The July Economic Index data is now available and I took a look at a bunch of metropolitan areas, a set that created a reasonably easy to read graph. What shows up is quite amazing: a clear recovery. And this is not just a function of choosing the right set of metro areas – when I add other metro areas, I see the same pattern. The lines just start overlapping and crossing, making a less attractive graph.
The graph below shows eight metro areas: Chicago, Dallas, Denver, Detroit, Minneapolis, Phoenix, San Francisco, and Seattle. Ignoring Detroit for the moment – everyone knows they have been deep in the tank for along time – all of the other metro areas bottomed out in March or April of this year, followed by a sharp improvement in the months since then, though all of them seem to have leveled off a bit in July. Admittedly San Francisco follows the pattern but much less dramatically than the others. And both San Francisco and Chicago both show a slight decline from June to July.
Another happy surprise is Detroit, which seems to be showing slow but steady improvement since March.
A brief reminder of what the Economic Index is: it is an index based on total wages paid in an area, both seasonally and inflation adjusted. The wages are those paid in non-farm employment and exclude sole proprietors and most government employees.
Also, a reminder of what the different colored regions on the graph represent. The white area is based on actual historical data from the Bureau of Labor Statistics. The light blue area is our estimate of what has happened from the end of the historical data through the end of last month. The light red area is a forecast based on both history and estimates. Like all forecasts, it assumes that the future will follow the same pattern as the past, that is, that things will keep going like they have been. Reality, though, tends to have a mind of its own. The future never follows the patterns of the past for very long, and unforeseeable events sooner or later (usually sooner) turn all forecasts into comedy fodder. In other words, we don’t take our forecasts very seriously and you shouldn’t either. What a forecast really shows you is the general trend as of the end of the estimate period.
How widespread is this recovery? In looking at the change in economic index from March to July 2010, we find an improvement of 2 points or more in 321 of 361 metropolitan areas. Of the 40 remaining metro areas, the worst March to July decline was only 1.3 points, contrasted with the greatest increase being 23.5 points, and all of the top five had improved more than 10 points. In short, our data is suggesting that since March the economy has significantly improved in most metropolitan areas across the country.