Date: June 12, 2015

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Reading Income Recovery – Podcast


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Session 24: Reading Income Recovery

Hello, this is Scott McDonald and welcome to the Perfect Place to Put a Practice Podcast.  

In this session, we are going to consider how you can read the Statistics on the Recovery of the Economy. This is decidedly NOT one our out sexiest topics but it may be one of the most important.   We get calls every week asking whether the economy in a particular location is improving or worsening.  Sometimes, the questions start with a preface: “I was talking to a buddy of mine and he said that the Austin market is doing great.  I heard that the numbers were good.  What do you think?”  Sometimes, they will ask a question comparing two locations.  “So, what is better, Houston or San Antonio?”  I understand the reason for asking but the numbers often take some explanation.   Yes, the economy in the U.S. is improving but some locations are being left behind and I want you to understand the numbers to know why.

It is a good idea to remember that the economic basis of a region (or in this case, a large city) may be entirely different from another.  That means that it is going to be impossible to really do an apples-to-apples comparison between two sites without understanding the fundamentals of the comparison.  As an example, if we are talking about Las Vegas, NV, before answering the question of “Is Sin City really back?” one has to ask where it has been.  In 2008, Las Vegas went into a tail spin.  The basis of the economy was tourism (largely defined by the gambling casinos) and construction.  Both got killed when the economy bubble burst.  While the tourism side of things made a quick come-back, the construction trades continued to be very slow.  What’s more, the building projects that finally resumed shifted from Summerlin on the west to Henderson on the east side of town.  So, yeah, Las Vegas is better than it was at its worst but it is also really different than it was.

If you were evaluating a different city in the Western U.S. for a practice, you might be tempted to consider Tucson and Las Vegas. Tucson has a population of $530,884 and Las Vegas has a population of $509,512. But Las Vegas bounced back much quicker than Tucson due to the nature of its economic base.  The per capita income in Tucson is going to take a much longer time to recover (and the Median Household income in Tucson is $20,000 less than Las Vegas).   What I am trying to illustrate is the significant difference between communities that are in the same region and are about the same size but have different potential based upon their economic base.   So, why is no one breaking down the doors to get back into Cleveland and Detroit?  Once again, it goes back to the economic base.  And demographers are seeing a trend: when the economic base (in other words, what the basis for the local economy was when it was growing) gets broken, the result is a depopulation of the area.  Have you heard that Baltimore has lost 10s of thousands of residents?  In a single year, the city lost 16,000 residents.  That is enough loss to make your ears pop. The city has always been dependent upon Federal government jobs but that dependence has greatly increased as a percentage of total employment.  Should this dependence on government jobs get worse, demographers predict a much MUCH larger loss of population.

                Now, here is why this subject matters:  Rather than looking at absolute numbers and comparing them to other cities, many people are talking about RELATIVE numbers when they discuss how a community is handling the recovery.   Sure, Vermont and Connecticut are not doing as badly as they once did (which is a way to look at the numbers from a relative point of view) but compared to really good and developing places, they absolutely suck hose-water. 

                Another danger of looking at recovery or growth numbers from a relative point-of-view is most of these comparisons are skewed.  If an area is growing at 20% per year (something we actually see more often than you would guess), it is not reason to pop the corks.  If that percentage growth is only based on 1,000 people, that 20% may represent only 200 new residents.  On the other hand, a growth rate of 1% may not sound like much unless the basis of the percentage is 100,000 people, it is a different story.  Consider that 1% is 1,000 near residents with that base population. 

                In conclusion, keep in mind that recovery and growth statistics must be measured in absolute numbers and not be taken into a “relative” evaluation.

This is Scott McDonald of DoctorDemographics.com.  And thanks for listening.

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