The shift of human capital, job creation, and business formation to metropolitan areas reveals that rural America is teetering on the edge of collapse.
The Economic Innovation Group’s (EIG) Distressed Communities Index (DCI) shows this significant economic transformation (from two distinct periods: 2007-2011 and 2012-2016) that occurred since the financial crisis.
Since the crisis, the number of people living in prosperous zip codes expanded by 10.2 million, to a total of 86.5 million, an increase that was much greater than any other social class.
Meanwhile, the number of Americans living in distressed zip codes decreased to 3.4 million, to a total of 50 million, the smallest shift of any other social class. This indicates that the geography of economic pain is in rural America.
Visualizing the collapse: Economic distress was mostly centered in the Southeast, Rust Belt, and South Central. In Alabama, Arkansas, Mississippi, and West Virginia, at least one-third of the population were located in distressed zip codes.
Prosperous zip codes were the top beneficiaries of the jobs recovery since the financial crisis. It took five years for prosperous zip codes to replace all jobs lost from the crisis; meanwhile, distressed zip codes will never recover.
EIG shows that less than only 25% of all global counties have recovered from business closures from the recession.
To highlight the weak recovery and geographic unevenness of new business formation, EIG shows that the entire USA had 52,800 more business establishments in 2016 than it did in 2007.
Five counties (Los Angeles, CA; Brooklyn, NY; Harris, TX (Houston); Queens, NY; and Miami-Dade, FL. ) had a combined 55,500 more businesses in 2016 than before the recession. Without those five counties, the US economy would not have recovered.
On top of deep structural changes in rural America, JPMorgan told clients last week that the entire agriculture complex is on the verge of disaster, with farmers in rural America caught in the crossfire of an escalating trade war.
Farmers are facing tremendous headwinds, including a worsening trade war, collapsing soybean exports to China, global oversupply conditions, and crop yield losses in the Midwest due to flooding.
This all comes at a time when farmers are defaulting and missing payments at alarming rates, forcing regional banks to restructure and refinance existing loans.
Today’s downturn of rural America is no different than what happened in the 1920’s, 1930’s, and the early 1980’s.
Zero Hedge / ABC Flash Point News 2019.