The Federal Reserve Bank of Philadelphia regional economic activity indexes advanced in 30 states in September from August, according to Bernard M. Markstein, Reed Construction Data's U.S. chief economist. On a three-month moving average basis, 33 states showed improvement. Thirteen states declined in September, with the only notable concentration being in the South Atlantic division where activity for five of the eight states declined (Delaware, Georgia, North Carolina, Virginia, and West Virginia). Also included in this division is Maryland whose index was unchanged from August. This was the only division posting a decline, falling 0.9%.
The West North Central division had the greatest monthly advance among the nine divisions with a 3.5% increase at an annual rate and was one of only two divisions (along with the West South Central) in which no state posted a decline in activity (South Dakota was flat). The division includes North Dakota, whose economic activity index increased 7.1%, the largest increase in the nation. The state has benefited from a boom in energy that has spurred job creation and an inflow of workers to a state with a relatively small population and labor force. The Mountain division had the second best monthly performance, advancing 3.0%, with only one state — New Mexico — showing reduced activity. Economic activity in New England rose 2.5% placing it third place among the divisions. It also had only one state, New Hampshire, posting a decline.
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, said Markstein. Region and division growth rates are calculated by Reed Construction Data economics from the state indexes.
Based on a three-month moving average, Massachusetts turned in the strongest performance, advancing 5.3% at an annual rate. Other high growth states include Louisiana (4.7%), Wyoming (4.3%), and Maine (4.0%). Seventeen states had declining economic activity based on their three-month moving average. The states suffering the worst declines were Indiana (-2.1%), North Carolina (-2.4%), Pennsylvania (-3.3%), and Michigan (-4.2%) mainly due to a slowdown in manufacturing. Nevada, which continues to suffer from its damaged housing market, fell 2.0%.
U.S. economic growth has shown steady, though hardly spectacular, improvement throughout the year. The first estimate of third quarter real (inflation-adjusted) Gross Domestic Product (GDP) growth was 2.5% at a seasonally adjusted annual rate, the best quarterly growth rate in a year. Real GDP also slightly exceeded its previous peak in first quarter 2008. The major risk to continued advancement is developments in Europe. A mild recession in Europe will be a drag on the U.S. economy, hurting exports, which would particularly harm Midwestern manufacturing states such as Michigan and Indiana. A deeper recession in Europe could tip the U.S. back into a recession through the impact on exports and European debt held by U.S. banks.
The indexes for four states (North Dakota, Massachusetts, New York, and Texas) have exceeded their 2007-08 peak. Alaska and Minnesota are the states most likely to surpass their 2007-08 peak next. Nevada, Michigan, Idaho, Florida and Arizona are the five most depressed states with their economic activity indexes more than 12% below their most recent peak. The recovery will be long and slow for these states. Each of these states has a relatively large foreclosure problem that may still be worsening and has experienced outmigration during the deep recession and subsequent subpar recovery.
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