AP analysis: Sun Belt struggles to begin recovery

[February 04, 2010]  WASHINGTON (AP) -- On the surface, economic stress in some of the Sun Belt's hardest-hit counties appeared to ease in November. But beneath some positive numbers is a region struggling to rebound from the damage of the housing crisis and recession, according to The Associated Press' monthly analysis of economic stress in more than 3,100 U.S. counties.

In Riverside County, Calif., the nation's 11th-most economically stressed county, unemployment dipped slightly in November. But that was due mainly to seasonal hiring by retailers -- hiring that didn't extend past the holidays.

Likewise, unemployment in counties in Arizona and Nevada, two states hammered by the recession, also dropped in November -- but only because they lost jobseekers who moved away or gave up hope. Once people stop looking for jobs, they're no longer counted as unemployed.

"Our rate isn't going down because the economy is improving," said Jered McDonald, an economist with the state of Nevada, which has lost about 2.5 percent of its work force since September. "It's going down because people are either too discouraged to look for work or they're actually leaving the state."

The AP's Economic Stress Index found that the average county's score for November was 10.2. That was down only slightly from the worst reading during the recession: 10.3 in March 2009.

The index calculates a score from 1 to 100 based on a county's unemployment, foreclosure and bankruptcy rates. A higher score indicates more economic stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11.

The average score of 10.2 in November was up slightly from the 10.1 average in October and September. That was mainly because of a slight rise in bankruptcy rates. Nearly 39 percent of the nation's 3,141 counties were deemed stressed, slightly higher than in the previous month.

Nevada, with the nation's highest bankruptcy and foreclosure rates and third-highest unemployment rate, was again the most economically troubled state in November. Its Stress score of 20.18 was followed by Michigan's (17.14), Florida's (16.62) and California's (16.34). Illinois (13.75) leaped over Arizona (13.69) and Georgia (13.56) from the previous month to take the No. 5 spot.

North Dakota (4.3) was the least-stressed state. It was followed by Nebraska (5.3), South Dakota (5.46), Vermont (6.73) and Montana (7.18).

Economists generally expect the national economy to improve gradually in 2010 but think a full recovery from the Great Recession will take years.

"We are looking for 2010 to be a fairly sluggish year," said Nariman Behravesh, chief economist at IHS Global Insight. "Consumers are still worried about the economy and the job situation."

Many economists think the economy, as measured by the gross domestic product, fell around 2.5 percent in 2009. That would be the sharpest decline since World War II. But for 2010, Behravesh is forecasting that GDP will expand 2.6 percent.

For the current quarter, Behravesh thinks the economy will grow around 2.5 percent, down from what he estimates was a sizzling 5.1 percent growth rate in the final three months of 2009. But most of the fourth-quarter growth likely came from companies halting cuts they've made in inventories -- an upswing that will fade in coming months.

Stress scores in four of the five-most-stressed states, excluding Florida, fell slightly from the previous month. Still, those dips might be misleading because unemployment rates declined in many cases because workers left the work force.

In struggling areas of the industrial Midwest, the worst appears to be over. Mark Zandi, chief economist at Moody's Economy.com., said a rebound in exports and moves by companies to restock inventories are helping stabilize jobless rates in Michigan, Ohio (12.97) and Indiana (11.91), where the battered auto industry has hurt the economy.

"I don't see any meaningful job growth soon, but at least the hemorrhaging of job losses has stopped," Zandi said.

Nevada, Michigan and Alabama have suffered the biggest year-over-year increases in economic stress.

The five-most-stressed counties with populations over 25,000 were all in central and southern California: Imperial (32.75), Merced (25.15), Stanislaus (23.76), San Joaquin (23.55) and Sutter (23.39) counties.

The counties whose Stress scores have worsened the most in the past year are: Clinton County, Ohio (17.31); Union County, S.C. (21.96); Dallas County, Ala. (21.36); Highland County, Ohio (18); and Carroll County, Tenn. (20.11). All have large manufacturing bases.

Some analysts say the real estate market will finally rebound in 2010, with price declines ending around midyear. Zandi said he thinks home construction and sales have begun to stabilize, helped by the homebuyer tax credit. But he also said prices would fall for several more months, reflecting further mortgage foreclosures and rising unemployment.

Areas that have been most hurt by the housing crisis and whose economies relied on growth -- Sun Belt counties around Las Vegas; Phoenix; Fort Myers, Fla.; and east of Los Angeles -- may be the last to recover.

"It's going to be years before we repair all the damage," said Marshal Vest, director of the Economic and Business Research Center at the University of Arizona.

[Associated Press; By MIKE SCHNEIDER and MARTIN CRUTSINGER]

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