Every City Has Its Price, 2015 Edition
Are Nonmetros Making a Comeback?
Yesterday’s post discussed the difference between nominal income growth and growth in actual purchasing power by state. But many readers suggested states were poor units of analysis. I have heard your cries, oh readers! Today’s data is about real income at the MSA level. So here’s the raw correlation between nominal and real income growth at the MSA level.
Above the line means a metro area saw less real income growth than was typical for MSAs with similar nominal income growth, below the line means they saw more real income growth than was typical for same-nominal-growth cities. You should be able to mouseover and see which cities are which.
Out at left we have a lot of natural resource boom-towns. Their nominal growth has been striking, but costs have risen faster than you’d normally expect. That makes a lot of sense. Boom towns have extremely rapid expansions, which places short-run strains on supply. Even with no zoning, you can’t build houses fast enough in North Dakota. Plus, natural resource areas tend to be more isolated, making it more expensive to get goods out there and reducing economies of scale in local goods and service provision. Price hikes haven’t fully gobbled up rising nominal wages in most cases, but it is striking that Midland, TX has seen below-average real per capita growth since 2008 despite an oil boom.
Below the line are lots of cities in Florida, Arizona, and Nevada. The reason is simple: the real estate collapse put a large amount of negative pressure on their cost of living. The market has not fully recovered, even as employment and income has made relatively robust comebacks.
Waaaay out at left you can see Charlotte. Charlotte is the reason that North Carolina’s state income trend was negative in yesterday’s post, though New Bern was slightly negative as well. Let’s zoom in and see what’s happening in Charlotte and North Carolina.
Okay. To start off with, if we compare the dotted lines, we can see that from 2008–2010, Charlotte had a much harder recession than the rest of North Carolina. It’s possible this recession was atypically hard for the whole country, but I haven’t checked. Then there was a double-dip in 2013, both in Charlotte and the rest of NC.
But look at the relationship between the solid and dotted lines. Until 2013, Charlotte’s real income was greater than its nominal income; that is, it had below-average cost of living. But since 2013, Charlotte has become a pricier place to live. This is surprising since Charlotte really is not a super high-income city. Charlotte has almost exactly the average per capita income of the whole country, but is about 2% more expensive than the national average. I’m not sure what’s driving that trend. Its relative prices have risen about 8.5% since 2008. North Carolina’s prices on the whole, however, have risen even more, about 8.7%, though they started from a much lower base.
Indeed, while Charlotte has underperformed the state since 2008, since 2010 Charlotte has overperformed the rest of the state, in both nominal and real terms. So Charlotte is doing relatively well by that metric. Which metric matters more depends on your point of view: 2008–2015 is something more leak peak-to-peak growth, while 2010–2015 would be trough-to-peak. Personally, I find peak-to-peak or trough-to-trough most meaningful, but YMMV.
Let’s zoom out to the country on the whole.
The map above shows some interesting trends. For example, it looks like nonmetro growth has possibly exceeded metro growth since 2008. It turns out that, in 33 of the 47 states that have both metro and nonmetro areas, nonmetro real income growth has indeed outpaced metro-area real income growth. The exceptions, states were metro areas have seen more robust income growth, are in Arkansas, Illinois, Indiana, Michigan, Missouri, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Wyoming. In some cases, this is due to very weak growth in nonmetro areas. In some cases, strong metro area growth. Differences in recession deepness and timing of course matter as well.
I don’t want to spend too much time belaboring the map above. I’m sure that, cutting a slightly different way, you can get different results. But given that people still talk about our current period as being a “recovery” rather than “expansion” as the primary kind of rhetoric, I think measuring since 2008 is prudent. And what we can see is that, since 2008, the hardest-hit place in the country has been Charlotte, North Carolina. Meanwhile, northern Califonia, northwest Arkansas, North Dakota, the nonmetro western states, and upstate New York have seen the strongest performance. I mean heck, in real terms, the Detroit MSA has seen more income growth than the NYC MSA. Kudos to you if you called that one.
UPDATE: Silly me! I didn’t include the simple graph just showing real income by metro and nonmetro area! Here it is:
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I’m a native of Wilmore, Kentucky, a graduate of Transylvania University, and also the George Washington University’s Elliott School. My real job is as an economist at USDA’s Foreign Agricultural Service, where I analyze and forecast cotton market conditions. I’m married to a kickass Kentucky woman named Ruth.
My posts are not endorsed by and do not in any way represent the opinions of the United States government or any branch, department, agency, or division of it. My writing represents exclusively my own opinions. I did not receive any financial support or remuneration from any party for this research.
