Recessions and Single Industry Towns

They don’t call it the Rust Belt for nothing. That gritty American manufacturing core in the northern part of America’s midsection made steel and aluminum by the mega-ton and so many of the products Americans consumed made of rubber and metal, particularly automobiles and all those automotive components. Nothing is more dramatic that the precipitous decline in population experienced by what many view as the poster-child for contraction in American durable manufacturing – Detroit, the true capital of the Rust Belt. The city succumbed to the crushing competition of cheap labor overseas that could make the same stuff for less, leaving the concomitant pollution far from American shores and avoiding the stiff cost of environmental controls. Bankruptcies of Michigan’s largest employers, General Motors and Chrysler, increased the pain.

From a high of almost 1.8 million people in the 1940s – even holding 1.5 million in the 1960s – until in the last decade, Detroit became the second most impacted city of over 100,000 people to contract by more than 25%. New Orleans – decimated by Hurricane Katrina – came in first, but as a much smaller town than Detroit, it did not lose as many people. “Detroit’s population fell to 713,777 in 2010, the lowest since 1910, when it was 466,000. In a shift that was unthinkable 20 years ago, Detroit is now smaller than Austin, Tex., Charlotte, N.C., and Jacksonville, Fla.” New York Times, March 22^nd.

American history is littered with tales of small towns and cities fading away as economic trends reshaping employment patterns. Entire States have walked this path before. Take Massachusetts, for example: “The industrial economy began a decline in the early 20th century with the exodus of many manufacturing companies. By the 1920s competition from the South and Midwest, followed by the Great Depression, led to the collapse of Massachusetts' three main industries, textiles, shoemaking, and mechanized transportation.” Wikipedia.

So what city is looking like the next Detroit? With manufacturing mostly exported to distant lands, where are the vulnerabilities? In this seemingly never-ending recession – beginning Part Deux (the dreaded “double dip”) – there is one city that is so much the opposite of a Rust Belt berg that it is almost strange that it may face a similar fate: Sin City, Las Vegas. The negative pressures hit Vegas from all directions: Indian gaming casinos sprang up like weeds across the states, gasoline prices made driving to Sin City expensive, and the recession slammed that brakes on one of the most discretionary elements of family budgets: gambling. Foreign competition also created challenges that Vegas could never have foreseen; that China’s Macau passed Las Vegas in gross casino-related revenues five years ago is now old news. “Macau’s gambling revenues were four times those of the Strip in 2010.” MSN.com, May 27^th.

But in the vernacular of this recession, housing prices and unemployment, Las Vegas has been among the hardest hit areas in the United States, and the economic vectors continue to suggest the downward spiral is far from over. “Home prices here have fallen 58.1% from their 2006 highs, the most in the Standard & Poor's/Case-Shiller 20-City Composite Home Price index. They've even lost 12.6% from the nationwide recession low in April 20 09 -- again the worst performance of any city in the index… Currently more than 70% of the homes in the area are ‘underwater,’ meaning their value is worth less than the amount owed on the mortgage, according to Stephen Miller, the chairman of the economics department at the College of Business at the University of Nevada, Las Vegas. Nationwide, it’s more than 28%...

“And commercial real estate remains in a deep funk. The massive $8.5-billion CityCenter project may have barely averted bankruptcy, but owners MGM Resorts International and Dubai World had to write down its value by more than $5 billion…Beyond the Strip, it's pretty hopeless. Office vacancy rates in some areas are as high as 40%, while retail vacancy rates are above 11%. Don't expect any recovery there for many, many years.” MSN.com. Only Detroit’s real estate market has fared worse.

With unemployment sitting at 13%, well above the national 9.1% average, Las Vegas employment picture is bad, but not quite as bad as its housing market: “Vegas hotels and casinos employed 155,200 people in March, according to the Nevada Department of Employment, Training and Rehabilitation. That's almost 20% of total employment. With an economy so dependent on tourism, it's no wonder Nevada had the biggest drop in gross domestic product of all states during the recession -- 6.4%. Two years ago, casinos had rows of empty, silent slot machines, and cabbies sat in long queues, waiting for fares that never came.” MSN.com. Given that any semblance of a “recovery” appears to be years off, can Las Vegas last that long? What do abandoned buildings and “rusting casinos” look like in sun-drenched and sand-blown Vegas in ten years?

I’m Peter Dekom, and the face and nature of America is changing in some very monumental ways from stark economic trends that we just didn’t see a few short decades ago.