New England has been replaced by the south central states, specifically Texas and Oklahoma, as the fastest growing region in the US economy. Economic growth is also above average in the Plains state and on the Pacific coast in California and Washington. This based on the April indexes of state economic activity from the Philadelphia Federal Reserve Bank.

Regional growth differences are largely due to differences in the position of each state in the business cycle. The state by state cyclical differences depend on the mix of industries in each state. Currently the rapid growth industries are farming field crops, energy supplies, high tech and machinery export manufacturing, biotechnology and healthcare, mutual funds and intellectual capital industries, such as software and consulting. The slow growth industries are housing and construction supplies, low tech manufacturing, consumer services, real estate and related financial activities and consumer leisure, vacation and retirement related industries.

Spending in the south central states along the Gulf coast 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. Economic growth in Massachusetts, Connecticut and New Hampshire remains well above the national average of a 1.0% annual pace but Rhode Island’s low tech manufacturing economy has given it the deepest economic decline of any state from February to April. Oklahoma is now the fastest growing state (4.4%) from oil, gas and farm products and relatively little damage from housing collapse.

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Ranking States by Recent Economic Performance — June 2008

Michigan remains depressed but economic activity is now expanding temporarily because of large cash payments to “buy out” employees in the motor vehicle industry. Rhode Island now has the weakest economy. Nevada and Idaho in the Rocky Mountain region have declining economic activity due to the depth of the collapse in their housing markets and a slowdown in tourist visits to Nevada. Economic activity is declining in Pennsylvania, Missouri, Louisiana and Delaware due to layoffs in their manufacturing industries. Florida’s economic activity continues to decline because migration to Florida is no longer large enough to offset the collapse of the housing market.

New York State currently enjoys well above average growth but has the highest risk for slowing growth over the next year as Wall Street bonuses shrink and financial industry back office employee are laid off.