WHEN POCKETS OF STRENGH JUST AREN´T ENOUGH / THE WALL STREET JOURNAL ( VERY HIGHLY RECOMMENDED READING )

THE OUTLOOK

Updated July 16, 2012, 9:43 a.m. ET

When Pockets of Strength Just Aren't Enough

By NEIL SHAH

America's Great Plains and Midwest regions are rebounding from the recession faster than other parts of the country, but economists say their recoveries aren't enough to lift the rest of the economy out of the doldrums.

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Private-sector workers in the Great Plains and Midwest have seen the sharpest rise in income since the end of the recession in mid-2009, Commerce Department data show. Plains states such as North Dakota, Texas and Nebraska are reaping the benefits of growing demand for oil and food commodities in expanding economies like China. Turnarounds by the U.S. auto sector and other manufacturers, meanwhile, have reinvigorated America's industrial strongholds of Michigan, Ohio and Indiana.
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Yet despite this success, the two regions that make up the nation's midsection contribute much less to the broader economy than do California and New York. Some Great Plains states are sparsely populated. That means that locals whose fortunes have improved thanks to oil and soaring crop prices can't be counted on to boost national consumer spending, which fuels two-thirds of the economy. North Dakota, Wyoming, Montana and Nebraska, for example, contribute only about 1.4% of the country's gross domestic product—roughly equal to Connecticut's share.
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The recovery of the U.S. manufacturing and auto sectors, meanwhile, doesn't fully offset their collapse during the global economic crisis. Job cutbacks have kept Michigan's unemployment rate at 8.5% in May, well above the 6.9% rate the state saw in May 2007. Ohio's jobless rate, 7.3% in May, was 5.6% five years ago.

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"It's not enough to have pockets of industrial rebirth," said Jim Diffley, chief regional economist at IHS Global Insight. States like Michigan and Ohio "are not going to be pulling everyone else along, though it's great that they're gaining. We still need to have consumers and banks complete the process" of whittling away bad debts in order to start spending and lending more, he said.

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The U.S. recovery has been slower than past economic comebacks. It also has been uneven. States that specialize in areas such as energy and food production, manufacturing and technology, have thrived, while others reliant on housing, construction, services and finance have struggled under the weight of consumer debt.

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Private-sector workers in North Dakota, which is second only to Texas in oil production, saw the biggest rise in personal income between the end of the recession and the first quarter of 2012. The state's unemployment rate is 3%, the lowest in the country and well below the national rate of 8.2%. In the Midwest, soaring prices of corn and soybeans—though partially due to a drought in the region—have boosted farm states like Nebraska and Iowa, where unemployment is among the nation's lowest.

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"As rising global incomes drive more demand for protein, it creates a runway of opportunity that expands for more than a decade," said Hugh Grant, chief executive of seed company Monsanto Co. MON +0.73% on a call with analysts last month. Monsanto, of St. Louis, reported a 35% jump in profit in its fiscal third quarter, driven partly by farmers planting more corn across the U.S. heartland.

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Yet California's economy, which accounts for about 13% of U.S. GDP, grew much more slowly than the country as a whole between the end of 2009 and that of 2011, Commerce Department data show. Its unemployment rate, at 10.8%, is the third-highest in the country, after Nevada and Rhode Island.

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California illustrates the recovery's unevenness. Its technological hub, Silicon Valley, is home to one of the U.S. economy's most prized assets.

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YouSendIt Inc., a Campbell, Calif., digital file-sharing firm, has hired 50 people this year, expanding its payroll to 212. It is looking to add 25 more workers and find additional office space in San Francisco to accommodate and attract job-seekers. "Back in 2008, when the economy started to slow down, the company did pause for a bit, but we've been in a rapid growth mode ever since," says Renee Budig, the company's chief financial officer.

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Yet Oakland—a city less than 10 miles from San Francisco—is struggling with a 9% unemployment rate. "Silicon Valley's social-media boom may have propelled it once again into the ranks of the fastest-growing employment centers, but the nearby Oakland area lags near the bottom," analysts at research firm Praxis Strategy Group said in a recent report.

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For the economy to really pick up steam, more regions have to start firing on all cylinders—a tall order given that key sectors such as housing and finance likely won't return to their precrisis levels of growth and employment. That means what is needed across America is more production of goods—from food and energy to electronics and cars.

—Patricia Minczeski contributed to this article.

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