Economy bad all over - even before current crisis

Updated: 2008-12-10 WASHINGTON – Things really are bad all over -- and they had gone bad even before the housing and finance industries crashed and sent the US economy into a tailspin.

New census data shows that throughout the first half of the decade, the slumping US economy touched nearly every community in the country. Incomes dropped while poverty and unemployment rose in the vast majority of the nation's cities and towns.

Small and medium-sized cities in the Midwest, already suffering from an ailing auto industry, were hit the hardest, with unemployment rates doubling or tripling in communities throughout Michigan, Ohio, Indiana and Illinois.

The numbers weren't as bad in other parts of the United States, but no region was spared, with incomes dropping as home prices escalated. The result: an unsustainable housing market that ultimately fueled the current economic crisis.

"For a while we were on a binge of living beyond our means," said David Wyss, chief economist at Standard and Poor's, the credit rating service. "We were financing our spending habits by treating houses like giant ATMs."

The data, which is being released Tuesday, is the first detailed economic, social and demographic information for small- and medium-sized US cities since the 2000 census. It was collected over three years, from 2005 through 2007, providing a mid-decade snapshot of every community with at least 20,000 residents.

The data comes from the American Community Survey. Census takers interview 3 million households a year for the survey, which produces annual data for geographical areas with populations of 65,000 or more. For areas with at least 20,000 people, the survey produces three-year averages.

The new numbers explain why the housing bubble burst and why the economy was such a big issue in this year's presidential campaign. They also explain why voters soured so much on US President George W. Bush's handling of the economy, even before the current financial crisis.

The years covered by the report include the housing market at its peak. Incomes had started to rise while poverty and unemployment rates had begun to fall, following the recession earlier in the decade.

But in the vast majority of America's cities and towns, economic conditions never fully reached the prosperity that marked the beginning of the decade.

The Associated Press analyzed economic data from the 2,000 or so cities and towns across the nation with populations of 20,000 or more, comparing the 2005-2007 data to figures from the 2000 census.

Among the findings:

-- Median household income dropped in 79 percent of the cities and towns. Incomes dropped in the wealthiest communities as well as the poorest. Charleston, Ill., home to Eastern Illinois University, saw the biggest drop, 31 percent, to a median household income of just under $21,000.

Nationally, incomes dropped by 4.3 percent during the period, to $50,007.

-- The poverty rate increased in 70 percent of the cities and towns. Athens, Ohio, home to Ohio University, had the highest poverty rate, at 52.3 percent, in the 2005-2007 period.

Nationally, the poverty rate increased from 12.4 percent to 13.3 percent since the start of the decade.

-- The unemployment rate increased in 71 percent of the cities and towns. Muskegon, Mich., a city of about 40,000 near Lake Michigan, had the highest unemployment rate, at 22.1 percent.

Nationally, the unemployment rate increased from about 4 percent in 2000 to 6.6 percent in the 2005-2007 period.

-- Median home values increased in 92 percent of the cities and towns studied, doubling and tripling in many cities, mainly in California. Nationally, the median home value increased 26 percent, to $181,800.

It's not surprising that many communities were doing better in 2000 than they were mid-decade, said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

"The year 2000 was at the end of an incredible boom that lasted a decade," Hoyt said.

Incomes were up, unemployment was down and the dot-com bubble had not yet burst on Wall Street.

"We just didn't have enough years of expansion" this decade, he said.