Only the Dakotas and Vermont have an expanding economy in the three months ending in September. These small states were impacted very lightly by the housing, mortgage and manufacturing recessions. They are not leading the country out of recession. They simply avoided most of the recession.

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

Nevada (hospitality), Michigan (autos), Delaware (manufacturing) and West Virginia (coal) are suffering the deepest recessions. Michigan and Delaware will emerge first from the recession driven by their manufacturing sectors. But the coal and hospitality industries will recover very late.

The strongest economy is now in the Plains states, followed closely by the South Atlantic and New England regions. The Plains states were hit hard by the manufacturing recession which is now ending quickly but avoided most the impact from the housing and mortgage industry recessions. They also enjoyed the strongest farm income in many decades in 2008.

The most significant change in trend in the last few months has been the decline of economic growth in the Rocky Mountain Region and the improvement in relative economic growth in the Pacific region. These trends are expected to persist well into 2010. Arizona and Nevada had very weak economies for more than a year because of their large housing and hospitality markets and their high incidence of subprime mortgages. Now growth has slowed abruptly in the rest of the region. The slowdown is the result of lower prices and volumes for natural gas, wheat and minerals. These are all very volatile markets with prices set internationally. Volume trends have stopped worsening. A recovery in price trends is hard to predict but should occur by winter as international commodity price cycles are typically shorter than business cycles.

A similar abrupt improvement — actually slower worsening — occurred on the Pacific Coast, especially in Oregon and Washington. These two states have shown by far the most improvement compared to a year of all fifty states. The key turnaround factors were the significant improvement in the forest products, aerospace, technology and Asian trade industries. These are very cyclical industries which all collapsed in the recession. The same factors have been important in California, although less so. The economic decline in California has moved from above average to about average over the past year. Do not confuse the bankruptcy of California’s state budget with the health of the state economy.

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Ranking States by Recent Economic Performance – Sept 2009