Data reveals rising economic 'distress' across America despite post-pandemic growth

A striking disconnect remains in the US economy: continued growth and softening inflation along with Americans' pervasive pessimism and uncertainty about the future.

"I think people are just uncertain," President Biden recently told Yahoo Finance in an exclusive interview. "And that's why we've got to be steady, stay the course, and continue to produce these incredible jobs."

Insight into the disconnect arises from a deeper look into the lifeblood of the US economy: the states, cities, and towns that make it run. Data from the Economic Innovation Group's (EIG) Distressed Communities Index showed that as of 2023, local economies across America still hadn't fully recovered from the effects of the COVID-19 pandemic.

According to EIG, which uses US Census Bureau data to sort districts by economic well-being, roughly 52 million Americans live in a "distressed" zip code. That's up from 50 million in 2018.

Distress scores are calculated based on weighted factors. Those factors include the number of residents with a high school diploma, the poverty rate, the number of adults not working, the housing vacancy rate, the median income ratio, changes in employment, and changes in the number of business establishments.

EIG discovered that in recent years, urban areas across the country have become increasingly "distressed" while the surrounding suburbs are considered more "prosperous."

Take Cleveland: August Benzow, research lead at EIG, told Yahoo Finance that "almost every zip code in the city itself is distressed, but then you definitely see a lot of prosperity in suburbs."

'The pandemic has exacerbated this trend'

The health of a region’s economy is generally correlated with the size of its population, and the pandemic saw major population changes across the country.

Large urban counties, which EIG previously defined as intersecting with "an urban area with a population of 250,000 or higher," have experienced major losses: Between July 1, 2020, and July 1, 2021, those counties saw an aggregate decrease of 812,000 residents.

According to the same report, “exurban and suburban counties continued to grow the fastest in 2022 after seeing major influxes of domestic migration during the early pandemic era." After adding 931,000 people in 2021, the same counties added another 832,000 residents in 2022.

“Obviously, the pandemic has exacerbated this trend as well, where people are able to live further out from cities and still do their jobs either remotely or in a hybrid model,” Benzow said.

A recent note from Goldman Sachs reiterated this point: "Domestic migrants have left the largest cities, with about half moving to metro counties with populations of 250k to 1 million. ... The latest figures show that this demographic shift that began at the outset of the pandemic — driven by virus fears and remote work opportunities — not only had not reversed but, in fact, had continued through mid-2023."

The pandemic also highlighted significant wealth disparities among populations: Those who had the financial means to move out of cities and into suburbs did so, leaving behind lower-income residents in urban areas.

Look at Fort Worth, Texas. The 13th largest US city by population, Fort Worth saw 4.1% growth (nearly 1 million residents) between 2020 and 2023.

But about 32.2% of those residents live in what EIG assessed as "distressed" zip codes, compared to 29.2% in "prosperous" ones. The urban core of the city is the most distressed area compared to the "comfortable" and "prosperous" outskirts.

"People want to live in a place that has a high quality of life and [where] there’s opportunity for them," Fort Worth Mayor Mattie Parker told Yahoo Finance. "A lot of the domestic migration you’ve seen across the country into places like Fort Worth is because of that."

At the same time, the increase in housing demand — between 2020 and 2021, the median property value in the city increased by 11.5% — has exacerbated housing affordability issues.

"Mixed-income housing and middle-income housing is a conundrum for a lot of cities, meaning a lot of times there’s always this focus on low-income housing, and there are a lot of tools or government partnerships to make that happen," Parker said. "But oftentimes, the biggest sector of housing that’s missing is middle income. A first-year teacher or first-year firefighter, a young family that can’t afford to live in your city because there’s no middle-income housing available to them."

According to the Goldman note, "stronger population growth outside the largest urban counties has meant somewhat faster house price appreciation relative to pre-pandemic trends compared to the most urban counties. The post-pandemic migration trend is likely connected to changes in housing preferences — more people say in surveys that they would prefer larger, more spread-out homes."

Read more: Why are home prices so high?

'Cognizant of the inequality in our community'

Oklahoma City is also facing a mixed economic picture.

Prosperous communities make up 36.3% of the city and its surrounding areas, while distressed ones account for 26.4% — dominated by its urban core.

The city’s poverty rate of 15% remains above the national average of 12.6%, while its owner-occupied housing unit rate lags behind the US average by more than 5%.

"We’re certainly cognizant of the inequality in our community, and we’re at least trying to do everything we can to address it," Oklahoma City Mayor David Holt told Yahoo Finance.

Holt highlighted the Metropolitan Area Projects program, which in recent years invested heavily in the tourism industry, including for the construction of the Oklahoma City Thunder’s arena. That project is estimated to have created more than 3,000 jobs and generated roughly $590 million per year for the surrounding area.

Holt stressed that the the city is focused on distressed communities in an attempt to provide more equal opportunity for residents.

"We don't promise equal outcomes," he said, "but it’s evident when the outcomes continue to be disproportionate that you’re not really providing equal opportunity."

Adriana Belmonte is a reporter and editor covering politics and healthcare policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com.

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