The Great Separation: Why Are Our Largest Metros Heading in Different Directions?
The top 53 metros in the U.S. (those with a population of at least 1 million) account for two-thirds of the nation’s GDP. Needless to say, the economic performance of these large metros will determine the economic performance of the nation. Overall, these metros have helped guide the U.S. economy to a steady, sustained recovery that is nearly 10 years old. This steady growth is noteworthy and well documented, but this metro driven recovery might ultimately be remembered for something else, its unevenness.
To help illustrate the unevenness we created a simple score based on the metro rankings in GDP, productivity, income as well as the annual change in each. You can read about the methodology here and see the data here.
The metros sorted themselves (based on breaks in the score) into six categories as shown on the map below. The highest performing metros (the Great 8) are in blue with the poorest performing metros in red.
The unevenness we are talking about is best seen in the chart below. This line chart shows GDP growth in each of the 6 groups since 2001. The Great Recession is depicted in the grey area. The groups do separate heading into the recession (2006 and 2007) but since 2010, this separation has accelerated. The "Great 8" metros have seen their combined economies grow 54 percent since 2001, while the 5 metros in the "Need Traction" group grew just 5 percent.
Looking at this from another perspective, the column chart below looks at average annual growth rates for each metro group between 2001 and 2010 and 2010 to 2017. While the average annual growth rates did not differ greatly between 2001 and 2010, they certainly do between 2010 and 2017.
Productivity, as measured here, is simply GDP per worker, so the trends will closely mirror GDP. Still, it is informative to see the disparity between the top performing and poorest performing metros. The Great 8 had an average GDP per worker of $109,323. No other cohort had an average above $100,000. The bottom two cohorts had averages below $80,000.
The productivity growth chart below is interesting for several reasons. For starters, productivity is fairly stagnant. No cohort saw an average increase in productivity reach 1 percent a year. The Up-and-Comers and Awakening Giants cohort came the closest at .9%. Secondly, and most concerning, is that productivity does not always increase. The three bottom cohorts saw productivity decline on an average annual basis.
Slow productivity growth has been a puzzle at the national level for a decade now. If and when productivity picks up, one has to wonder if the disparities we see here will continue, thus increasing the separation between the metros.
It follows that economies with higher output and productivity should have higher wages. This holds in our analysis for the most part. The Middle Ground cohort has a higher per-capita income figure than the Up-and-Comers and Awakening Giants. Having high income metros like New York and Washington D.C. contributes to the high overall total.
As an aside, include New York in these types of analyses is often difficult because it is so large. The New York economy is larger than the economy of Australia after all. But, in keeping with our methodology, it falls into this Middle Ground cohort because of modest growth rates.
The real average annual income growth does exhibit the stair step pattern we expect with the Great 8 metros average growth far exceeding the other cohorts.
This is definitely one of those posts that raises more questions than answers. In coming posts we will dive into this data further and try to provide some answers like:
What is causing this separation?
Are there particular industries driving this separation?
What factors are causing slow productivity growth?
Why haven't cost differences restored balance between the high and low performing metros?
If you are not a top performing metro, what can you do to change your trajectory?