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The national economic activity index gained 0.2% in October after having been stuck at the same level for five months. The summer economic slowdown is over with growth now more broadly based than the manufacturing dominated growth earlier in the year. The index is up only 0.5% (annual rate) in the last quarter. This is far below the GDP growth rate (through September) because the index does not account for the inventory investment that caused the GDP growth.

Annualized economic growth in the last three months is currently well below the national average in the South Atlantic (0.6%), Pacific (0.5%), Plains (0.5%) and especially the Rocky Mountain (-0.2%) regions. Growth is near the national average in the Great Lakes (1.5%) and Mid Atlantic (1.9%) regions. Economic growth is above the national average in the South Central (Gulf) (2.6%) region and far above the national average in the New England (5.8%) region.

State Economic Activity Index Annual Growth Rate – last 3 months (sea. adj. ann. rate) New England 5.8 Plains 0.6 South Central 2.6 Pacific 0.6 Mid Atlantic 1.9 South Atlantic 0.5 Great Lakes 1.5 Rocky Mountain -0.2 Source: Philadelphia Federal Reserve Bank

The significant regional changes as the economy emerges from the summer economic slowdown are the return to recession in the Rocky Mountains and the extremely high growth pace in New England. The Mountain States are being battered by low commodity volume and prices during the spring and summer and a rising wave of residential foreclosures. Both are temporary. Commodity prices have recently strengthened and the foreclosure surge will ebb in 2011. New England has the right economic mix for the late 2010 economy. This includes a small construction sector, a modest size manufacturing sector and outsize technology, education and healthcare sectors.

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 most of the 3rd quarter GDP gain was due to inventory restocking. This data is not available at the state level.

Index Decline from Recent Peak Mid Atlantic -3.5 Pacific -6.3 South Central -3.7 South Atlantic -8.7 New England -3.9 Great Lakes -10.4 Plains -5.2 Rocky Mountain -11.2 Source: Philadelphia Federal Reserve Bank

Ten states experienced lower economic activity in the last three months through October than in the previous three months. This is a consequence of the summer economic slowdown. Most of these states will be expanding again by yearend. New Hampshire and Massachusetts are by far the fastest expanding states. Rhode Island and Maine are also among the top five states. West Virginia, Alaska and Nevada, all commodity dependent states are at the bottom of the list. Growth has picked up significantly in Texas to a 3.5% annual pace. All of the manufacturing dependent states have slipped from the top to the bottom of the state growth rate list in the last few months following the summer stall in manufacturing growth.

Economic activity indexes remain below the 2007-08 peak level in every state. The gap is 2% or less in, North Dakota, Massachusetts, Minnesota, New Hampshire and New York. The gap is 10% or more in sixteen states, including over 25% in Michigan and Nevada.

California and Illinois, the states with the most severe state budget problems can not blame their problems on the economy. Both are broadly in the average range both for their current economic growth rate and the severity of the recent recession.

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