How Will Financial Crisis Affect Cincinnati?

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How Will Financial Crisis Affect Cincinnati?

Recent economic shocks to the financial sector have surprised consumers and investors and have shaken, if not traumatized their confidence. During the past several weeks, we have witnessed economic events that most Americans have never before experienced or imagined. Many people have asked me how these events will affect our local economy. The short answer is that I am not sure; at the same time, I don’t know of any serious observer of our economy who can predict confidently how these events will play out, and what effects on the Greater Cincinnati economy are to be expected. If history gives us any clues, a downturn probably will be less severe in Greater Cincinnati than for the nation as a whole. That’s the good news. And, while there will be a recovery, the bad news is that Greater Cincinnati probably will not enjoy the benefits of that recovery to the same extent as the rest of the nation.

These conclusions are based on the Economics Center for Education & Research’s study of the local economy in which we analyzed economic data from 2000 to 2008. The analysis confirms that while growth trends in the Greater Cincinnati economy are strongly affected by national trends, the Cincinnati region experiences milder cycles than the nation as a whole. We chose to focus on the last eight years, because that period includes the heyday of 2000, a recession in 2001-02, the strong economic growth of 2007, and then a growth slowdown through 2008. The data studied were employment growth and wages, since they obviously affect individual well being. We also analyzed housing prices because of their recent importance in economic fluctuation.

For employment, we found that the U.S. economy lost jobs in the three year period from August 2000 to August 2003, mainly because of the effects of the 2001-2002 recession. The Greater Cincinnati area lost some jobs during this recession, but because the effect wasn’t as severe, employment in Greater Cincinnati actually grew during this three-year period. After that, the picture is different. Although employment from August 2003 to August 2007 grew steadily in both the U.S. and in Greater Cincinnati, the growth rate in our local economy was less than half the national rate. The combined effect from 2000 to the present is that employment growth in Greater Cincinnati was 75 percent of the national rate.

Similar trends are true for wage growth. During the last eight years, wages in the U.S. grew even during the recession. As was the case for employment, the increase in wages in Greater Cincinnati was more immune to the effects of the recession than in the U.S.; however, during periods of economic growth, Greater Cincinnati trailed the U.S. in wage increases. The net effect is that since 2000, Greater Cincinnati wages grew at 93 percent of the national rate.

Finally, we calculated changes in housing prices. From June 2001 to June 2007, they increased by more than 50 percent in the U.S. compared to only 20 percent in Greater Cincinnati. Beginning in 2007, when housing prices fell more sharply across the nation, the decrease in Greater Cincinnati was one-fourth the average decline in the nation. . The data point to the fact that the local economic growth is not as dramatic and downturns are not as severe as the rest of the nation. Local observers sometimes attribute these muted cycles to the alleged conservative nature of our area. However, this “conservative” phenomenon is difficult to define, let alone measure. A relative hesitancy to take as many risks as the rest of the nation, a slower population growth (85 percent of the national average), as well as the types of industries that are a big part of our economy could all play a role in these subdued cycles of growth and downturns. Whatever the cause may be, slower growth during expansionary periods and stronger growth (or less contraction) during downturns has been our local economic trend.