Posted on March - 26 - 2011

Economic Growth Pace Now Positive in All Regions

The national economic activity index jumped sharply in January at an annual pace of over 20% driven by the 2% cut in payroll taxes, a huge jump in consumer confidence and nearly 200,000 new jobs. The annual growth pace was about 11% in the last three months. Every region is now recovering over the last three months although four of the weaker states (AL, CO, MT, and NM) experienced a slight dip in their index in January.

The significant changes this month are the quickening of economic growth in the Midwest, Gulf and the Pacific regions and a decline in the growth pace in New England and the South Atlantic regions.

The Great Lakes states, led by Michigan, are now the fastest growing part of the country. This is due to substantial worker recalls in the motor vehicle and other durable goods industries. Economic growth is also above the national average in the Pacific, Gulf and New England states.

The South Atlantic states are growing at only a 0.4% annual pace. This is the slowest of any region and is well below the population growth rate so per capita nominal income is falling. The restraint in this region is a combination of very large cuts in public spending, continued declines in home prices and relatively small healthcare and durable manufacturing industries. Growth is also below the national average in the Plains, Mid-Atlantic and Rocky Mountain regions. Growth has turned positive in the Mountain states for the first time in many months.

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. State growth rates are currently below the national growth rate because much of the 4th quarter GDP gain was due to exports. This data is not available immediately at the state level.

The fastest growth states in the last three months are Michigan (7.6%), North Dakota (7.1%), Vermont (5.3%) and Oregon (5.1%). Oregon is being lifted from a very deep recession by soaring technology production and high farm prices. Ten states did not grow in the last three months compared to the previous three months. Durable goods manufacturing is not a large share of the economy in these states.

Among other larger states, Illinois (4.1), Ohio (3.5%), Pennsylvania (3.4%) and Texas (3.4%) are expanding faster than the rest of the country while Missouri (0.0%), North Carolina (0.2%), New Jersey (0.8%) and Virginia (0.9%) are expanding slower that the rest of the country. The sluggish growth in Virginia reflects the abrupt end to expansion in federal employment.

Economic activity indexes remain below the 2007-08 peak level in every state, except North Dakota and Alaska. The gap is only 1.2% in Massachusetts, 2.0% in New York and 2.2% in Texas. Each of these states had relatively mild housing recessions. The gap is 10% or more in eleven, including over 20% in Michigan and Nevada. After many years, Michigan is no longer the most depressed state.

Regional economic growth trends in 2011 will be dominated, as always, by differences in industry growth rates. Rapid manufacturing growth will boost economic growth in the Midwest, New England and California. High energy prices will add to growth in the oil, gas and coal states. Production expansion will be a major growth contributor in the shale gas regions on the northern Appalachian and Rocky Mountain regions. The weak government sector will restrain economic growth in state capitols and major federal government employment centers. Pending cutbacks in the defense budget will impact late 2011 growth and could be very significant in 2012.

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