent, well above the nationwide rate.

Still, technology hubs like Silicon Valley have done well recently thanks to the growth of social media companies like Facebook, which are creating pockets of recovery within California itself.

"Silicon Valley's social-media boom may have propelled it once again into the ranks of the fastest-growing employment centers, but the nearby Oakland area lags near the bottom," analysts at research firm Praxis Strategy Group write in a recent report.

The U.S. economy grew 1.9 percent in the first quarter, a modest rate.

However, yank the automobile sector out of the equation and growth comes to 0.7 percent, a very weak figure.

"Given that domestic growth is being generated by the autos sector, as we go into the second quarter, a pretty soft outcome looks likely," says Jeremy Lawson, a senior economist at BNP Paribas in New York, according to Reuters.

Other economists agree that the economy will continue to grow but at a sluggish pace battling increasing headwinds from the European debt crisis.

"We view the economy as vulnerable to negative shifts in sentiment and escalating uncertainty," says Michael Gapen, a senior economist at Barclays in New York, Reuters adds.



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