You Decide: How Different Are Local Economies?

By Dr. Mike Walden

My wife and I just returned from a short vacation to Buffalo. “Buffalo,” you might respond.  “Not the beach or the mountains?”

Mind you, we both love North Carolina’s mountains and beaches, as well as many fun places in-between. My wife was born near Buffalo, and Buffalo also has the largest home garden tour in the country – with over 400 gardens available for admiring. This year marked the tour’s 25th anniversary, and since my wife is an avid gardener, we just had to go.

Incidentally, my work in the garden is to do the heavy lifting. One weekend my wife surprised me by having 2000 pounds of pavers delivered to our home. Guess who spent the weekend moving them?  Good thing I regularly go to the gym!

Of course, Buffalo is one of those older cities in the country whose time of prominence has passed. Buffalo’s glory days were in the 19th century when it served as the western point of the Erie Canal. Later it developed a significant manufacturing sector. But with the downsizing of manufacturing employment since the 1970s, Buffalo’s population is half of what it was fifty years ago.

Indeed, a new report from the McKinsey Global Institute, a private business management firm, includes Buffalo among cities experiencing only a modest recovery since the Great Recession.  McKinsey says that cities like Buffalo are at a tipping point, where their future direction could be either up or down.

McKinsey reached this conclusion by analyzing reams of data for over 300 cities and more than 3000 counties in the country. They used their findings to classify the geographic areas into thirteen individual types.

There’s one immediate take-away from the McKinsey report. It is that economic geography is complicated. For example, we frequently hear the term “urban-rural” divide. The term is generally meant to imply a large economic division between urban areas (cities) and rural towns and regions, with the urban areas prospering and the rural areas struggling.

The McKinsey study suggests the urban versus rural dichotomy is too simplistic. Their geographic classification suggests there are degrees of prosperity and challenges in both cities and rural localities.

In fact, let’s take a look at what McKinsey says about North Carolina’s localities. First, let’s start with easy calls. One of McKinsey’s categories is high-growth cities. It should be no surprise that Charlotte and Raleigh are among this group. Also in this group from other states are Austin, Denver, Minneapolis, Nashville, Orlando, San Antonio and Tampa. Interestingly, many of these cities are precisely the ones both Charlotte and Raleigh frequently compete with for new businesses.

It also should be no surprise that McKinsey included Asheville in the category of localities where retirees and affiliated industries – like health care – drive the economy. What may be surprising is McKinsey did not list Wilmington in this group. Instead, Wilmington is put in a category of cities with modest, but uncertain growth. One reason may be Wilmington has a significant durable manufacturing sector that is vulnerable to recessions. A second is the threat of unpredictable hurricanes to the local economy. Something we clearly saw last year.

Another surprise is Greensboro and Winston-Salem are not classified in the same group.  Greensboro is listed as a city with an important manufacturing sector that drives its economy.   This is accurate because manufacturing output in Greensboro accounts for over one-quarter of all the region’s total economic production, twice the national contribution. McKinsey says the future of Greensboro and the other cities in this category will be tied to the outlook for their manufacturing companies. Hickory is also in this category.

In contrast, Winston-Salem is in the same grouping as Wilmington – an area that is slowly improving but with many questions for the future. Leading the uncertainty are the losses Winston-Salem has faced in its financial sector.

McKinsey put two North Carolina regions into their distressed category. They are the Fayetteville and New Bern areas. Fayetteville has had six straight years of declining aggregate economic output, and output has fallen in five of the last seven years in New Bern. However, both of these regions have made investments for the future. Still, with their significant military presence, the Fayetteville and New Bern areas face the challenge of uncertain federal budgets.

I think the new McKinsey report on economic regions gives us valuable insights into the diversity of our local economies as well as in the policies for improvement. Clearly one-size-fits-all programs to improve all localities won’t work. Even the next door neighbors of Greensboro and Winston-Salem are different economies and therefore face different outlooks.

The challenge for us and our leaders will be to craft customized policies for each of our individualized localities. Can we do it? You decide.

Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.