Along the Atlantic seaboard from Maryland to Maine, the nation's second recession in two years is taking hold. So far, the recession's grip is not as severe as in much of the nation; and for the Northeast that is a complete reversal of form.
During most of the last two decades, the region was lagging the nation. Unemployment was chronically higher and per capita income growth slower than elsewhere. But gradually the region shed its heavy dependence on industries that dropped like a stone in a slump and those that failed to grow even when times were good.
The brass rolling mills are gone from the Naugatuck Valley in Connecticut. The apparel and textile industries are only shades of their former selves in New England, New York and Baltimore, and a wide variety of old manufacturing plants, often high-cost, obsolete operations, are no more. In their place has come manufacturing of high technology goods, a burgeoning business services industry, and a rapid expansion of employment in health services, finance and insurance, as well as in wholesale and retail trade. In the region in November only Delaware, with 9.1 percent, had an unemployment rate higher than the national average.
This string of states north from the Potomac has changed so markedly that during the 1980 consumer-led recession, unemployment rates, on average, went up only about one-third as much as they did nationally. By contrast, in the deep slump of 1974-75, the region's economy performed far less well than that of the nation as whole. That downturn, the worst since the Depression, broke the backs of many recession-prone companies and they closed their doors forever.
In a recent economic analysis, New York Gov. Hugh Carey could declare, "In the mid-1970s, the state's economy was highly vulnerable to recessions, declining at twice the national rate. It is showing much greater resilience today. Employment fell at only half the national rate during the 1980 recession. While we are not insulated from the national economy, our increasing economic strength is providing much greater protection against national downturns."
Remarkably, personal income in New York grew at a rate well above the national average last year, Carey said, "more rapidly than in any other industrial state except Texas."
Underscoring this change, Roger Kubarych of the Federal Reserve Bank of New York says New York City is reemerging as an attractive place to work. There are unparalleled opportunities for families with two working spouses, while prices have been rising less rapidly than nationally. The city's international ties bring in a steady stream of foreign business, particularly in banking, finance and legal services. While manufacturing employment in the city is still falling, many banks and brokerage houses are adding to their payrolls.
Upstate, Buffalo--really more closely tied to the industrial Midwest--has that region's serious economic woes. Even Xerox is laying off workers in Rochester. But as the economy gets back on track, the major business tax cuts could spur activity in the upstate factories that generally produce capital goods for business, Kubarych says.
However, some of the region's rediscovered assurance, so enhanced when many of the states largely skipped the 1980 recession, is being worn away. As Fred Breimyer of the First National Bank of Boston puts it, the region "will not sit this one out."
In Massachusetts the drop in government employment in the 12 months ended in November was a spectacular 40,000 jobs, most of them at the local level. This huge drop came largely as a result of passage of Proposition 2 1/2, a ballot initiative that limits a city or town's property revenue to no more than 2 1/2 percent of its assessed value.
If other employment opportunities were expanding, the laid off teachers, firemen, librarians and other employes might easily have been absorbed into other jobs. However, as high interest rates slowed business investment in the United States and a very strong dollar dampened export sales last year, demand for many goods produced in the region for business has dropped. Even the high flying technology-based companies ringing this city found their wings clipped. Hiring freezes and layoffs became the order of the day as early as last spring.
Some of the high-tech firms--the envy of other parts of the country, such as the Midwest, where the transition away from heavy basic industry to more esoteric growth realms of an "information" economy is yet to come--are already taking off again. Orders are already picking up, for instance, at Analog Devices, a maker of electronic controls based in Norwood, Mass., according to its president, Ray Stata. "What is happening to us is a reflection of what is happening in the industry," an optimistic Stata declared. "I think the worst is over."
The worst clearly is not over in places like Bethlehem Steel's Sparrows Point works in Baltimore, where more than 1,500 employes are laid off. Or at the closed Ford auto assembly plant in Mahwah, N.J., which once employed 5,000 auto workers. Or in Taunton, a city south of here, where Paragon Gears Inc. may close an 80-year-old marine transmission factory that employs about 70 people if a buyer cannot be found by summer.
At a recent meeting here of participants in the New England Economic Project, a cooperative arrangement of economists in the six New England states, those responsible for the forecasts for each state ticked out the points of the outlook. In every case, manufacturing employment would be down. With its big loss of government jobs, too, Massachusetts would once again be doing less well than the nation as a whole, Breimyer said. Rhode Island is in about the same boat.
In New Hampshire, which gained 381 new firms between 1975 and 1980, many of them making machinery of one type or another, Hans Wentrup of the Public Service Co. of New Hampshire predicted average employment this year would be up slightly from 1980. New Hampshire had the lowest unemployment rate in the region in November, with a rate of 5.0 percent. Vermont is not far behind with 5.2 percent.
Maine's figures are not quite so good, with a November unemployment rate of 6.4 percent. But the news there, too, is brighter than it used to be. So many manufacturing firms have moved into the state that there are virtually no unused industrial buildings left. The Bath Iron Works, which continues to turn out frigates for the Navy on budget and often ahead of time, is planning a new ship repair facility in Portland that will add 1,500 jobs, according to state economist Lloyd Irland. Meanwhile, the state's paper industry is steadily expanding its capacity. Last year's major employment problem was the continued loss of jobs in Maine's once dominant food processing industry.
Marianne Metcalf of Southern New England Telephone said Connecticut's economy was showing "pervasive weakness" but noted that it has developed some new strength's since the late 1970s. Among the bright spots are more jobs in services, a steady growth in the number of corporate headquarters locating in the state, more high-tech plants being built, and a significant impact from higher defense spending. She predicted that Connecticut unemployment would peak at a rate of about 6.8 percent, more than two percentage points lower than the national peak most forecasters expect.
Connecticut's largest employer is United Technologies, a $12 billion conglomerate that includes Pratt & Whitney Aircraft, Sikorsky Helicopter, Otis Elevator, an automotive division, and an electronics division, among others. United Technologies has had some 1,500 layoffs at its huge East Hartford Pratt & Whitney plant because of slower demand for commercial aircraft engines and parts, but 32,000 still are at work.
In general the company is shrugging off the recession, partly because of healthy increases in its defense related work, and its vice president for strategic planning, James Lyons, is so optimistic that he asserts, "We are not in a recession and it is not worsening. I think we have already gone through the trough."
Lyons points out that in the Northeast "we have rolled through a whole economic cycle" in which older industries had to shrink or disappear and new employment opportunities found. The Midwest, with its reliance on automobiles, farm implements and steel, is going through such a cycle now. "In the 1980s and '90s, the West and the Sunbelt may go through the same one," Lyons warns. "Regions, and corporations, have to renew themselves."
That renewal process is hardly complete along the northern Atlantic Seaboard, but it is surely very far advanced these days.