Thursday, October 1st, 2009
Midwest Metro GDP, Unemployment
Ryan Avent pointed me at newly released BEA figures for metropolitan area GDP. Here’s a national map of how the nation’s metro areas fared in terms of GDP growth or decline in 2008:
You see here very clearly the “zone of sanity” in the middle of the country. Not only has this area not seen a house price implosion, it also has the best GDP performance, as one might expect. There is wide divergence among Midwest metros here.
Here is how my 12 Midwest metros stack up in 2008 GDP per capita. Since the BEA numbers only provide values in 2001 dollars, I’m including that since I don’t have time to convert to current dollars.
- Minneapolis-St. Paul – $50,797
- Indianapolis – $46,450
- Milwaukee – $45,591
- Chicago – $45,463
- Kansas City – $43,112
- Columbus – $42,890
- Cleveland – $41,493
- Detroit – $40,086
- Pittsburgh – $39,492
- Louisville – $38,142
- Cincinnati – $37,970
- St. Louis – $37,744
Ryan’s analysis talked about the wide variations in growth in GDP per capita over the years. So I thought I’d run the numbers for the Midwest. Here we have the change in real GDP per capita between 2001 and 2008 for my twelve metros.
- Pittsburgh – 10.9%
- Milwaukee – 7.6%
- Minneapolis-St. Paul – 7.6%
- Cleveland – 6.0%
- Chicago – 5.5%
- Kansas City – 5.1%
- St. Louis – 5.1%
- Louisville – 3.8%
- Cincinnati – 1.7%
- Indianapolis – 1.7%
- Columbus – 0.6%
- Detroit – (2.0%)
I think GDP per capita is one of the most important economic variables out there. How much output per person is this metro area creating? It’s effectively a measure of the productivity or wealth creation ability of a region. It’s not perfect. A community could have its figure depressed by large numbers of non-working people such as children or retirees. But non-working people can also represent people who are involuntarily unemployed, and thus a legitimate drag on GDP creation. Perhaps complementing this with GDP per job, which I’ve seen some people use, provides a more complete view.
Ryan posits some demographic drivers for this variation. Just looking at the Midwest list, it isn’t difficult to generate some hypotheses along those lines. For example, Pittsburgh has natural population decrease, indicating a more elderly and thus likely less productive population. This might account for its lower GDP per capita score and the very high increase in it (capita is decreasing with natural decrease).
You expect the Twin Cities to post high figures, but it is interesting again to see that Indianapolis and Milwaukee have higher GDP per capita than Chicago, which conventional wisdom says specializes in more higher value activities. Detroit’s GDP per capita is actually shrinking as the auto industry restructures. But there area a host of other metros with anemic growth who should be doing some digging to find out why.
By the way, to put the Midwest GDP per capita performance in perspective versus some other places, Seattle is $55,982, New York is $57,097, San Francisco-Oakland-Fremont is $60,873, and San Jose-Sunnyvale-Santa Clara is $82,880.
Also, monthly unemployment figures were just released by the Bureau of Labor Statistics. Here’s how Midwest metros are faring as of their August unemployment rate:
- Minneapolis-St. Paul – 7.7%
- Pittsburgh – 7.9%
- Indianapolis – 8.2%
- Columbus – 8.8%
- Kansas City – 8.8%
- Cleveland – 8.9%
- Milwaukee – 9.3%
- Chicago – 9.7%
- Cincinnati – 9.9%
- St. Louis – 9.9%
- Louisville – 10.3%
- Detroit – 17.0%
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About the Urbanophile
Aaron M. Renn is an opinion-leading urban success strategist and writer on a mission to help America’s cities thrive in the 21st century global economy. His particular focus is the oft-overlooked cities of the Midwest.
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If you use personal income instead of GDP, the Midwest looks better.
If you look at purchasing power of personal income (PI with cost of living adjustment factor), the Midwest looks even better.
Even though the stats were much harder to dig up in those days, that very comparison helped me decide to move to the Midwest from the East Coast several decades ago…during the last "great recession".
Of course, the disadvantage of spending one's adult life in a place where housing is consistently "affordable" (i.e. consumes a smaller portion of household income) is that changing cities is pretty much out of the question without a big bump in salary unless it's to a similarly affordable place elsewhere in the Midwest.
