The 20 Strongest Cities in America Have One Thing in Common

They're not in California.

Or Florida. Or Arizona, or Nevada or anywhere in the Western Time Zone. Instead, the twenty highest performing metro areas in the country are concentrated in the Texas and the Great Plains, according to the newest Metro Monitor from the Brookings Institution. Here's the map. The bluer the dot, the stronger the city's housing prices, employment and economic production. The redder the dot, the weaker the city.

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To tease out some lessons, I spoke with Brookings fellow Howard Wial about the new report. The least surprising thing he said was that the overall story is the same: bubble cities are still hurting, and state capitals are still treading water. The most surprising thing he said was about the unevenness of the housing bubble. Here's an edited transcript:

What's the most important thing we learn in this report?

Housing is not overpriced in most large metro areas, if it ever was. You look at the bubbles in California and Florida and in the northeast, and you think the housing bust is shared nationwide. But in the middle of the country, housing prices grew in line with employment, wages and interest rates. That's one big reason why the Midwest is doing relatively well.

Does this report change the overall story of our recovery?

The overall story is pretty much the same. We still have a long road back in Southern California and Florida, where housing was a huge part of the economy before the recession started. The places that are suffering mostly had an enormous share of jobs that depended directly and indirectly on homes: not only real estate, but construction, and furniture, and custom retail, and manufacturing for those home furnishings.

What's something the strongest cities share?

Government has been a bedrock. State capitals and military metro areas are still doing well. But I don't know if that will continue with the huge and growing budget problems that most state governments are having. State capitals may not continue to be immune from layoffs.

Economists say we need an export boom to bring in new cash because everybody is still paying off their debt and sitting on their profits. What's the story today in manufacturing?

Manufacturing has been a bright spot in the last few months for three reasons. First, manufacturing tends to lead metro areas into recessions and into recoveries. Second, you have inventory replenishment. Businesses need to replace old equipment and somebody has to build it. Third, there's been enormous economic growth in China, India, and South America, and that may have created opportunities for manufacturers to grow.

As you scan the country, do you see the origin of some industries that might power our economy for the next generation?

You can't assume that industries that powered the US economy will come back. But it would be wrong to assume that industries holding up the economy today are going to be the next engines of growth. Health care and education are going to grow. But they react to demographic trends rather than leading to a new cycle. Manufacturing could be an engine of growth. But our exchange rate relative to China and Southeast Asian hurts our ability to be resurgent with exports. Another opportunity is in renewable energy. But that depends on federal and state policy to stimulate that area.