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Manufacturing Boosts Economic Growth in Great Lakes Region

06/06/2011 by Jim Haughey, RCD Chief Economist

All regions had an improvement in their economic activity index in the three months through April. The largest gain was in the still depressed Great Lakes region driven by a surge in both auto and machinery production. The annual growth pace in the last three months jumped to 10.0% in Ohio, 8.3% in Michigan and 6.4% in Indiana. The economic activity index rose to 6.9% in South Carolina which now has a significant share of the auto industry (BMW) but Kentucky (Toyota) had only 4.0% growth in the last three months.

Auto production will weaken in the spring due both to consumers turning more cautious in the face of soaring gasoline price and increasing general inflation and to production cutbacks forced by shortages of Japanese auto parts. The impact will be much bigger in the Southeastern than in the Great Lakes states.

State Economic Activity Index
Annual Growth Rate – last 3 months
(sea. adj. ann. rate)
Great Lakes 6.8 Midwest 4.3
New England 5.4 Northeast 4.3
Pacific 4.8 South 3.9
South Central 4.1 West 3.9
Mid Atlantic 3.9
South Atlantic 3.7
Plains 3.3
Rocky Mountain 3.2
Source: Philadelphia Federal Reserve Bank

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 because much of the 4th quarter GDP gain was due to exports. This data is not available immediately at the state level.

Overall, economic growth in the first quarter was above the US average in the Great Lakes, Pacific and New England regions, near average in the Atlantic and Gulf coast states and below average in the Rocky Mountain and Plains states.

Economic growth remains under a 2% annual pace in nine states, with only Kansas (-1.3%) declining. Except for New Jersey and Georgia, all are commodity dependent states where receipts sagged recently after surging higher in 2010. This negative impact should be brief.

Almost all states will be cutting spending on July 1st when the new fiscal year begins and some will also raise taxes. Thousands of municipal governments will also be trimming spending. The negative impacts of these cutbacks will be noticeable in states that experience the largest cuts. This includes New York, Illinois, California and Florida, Wisconsin, Ohio and Texas and New Jersey.

Index Decline from Recent Peak
New England -1.6 Northeast -1.8
Mid Atlantic -1.9 South -5.4
South Central -2.1 Midwest -5.6
Pacific -4.6 West -7.0
Plains -4.9
Great Lakes -6.0
South Atlantic -8.5
Rocky Mountain -11.4
Source: Philadelphia Federal Reserve Bank

Other high growth states — over 6% — in the last three months are Oregon, (electronics rebound), North Dakota, Pennsylvania and Oklahoma (natural gas production expansion) and Vermont, New Hampshire, Rhode Island and Massachusetts (manufacturing and business services expansion).

Among other larger states, Illinois, California and North Carolina are growing slightly faster than the US average while Washington, Virginia, Arizona, New York and New Jersey are expanding slower than the US average.

Massachusetts, North Dakota and Alaska recorded record high economic activity indexes in April. North Dakota surpassed it pre-recession high economic activity index fifteen months ago and Alaska seven months ago. Economic activity rose above the pre-recession high in Massachusetts only in March. Economic activity in all other states remains below the pre-recession high level. Vermont and New York and possibly New Hampshire and Texas should reach record high economic activity indexes in the spring. The shortfall from the pre-recession level is 10% or more in eight states, including over 20% in Michigan and Nevada.

Arizona, Florida, Idaho, Michigan and Nevada, the five most depressed states all have very large problems with home foreclosures and falling home prices and each experienced significant outmigration during the long recession.

2011 regional economic growth trends will be dominated by differences in industry growth rates. The high growth industries through the end of 2011 will be manufacturing, energy production and business and professional services. Within this group, the fastest growth will be in motor vehicles, off road vehicles, electronics, industrial equipment, natural gas development and consulting services. Finance, construction, healthcare and education will achieve relatively slow growth. The government sector may decline.

Recent Economic Performance by State

Click here to view the chart
Ranking States by Recent Economic Performance – April 2011


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