Certain Regions Play Economic Catch-Up With Rest of Nation

DESPITE robust national economic expansion in the United States, some key regions - home to more than one-fourth of the nation's population - continue to be stuck in a mode of slow growth, lost jobs, and corporate downsizing.

Barring any massive new federal or state spending programs, states and regions such as California and the East Coast will likely play second fiddle on the growth front for the next few years, economists say.

Last week, the US Commerce Department released a revised report on US gross domestic product (the output of the nation's goods and services) showing an annual expansion rate of 4.1 percent in the second quarter. That is up from an earlier estimate of 3.8 percent.

In addition, Washington released new reports last week on housing and employment indicating strong growth, despite the Federal Reserve's recent increases in interest rates. US financial markets reacted negatively to last week's reports, expressing concerns about higher inflation.

Sharp regional disparities

But economists point out that the mostly upbeat economic news tends to obscure sharp regional disparities. In some areas, such as parts of the West and the Atlantic Seaboard north of Virginia, ``there is just nothing that can be done on a short-term basis,'' says Cynthia Latta, an economist with DRI-McGraw Hill, an economic consulting firm based in Lexington, Mass.

Nor is Washington expected to provide any special help. Indeed, in September, Robert Parry, president and chief executive officer of the Federal Reserve Bank of San Francisco, gave two speeches in Richland, Wash., and Portland, Ore., where he specifically acknowledged that some states are lagging behind. He posed the question: ``Shouldn't we help them before worrying about inflation?''

His answer, which has also been the Fed's view, is that ``the Fed's emphasis has to be on the nation as a whole, and not on any particular state or region.'' The main reason, he added, is one of practicality: Monetary policy works through national credit markets, not local markets.

For much of the US, economic growth has been vigorous. ``We are projecting that economic growth will average out to around 3.7 percent for the United States for 1994,'' Ms. Latta says. ``But growth is starting to slow. We expect growth next year to be around 2 percent.''

Strong-growth areas

Regional areas posting strong growth, she says, include the Midwest, the Rocky Mountain states, the South, and the Southeast. California is ``coming back,'' she says, but at a far slower pace than the rest of the US. New England is doing ``not badly,'' while the Eastern Seaboard is again growing, but at a slower pace than the US as a whole.

In the Midwest, Latta says, growth is linked to the booming US export market. In the Rocky Mountain states, a number of new companies have moved in, ``many of them high-tech companies that have left California,'' she adds.

Sun Belt areas are generally strong, Latta says. In Southwest states such as Arizona and New Mexico, office processing companies are establishing offices and adding jobs. Overseas firms are moving into the South, attracted by the region's good weather, low wage scales, and low tax rates. Southeastern states, such as North Carolina, South Carolina, and Florida, are also attracting overseas firms. The Pacific Northwest is holding its own, but saw its growth trimmed by the slowdown in California.

The WEFA Group, an economic consulting firm in Balacynwyd, Pa., forecasts US domestic economic growth of 3.6 percent for 1994, falling to 2.5 percent in 1995, says senior economist David Bachman. ``California was badly hit by downsizing in defense. Few economists and political leaders had really reckoned the extent to which the state depended on defense jobs,'' he says.

To a lesser extent, both the Pacific Northwest and the upper East Coast have also been hit by defense cutbacks, Mr. Bachman says. Ironically, while jobs and workers have been leaving the East Coast for other regions, wage levels continue to remain high there, Bachman says.