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A Tale of Two Cities

Daniel Gross

Daniel Gross is executive editor of strategy+business.

 

Consider this story of two U.S. metropolises.

On the one hand, there’s Detroit: a sad sack of the industrial Midwest, a few years removed from bankruptcy, hollowed out and struggling with a declining population.

On the other hand, there’s Houston: a burgeoning urban sprawl that is one of the capitals of the global energy industry. The town’s surging growth in recent years has turned it into the nation’s fourth largest city.

In one of these metropolitan areas, the unemployment rate has jumped significantly in the past year, from 4.8 percent to 5.7 percent, amid slowing job growth. In the other, the unemployment rate has fallen in the past year, from 5.6 percent to 5.3 percent, while the number of jobs has increased by an impressive 2 percent.

Which is which? If you gave the obvious response — Detroit is struggling while Houston is rocking — you had the wrong answer.

In reality, it’s Houston where the unemployment rate has boomed in the past year, and Detroit that is experiencing a relative surge in employment. (The Bureau of Labor Statistics’ jobs numbers for big metro areas can be seen here, and the unemployment rates can be seen here.)

As Eric Morath of the Wall Street Journal, whose column earlier this month first alerted me to this anomaly, noted, there is something of a connection between the numbers in these two regions. Houston’s economy is disproportionately tied to the oil and gas business. And with oil prices having plummeted by about half since 2014, activity is contracting and many oil exploration and production companies based in Texas have gone bankrupt. They’re simply buying fewer services and employing fewer people.

At the same time, with gas prices low and the economy generally chugging along, Americans continue to buy cars in large numbers. And when gas is cheap, Americans being Americans, they tend to buy more large, gas-guzzling vehicles like Jeeps and SUVs instead of hybrids, small coupes, and hatchbacks. And that’s good news for the Detroit region, where many of the big vehicles are made. Indeed, according to the University of Michigan Transportation Research Institute, the average vehicle sold in the U.S. in October got 24.8 miles a gallons, which is down notably from a peak in mid-2014.

When you consider the industries that drive these two regions, this divergent tale of two cities makes sense. But it nonetheless subverts an economic narrative of longstanding. For decades, indeed, for as long as I remember, it seems that Michigan has been a place where it is difficult for people to find jobs and Texas is a place where it is easy to find them. When I was growing up in mid-Michigan in the late 1970s and early 1980s, people used to sell Sunday newspapers from Texas on the street. It wasn’t because the residents of Lansing had a great interest in the latest reports on high school football in the Lone Star State. No, they were buying the papers to get the help-wanted ads. After all, oil was booming as the car industry was struggling.

When I was growing up in mid-Michigan in the late 1970s and early 1980s, people used to sell Sunday newspapers from Texas on the street.

A few decades later, when I was reporting on the national economic climate in the midst of a recession, I traveled to the largest city with the lowest unemployment rate. That was…Houston. In June 2008, the region boasted an unemployment rate of 3.8 percent and city boosters were fairly bursting with municipal pride. The global energy industry was booming, even as the housing and credit markets were suffering significant pain. At the same time, of course, two of the largest Detroit-based auto companies were beginning their spirals toward bailouts and bankruptcy.

In the years since, the broader travails of Michigan (including the Flint water crisis) and Detroit’s 2013 bankruptcy filing have further cemented the area’s image of decline. Meanwhile, it is has been commonplace for Texas politicians to speak of the economic miracle unfolding in their state.

But in economics and business, narratives shift all the time — even narratives that have built up and endured over the course of decades. Which means that forecasting the future simply by extrapolating from the recent past is a dangerous game. If you want to keep a handle on things, you have to monitor the incoming stream of data vigilantly and be conscious that it is easy to fall back on comfortable and lazy assumptions. This anomaly of an improved labor market in Detroit and a souring one in Houston has been evident for some time. This tale of two cities was there for anyone who bothered to read it.

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A Tale of Two Cities