Hawaii is the lone state with faster economic growth in the last three months (through May) than in the previous year. Economic growth is now slowing in every continental state. Only the Gulf and New England regions are still expanding.

Among the ten fastest growing state economies are five oil & gas states, three states highly specialized to business services, and technology and two corn states.

The states experiencing the most severe shrinking in economic activity are manufacturing states. The bottom of the list also includes Louisiana, suffering from an interruption of FEMA funds for hurricane rebuilding and Nevada now beset with a significant decline in domestic tourism. Leisure spending is very income sensitive so layoffs in California and much higher plane fares have hurt Las Vegas.

Texas, Wyoming and Oklahoma remain the fastest growing states in the US economy. Oil prices have pushed these states to the top of the list but each of them also had strong economic growth before the oil price surge from farming and mining as well as immigration and new manufacturing facilities in Texas. Rhode Island and Michigan are suffering the deepest recessions. Michigan’s problem continues to be the demise of the motor vehicle assembly and parts industry due to stubbornly high production costs that also keep the state from attracting replacement jobs. Michigan’s ordeal is far from over. Rhode Island has a very large share of the country’s jewelry and recreational marine industries. Both have been severely weakened by the subpar national economy because of the high sensitivity of these consumer products to income. Boat sales have also softened by the doubling of fuel costs. This is based on the May indexes of state economic activity from the Philadelphia Federal Reserve Bank.

Click here to view the chart
Ranking States by Recent Economic Performance — July 2008

Drought in the Northern Rocky Mountain states is keeping farmers from the record high farm incomes being earned elsewhere in the country. 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. Florida is clearly suffering from the collapse of its once huge residential construction market but the economic woes in Florida are only partly due to national mortgage market conditions. Migration to Florida has slowed after the active hurricane season three years ago and the resulting doubling of already high property insurance premiums. Another hurricane free year will reduce the concern about retiring to Florida.

The data does not yet include the June floods in Illinois, Iowa and Missouri. The huge loss of crop sales income will push these states much further down the list in the next few months.