The Economic Engine of America Is...The South
There is something strange happening in the South—it is beginning to look like the economic engine of America. The South region (defined by the Census Bureau to go as far west as Texas and Oklahoma, north to Kentucky, and east to the District of Columbia and Maryland, down to Florida and everything in between) has come to dominate nearly every economic measure. The South is where the homes are being sold, and the jobs are being created. Somehow, while few were watching, the South has become the center of US growth.
As of the end of 2013, the South makes up around 35 percent of the US economy, or $5.4 trillion using the Bureau of Economic Analysis’ State GDP tables. Not even the West with Silicon Valley contributed as much to GDP as the South. The South generated 39 percent of economic growth in 2013, not quite as strong as 2012, when 42 percent of all US growth was generated there. The South is the largest generator of both GDP and GDP growth.
In 2013, the South represented 50 percent of all housing starts—more than 50 percent of all single family homes and 45 percent of multi-family are started in the South. In 2013, 54 percent of annual new home sales occurred in the South, continuing a long rise from the middle of the 20th century (the South accounted for 36 percent of new home sales in 1963). Existing home sales are much the same story. The South has regained 70 percent of its 30 year trend in new home sales since the recession. Other regions remain well below this figure.
Though no region created enough employment to keep up with its labor force growth, the South also generates a relatively high number of jobs. The labor force pool for the South grew 10 percent over the past decade (2004 through 2013) and its employment growth, the engine of economic activity, was 9 percent.
Labor force dynamism is difficult to summarize in a singular statistic, but one useful metric is the quit rate. While the West and Northeast lag, the Midwest and the South are pushing the quit rate higher. In fact, long-term rate for the US is a 2 percent quit rate. The South is the only region above this line. The same can be said of hiring—with a 4 percent hires rate, the South is the most dynamic on the hiring side as well.
With around 120 million people, the South is the most populous region. While the populations of the Northeast and Midwest regions began to stagnate mid-century, the South and West never stopped growing their headcounts. The South grew its population 49 percent over the past two decades; representing 47 percent of US population growth—more than any other region (the West grew at a faster clip, but contributed less to population growth).
The fact that the South is where people want to live may have something to do with how far a dollar goes. In 2010, the Census Bureau released its cost of living index, and 8 of the cheapest 10 urban areas were in the South (4 were in Texas). All 10 of the most expensive cities were in the Northeast and the West with New York and California producing 4 each. As real wages have been squeezed for the past couple decades, people are searching for a place where their earnings and savings can go further.
The average new house is larger and cheaper in the South than in any other region—both average and median home prices are below the other regions. Only the Midwest is close. A slowdown in Southern housing would ripple through the country, causing overall housing starts to be negative—the South is 50 percent of the market. The health of the US economy may be more closely tied to the South than many observers care to acknowledge—especially those with a “bi-coastal” view of economic activity. In many ways, the US has become reliant on the South to drive the growth for the country—especially post financial bubble as small fluctuations in demand for housing employment creation could have ripple effects across the entirety of the US economy.
Texas is the principal driver of the Southern economy, and oil is the primary driver of Texas. Texas alone was responsible for about 50 percent of the economic growth in the South in 2013 and 2012 (45 and 55 percent respectively). And the Texas economy is contributing about 20 percent of the growth for the US. With the shale revolution showing few signs of slowing, there may be nothing to worry about in the near-term. But the South and the US are vulnerable to any slowdown in the Texas economy.
The South is cheap and capitalist—at least, relative to its counterparts in the Northeast and in the West. And sure, the South’s economic performance is being lifted by an outsized contribution from the Texas oil boom. But the South is winning jobs and population and has quietly become the economic driver for the country. The South is rising.
Image: Flickr/Creative Commons.