Some areas barely feel downturn

Are we experiencing the worst economic downturn since the Depression? In most California cities, it looks that way. In most Texas cities, probably not.

That's one story emerging from a new Brookings Institution analysis. We're not undergoing one uniform recession nationwide. The effects on our 100 largest metro areas have ranged from glancing blow to body slam.

As of March, jobs in the Riverside-San Bernardino area were down nearly 8 percent from their peak, and home prices had dropped 28 percent in the past year. Riverside ranks among the five hardest-hit metro economies in the nation.

By comparison, the economy in San Antonio is humming. Jobs are down less than half a percent from their peak, and home prices have risen over the past year. Austin, Dallas, Houston and even the border cities of McAllen and El Paso have seen only small effects from the downturn.

How can these areas perform so differently? A lot depends on what an area's companies and workers do, and what its housing market did before the crash.

In the nation's manufacturing belt, many metro areas have suffered job declines over multiple decades. This recession has accelerated losses in areas that depend most on the auto industry.

But Rochester, N.Y., is faring relatively well. It still has a lot of manufacturing jobs, but they're in areas in which demand has remained fairly strong, such as imaging technologies and health care devices. And the area benefits from the presence of major universities.

Meanwhile, the Sun Belt was home to the building and lending boom that eventually turned sour and shook the foundations of the world economy.

In Riverside, the outer parts of Los Angeles County and nearly every metro area in the Central Valley, home prices rose rapidly during the first half of the decade. One-third of the new jobs were in construction and real estate.

When the subprime mortgage crisis emerged in 2007, whole segments of the valley's economy crashed -- as did those in much of Florida and Western cities, such as Las Vegas and Phoenix.

Yet not every Southern and Western metro area got caught up in the bubble. A $175,000 house purchased in Houston in 2000 was valued at just $200,000 by 2006. That meant less speculative lending and less fallout from the mortgage crisis.

The uneven downturn points to the likelihood of a highly uneven recovery. Washington shouldn't hang the "Mission Accomplished" banner when national jobs, gross domestic product and home-price figures begin to improve but rather when a broad-based set of metro economies see persistent gains. Ensuring such a recovery probably will require more than the general monetary and fiscal policy measures applied thus far.

For instance, the work of the president's auto recovery team will be crucial for helping a dozen or more metro areas wracked by the decline of the Big Three.

It will not be enough to steer more federal grant dollars to these communities. Instead, a longer-run vision for what these metro areas will do in the new economy -- how to make best use of their existing business and technological capabilities, worker skills, and place-specific institutions such as universities and civic organizations -- should guide investment. So, too, should a strategy for achieving more rational growth patterns that reflect the population and job loss these areas have suffered.

In Riverside, Modesto and other metro areas heavily affected by the housing crisis, we must evaluate whether new programs to help homeowners avoid foreclosure are stabilizing housing prices and whether the stimulus package is helping to reduce abandoned properties.

Large, economically diversified cities such as Los Angeles and San Francisco may recover as the housing market stabilizes and consumer confidence rebounds. Metro areas that overrelied on housing for growth may take longer to adjust, and public policy may have to actively assist in stimulating business investment and worker training.

Stabilizing the macroeconomy is a necessary first step. More purposeful steps to reinvigorate metro economies are needed to put the country back on the road to sustainable long-run growth.

Berube is a senior fellow and research director at the Brookings Institution.