In an abrupt reversal, rural communities are outpacing urban growth…
A revival is building all along the “Hillbilly Highway.”
The history of America’s heartland dates to the late 1700s, when thousands of Scots and Irishmen left Europe to find a better life on the American seaboard. They gathered in the mountains of Appalachia, filling the foothills of Tennessee, Kentucky, and West Virginia.
These devoutly religious folks tended to keep to themselves, eschewing outsiders and living in tight-knit extended families.
And they worked… hard. The coal industry boomed on the backs of Appalachian working men who put in long hours in dark and dangerous mineshafts. At its peak in the 1920s, more than 700,000 miners worked the coalfields in central Appalachia alone.
That is, until the coal industry busted with the Great Depression and the end of World War I…
Although coal remained a critical commodity for most of the 20th century… increasing mechanization steadily reduced the number of people needed to work the mines. Starting with the end of World War II, a mass exodus took place…
In search of high-paying blue-collar jobs, millions left the mountains, traveled up the Hillbilly Highway (first U.S. Route 23 and later Interstate 75) to Ohio, Michigan, and Illinois, where they found jobs in steel mills or auto factories. They moved in such great numbers… They brought their entire culture to a wide swath of territory stretching from West Virginia and western Pennsylvania through the Upper Midwest.
Like the coal-mining industry, the steel industry today has passed its heyday. Since the 1950s, U.S. steel employment fell nearly 80%. There’s now roughly two times as many folks working at Starbucks (SBUX) than in the steel industry. And even with car sales booming in recent years, Detroit’s auto industry – once a consumer of steel – has declined in terms of manufacturing headcount and wages.
Today, when we talk about “America’s heartland,” we often have in mind this stretch of land expanding out from the Hillbilly Highway.
But the truth is, the concept of our heartland is less about a geographic location and more about a group of people defined by their social and economic circumstances. And it’s a group of folks who have generated a lot of attention and concern in recent years.
But now, we’re seeing some hope. The “green shoots” of a growing economy are starting to peek out from the soil of the heartland…
Rural Communities Are Outpacing Urban Growth
Since the Great Recession, I’ve detailed to subscribers to my Retirement Millionaire letter that the economy was grinding higher and constantly improving.
Of course, we were mainly talking about New York, California, Washington, D.C., and other areas that were fully involved in the modern “knowledge” economy. We’d often add a caveat that plenty of areas were still struggling with high unemployment and low growth.
Economic growth in the formerly depressed, blue-collar areas has started to match that of the “urban elites.”
Now, we can skip the warning. Economic growth in the formerly depressed, blue-collar areas has started to match that of the “urban elites.”
Since the start of 2017, the economies of rural states have outpaced the more urban ones (see chart below).
Not all states fit easily into one category. For example, we consider Illinois urban thanks to Chicago, but left Michigan as rural despite Detroit. But even if you shift some of the borderline states between categories… the results don’t change much.
The U.S. Bureau of Economic Analysis’ most recent state-by-state breakdown shows the biggest full-year GDP growth in states like Colorado, Nevada, and Arizona.
No one will believe you when you tell them the growth rate of West Virginia more than doubles that of New York, but those are the facts.
We’ve long been waiting for a resurgence of the American heartland. Now it’s happening.
The Makings of a Recovery
The official unemployment in the U.S. has hovered below 5% for two years now, but job growth has been concentrated among skilled professionals in big cities. Only recently have we seen jobs in blue-collar sectors – like manufacturing and construction – pick up (see below chart).
Typically, industries don’t all boom at once. In 2010 through 2014, the oil and gas industry was hiring thanks to technological advances of the U.S. shale boom, but the rest of the economy was in shambles.
By the time the recession faded, oil prices crashed in 2014 and 2015 and the industry started cutting back on employees.
Now everything is working at once. Oil has settled at enough to keep oil producers running the drills. Homes are being built, and manufacturing is picking up. The types of jobs that can help rural parts of America are showing the biggest gains. Wages in China and emerging markets have risen enough to make manufacturing more competitive. Now, it’s not as cheap as it once was to move your manufacturing outside the U.S.
America is making real things again.
America is making real things again.
The Institute for Supply Management’s U.S. Manufacturing Purchasing Managers Index (PMI) surveys managers in the manufacturing sector to see how optimistic their plans are for the near future. A level above 50 means that manufacturing is expanding. Right now, the index is flirting with 60, a level that shows real growth… one we haven’t seen in roughly 15 years (see chart below).
And shipments of U.S. manufactured goods have followed… Since 2016, they’ve surged 12.3% and have set new all-time highs (see chart below).
We believe that labor shortages will be the biggest problem these areas face. “If you know someone who can swing a hammer, I can have them on a job tomorrow,” one construction manager told us earlier this year.
The question is, how long this will last?
This may be happening just because the economic cycle is moving along and finally spreading its reach out to these areas. We’ve been in a recovery phase since 2009. Eventually that growth has to touch areas of the country outside the urban centers, even if they’ll still struggle in relation to more vibrant industries.
Or maybe a larger shift is at hand… One in which rising wages in China and more need for skilled and educated workers is moving manufacturing back to the U.S.
It’s likely a bit of both. We’ll have to wait and see to be sure.
Either way, it’s an opportunity.
Dr. David Eifrig worked in arbitrage and trading groups with major Wall Street investment banks, including Goldman Sachs, Chase Manhattan, and Yamaichi in Japan. In 1995, Dr. Eifrig retired from Wall Street, went to UNC-Chapel Hill medical school, and became an ophthalmologist.
Today, he publishes a free daily letter on health and wealth that shows readers how to live a millionaire lifestyle. If you’re interested in more ideas like this essay, you can sign up by clicking here.