Like Iowa’s, New Hampshire’s economy among the nation’s strongest

By Zachary Roth and Daniel Gross

With the Republican presidential nominating fight moving from the frigid chill of the Midwest to the, uh, frigid chill of Northeast, the struggling economy remains a major theme. Which is ironic, given that the first two contests take place in states that, while hardly booming, are doing far better than the country as a whole.

In Iowa, the unemployment rate of 5.7 percent is nearly 3 percentage points below the national level. In New Hampshire, the picture is brighter still: At 5.2 percent, the state's jobless rate is the fourth lowest in the country, and the lowest of any state outside of the Great Plains. The national rate hasn't been that low since March 2008--fully six months before the financial crisis struck.

As the country's attention turns to the Granite State in advance of Tuesday's primary, New Hampshire stands out for its ability to avoid the worst of the Great Recession and its aftermath. Still, as is the case everywhere, unemployment in late 2011 was significantly higher than it was in late 2007. And two years into the fitful national recovery, there's evidence that the state's growth is flagging.

"We feel the same kind of lethargy in the economy that other places do," Dennis Delay, an economist at the New Hampshire Center for Public Policy Studies, a Concord-based think tank, said in an interview. "Maybe not as severely, but we certainly do feel it."

Iowa's economic health is easily explained. The Hawkeye State's economy relies disproportionately on the agriculture industry, which has been booming thanks to rampant growth outside U.S. borders. Candidates may hammer on heartland, all-American values, but the value of Iowa's farm land and farm products are driven by non-American forces. As tens of millions of people throughout the world join the consuming class and eat better, they are pushing up demand, and prices, for grain, corn, and pork. Exporting directly, or producing commodities that are sold into global markets--coal, oil, timber, grains--has been one surefire way to prosper and avoid high unemployment in the post-bust economy. Another is to produce the sort of heavy, expensive machines that are also in demand globally:gas turbines, airplanes, farm equipment. Iowa does both.

But New Hampshire does neither. There's a third way, though. Cities and regions that have been tethered to historically recession-proof industries like health care, education and technology--instead of boom-bust industries like real estate, finance, and gambling--and that enjoy favorable demographics have also done well in recent years. And just as Iowa enjoys some natural advantages in its fertile farmland, New Hampshire has benefited from its own historic resources.

A small state, New Hampshire nonetheless has an outsize higher-education sector, with 26 colleges or universities, led by the University of New Hampshire in Durham (14,600 students), and Dartmouth College in Hanover (6,300 students). Only eight states have a higher percentage of residents with a college degree than New Hampshire, which means the state's workforce is comparatively well-prepared for 21st century jobs.

That has proved a boon to the state's technology sector. Dynamic Network Services, or "Dyn," a Manchester-based internet infrastructure company, which specializes in domain name systems and email delivery, exemplifies the trend. Dyn has increased its staff count by a third to a half each year since 2007, its chief executive, Jeremy Hitchcock, told Yahoo. It currently employs around 110 people, and is advertising for nine more positions.

Hitchcock--who, along with a partner, founded Dyn as a college student in 1998--sees no slowdown ahead. "Our numbers for next year are significantly higher than this year," he said. "We're going to keep adding people and keep adding customers."

Hitchcock thinks New Hampshire's tech boom has played a role in the state's relative success as the rest of the nation struggles. "There is a good amount of technology that's going on in the state that's kept us relatively insulated from higher unemployment rates," he said.

Like Iowa, New Hampshire was spared the harshest effects of the housing bust, because it didn't have a major boom in the first place. That's in part because the state learned from history, according to Delay, of the New Hampshire Center for Public Policy Studies. In the late '80s and early '90s, the state lost about 10 percent of its jobs after New England was hit with a severe regional recession-- driven in part by an over-expansion of the real-estate sector. As a result, lenders were more conservative in the last decade. "We didn't do the kind of outlandish Las Vegas, Florida, Southern California-type building, because the community banks were a lot more cautious," Delay said.

Subprime lenders didn't make much headway in New Hampshire in part because the state boasts one of the highest median household incomes in the nation; at $60,567 it is about 20 percent higher than the U.S. median. As Delay explained, that's not because New Hampshire has a huge number of very wealthy people, like California or New York, but rather because it has very few poor ones. In 2009, just 5.5 percent of New Hampshire's families were living below the poverty line as defined by the Census Bureau, the lowest rate of any of the 50 states.

