"New England's and Mid-Atlantic's older demographics, mature economies, resilient housing markets, highly skilled working populations and outsized health care sectors provided a stronger footing for the economic recovery following the Great Recession. We anticipate that these strengths will carry over in 2011 and, as a result, both regions will be able to outperform national economic growth," the TD Economists write. "While the South Atlantic's economy will accelerate alongside the Northeastern economy in 2011, it will continue to lag. The heavily battered housing market will bite deeper into its economic growth, while wealth and employment are coming from a deeper deficit position. However, in 2012, the natural economic tendencies of all three regions will prevail, with the South Atlantic expected to lead the pack."
2011 will see the New England economy marginally outperform U.S. economic growth, the TD Economists say. The factors that traditionally restrain the economic performance of the region, including an older population and migration outflows, helped to partially shield New England from the housing excesses that exploded in other markets, particularly the sand states of Florida, Nevada, California and Arizona. Fewer foreclosures, a shallower downturn in home values, a more stable job market, and the region's resilient high-tech and professional services sectors are all critical elements that will help propel faster economic growth in New England relative to the rest of the country this year.
This momentum will be short-lived, unfortunately, when in 2012 the unfavorable population and migration trends, coupled with lower home affordability and generally higher costs of doing business, return as dominant influences in tempering the pace of growth.
The TD Economists believe that the Mid-Atlantic economy will again buck its natural tendency to lag national growth in 2011. "Over the past decade, the Mid-Atlantic's historical norm has been to underperform U.S. economic growth by roughly 0.3 percentage points, on an average annual basis. Yet, during this recovery cycle, regional employment should return its pre-recession level almost a full six months before the rest of the country," they write.
Pennsylvania's low foreclosure rate and affordable housing market have been supported by job gains that are twice the national average, and substantial rebounds in its manufacturing and service sectors will ensure economic growth in 2011 through 2012. New York will also fare well despite restrained job growth in its financial sector, with strong hiring in professional, business and education services, and increasing tourism. On the other hand, New Jersey's growth will lag, as the state continues to feel the impact of high foreclosure rates, sharp declines in housing prices, and a poor fiscal outlook.
"Similar to New England, the traditional demographic challenges and less pent-up demand within the entire Mid-Atlantic region will play a bigger role in 2012, causing the region to marginally underperform U.S. economic growth that year," according to the report.
While the South Atlantic states made welcomed economic progress in 2010, the TD Economists believe it will take some time before the region reclaims its place as a national growth leader. However, in 2012, the economic drag from the South Atlantic's housing-related challenges will wane, leading to greater growth.
Of particular importance to the region's recovery are tourism, manufacturing and international trade, which rely on external sources of demand, and will continue to expand in 2011. Durable goods manufacturing in several states will also grow, and a general improvement in most aspects of the economy will lift regional employment by 2.0 percent in 2011, despite anticipated decreases in public sector payrolls.
Real estate markets – the worst of the South Atlantic problems – will continue to struggle in 2011, particularly in Florida where home prices could fall by as much as 10 percent as excess inventory comes into the market. However, the TD Economists predict the region's growth will shift from underperforming the U.S. in 2011 to overperforming in 2012 due to a more manageable housing inventory, stabilization in home prices, and acceleration in consumer demand.