Out of Control Policy Blog

Moody's: 30 States in Recession

In yet another indicator of declining state and local economic conditions, Moody's finds that thirty states are in recession, and 19 more are at risk:

Thirty states were in recession as of September, according to the Moody's Economy.com coincident indicator, which combines changes in employment and industrial production. These 30 states accounted for 66% of employment and 64% of output, compared with 63% and 61%, respectively, in the previous month. New states that have fallen into recession are Hawaii, Minnesota and Utah. An additional 19 states are at risk of falling into recession.

Alaska and the District of Columbia are the only states expanding. What started in housing has now become a more broad-based slowdown: Financial market turmoil is weighing on businesses' ability to finance daily operations, and weak domestic demand and near recession-like conditions globally have brought the industry to its knees. Michigan has been in recession the longest, although its malaise was chiefly its own at that point. The national recession began last December or January in California, Arizona, Nevada, Florida and others. States across the industrial Midwest were the next to drop, and it spread from there.

Of 381 metro areas and divisions covered by Moody's Economy.com, 276 are in recession–the largest being Los Angeles, Chicago and Atlanta. Notable joiners in September were Minneapolis; Portland, OR; and Camden, NJ. A number of new areas are now considered to be at risk of recession, including Houston, Dallas and Seattle. Signs of strain in these economies have developed more gradually, though warning signs in these areas include rising unemployment rates. Of the 20 largest–ranked by population–only Washington DC is still expanding, helped by steady growth in government

Taxpayers in Chicago, Minneapolis and Portland will surely be glad to know that their tax dollars are propping up the DC economy.

ABC News reported on the Moody's analysis here, adding in some interesting regional breakdowns. Towards the end of the piece in a discussion of the recession and growing state budget shortfalls, University of Maryland economics professor Peter Morici makes an astute observation:

"The state governments are an exercise in irresponsibility. Through the property boom, they enjoyed the increase in people's assessments," Morici said. "They are just not structured to handle the cynical [ed: cyclical, I assume] movements in their revenue the way they should be.

"Just like companies, municipalities can behave irresponsibly in good times, not shore up any money for bad times and then go crying to the federal government when they need cash," he added.

We saw that last week, in fact. Unlike private businesses, state and local governments have no natural incentive to be lean, and they're playing with other people's money to boot—hence, the natural tendency if left unchecked is to expand. But that expansion comes at a cost, and the growing state and local budget shortfalls we're seeing today are one manifestation.

In fact, they're symbolic of the irresponsible behavior. Pols cherrypick the rosiest of revenue forecasts to justify all sorts of new spending, programs and public jobs; ignore downside risk completely (otherwise they'd all have flush rainy day funds, for one); and then when times get bad, they're forced to make politically difficult decisions to slash spending from a pot of money that never really existed in the first place. Seems like it would be a lot easier to just not spend the money to begin with.

Taxpayers need to wake up and recognize that fiscal irresponsibility is not just a DC problem; our statehouses, cities, and counties are at least equally susceptible. It's unfortunate that it takes a recession for that to become obvious.

Leonard Gilroy is Director of Government Reform


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