The low poverty rate allows New Hampshire to get by with fewer services, and lower taxes, than its northeast neighbors. The state has no income or sales tax, though it does have some of the highest property taxes in the country.

That leads to another advantage New Hampshire enjoys. Low- or no-tax states that are adjacent to highly-populated, higher-tax states tend to reap benefits. New Hampshire cultivates a flinty self-reliance--"Live Free or Die" is its motto--and defines itself in opposition to its more liberal neighbors. Vermont has a socialist senator and universal health care, while Massachusetts has long been a bastion of liberal politics and higher taxes.

Yet New Hampshire's southeastern corner, where much of the population resides in cities like Manchester, Nashua, Concord, and Portsmouth, is in some ways an extension of the greater Boston area. Over the last decade, a host of affluent young professionals from flourishing metropolitan Boston--only about 30 miles from New Hampshire's southern border--has flocked to New Hampshire, attracted by the lower cost of living and the improved quality of life. Dyn, the Manchester-based tech company, was founded in a dorm room at Worcester Polytechnic Institute, in Massachusetts. The state recently got its first Trader Joe's--that ultimate marker of bourgeois-bohemian culture-- in Nashua after a branch of the upscale grocery chain relocated from about 10 miles down the road, in Tyngsborough, Mass.

The state's tourism economy benefits when wealthy Massachusetts residents buy vacation homes on its lakes and in its woods. Presidential candidate Mitt Romney paid $3 milion in 1997 for a vacation home on Lake Winnipesaukee. The home is now valued at $10 million.

New Hampshire may be doing better than most other states--between November 2010 and November 2011, it added 9,300 jobs, from 625,800 to 635,100--but there's still cause for concern. Though low by national standards, the state's unemployment rate is about two percentage points higher than it was in late 2007. Housing bust or no, the number of construction jobs has slipped by 29 percent in the past four years, and the number of manufacturing jobs has fallen by 13 percent. Forty-one percent of the state's unemployed have been out of work for 6 months or more.

"A 5 percent unemployment rate may seem great in other parts of the country, but we're used to seeing unemployment at about 3.5 percent in a normal functioning economy," Delay said.

The state's recovery actually looks to be proceeding even slower than that of the country as a whole. According to Commerce Department numbers, New Hampshire's economy grew at a rate of just 1.3 percent in 2010, the last year for which figures are available--half the rate of the national economy. Since May, New Hampshire's jobless rate has risen by almost half a percentage point, even as the national rate has dropped.

The quality of the state's jobs also looks to be waning. Of the 9,200 jobs New Hampshire added between November 2010 and 2011, 3,900, or 42 percent, were in restaurants and bars--jobs which tend to be low-paying and unstable.

Demographics, too, could pose a challenge. Since 2008, New Hampshire's population has essentially been flat, as young people abandon the state, and the existing population ages. Between 2000 and 2010, the number of Granite Staters 65 and over jumped by 20 percent, while the number below 18 dropped by more than 8 percent.

And businesses confidence is hardly booming, surveys suggest. "Everyone's taking a very cautious approach," Matthew Mowry, the editor of Business New Hampshire magazine, told Yahoo. "You're seeing a lot of temporary-to-permanent hires going on."

New Hampshire clearly relishes its role in national politics--it is the first primary state, and Dixville Notch, a tiny hamlet in the state's rustic far north, kicks off the ritual of presidential voting every four years. And the spending by politicians and the media who follow them plainly provides a form of stimulus to the state's restaurants, hotels, and radio and television stations. Still, some locals say they believe politics is also inhibiting growth. Like virtually every other state, New Hampshire has been grappling with persistent state budget deficits, adding to the sense of caution in the business sector.

As Mowry put it: "With the uncertainty in Washington and in Concord, they're not quite sure what the politicians are going to do."

Zachary Roth is a senior national affairs reporter for Yahoo News. Follow him on Twitter @zackroth.

Daniel Gross is economics editor and columnist for Yahoo Finance. Follow him on Twitter @grossdm.

Other popular Yahoo! News stories:

Want more of our best political stories? Visit The Ticket or connect with us on Facebook, follow us on Twitter, or add us on Tumblr.

Handy with a camera? Join our Election 2012 Flickr group to submit your photos of the campaign in action.