Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The District's Long-Term Growth Prospects

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The District's Long-Term Growth Prospects

Article excerpt

In recent years, at the bank's annual meetings of its boards of directors, I have presented an economic outlook for the Tenth District in the upcoming year. But this year, rather than returning to the recent annual theme of slow growth in the district economy, I will consider the district's long-term economic prospects. After giving a brief update on the region's recent economic performance, I will develop an outlook for the district for the turn of the century and beyond.

In approaching this task, I will not, indeed cannot, give a precise forecast of the actual rate at which the regional economy will grow over the long term. Such forecasts are simply beyond the capacity of economic science. Instead, I will analyze the recipe for long-term growth now being concocted across the district. Many of the growth ingredients in this recipe are basic--such as the work force, infrastructure, and available financial capital. But economic growth, like good cooking, is as much art as science. The magic comes from the way in which the ingredients are combined. In this case, the chefs of the region are its public and private leaders.

The district's long-term growth obviously depends on the performance of the U.S. economy. Nevertheless, economists agree that a region's long-run growth path relative to other regions depends on the quantity and quality of its growth ingredients; or to put it in economic terms, its assets.(1) Five such district assets merit consideration: work force, education, infrastructure, fiscal climate, and financial capital.

An analysis of these five growth assets points to slower growth for the district economy than for the national economy. But the district is not necessarily doomed to that growth path. There is much that the region's leaders might do to improve growth prospects.

THE RECENT PERFORMANCE OF THE DISTRICT

Recently, the district economy has grown slowly, although perhaps slightly faster than the national economy. Employment growth, one of the best broad gauges of the district economy, increased 0.6 percent over the year that ended in the third quarter of 1992, compared with a 0.4 percent drop in the nation. In terms of new jobs added over the past year, the district outperformed the nation by a full 1 percent. Growth in real income, another broad economic indicator, shows a similar pattern of slow growth across the region.

The district pattern of slow growth extends back much further than just the past year. Indeed, slow growth has characterized the district economy for most of the past decade (Chart 1).(Chart 1 omitted.) The district economy fared quite well in the 1970s as agriculture and energy--pivotal industries in the region--both did well. But since 1980, the district averaged just 1.4 percent annual growth in employment, compared with 1.7 percent for the nation. The only two district states that had stronger job growth than the nation over the past decade were Colorado and New Mexico, states where population growth was the strongest in the district.

Milton Friedman once observed that despite the central place of elections in our society, the most important vote that people cast is with their feet. Population growth provides one of the most striking pictures of the district over the past two decades (Chart 2).(Chart 2 omitted.) A weak economy in the 1980s led to a sharp slowdown in the growth of district population. Coming into the 1980s, the district's population was growing about 1.5 percent per year. But as the farm and energy recessions gripped the region's economy, more people started leaving the region. In just two years the region's population growth plummeted to a mere 0.5 percent. By 1988, it was down to zero--demographic downswing of seismic proportions. Recently, however, population growth has picked up somewhat. Within the district, rural areas have lost population every year since 1983, while its cities have continued to grow, albeit slowly. …

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