Does Elkhart, Indiana Explain the Lingering Recession?

By Joseph Lawler

The economist Stephen Bronars believes that the working-class northern Indiana town of Elkhart might provide a case study for what ails the economy.

Bronars explains that Indiana is a manufacturing-intensive state, and that "[a]rguably, no city in the U.S. is more dependent on the production of durable goods than Elkhart, which has been called the recreational vehicle capital of the world."

Elkhart was hit by the recession particularly hard: its unemployment rate eclipsed 20 percent in early 2009. Yet it's also enjoyed a relatively quick recovery, with unemployment in the town now down to 8.3 percent.

Bronars believes Elkhart's economic trajectory is important because it resembles what a typical recession is thought to look like. It's "v-shaped" recession and recovery stands in contrast with the "l-shaped" non-recovery the country as a whole has experienced. Elkhart has seen the catch-up growth that has eluded the rest of the nation.

What gives makes this insight helpful, in Bronars' understanding, is that other U.S. cities that depended more on the growth of the housing market in the run-up to the recession have not fared as well as manufacturing-heavy Elkhart in the recovery:

The lesson Bronars draws from the comparison is that the lack of a recovery in residential investment is holding back a recovery that would otherwise be expected:

Another way to understand the 2008-2009 downturn and the subsequent recovery is by comparing unemployment rate fluctuations across U.S. cities.  Such a comparison shows that the unemployment rate has remained stubbornly high in cities where the housing bubble burst.  Durable goods manufacturing centers like Elkhart saw a big drop in the demand for the products they produce and a large increase in unemployment during the recession.  But manufacturing-intensive cities have recovered somewhat more rapidly – more typical of previous downturns.

Bronars concludes by giving the nod to Michael Bordo in his argument with the Kenneth Rogoff and Carmen Reinhart about whether financial crises cause slower recoveries. Bordo had taken the position that the slow pace of recovery was more a function of the housing bust or other factors than the inevitable result of a banking panic.

 

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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