The national economic activity index remained marginally below the May peak level for the third month. This was not a surprise given the expectation for a summer stall in economic growth, confirmed by most other economic reports. The growth stall is the consequence of the ebbing of all the federal pump priming programs. Overall, for all of the stimulus programs, month to month incremental spending growth is declining, says Reed Construction Data chief economist Jim Haughey.
The national economic activity index remained marginally below the May peak level for the third month. This was not a surprise given the expectation for a summer stall in economic growth, confirmed by most other economic reports. The growth stall is the consequence of the ebbing of all the federal pump priming programs. Overall, for all of the stimulus programs, month to month incremental spending growth is declining.
The growth rates are the state economic growth indexes calculated by the Philadelphia Federal Reserve Bank from state employment and income data which are benchmarked to approximately track national GDP growth. State growth rates are currently below the national growth rate. Most of the 3rd quarter gain expected in GDP will be due to inventory restocking. This data is not available at the state level.
The recession is still lingering only in Alaska, Montana and Nevada. Weak energy sales and prices are prolonging the recession in Alaska and Montana. Economic activity in Nevada is being restrained by the country’s worse housing recession and by the depressed level of national income and confidence which is delaying recovery in Nevada’s dominant hospitality industry. There is no long term problem in any of these states. Both energy and hospitality are extremely cyclical industries. While delayed, recovery will be rapid in these states.
Economic activity indexes remain below the 2007-08 peak level in every state except North Dakota. The gap is 3% or less in, New York, Minnesota, South Dakota, Massachusetts, New Hampshire, Alaska, Louisiana and Texas. The three Northeastern states had mild recessions because of their large share of today’s high growth industries, including finance, healthcare and technology. The Plains states missed most of the recession because of their small housing and manufacturing sectors and large farm sectors. The Gulf coast states enjoyed strong energy sectors well into 2009 and are still getting a boost from Hurricane rebuilding.
Fourteen states have current economic activity indexes of 10% or more below the recent peak level. This is five states more than a month ago due to the summer economic growth slowdown. The 29% shortfall in Michigan mostly reflects the collapse of the auto industry which began well before the recent recession. Michigan is now expanding at a 7% pace over the last three months. the 23% drop in the Nevada Economic Activity Index all occurred in the last two years.
|State Economic Activity Index
Annual Growth Rate – last 3 months
|Source: Philadelphia Federal Reserve Bank
The manufacturing boom has pushed the industrial Great Lakes states near New England as the strongest regional economy after many years at the bottom of the list. Lead by Michigan, all of the Great Lakes states are expanding faster than the rest of the economy.
The manufacturing boom for exports and machinery that drives this is now subsiding but will remain positive. Manufacturing production stalled in June but bounced back in July and rose slightly in August. Manufacturing dependent states will expand very strongly well into next year. But it will take longer than that for the huge space surpluses that built in the last decade to be absorbed so that additional general use space is needed.
New England’s large technology and professional services sectors are leading the recovery from a relatively mild recession. Metro Boston is the strongest part of the regional economy with Rhode Island and Maine, which have not attracted today’s high growth industries, the weakest part.
The South Atlantic, Plains and Gulf regions are all growing at about the national average. Growth is above average now in Florida, Texas and Minnesota. Texas continues to attract immigrants although its energy industry has weakened. Minnesota has a favorable mix of the durable goods manufacturing that is boosting the Great Lakes states and the farm products that are supporting income growth in the Dakotas.
The Rocky Mountain and Pacific states are the weakest part of the national economy. This region is now further behind its previous peak activity level than the Great Lakes Region. But unlike in the Great Lakes Regions, the Rocky Mountain Region has barely positive current economic growth with several states still in decline. This region was the hardest hit by the housing collapse. The large coal industry has experienced a substantial drop in volume as well as much weaker prices. The very income sensitive tourist industry has an abrupt decline and only now beginning to recover. Although impossible to document, the recession forced many immigrant workers to leave the region and reduced the inflow of new immigrant workers. California is getting a boost from the rapid recovery in technology industries which export most of their production but the huge state budget deficit has become a serious restraint on recovery.
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Ranking States by Recent Economic Performance – August 2010