Only North Dakota and Mississippi have an expanding economy in the three months ending in July. Both states were impacted very lightly by the housing and latter the manufacturing recessions. North Dakota is getting a boost from an expanding energy sector. Mississippi is getting boost from much delayed Katrina construction funds. It would be an error to believe that either state is leading the way out of the recession. Both states simply avoided most of the recession.

New England again has the strongest regional economy due to the relatively small share of housing and manufacturing in the regional economy and the relatively large share for biotechnology and healthcare. The near shutdown of the auto industry in the late spring and early summer returned the Great Lakes region to the bottom of the list with nearly a 10% annual pace of decline. However factory callbacks in the auto industry and the July resumption of growth in manufacturing industries will cut the region’s pace of decline very quickly in the next few months.

The weakest state economies are in West Virginia (-24.2% annual growth rate in the last three months, Michigan (-20.3%), Nevada (-17.1%) and Oregon (-14.1%). The problem is coal volume and prices in West Virginia. A slow recovery in coal jobs is still 4-6 months away. Oregon continues to suffer from depressed lumber prices and volumes. The initial housing recovery has ended the freefall in the lumber market; more forest product jobs are expected in the next few months. Nevada was the state hit worst by the housing recession and now among the states hit worst by the decline in commercial building construction. The huge gambling industry is extremely income sensitive and hence has been cut back more than other hospitality industries.

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.

Income in the huge California economy is holding up better than in most states. The 4.9% decline in economic growth in California in the last three months is less than Illinois (-9.5%) or Pennsylvania (-12.5%). Nonetheless, public construction is at risk from California’s huge budgeted spending cutbacks from many years of overspending. Illinois and Maryland also have cut back public spending sharply because of very low budget reserves. Among the larger states, the relatively strongest economies are in Virginia (-1.0%), North Carolina (-2.8%), Massachusetts (-3.5%), New Jersey (-3.6%) and Texas (-4.1%).

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Ranking States by Recent Economic Performance – July 2009