Manufacturing Rallies as Tourism, Energy Lag

This story originally appeared on Stateline.

After a pandemic plunge cratered the U.S. economy in the spring, some states appear to be recovering by catering to Americans’ renewed obsession with homes and cars. States dependent on tourism or energy are still foundering, however.

The nation’s economic output, as measured by gross domestic product, jumped an annualized 38% in the third quarter of this year after dropping 31% in the second quarter, when pandemic shutdowns peaked.  

State by state GDP numbers won’t be out until December, but looking at the economic sectors that are coming back indicates which states might be recovering the fastest.  

As people hunkered down at home, some sectors saw increases over 2019 in the third quarter: real estate, home remodeling, home furnishings, appliances and food service, according to national GDP figures.

That boost could be helping largely suburban states such as Connecticut, where homes and office parks are suddenly in demand as city dwellers seek more space and privacy in the pandemic.

“There is apparently a migration from the city to the suburbs, which is driving up home prices and increasing demand for automobiles,” said Francis Ahking, an associate economics professor at the University of Connecticut who studies state economic trends.

“Also, there is a fair amount of remodeling going on to accommodate the work-from-home and learn-from-home crowd,” Ahking added. “The construction industry is doing well.”

Manufacturing and construction got a boost as consumers spent money on big-ticket items such as home improvement projects, cars and recreational vehicles. That helped some Midwest states reliant on manufacturing.

“We’re going to see a strong rebound in Indiana [for the third quarter], though it’s not going to get us back to our pre-COVID levels,” said Andrew Butters, an assistant professor at Indiana University who specializes in tracking state-level economic changes.

Ohio, South Carolina and Wisconsin are among the states that took big hits in manufacturing but saw dramatic employment improvement in the third quarter, according to a Stateline analysis of a labor market index maintained by the Philadelphia Federal Reserve.

Before the pandemic, no state had a larger share of its jobs in manufacturing than Indiana, where about 20% of workers were in the auto industry and related businesses manufacturing parts, metals and chemicals such as lubricants.

The number of manufacturing jobs in Indiana fell sharply in April by about 84,000. By September 50,000 of them were back, but that was still about 30,000 jobs less than the 533,000 that existed in February, before the pandemic. Nationally manufacturing jobs continued to gain in October, having made up a little more than half the 1.4 million jobs lost between February and April. 

Construction jobs saw a similar boost — nationally 798,000 of 1.1 million lost jobs came back by October. Home construction jobs did the best and surpassed 2019 levels in September, according to the Associated Builders and Contractors, but commercial construction is still in the doldrums as offices stay closed and governments postpone projects.

The picture was not so bright for states more dependent on tourism, energy or both. A steep decline in tourism could contribute to double-digit decreases in tax revenue for Florida, Hawaii and Nevada next year, according to an October review by The Pew Charitable Trusts, which funds Stateline.

Hawaii, which tied with tourism-dependent Nevada for the biggest GDP loss in the second quarter, is only now starting to see some tourism rebound.

“We certainly don’t expect anything like the national third-quarter bounce. Quarter four will be better with tourism slowly recovering,” said Carl Bonham, an economics professor at the University of Hawaii and director of the university’s Economic Research Organization. Hawaii visitors grew to 76,000 from 22,000 in September, Bonham said.

Between the second and third quarters, job opportunities mostly got worse in Hawaii because of a surge in virus cases starting in July. Employment in hotels, restaurants and entertainment hardly budged between the two quarters, stubbornly stuck at about half the numbers of last year, and transportation job losses increased, Bonham said.

Many of Hawaii’s economic indicators dropped in the third quarter, including air passengers, open businesses and job postings, according to an Economic Research Organization report.

States hit hard by falling oil prices also are suffering. New Mexico and Texas enjoyed high oil and gas revenue last year, when investors were snapping up leases for up to $95,000 an acre in the Permian Basin area on the Texas/New Mexico border.

States shared in the payments, with Texas getting a record $1 billion for schools from leases and New Mexico getting $3.1 billion from leases and taxes on drilling.

“You can directly trace almost 40% of state general fund revenues to the oil and gas industry,” Peach said, “so when it collapsed there was panic in Santa Fe [the state capital].”

Oil prices came back from historic lows and jumped on vaccine hopes to more than $40 a barrel this week, but that’s still not enough to encourage more drilling in the Permian Basin, Peach said.

New Mexico was the only state where energy was the hardest-hit sector in the second quarter, though Wyoming and North Dakota also saw significant drops.

The demand for gasoline and jet fuel has fallen as people have cut back on long-distance travel, Peach said, though one bright spot was increased demand for diesel fuel as more people ordered goods for delivery instead of heading to stores.

Even though people are driving less, many of them bought cars to avoid public transportation during the pandemic, noted Butters of Indiana University, helping boost automotive factories. Nationally, spending on gasoline and fuel oil as a sector of GDP dropped in the third quarter compared with 2019, while vehicles and parts rose higher than they were in 2019.

“Clearly people chose that as a method of transportation,” Butters said. Used car prices spiked in August, especially for pickup trucks, despite fears earlier in the pandemic that stay-home orders would create a glut of cars and low prices.