Regional growth trends have changed significantly as the US economy moved into the recession zone early in 2008. New England has been replaced by the south central states, specifically Texas and Oklahoma as the fastest growing region in the US economy. This based on the March 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. Economic growth in Massachusetts and New Hampshire remains well above the national average of a 1.0% annual pace.

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Ranking States by Recent Economic Performance — May 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.

Wyoming continues to have the fastest economic growth (4.6%) from oil, gas and farm products. Most of the other rapidly growing states have the same drivers. New York is an exception. Credit strong growth early to 2008 to big bonuses on Wall Street based on 2007 earnings.

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.