In my opinion, the defining characteristic of the last expansion was the finance and housing bubbles, and Hispanic immigration. Places like Chicago created a lot of on paper wealth with their finance industries. That's counted on the top line (although it shouldn't be, in my opinion). The Mexicans who came to build the houses, condos, and high rises counted in the bottom line. Chicago's not at the top of your GDP per capita list, so I guess the bottom line won. Most of the rest of the Midwest didn't participate in this.
I agree that some variant of personal income (and personal income growth) is another key urban scorecard metric.
CDC Guy, the problem is that a lot of the living adjustment factors make questionable assumptions about lifestyle. The problem is that those adjustments are based on the lifestyle of a corporate executive, which means owning a car and living in a detached home or a newly built condo. In cities like New York and Chicago this isn't how most people live, so the transportation, housing, and utility costs used in the adjustment are much higher than what is normal for local residents.
For example, the official adjustment says New York's transportation costs are 1.4 times the national average. In reality, per capita transportation expenditure in the city is 4% of income compared with 12% nationwide. This crops up again and again: if you live in a rental building and ride public transit to work, then your rent will be lower than the adjustment expects, and your utilities bill will be small due to low energy consumption.
{{I think GDP per capita is one of the most important economic variables out there. How much output per person is this metro area creating? It's effectively a measure of the productivity or wealth creation ability of a region. It's not perfect}}
I'll say. The biggest issue I have with this generalization is that places with high GDP/capita are places that waste much of their output on housing costs – not an incredibly productive use of resources, especially when you consider that high-income regions like San Jose have relatively new housing stock which is unlikely to be as durable as the cheap, old housing stock in many Midwest and Northeast urban centres.
Mark, when you say people "waste" their output on housing, that's a valid statement of values, but that's all it is. Anyone could make similar statements about the worth of financial engineering on Wall St., web 2.0 apps like Twitter, gas guzzling SUV's and pickups, or contemporary art. GDP simply measures where consumption and investment actually are, not what we would like them to be.
Alon, that may be, but no one can say with a straight face that it's on average as cheap to live in NYC, SF, Chicago, etc. as it is Kansas City or Columbus. In particular, those transit systems drive up the cost of housing enormously by raising land values.
It may be that you can rent a cheap room in the outer boroughs somewhere for what someone could pay for a new four bedroom home with a garage in Fishers, Indiana, but that lifestyle difference is to some extent involuntary. People in NYC might like to have a single family detached house with a nice yard, etc. They simply can't afford it.
Alon, that may be, but no one can say with a straight face that it's on average as cheap to live in NYC, SF, Chicago, etc. as it is Kansas City or Columbus.
It's not cheaper, but it's closer. The official cost of living adjustment overstates rents, utility costs, and transportation costs in those cities. If you make more reasonable assumptions, even for Manhattan, then the cost of living index drops from 205% the US average to 125%.
In particular, those transit systems drive up the cost of housing enormously by raising land values.
That's relevant if you buy, not if you rent. Those cities all have higher price-to-rent ratios, especially near the train stations, because they're perceived as safer investments than the Indy exurbs. The rents are still higher, but not by that much. For example, if you compare Manhattan and Houston, the rents in Manhattan for the same number of bedrooms are about twice as high. The cost of living index says they should be five times as high citywide.
Alon, the valid comparison is rent per year for an apartment of a certain size.
Nice, upscale secure downtown apartments in Indy in the 1000 sf range would go for $15,000/yr.
Midtown Manhattan? $40-45,000 appears to be the range after doing a quick online search by specification on Apartments.com.
By my calculation that's 2.6 to 3 times the housing cost comparing a "standard" product from "downtown" to "downtown".
Like Aaron, I don't think one can assert a living cost difference of only 25%, considering that huge residential cost differential.
Manhattan's upscale area is much larger than Midtown. On the Upper East Side, I know that $20,000/year gets you about 600-700 ft^2. As a neighborhood it has all the amenities of an upscale downtown – easy access to cultural attractions, high density, good transit access, walkable streets, very low crime rate (lower than Indy, probably – Indy has 14 murders per year per 100,000 people, New York 6). And that's one of the more expensive upscale dense neighborhoods. If you go to the comparable areas in Brooklyn and Queens, rents drop like a stone.
