Welcome to the third phase of America's uncertain upswing. First the recovery was jobless. Second it was spiky. Where will the next phase take us -- and what cities are ready to lead?

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The United States was a different country at the end of 2009. The Great Recession was over. The worker's recession had never been worse. The national unemployment rate stood at 10 percent. We hadn't had a month of positive job creation in more than a year. Practically the only sectors adding workers were government, education and health care (a.k.a.: the feds/eds/meds) all of which were supported by the stimulus. Manufacturing had bottomed out.

Fast-forward two years. The worker's recovery is stronger than ever. The national unemployment rate has fallen by two points. There have been 23 consecutive months of job creation (ignoring the Census). Practically every sector is adding jobs, except for government, which is wilting under congressional pressure to limit aid to the states. Manufacturing, for its part, has added 400,000 jobs in two years.

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The recovery following the Great Recession has really been two recoveries -- and there is about to be a third. In the first phase, government stimulus supported stability in state capitals and health care hubs. Cities that avoided the rise in home prices also avoided the crash. In the second recovery, total government shrunk by nearly 300,000 jobs nationwide, and the private sector picked up the pace, led by both well-paying and poorly-paying service sector jobs. Cities with strong manufacturing and knowledge bases have thrived while the feds/eds/meds metros have slipped.


For an insider comparison of the past and present of the recovery, compare San Antonio and San Jose. In 2009, San Antonio seemed like America's most recession-proof city, and it had the most resilient housing prices and median incomes in the country. But in December 2011, it was one of the 20 worst-performing metros as total employment hit a post-recession low. San Jose, by comparison, was one of the 40 weakest metros in the country by the end of 2009. Today it's the high-tech heart of the country, among the leaders in both job gains and overall economic growth.

From MetroMonitor -- a Brookings barometer of the fastest-recovering cities by growth, employment and housing prices -- here's a look at the strongest (BLUE) and weakest (RED) cities in December 2009 and then in December 2011. Watch as the blue dots move from the Great Plains and state capitals toward knowledge capitals in the West, manufacturing strongholds in the Great Lakes region, and natural resource hubs throughout the country. Today, the top 20 are led by newly resurgent metros: Grand Rapids, Boise City, Nashville, New Orleans, Phoenix, Portland, San Jose, and Toledo. All of the hold-overs from 2009 are either in Texas or Oklahoma: Austin, Dallas, Houston, and Oklahoma City. Rounding out the 20 fastest-recovering metros are: Bakersfield, Ca., Cape Coral, Fl., Charleston, Ogden, Ut., Worcester, Ma., and Youngstown.*


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What's the third phase of the recovery? It's a million-dollar question for which I have no good answers, only assumptions. Here are three:

Assumption (1): The City Makes a Comeback. After two decades of suburban and exurban expansion, we're in the middle of a re-urbanization revolution that you can see in the Brookings graph below. For most of the 2000s, we spread apart. In the last three years, we came together in cities and dense suburbs. The three fastest growing cities by population between 2007 and 2010 were Austin and Raleigh and Provo, Utah (home to Brigham Young University): high-productivity knowledge bases with lower cost of living than, say, New York or Los Angeles, and large research universities. That's good news for fans of the creative class.

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Assumption (2): The San Antonio Model Weathers the Storm. Not every American will become an engineer. Not every barber can have millionaires for clients. Not every city can be San Francisco. Two years ago, I visited San Antonio, a classic feds/eds/meds metro, and I deemed it the tortoise of the U.S. economy: Slow, steady, and winning the race. That was in 2010. This is 2012, and government cuts have taken their toll. Still, I think this is a durable model. Local and state tax revenue will bounce back with the economy and stanch the bleeding in public sector employment. Health care employment will continue to grow. Plenty of cities that don't have high-tech scenes will still lean on feds/meds/eds and grow at a slow and steady pace.

Assumption (3): The Mining/Manufacturing Boomlet Is For Real. Manufacturing has added close to 400,000 jobs in the last 24 months, and a good deal of the action is in autos/machinery/metal products. Meanwhile mining is the number-one fastest growing industry in the economy, and our supply of cheap natural gas should encourage a revival in the M&M sectors, especially around the Great Lakes and the northwest. With 80 percent of the country employed in services, I'm not optimistic that manufacturing can recapture its mid-twentieth-century glory, but it doesn't have to. As long the M&M bounce continues, employment growth will ricochet through the service-sector in cities revitalized by capital and labor investments in factories and offices.


*There are always questions about the makeup of the Brookings MetroMonitor list, so let me anticipate one. This is NOT an effort to measure the most economically important cities in the country. Instead, it is a guide to the cities that have recovered the most since the trough of the recession in the three categories of growth, jobs, and housing prices. I've consistently found it an instructive guide for the state of the metropolitan recovery.

But one place where I might quibble with the results is the inclusion of Dayton, Youngstown, and Detroit in the top 20. All three cities have, no doubt, made considerable strides in the last two years thanks the manufacturing rebound. But they've also suffered population losses since 2007. That more people are interested in leaving Detroit than moving to Detroit does not suggest nation-leading dynamism; furthermore, the shrinking labor force has the result of making its unemployment recovery look better than it is. Same goes for parts of Ohio and Youngstown.


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