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June Economic Growth Slows in Most Regions

08/02/2011 by Jim Haughey, RCD Chief Economist

Economic growth slowed sharply in June in every part of the country except the plains and pacific regions as national economic growth slowed in response to two months of sluggish job growth. A spurt of inflation, factory layoffs due to parts shortages from Japan and declines in consumer and business confidence also contributed to the growth slowdown. Preliminary reports on late June and early July spending suggest that the growth slowdown has now not worsened recently and has probably at least partly reversed.

The spring growth slowdown has had the most negative impact in the Great Lakes and South Atlantic regions. Parts shortages forced short work weeks in durable goods factories in the Great Lakes. The national slump in spending boosted goods inventories and forced production cuts in nondurable manufacturing industries which are a relatively large share of the economy in the South Atlantic.

State Economic Activity Index
Annual Growth Rate – last 3 months
(sea. adj. ann. rate)
New England 3.9 West 2.4
South Central 3.8 South 2.6
Mid Atlantic 3.0 Midwest 2.6
Plains 2.7 Northeast 3.3
Great Lakes 2.6
Rocky Mountain 2.4
Pacific 2.3
South Atlantic 1.5
Source: Philadelphia Federal Reserve Bank

The spring economic growth slowdown had the least negative impact in New England and the Gulf states. Both regions expanded at a 7% plus annual pace from March to June. Higher oil prices boosted incomer and jobs in Texas and Louisiana. The strength in New England was the regions relatively large intellectual capital industries which are heavily export oriented and also insulated from temporary layoffs during brief periods of sluggish economic growth.

New England remains the fastest growing region (over then last three months) followed closely by the Gulf region. . Led by Massachusetts and New Hampshire, the New England economy is being boosted by the regions’ high concentration of high tech and intellectual property industries.

Other high growth states in the last three months include North Dakota, New Mexico and Oklahoma. Credit this surge to higher energy prices. Five states failed to expand in the spring quarter. This includes Alaska and Maine (-1.3% annual growth rates), as well as Alabama, Mississippi and Arkansas. The three low income southern states were hit relatively hard by public spending cutbacks at all levels of government as well as short work weeks in durable goods manufacturing and brief shutdowns in Japanese auto plants.

Nevada (+0.1% annual growth in last quarter and Hawaii (+0.3% annual growth in the last quarter) are both at risk of slipping back into recession this summer. Both states were hit with a slowdown in tourism growth in a sluggish economy. Hawaii also was hit with an abrupt drop is exports to Japan which includes a falloff in Japanese tourists coming to Hawaii. Nevada’s distressed housing market continues to be the main constraint on growth. Each spurt of foreclosed homes hitting the resale market adds to the states woes.

Index Decline from Recent Peak
South Central -1.3 Northeast -2.0
Mid Atlantic -1.7 South -5.0
New England -2.7 Midwest -6.8
Plains -5.1 West -8.0
Pacific -5.2
Great Lakes -7.9
South Atlantic -9.1
Rocky Mountain -13.3
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.

Almost all states cut spending on July 1st when the new fiscal year began and some also raise taxes. Thousands of municipal governments are also trimming spending. The negative impact of these cutbacks began before July 1st and is noticeable in states that experience the largest cuts. This includes New York, Illinois, California and Florida, Wisconsin, Virginia, Maryland and New Jersey.

Among other larger states, Pennsylvania, Ohio and Texas are growing slightly faster than the US average while Georgia, Washington, North Carolina and again Michigan are expanding slower than the US average.

Only North Dakota, Massachusetts and New York have recovered to the pre-recession level. Alaska reached this level earlier this year but has slipped back. Texas will likely recover to the pre-recession level this summer.

Nevada, Michigan, Idaho, Arizona and Florida are the five most depressed states with their economic activity indexes more than 15% below the pre-recession level. The recovery will be long and slow. Each of these states has a relatively large foreclosure problem that may still be worsening and has experienced 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

Ranking States by Recent Economic Performance – June 2011
Index Change Last three months
(annualized – June)
  % Change in Economic Activity Index – From 2007-08 Peak Index Value
Top 25 Bottom 25   Top 25 Bottom 25
ND 10.3 MT 1.9   MA 0.0 OH -7.2
OK 7.9 DE 1.8   NY 0.0 CO -7.4
NM 7.1 LA 1.8   ND 0.0 IL -7.6
MA 6.4 SC 1.7   AK -0.5 UT -7.7
OR 5.9 IA 1.7   TX -0.6 NM -8.1
WY 5.6 IN 1.6   NH -1.6 WA -8.2
PA 4.8 CT 1.6   MN -2.3 OR -8.3
OH 4.5 WA 1.5   SD -2.4 NC -8.8
RI 4.3 NC 1.5   IA -2.5 WV -8.9
NH 4.2 AZ 1.3   WY -2.8 KS -9.0
NE 4.1 MD 1.2   PA -2.8 GA -9.2
TX 4.0 VA 1.1   NE -3.0 MD -9.7
WV 3.8 VT 1.0   VT -3.0 MT -10.3
WI 3.6 NJ 1.0   LA -3.1 RI -10.5
UT 3.5 SD 1.0   CT -3.7 HI -11.4
KY 3.2 MI 0.8   WI -4.0 DE -11.5
NY 3.0 GA 0.8   OK -4.1 SC -11.9
MN 2.5 TN 0.7   CA -4.1 AL -12.6
FL 2.4 HI 0.3   VA -4.5 MO -12.8
CO 2.3 NV 0.1   MS -4.6 ME -14.4
MO 2.2 MS 0.0   NJ -5.2 FL -15.2
ID 2.1 AR -0.6   AR -5.4 AZ -15.9
CA 2.1 AL -0.9   KY -5.5 ID -18.6
KS 2.1 AK -1.3   TN -5.7 MI -29.1*
IL 2.0 ME -1.3   IN -7.1 NV -34.4
*cyclical low before 2008-09
Table: Reed Construction Data and Reed Construction Data – CanaData

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