Mind you, the official cost of living adjustment says rents in Greater New York are 5 times what they are in low-cost cities like Houston and Indy, so even 2.6-3 times for Manhattan is far lower than what the adjustment says.
Mahattan. About three times more expensive? That screams affordable.
Manhattan is expensive relative to much of the rest of the country, but when compared to LA, SF, Chicago, and DC it does not appear to be much different. And I find the city lovely, and you get a lot for what you pay for. If you didn't, it would not be a desirable place for people all over the world to want to move to. I would be willing to pay slightly higher taxes in my city in exchange for improved public transit, city planning, parks maintenance, and other general city beautificaiton.
Alon, I picked the highest market rent, which is for brand-new apartments within easy walking distance of the downtown core, IUPUI, and IU Med. It also includes on-site covered parking, which is a whole separate issue.
It is likely that the nationwide statistical bundle includes some parking cost in rental housing, and that is likely skewed by the very high cost of parking in NYC. In most cities, cars are not optional; nationwide, upwards of 80% of workers commute to work alone in a personal vehicle.
{{Mark, when you say people "waste" their output on housing, that's a valid statement of values, but that's all it is. }}
To some extent, but I am specifically referring to the difference between Victorian-era brick housing in Pittsburgh versus the wood-stucco-and-paper housing in Los Gatos. The wood and paper housing is 20-40 times more expensive per sqft, but objectively inferior in quality, no? Isn't this a misallocation of the productive energy of people?
Mark,
One branch of my family is from a farm my ancestors settled about two hours west of Pittsburgh.
The family home-place is a hill-banked stone house, facing south, next to a spring, built cut stone blocks two feet thick. It's 165 years old already and there is no reason its shell wouldn't stand for 500 more. Family lore says it cost $200, which is maybe $5000 in today's dollars (by FRB COLA estimates). Far from a waste. And it's now heated by natural gas from a well on the property, after years of using local wood and coal.
But is it the "best" house in America because it was built at low cost per square foot in what we would today call a "sustainable" manner to outlast all the rest with minimal maintenance?
No, because it's still in the middle of Amish country in Ohio.
The price of housing within a market reflects quality differences, but from market to market, similar residences will have wildly different selling or rental-equivalent prices (or prices per square foot) because of local demand.
The fair comparison to the Pittsburgh Victorian is a SFO Victorian…and the only thing you'll really be comparing is the demand curves for the same thing in two different markets…which is essentially meaningless because we do not have a national market for housing.
Ultimately that analysis doesn't illuminate anything about the "value" of a particular home or style of home (or the "wasted" investment in it)…it only addresses the perceived value of living in a particular place.
"Waste" of money on housing is indeed a value judgement. Given my family/historical frame of reference, I could perceive almost all houses to reflect "waste".
@CDC:
Well, I guess my perspective is this: if you have X amount of brain/muscle energy to expend over the course of your life, and expending it in Silicon Valley will create Y amount of personal consumption, but expending it in Ohio will create Z amount of personal consumption, you can objectively measure whether Y or Z are more beneficial to your health or longevity, no?
If I'm capable of producing $25k per year in Silicon Valley or $15k per year in Ohio, it's a no-brainer that I should do Ohio, since I'll be able to actually eat and clothe myself on $15k in Ohio, something I would not be able to do entirely adequately on $25k in Cupertino.
Thus my thesis that housing costs soak up productive energy in an inherently inefficient manner, considering that they are not priced based on quality or durability but rather asset speculation.
CDC: well, in Manhattan owning a car is optional and not recommended, so cost comparison standards shouldn't try to include the cost of parking in the local cost of living.
Mark: California's housing prices are uniquely weird, in that Prop 13 has skewed the market. Elsewhere, a property value rise will raise taxes, which will somewhat limit how high it can go. In California, it won't. Property values are based on what a new buyer is willing to pay now, knowing that his taxes will forever be based on the current price.
Outside bubble conditions, property values are based on more solid issues like local rents, and local rents are based on such factors as size, amenities, desirability of area, predicted desirability of area in the next few years, and how high rents can go up in the future (that's what makes rent-stabilized apartments in gentrifying neighborhoods so hot).
Its sickening to think how poorly Louisville fares in these statistics…Near the bottom of the barrel.