New England has been replaced by the south central states along the gulf from Mississippi to Texas and the tier of states to the north as the fastest growing region in the US economy based on the January indexes of state economic activity from the Philadelphia Federal Reserve Bank. Spending in these states is being boosted by the strong oil & gas industry, hurricane rebuilding and net foreign immigration in Texas. The New England states had relatively little negative impact from the collapse of the housing market but now are being restrained by the resulting weakness in financial markets and in manufacturing.

Click here to view the chart A Ranking of States by Recent Economic Performance

Economic activity declined 1.2% in the last three months in Michigan and also fell 0.5% in Alaksa, Delaware and Rhode Island. Economic activity grew marginally in Arizona, Indiana, Nevada and Pennsylvania which may also have been in recession in January.

Ten states grew faster than the long-tem national growth rates in the three months ending in January. Wyoming led the list with 5.0% growth from oil, gas and farm products. Hurricane rebuilding boosted growth to 4.2% in Louisiana. Eight states expanded in the 3.0-3.5% range: Texas, North Dakota, Kentucky, Utah, Oklahoma, Massachusetts, New Hampshire and North Carolina. Only Texas and North Carolina had relatively large losses from the housing collapse but this was offset by workers and businesses moving to these states from more expensive states.

For the rest of 2008, the large share of financial and intellectual property industries will become increasing negative for growth in the Northeast. The weakening manufacturing sector will progressively depress economic activity in the Midwest for most of the year. By contrast, states with a heavy dependence on farming, energy and mineral industries will continue to get a growth boost well into 2008.