Midwestern states stumble with foreclosures and job losses

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Just about everyone who follows the news knows that California, Nevada and Florida are the pariah states of this recession, having experienced a housing boom and bust from which they are still recovering. But new economic data indicate that other states are beginning to stumble this summer, causing further trouble in the nation’s economy.

In July, Illinois lost 24,900 jobs, Indiana dropped 10,100 and Minnesota lost 19,800. Some of those states are reeling from home foreclosures as well. In the second quarter, 7% of loans in Illinois were in foreclosure, according to the Mortgage Bankers Assn., which ranks it fourth in the nation. Ohio and Indiana also rounded out the top 10, with 4.95% and 4.86% of loans in foreclosure in that time period, respectively.

So what ails the Midwest, which didn’t experience the same degree of housing boom and bust as the pariah states?

First off, the region is still struggling to recover its footing from the 2001-02 recession, said Geoffrey J.D. Hewings, an economist at the University of Illinois at Urbana-Champaign.

Illinois, for example, still has 380,000 fewer jobs than it did in January 2000, he said. Weakness in the banking sector and government cutbacks are slowing job growth in the state, he said. Illinois is one of the few states that has also lost jobs from July 2010 to this July, shedding 28,300.

‘Things are bleak, but there are a few bright spots,’ he said.

Government cuts in particular are dragging down the recovery in states that are already suffering, Hewings said. Illinois’ unfunded pension liability for state workers is about $80 billion, according to Moody’s Investors Service.

‘It makes the Tea Party happy, but it has a ripple effect,’ he said. ‘These are relatively skilled people not able to find jobs in other sectors.’

Midwest states are also more affected by high gas prices, which slow the manufacturing and transportation industries, said Michael Hicks, an economist at Ball State University. That could be why Indiana shed so many jobs in July, particularly in its dominant transportation sector. Car sales, which had been ticking up, slow when gas prices rise, which forces manufacturing companies to cut jobs.

Foreclosures are another problem for Indiana, he said. Because the state’s unemployment rate had gone down earlier in the year, jobless people in Indiana are now eligible for just 85 weeks of unemployment benefits, rather than 99 weeks. That meant about 20% of workers were cut off from unemployment benefits in July, he said.

-- Alana Semuels

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