Moody's compares Lynchburg and Roanoke (2010, insurance, mortgage)

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The L Nov 2008 report
Recent Performance. The Lynchburg economy was still growing at a fast pace up until August of this year, but was then stopped in its tracks as the U.S. recession set in. Employment has fallen slightly from August to October and the unemployment rate, while still at a low 4.5%, has also risen in the past two quarters. Despite this bad news, LYN remains relatively well-off; it has suffered little by the way of a housing correction and almost no decline in mortgage debt performance.
Better income. LYN will be less affected income-wise in the current U.S. recession. Because its employment numbers have not yet headed south and will most likely fall by less if they do, and because a larger portion of its population consists of retirees who have shifted their portfolios to safer assets, real income has increased for LYN in all three quarters this year. By contrast, real income for the U.S. fell in the first and third quarters and stayed level in the second. Forecasts for the coming quarters, though not as optimistic, still have LYN outperforming the U.S. and Virginia. Unfortunately, longer-term problems will prevent LYN from maintaining this good performance.
Nuclear energy. Given the importance of AREVA and B&W as the metro area's main high-technology growth drivers and employers, the future of nuclear energy is of continuing importance to the metro area. The good news is that the prospects for nuclear energy refuse to die. Though not the most recent, a 2003 MIT report has maintained the consensus that nuclear energy is still a viable alternative to fossil fuels.
However, this report also stressed several problems that can only be addressed with substantial effort and investment, namely the reduction of reactor and fuel processor risk and the needed increase in suitable waste disposal facilities. Nuclear energy thus remains an industry whose viability is hindered by massive sunk costs that only extensive government support can hope to overcome. Without such support, AREVA and B&W will continue to have their markets limited to the U.S. Navy and to existing reactor maintenance.
Housing and retirement. Because of its lower cost of living compared with neighboring Virginia cities, LYN has gained a reputation as a potential retirement haven, a reputation that may influence its future development. LYN's housing affordability will remain good and LYN has avoided the collapse of mortgage debt performance evident elsewhere in the U.S. Over the next decade, the metro area will continue to attract in-migrants, but not to the same extent as it has in recent years. The credit crunch and sharp fall in equity values as well as the bursting of the housing bubble elsewhere have eaten into the wealth of many households close to retiring. This negative wealth effect will force many households to delay retirement and to stay put.

Roanoke:
Recent Performance. The Roanoke economy remains in recession. The private sector has not added jobs in about two years and real personal income growth is estimated to have turned negative during the third quarter. Labor markets have slackened as the metro area’s unemployment rate has risen from 3% at the end of last year to 4.4% in October. House prices are still holding up but building activity has plummeted, with permit issuance falling to its lowest level since the early 1980s.
Uncertainty. Although the baseline forecast calls for a less severe recession in ROA compared with 2001, risks are very much weighted to the downside given the mix of employers. First, the metro area has several manufacturers of housing-related products, including windows and furniture. This industry will continue to contract until the national housing market turns around. Second, ROA has exposure to the auto manufacturing industry, which is being hurt by the credit crisis and economic downturn. Though local manufacturers supply mainly foreign automakers, even these companies are struggling to sell new vehicles in the current climate. Third, its exposure to the transportation/distribution industry could mean layoffs in the near term. DHL’s restructuring already has led to layoffs in the area. Finally, the insurance industry is coming under significant pressure and one locally headquartered firm has entered into merger talks, which could translate into significant job losses in the metro area.
Health risks. Traditionally a buffer during economic downturns, the healthcare industry is facing stress as consumers lose their jobs and cut back on non-urgent care. Small job cuts already have taken place at one of the metro area’s largest hospitals. ROA has managed to transform itself into a regional healthcare hub over the past decade. While the industry may suffer from reduced demand during the current recession, over the longer run it will stabilize the economy as it continues to shed old-line manufacturing positions.
Comparative recessions. If the baseline forecast for ROA holds, the metro area will see fewer lost jobs over the next year than in either of the previous two recessions, which were characterized by severe job losses in the manufacturing industry. The forecast for a peak-to-trough loss of 3,000 jobs through the end of next year could be optimistic, however, in light of the recent acceleration in job loss at the national level as well as the more severe downturn in the manufacturing industry just over the past couple months. ROA’s unemployment rate already is about as high as the peak rate during the previous recession and is expected to top out just shy of 6% by early 2010. This would be lower than the peak during the recession of the early 1990s. Should the credit crisis continue well into next year, ROA’s manufacturers could very well see layoffs on the order of previous recessions.

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