The Mysterious Economic Collapse in the Northeast, Cont’d
Brad Plumer picked up my story from last Friday about unemployment soaring in the Northeast. After pointing out the facts of the matter, he attempts to arrive at a conclusion. Politicians in New York and New Jersey simply question the data, which is kind of the last refuge of a scoundrel. Here are some of Plumer’s other theories:
Another theory is that the Northeast has been hit harder by the slowdown and debt crisis in Europe than anywhere else. As Steve Cochrane of Moody’s Analytics has noted, the Northeastern U.S. exports more to Europe than any other region. Manufacturing has shrunk more rapidly here than anywhere else in the country this year. And the already-shrinking financial sector in New York and Connecticut has been battered by the euro zone’s debt crisis.
One thing Cochrane pointed out in his “U.S. Regional Outlook” report last year was that the Northeast had greater “downside risks” and was more susceptible to a global slowdown than any other region in the country. The South has benefited greatly from oil and gas production. The West is buoyed by growth in technology firms. The Midwest has “the most diversified export markets.” But, he noted, the Northeast is still getting crunched by the slowdown in the financial sector.
Note also that the housing market has been slower to recover in the Northeast than in the rest of the country, at least judging from the latest data on home sales and prices. And, as Soltas points out, states like New Jersey, Pennsylvania, and Connecticut are all seeing a sharp cutback in public sector employment.
I can see here a developing idea that laws preventing illegal foreclosures hold back the economy – New York and New Jersey have put anti-foreclosure fraud rules in place, which have led to a foreclosure backlog. To the extent that’s a problem, it can be directly attributed to the unscrupulous lenders who lost or improperly recorded title and ownership documents, and now must commit fraud to foreclose. Blaming laws that make illegal behavior illegal doesn’t move me too much.
Anyway, the slowness of the housing recovery sounds more like a symptom of a depressed economy rather than a cause. Slow manufacturing in the Northeast definitely sounds like a plausible explanation; the financial churn from the debt crisis and post-Dodd-Frank reforms, less so (Wall Street continues to enjoy record profits). The public sectors of Northeastern states aren’t necessarily cutting back in ways dissimilar to public sectors in other states, and again that looks like a symptom of low tax revenue from high unemployment rather than a cause.
I haven’t seen a satisfactory explanation for all of this, in other words, and I’ve asked around without much luck. Let me add another piece into the mix, however; major layoffs in the research and development sector of pharmaceutical companies, particularly in the pharma-heavy state of New Jersey.
Big Pharma’s decision to go lean has had big consequences in New Jersey this year. From Roche’s ($RHHBY) plans to eliminate its complex in Nutley, NJ, to Dendreon’s ($DNDN) decision to shutter a manufacturing center in the state, New Jersey has been hit time and again. Novartis ($NVS) and Lundbeck have arranged for pink slips in the state as well, while Sanofi ($SNY) has been transferring Garden State workers to its big hub in Boston. And most recently Merck ($MRK) said it would move out of its longtime HQ in Whitehouse Station to take up residence in some empty space nearby, leaving another empty pharma site for some other company to fill.
Still, this appears limited to one of the several northeastern states (though the ease of interstate mass transit and density of the area creates spillover effects.
If you want to put an electoral layer on top of this, consider that Chris Murphy, the Democratic US Senate candidate in once-reliably blue Connecticut has had a hard time pulling away from Linda McMahon in their race. The Presidential race in Pennsylvania has become tantalizing enough for Romney to add staffers there, and Bob Casey has had similar troubles as Murphy against big spending non-candidate Tom Smith. This is a reliably blue area – the likelihood is for Obama to sweep the Northeast – but the numbers may be significantly depressed, because the economy is experiencing more trouble than the rest of the country.