Recovery Tied to Nation’s Business Cycle

By Tom Cleveland

Another jobs bill was recently filibustered in the Senate, lacking just two votes for passage. Without direct stimulus emanating from a deadlocked Congress, the Federal Reserve announced one more quantitative easing program, designed to provide liquidity for more bank lending that would hopefully lead to more investments in small and medium-sized businesses. Banks and corporations, for that matter, have ample cash on their respective balance sheets for investment in the domestic market, but both are waiting for a signal that consumer demand is on the rise.

The last thing that any of us desire is to have a “chicken-and-egg” situation related to future job creation. The last decade has been particularly disarming, including two severe downturns in the business cycle. Uncertainty has led to never-ending risk avoidance tactics, where capital flows to safe havens at the slightest sign of bad news on the horizon. It is also difficult to accept that our local economy, traditionally tied to progress on the state and national fronts, is now subject to a large degree to even larger global considerations. This age of globalization has ensured this fact.

The employment situation in Memphis, however, is improving, but statistics indicate that the recovery of jobs in the Memphis area has trailed the progress made in Tennessee. During the past economic downturn, Tennessee lost about 220,000 jobs, compared to 60,000 in Memphis. The state has a 25 percent recovery rate to date, while Memphis lags at 17 percent.

The “Great Recession” reduced employment roles by 8.8 million jobs. Many of these jobs have been offshored and may never return, but the gradual recovery that has taken place has recovered roughly half of these lost jobs in total, as the unemployment rate dropped from 11 percent to 8 percent. Progress going forward, however, will be positive, but more gradual than most of us would like. This recession has been the deepest on record since the “Great Depression,” decimating both the real estate and banking sectors in its wake. When two major sectors are impacted, recoveries tend to take longer, requiring as many as five to six years to regain parity with the past.

Progress has been made, although critics abound claiming that more should have been done. A deadlocked Congress has not helped, but neither has the global economy that directly dictates achievable benchmarks in our market. Asian economies have skirted the recent recession, but even these powerhouses have had to pull back from double-digit growth due to weakening demand from North America and Europe. Europe is also our largest trading partner, and recessionary trends are at work across the Atlantic, although economists do not see the contagion spreading outside of their borders.

If the nation and Tennessee are to witness modest growth going forward, what are the prospects for Memphis? Memphis continues to offer an attractive environment for business development. Office rents are below the national average and competitive. Taxes are also on the lower end, but there are a few weaknesses highlighted in a recent economic forecast for the area:

High dependence on one employer.

Large income disparity across constituent counties.

Close structural ties to the U.S. economy that link local economy to national business cycle.

There are reasons for optimism going forward. Employment has picked up in 2012 at a pace greater than the state’s. Home prices may have fallen by 50 percent, but the market also appears to have bottomed out, a good sign for the real estate industry, as well as everyone involved in construction Look for moderate, but steady growth.

Tom Cleveland is a writer for