NEWSROOM

By Jim Haughey, Reed Construction Data

Economic activity expanded in forty-six states in the three months through June which is persistent enough to assure that a sustained recovery is underway. The economic activity index also increased in forty-six state in June from May. The recession is still lingering in Alaska, Montana, Colorado and Nevada which all experienced no growth in the last three months and had a steady or declining economic activity index in June. These are the same four states that also lagged the rest of the economy in the last four months.

The rise in the state economic activity indexes is consistent with national data for jobs, consumer spending and factory production which have all improved since the beginning of the year. The expansion weakened in June based on early reports for jobs and consumer spending, specifically over 140,000 people laid off from temporary 2010 Census work. This may drop a few states back into recession conditions during the summer.

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 below the national growth rate. Most of the 1st quarter gain in GDP and a large share of expected GDP growth in the second quarter were due to reduced inventory absorption. This data is not available at the state level.

Economic activity indexes remain below the 2007-08 peak level in every state except North Dakota. The gap is 2% or less in Alaska, New York, Massachusetts and New Hampshire.. The commodities boom made the recession late and mild in Alaska. New York weathered the financial collapse much better than expected and suffered a relatively small construction decline. Long and expensive permitting practices caused New York to enter the recession with relatively small space surpluses and construction trade unions made major wage concessions to keep projects underway and about to start profitable for developers. Massachusetts and New Hampshire had mild recessions cushioned by their intellectual capital industries and relatively small housing markets. Both states have gotten a recovery boost from their high tech manufacturing industries.

Eleven states have current economic activity indexes of 10% or more below the recent peak level. This is two fewer states than a month ago. The 28% shortfall in Michigan mostly reflects the collapse of the auto industry which began well before the recent recession. Michigan is now expanding at a 9% pace, Ohio 8% and Indiana 6%, more than twice as fast as the rest of the country. The manufacturing boom for exports and machinery that drives this is now subsiding but will remain positive. Manufacturing dependent states will expand very strongly well into next year. But it will take longer than that for the huge space surpluses that built in the last decade to be absorbed so that additional general use space is needed.

The manufacturing boom has pushed the industrial Great Lakes states past New England as the strongest regional economy after many years at the bottom of the list.

In New England, the large technology and professional services sectors are leading the recovery from a relatively mild recession. Metro Boston is the strongest part of the regional economy with Rhode Island and Maine, which have not attracted today’s high growth industries, the weakest part. The boom continues in production and hiring in the very cyclical durable goods industries in the Midwest. . Economic growth remains sluggish in Illinois. The constraints in Illinois are weak coal and corn prices, a large dependence on slow growing non-durables manufacturing plants and one of the most serious state budget deficits in the country.

The Mid-Atlantic, Plains and Gulf regions are all growing at about the national average. Growth is above average now in New York, Texas and Minnesota. Texas continues to attract immigrants although its energy industry has weakened. Minnesota has a favorable mix of the durable goods manufacturing that is boosting the Great Lakes states and the farm products that are supporting income growth in the Dakotas.

California is getting a boost from the rapid recovery in technology industries which export most of their production but the huge state budget deficit has become a serious restraint on recovery.

The Pacific and Rocky Mountain States are the weakest part of the national economy. This region is now further behind its previous peak activity level than the Great Lakes Region. But unlike in the Great Lakes Regions, the Rocky Mountain Region has barely positive current economic growth with several states still in decline. This region was the hardest hit by the housing collapse. The large coal industry has experienced a substantial drop in volume as well as much weaker prices. The very income sensitive tourist industry has an abrupt decline and only now beginning to recover. Although impossible to document, the recession forced many immigrant workers to leave the region and reduced the in flow of new immigrant workers.

Click here to view the chart
Ranking States by Recent Economic Performance – June 2010