Regional economic trends: If you can smell the salt air, business is good

by Jim Haughey, director of economics for Reed Business Information -- Industrial Distribution, 2/3/2006

Industrial distributors in the West have the fastest growing regional economy. Economic growth is about at the national average in the South and slightly below the national average in the Northeast and Midwest. These trends will persist for more than a year, although Midwestern economic growth will be catching up with the rest of the country. Generally, coastal regions are growing faster than interior regions and outer suburbs faster than inner cities.

At the same time, distributors in the Northeast are operating in the tightest markets. The regional market is also tighter than the national average in the West, about at the national average in the South, and much looser than the national average in the Midwest. Supply costs for MRO supplies and equipment are not higher in a tight market because these items are purchased by distributors at the common national price. However, distributors’ cost for items priced in a regional basis are marginally higher. This includes freight, most labor, and contract services.

The regional growth differences result from the regional differences in the mix of export industries. Export means shipment out of the region, not necessarily out of the country. The West has many large, rapid-growth export industries, including electronics; defense; aircraft; entertainment; services for the rapidly growing trade with Asia; retirement; oil and gas field development; “hosting” a large share of foreign immigrants; and the catch-up construction activity needed to support these industries and their employees. The Midwest has a relatively small share of these export industries. While the Midwestern factory machinery, heavy truck and off-road vehicle export industries are expanding very quickly, this is offset by the shrinking motor vehicle industry; the relatively weak farm/field crop cash receipts; and the resulting depressed construction industry in the face of empty buildings and net out-migration of people seeking jobs.

Those distributors serving only selected metro or state markets within a region need to know the outlook for the dominant export industries in their territory. For example, in the South, the comments above are the average for metros with rapid growth from large oil and gas industries (Houston). Tourism, retirement, export/import services, and foreign immigration (in Miami) is offset by weak growth cities in the textile and apparel belt in the Carolinas and Georgia, as well as the livestock and field crop regions of Texas and Oklahoma.

Relative metro growth rates are approximated by differences in employment changes. Relative market tightness is approximated by differences in metro inflation rates for housing. Some examples of both are shown in the tables.

Highest % Change in Jobs (December 2005 to December 2006)
Las Vegas  7.0%
Phoenix  4.8%
Salt Lake City 4.3%
El Paso  4.3%
Boise City  4.3%
Jacksonville  3.4%
Seattle  3.3%
Washington 2.8%

Lowest % Change in Jobs (December 2005 to December 2006)
Dayton  -1.2%
Rochester   -1.1%
Detroit  -0.6%
Boston  0.5%
New York  0.8%
Chicago  1.1%

Source: Bureau of Labor Statistics

Highest % Home Price Appreciation (last 12 months)
Phoenix  35.7%
Orlando  29.9%
Miami  24.6%
Washington 21.6%
Los Angeles 19.3%
Albany  15.2%
New York  14.4%
Philadelphia 13.1%
Long Island  13.0%
Providence  10.7% 

Lowest % Home Price Appreciation (last 12 months)
Detroit  2.4%
Whiticha  2.8%
Toledo  3.5%
Dayton  4.0%
Tulsa  4.4%
Cleveland  4.4%
Kansas City 4.7%
Indianapolis 4.9%
Atlanta  5.6%
Austin  6.7%

Source: Freddie Mac