By most conventional measures of the US economy, we are enjoying broad prosperity in the US. Unemployment is down, equity markets are up. However, salary growth is lagging for many. Analysis by the Pew Research Center shows that average real wages are essentially flat over the last 50 years. It shows that prosperity has not reached the middle class and, well, never did.
Average Hourly Wages
Median Household Income Growth?
Median household income, which is the measure at which 50% of households have higher income and 50% have lower income has shown improvement, just recently surpassing 1998 levels. Consider living on $61,227 a year and that half of America does that. The below graphic from dshort.com and Sentier Research shows a nice recovery in median household income since the recession, but it did take 20 years to surpass the past peak. You can’t spend a year in private college for that amount. That challenge explains our social and political strife, I think. It explains the frustration of many Americans trying to get ahead on 2 adults working full time at $15 an hour.
Americans are Moving West and South…Leaving the North
But American’s are doing something about it. They are moving to cities and states with less taxes. The US Census Bureau shows the states of Washington, Florida, and Texas (where state income tax is zero) are the major net receivers of migrating Americans. Illinois, New York, and the northern states are losing people. Northern urban areas like Buffalo, Chicago, Detroit, Cleveland, Baltimore, and even areas of the NYC metroplex are showing a more severe exodus.
Electoral College Changes will Impact Northern States Negatively
The next census in 2020 and the corresponding electoral college and congressional seat allocation will surely take seats from Ohio, Illinois, Pennsylvania, New York and other northern states and then allocate those to Texas and Florida, primarily. It will change the dynamics of the political scene even more so. Consider this: the states of North Carolina, Florida, Texas, Arizona, and Montana, which were all carried by Trump, are expected to add 8 congressional seats and therefore electoral votes. The 8 votes is all of Wisconsin in electoral count, and we saw in 2016 how pivotal that became.
But we do not live in one economy. The nice work of Nelson and Rae on “Article An Economic Geography of the United States: From Commutes to Mega-regions,” looked at commutes and travel times of people to reveal the major hubs of our economy. Indeed, we operate in mega-regions that are quasi separate from each other. These mega-regions have different labor markets, different taxes, and different trajectories for growth.
I am really impressed with this analysis and graphic. It captures some realities that I have come to learn about while living in various places. For instance, Richmond, VA does more business with Norfolk than DC. In Chicagoland, where I currently live, it is more lively you have a contractor from Northern Indiana than one from Wisconsin or Milwaukee, even if Northern Indiana is farther away. Tampa and Miami are distinctly different economically and mix very little. It is a surprisingly long drive from Tampa to Miami (280 miles). Maps are deceiving. New York to DC is less driving distance (about 260 miles) than Tampa to Miami. Think about that for a moment. Where would 280 miles take you from your home? It is a healthy half-day trip. Do you even have good reason to make that trip?
New Orleans is most of the upper Gulf Coast, economically. Southern Illinois is connected more with St. Louis than Chicago (they even root for the Cardinals). Perhaps we don’t need an expensive high speed train connected Minneapolis, Milwaukee, Chicago, and St. Louis. Maybe these regions are separate economically for very good reasons. If we spend billions connecting these meg regions, would it really bring business efficiency? Is the business case just tourism? I can drive to Milwaukee from the northern Chicago burbs in about 1 hour. Buy why would I? In not disrespect to Milwaukee, work, life, and fun are all available around me nearby. That is what this graph reveals. We operate in mega-regions that are rather independent of each other already.
These regions, might even be considered states. And here is a view. Which state do you really live in?
Housing Prices…Great deals in Detroit if you can get a paycheck there
One of the largest measures of growth and wealth creation is the change in housing value. Most Americans have the bounty of their net worth in real estate. For those investments in growth areas, that is good news. If you have lived or invested in the upper Midwest, maybe that has not turned out so well. Consider the Case-Shiller 20 city Index and the indices of each of the 20 cities.
Here is a clearer rank of the top 20 cities. Prices really do move with the sun, well except for Boston.
Great value is being created in Los Angeles, San Francisco, Seattle, even Portland, but not so much in Detroit, Cleveland, and even Chicago. Surprisingly, even Atlanta has not fared so well. The movement to these mega regions has to do with job creation of course and quality of life. People like sunshine, high paying jobs on the west coast, and lower state taxes, even if it drives up housing prices.
Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.
About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
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