AP analysis: Western states lag in recovery

[July 19, 2011]  WASHINGTON (AP) -- Western states hit hardest by the housing crisis are feeling the greatest economic stress two years after the recession ended, according to The Associated Press's monthly analysis.

Depressed home prices and high rates of foreclosures have limited job growth in Arizona, California and Nevada. Meanwhile, a delayed housing bust and cuts in state government and construction jobs have led to rising unemployment in Idaho, Montana and Utah since the recession ended.

The easing of stress over the past two years was most felt in Midwestern states that have seen growth in manufacturing jobs, such as Indiana and Michigan. However, those states experienced a monthly jump in stress in May because many counties there were adversely affected by supply chain disruptions caused by the Japan crises.

The AP's Stress index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signifies more economic stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11. By that standard, about a quarter of the nation's 3,141 counties were stressed in May, roughly the same as in April.

The average county Stress score in May was 9.7, the lowest level since April 2009. Slight declines in foreclosures and bankruptcies in May offset a tiny rise in the unemployment rate.

Nevada had the nation's highest level of stress in May with a score of 19.31. It led the nation in unemployment, foreclosures and bankruptcies. It was followed by California (15.07), Florida (14.11), Michigan (13.47) and Arizona (13.46).

North Dakota was the least stressed -- as it has been since the recession began in December 2007 -- with a score of 3.67. It was followed by Nebraska (5.15), South Dakota (5.4), Vermont (5.89) and New Hampshire (6.54).

The nation's most-stressed counties with populations of at least 25,000 in May were Imperial County, Calif. (30.95); Yuma County, Ariz. (29.66); Lyon County, Nev. (25.01); Sutter County, Calif. (23.62); and Nye County, Nev. (23.47). The least stressed were Ward County, N.D. (3.34); Burleigh County, N.D., (3.51); Ellis County, Kan. (3.94); Buffalo County, Neb. (3.96); and Cass County, N.D. (4.06).

In May, the biggest increases in the AP's Stress Index were located in counties along the Mississippi River and in the Southeast. Those economies were disrupted by flooding and tornadoes.

Also, counties in the Midwest and South that have a high number of autoworkers saw a jump in stress levels. The March 11 earthquake and tsunami in Japan have led to a temporary parts shortage that has slowed production at many U.S. factories, particularly in the auto industry.

Two years after the recession, the economy is growing too slowly to significantly lower the unemployment rate, which rose to 9.2 percent in June.

Many economists had thought a Social Security tax cut would boost growth this year by as much as 4 percent.

But a spike in fuel prices has erased most of the impact of the tax cut. On Monday motorists paid an average price of $3.68 per gallon -- nearly a dollar more than what a gallon cost a year ago.

As a result, consumers are buying fewer appliances and furniture, and spending less money eating out. Consumer spending makes up roughly 70 percent of economic activity.

And businesses are hiring fewer workers. The economy added just 18,000 net jobs in June, the fewest in nine months and the second straight month of anemic job growth.

Sung Won Sohn, an economist at the Martin Smith School of Business at California State University, predicts the economy will expand at a 2.8 percent rate in second half of the year. That's barely enough to keep up with population growth. Most economists say that it takes growth of roughly 5 percent to make a noticeable dent in the unemployment rate.

"All of the problems the U.S. economy is facing, from a housing double-dip to European debt problems, are weighing on our markets," Sohn said. "We really have a number of constraints on growth."

The Stress Index shows that the Western states of Nevada, Arizona and California had the greatest increases in economic stress during the recession, which began in December 2007 and ended in June 2009.

Nevada has led the nation in foreclosures for the past four years. In May, 63 percent of homes there were "underwater" -- when the home is worth less than what borrowers owe on the mortgage, based on data compiled by CoreLogic. The state has had the nation's highest unemployment rate for the past year.

Half of all homes in Arizona were underwater in May, while nearly a third of homes in California had negative equity. That far exceeds the nation's average of nearly 23 percent. The two states are right behind Nevada in foreclosure rates. And California had the nation's second-highest unemployment rate in May, at 11.7 percent.

The housing bust didn't immediately hurt the economies in Idaho, Montana and Utah. But in the past year, those states are experiencing more stress after seeing sharp increases in their unemployment rates. The area has lost a large number of construction, tourism and government jobs.

Midwestern states have seen the largest decreases in economic stress since the recession ended. That's primarily because of growth in manufacturing.

Michigan has added 21,000 manufacturing jobs in the past year. The unemployment rate there has fallen from a high of 14.1 percent in September 2009 to 10.3 percent in May.

Ohio has added 7,600 factory jobs in the past year; Indiana has an additional 5,300 manufacturing jobs.

The recession and its aftermath have had the least impact on North Dakota, Nebraska and Alaska, according to the AP Stress Index.

[Associated Press; By MIKE SCHNEIDER and MARTIN CRUTSINGER]

Schneider reported from Orlando, Fla. and Crutsinger reported from Washington. AP Real Estate Writer Derek Kravitz contributed from Washington to this report.

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