North Dakota is the only state with an expanding economy in the three months end in May. Credit this to minimal exposure to the troubled finance, real estate, auto, manufacturing and construction markets and a boost from the expanding natural gas industry. The other states will continue declining into the summer with the decline lasting into the winter in the weakest states.

Cutbacks in its heavy manufacturing and coal industries have dropped West Virginia to the bottom of the list. Obama’s proposed carbon tax has also depressed confidence and hence spending in West Virginia and other coal dependent states.

The economic growth index is now declining more slowly in California, Arizona and Florida where price cuts have boosted home sales and stabilized housing starts. These states are now declining at less than half of the pace of the most troubled manufacturing states and the Pacific Northwest.

The state economic growth indexes are calculated by the Philadelphia Federal Reserve Bank from state employment and income data and are benchmarked to approximately track national GDP growth.

The economic growth indexes will give a better reading that jobs data of how the recessions ends and turns to recovery region by region. In the industrial Midwest the job gain in manufacturing in the next few months will overestimate the strength of the regional economy. A lot of workers will be coming back at a lower wage or higher health insurance employee contribution. In the Northeast the recession continues to deepen even though job losses suggest a much milder recession. A relatively large share of professional workers in this region remain employed but have taken sharp income cuts through reduced bonuses, capital gains, profit sharing or commissions. The economic growth index has declined about as much in New York State as it has in the hardest hit manufacturing, housing or forest product dominated states.

Income in the huge California economy is holding up better than in most states. The 7.4% decline in economic growth in California in the last three months is less than Illinois (-9.8%), Maryland (-7.9%) or South Carolina (-9.7%). Nonetheless, public construction is at risk from California’s huge budgeted spending cutbacks from many years of overspending.

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Ranking States by Recent Economic Performance – May 2009