- The Wall Street Journal published a story highlighting the supposed underperformance of the Southern economy compared to the rest of the US.
- But based on a number of measures, the South’s economy is still strong, especially in its fast-growing cities.
- By focusing on sectional differences, the piece ignores the real divide in the economy between rural and urban areas.
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As a transplant to North Carolina, the recent review of regional economic underperformance in The Wall Street Journal caught my eye. The basic thesis: Regional economic-development strategies based on undercutting other states with lower taxes and low wages has stopped working, and employers are focused on labour markets with educated workforces and humming cities.
It’s hard to square that assessment with what I see every day in Charlotte, North Carolina, one of the unmitigated success stories of the Sun Belt metro chain, which runs from Virginia Beach, through the Carolinas, across north Georgia’s booming Atlanta metro, and into Texas, with Arizona and California traditionally included as well.
Thousands of new apartments concentrated along a modest light rail system are springing up, freeways are being expanded, and subdivisions are growing on the perimeter to add single-family homes to the booming higher density infill market. If anything, my adopted home’s biggest challenge isn’t growth but gentrification.
When the BB&T and SunTrust merger is completed, two of the nation’s largest banks will be headquartered in Charlotte, along with sundry other industries. Lowe’s, Nucor, and six other Fortune 500 companies call the city home.
The Journal’s argument that the South’s economic divergence is a result of the region’s own problems doesn’t fit the data. And arguing the problems are the South’s alone distracts from a difficult national challenge that deserves attention: the divergence between large metro areas and the rural hinterland both within and across sectional lines.
The American story through roughly the late 20th century was best explained by competing sections of the country, with competing values, interests, and self-conceptions.
The Civil War is the best example, and the blood spilled in defence and condemnation of slavery created an “us versus them” perspective in the two best-defined sections of the country. The struggle over civil rights further reinforced the notion that the best way to view the country was the old Confederacy versus the rest. Nixon’s Southern strategy added an electoral element.
Today, though, the picture has become clouded. Rural election results in New York and California look more like something you would expect from the Deep South, while Houston, Dallas, Atlanta, Raleigh, and the Washington, DC, suburbs in Virginia are increasingly supplying votes that make progressives optimistic about flipping traditionally Republican-held states.
This rural-urban divide is best exemplified by the economic and demographic status of metropolitan cities in the South. While the South as a whole has seen struggles in keeping up with personal income, other measures of prosperity paint a picture of division between booming cities and crumbling rural areas.
(Note that I’m using The Journal’s definition of the South: Alabama, Arkansas, Mississippi, Louisiana, Georgia, South Carolina, North Carolina, Virginia, West Virginia, Tennessee, Kentucky, and Oklahoma. I’ve also combined Greensboro/High Point and Winston-Salem; some jobs in Indiana suburbs of Louisville are also included but aren’t material.)
Using metros with more than 400,000 employed, the metro South has delivered faster employment growth in all but two years since 2011, and outpaced national employment growth by over 1%. On the other hand, the rest of the region (that is, small metropolitan areas and rural) has lagged every year, adding jobs at a bit better than half the rate of the large metros.
As shown in the chart above, the rural South is in deep trouble when it comes to adding jobs. At the end of 2010, 52.4% of the region’s employment was found in large metros. In April, that number was 54.2% and climbing.
It’s not just job creation where the urban South is overachieving. Population growth has been much faster for this group of cities than for the nation as a whole in every decade since the 1960s. Of course other metropolitan areas could be growing faster too. But similar metros in the rest of the country that have over 400,000 employed persons have persistently grown slower than those in the South.
South metros have grown faster in every decade since the 1960s, and if anything the population growth advantage is picking up. Southern metros grew roughly 0.65 percentage points faster than other large metros nationally in the 1980s, 1990s, and 2000s, but increased their outperformance to 0.73 percentage points annualized since 2009.
In the 1970s, the rural and small-metro South was also growing faster than the overall US, but since then it has barely budged in terms of total population. Out-migration and little in-migration have been a massive challenge that has left rural parts of the former Confederacy and Appalachia in rough demographic shape.
What’s most frustrating about treating regional South as having massive problems is that it understates the severity of the challenges facing rural areas across the country.
In 2017, real median income for those living outside metropolitan statistical areas was 74% of what those living inside metropolitan statistical areas, or MSAs, took home. The poverty rate for rural areas was nearly 15%, versus less than 12% for those living inside MSAs. These are headwinds that affect the whole country, and while the South is unusually exposed thanks to its higher percentage of rural population, confronting the challenges of high growth in cities versus low growth outside of them by trying to pin a geographic tail on the donkey doesn’t make sense.
There are still deep sectional divides in the US, and the South has a legacy of inequity and extractive institutions that is gradually being unwound. It would be a mistake to try to attribute regional economic performance to that legacy through sectional analysis instead of focusing on the true drivers broadly shared in nearly every state.
George Pearkes is the Global Macro Strategist for Bespoke Investment Group. He covers markets and economies around the world and across assets, relying on economic data and models, policy analysis, and behavioural factors to guide asset allocation, idea generation, and analytical background for individual investors and large institutions.
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