Why the Midwest Fared Best in the Recession

NEW YORK (MainStreet) — Throughout much of the Great Recession and the long, slow recovery since, there has been one consistent glimmer of hope for the U.S. economy: the Midwest.

When unemployment hit its worst point in October 2009, rising above 10% nationwide, several states in the Midwest like North Dakota, South Dakota and Nebraska all had unemployment rates of 5% or less. As the foreclosure crisis continues to ravage housing markets across the country, forcing one in every 501 homes into foreclosure in December of 2010, neighborhoods in the Midwest have fared much better by comparison. In Nebraska, one in 2,839 homes were foreclosed on that month, and in North Dakota the rate was even lower, with just 1 in 10,805 homes entering into foreclosure.

If you focused your attention solely on the Midwest right now, you might not even realize there had been a recession.

“People don’t often zoom in on the Midwest that much, but so far, it has kind of led the way out of the recession,” said Steve Cochrane, an economist and managing director of research at Moody’s Analytics, which regularly analyzes financial indicators to determine the regions of the country that have the healthiest economies.

According to Moody’s data, every state in the Great Plains portion of the Midwest, starting with Kansas and Missouri and heading north, is now in recovery mode and no longer at risk of another recession. At the same time, this region also boasts one of the only two states in the country whose economy is actually expanding beyond pre-recession levels: North Dakota.

The picture becomes slightly bleaker if you consider states like Michigan and Illinois to be part of the Midwest, something that several economists we spoke with were hesitant to do, given that both of these economies are still in recession. But even with these states factored in, the Midwest has a better batting average than other regions like the West and Southeast where the majority of states remain stuck in the recession, or at risk of falling back into one.

How the Midwest Dodged the Recession

Much of the reason for the Midwest’s current financial stability is that most of the region was never hit quite as badly by the recession in the first place.

“There were two reasons why places got hit really hard during the recession,” said Howard Wial, an economist at the Brookings Institute who directs the Metropolitan Economy Initiative, which monitors the financial health of the 100 largest cities in America. “Either they had a big housing boom followed by a big housing bust, or they relied heavily on the auto industry. The Great Plains did not have either of these problems.”

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