U.S. Economic Improvement more Broadly-based than Generally Supposed

One particularly useful font of information for state-level economic activity in the U.S. is the Federal Reserve Bank of Philadelphia, also known as the “Philly Fed”.

The Philly Fed calculates a “coincident index” for each state derived from four data series readily available from the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA): (1) nonfarm payroll employment; (2) average hours worked in manufacturing; (3) the unemployment rate; and (4) wage and salary disbursements deflated by the U.S. city-average consumer price index.

The period-to-period performance of the coincident index broadly captures and is often used as a “proxy” (i.e., substitute) for gross domestic product (GDP) growth.

Furthermore, the Philly Fed takes the analysis one step further. For each state, it also calculates a “leading index” which is a six-month projection of the coincident index.

The predictive model employs not only the history of the coincident index, but other measures such as state-level housing permits (1 to 4 units); state initial unemployment insurance claims; delivery times from the Institute for Supply Management (ISM) manufacturing survey; and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.

A ranking of states (fastest to slowest growth rates) is presented in accompanying Tables 1 (the coincident index) and 2 (the leading index).

To make the tables easier to read, there are two special groupings. First, the four states with the greatest population counts have been placed in text boxes. Residents of California, Texas, New York and Florida combined comprise one-third of the nation’s total. This can be expressed in a more attention-grabbing manner. One in three Americans lives in one of those four jurisdictions.

Second, the ten states that account for close to 90% of U.S. oil production appear with shading.

Texas and California are in both camps.

With respect to the four high-population states, Texas does well in both the coincident index table (an 8th-place ranking) and the leading index table (9th spot).

California (16) and Florida (19) perform respectably in the coincident index table, but stay flat (CA) or improve only slightly (FL) in the leading index table.

New York, which is in position 28 in the coincident index table, moves up considerably in the leading index table, into a tie with California and Florida.

There is one criticism of the current U.S. economic advance that is often encountered ‒ that it is too narrowly-based and almost entirely centered in states with “energy booms” underway.

(This is an argument familiar to Canadians. Over the past several years, the strongest GDP growth rates have often been recorded in the two provinces with abundant energy reserves, Alberta and Newfoundland and Labrador.)

Focusing on the energy “Top 10”, they may provide slightly better relative performances than the other states in the coincident index table. After all, North Dakota – the epicenter of shale gas and tight oil activity, thanks to its Bakken field – leads all states with a 6.2% year-over-year increase.

A speeding-up of growth rates in states other than oil-producers is apparent in Table 2.

North Dakota slips to the middle of the pack and fifth among oil producers, falling behind Texas (9), Colorado (10), Utah (14) and California (16).

Some of the frontrunners in the leading index series have won their positions due to anticipated improvements from a low base (e.g., Rhode Island has a high unemployment rate and any relief will see it shoot up the chart).

The Philly Fed’s two series can also make a contribution to social commentary. Coverage of ongoing clashes between protesters and the police in Ferguson, Missouri (a suburb of St. Louis), in the aftermath of the shooting death of another black teenager, has been dominating cyberspace.

Racial tension lies at the heart of the matter. But is there an economic sidebar? It’s interesting to note that Missouri ranks 31st with respect to its coincident index, not the worst among all states, but well short of “best”.

In the leading indicator series, it improves only slightly to 28th spot.

State Growth Rates over Past 12 Months				State Growth Rates over Next Six Months
Rank	State	% Change		Rank	State	% Change
1	North Dakota, ND	6.2%		1	Kentucky, KY	3.7%
2	Massachusetts, MA	5.8%		2	Idaho, ID	3.5%
3	Maine, ME	5.4%		3	Rhode Island, RI	3.5%
4	Oregon, OR	5.1%		4	Maine, ME	2.9%
5	Rhode Island, RI	5.1%		5	Massachusetts, MA	2.9%
6	South Carolina, SC	5.0%		6	Washington, WA	2.8%
7	Indiana, IN	4.8%		7	Wisconsin, WI	2.7%
8	Texas, TX	4.7%		8	Connecticut, CT	2.4%
9	Colorado, CO	4.5%		9	Texas, TX	2.4%
10	Pennsylvania, PA	4.4%		10	Colorado, CO	2.3%
11	Delaware, DE	4.3%		11	Indiana, IN	2.3%
12	Michigan, MI	4.3%		12	Illinois, IL	2.1%
13	Nevada, NV	4.3%		13	Nebraska, NE	2.1%
14	Ohio, OH	3.9%		14	Utah, UT	2.1%
15	Washington, WA	3.9%		15	Pennsylvania, PA	2.0%
16	California, CA	3.7%		16	California, CA	1.9%
17	Wisconsin, WI	3.7%		17	Florida, FL	1.9%
18	Idaho, ID	3.6%		18	New York, NY	1.9%
19	Florida, FL	3.6%		19	New Hampshire, NH	1.8%
20	New Hampshire, NH	3.6%		20	New Jersey, NJ	1.8%
21	Utah, UT	3.6%		21	Ohio, OH	1.8%
22	North Carolina, NC	3.5%		22	Montana, MT	1.7%
23	Tennessee, TN	3.5%		23	North Carolina, NC	1.7%
24	Arkansas, AR	3.1%		24	Arkansas, AR	1.6%
25	Connecticut, CT	3.1%		25	Nevada, NV	1.6%
26	Georgia, GA	3.1%		26	North Dakota, ND	1.6%
27	Illinois, IL	2.9%		27	West Virginia, WV	1.6%
28	New York, NY	2.9%		28	Missouri, MO	1.5%
29	Kentucky, KY	2.8%		29	Oregon, OR	1.5%
30	Minnesota, MN	2.8%		30	Minnesota, MN	1.4%
31	Missouri, MO	2.7%		31	South Carolina, SC	1.4%
32	Montana, MT	2.7%		32	Iowa, IA	1.2%
33	Oklahoma, OK	2.6%		33	Mississippi, MS	1.2%
34	West Virginia, WV	2.6%		34	Oklahoma, OK	1.2%
35	Iowa, IA	2.5%		35	New Mexico, NM	1.0%
36	New Jersey, NJ	2.5%		36	Georgia, GA	1.0%
37	Nebraska, NE	2.4%		37	Alabama, AL	0.9%
38	Maryland, MD	2.3%		38	Arizona, AZ	0.8%
39	Mississippi, MS	2.1%		39	Maryland, MD	0.8%
40	Arizona, AZ	1.8%		40	Michigan, MI	0.8%
41	Louisiana, LA	1.7%		41	South Dakota, SD	0.8%
42	Kansas, KS	1.6%		42	Tennessee, TN	0.5%
43	South Dakota, SD	1.4%		43	Louisiana, LA	0.5%
44	Vermont, VT	1.2%		44	Delaware, DE	0.4%
45	Wyoming, WY	1.2%		45	Kansas, KS	0.3%
46	Hawaii, HI	1.0%		46	Hawaii, HI	0.0%
47	Alabama, AL	0.6%		47	Wyoming, WY	-0.1%
48	Virginia, VA	0.4%		48	Virginia, VA	-0.2%
49	New Mexico, NM	0.3%		49	Vermont, VT	-1.0%
50	Alaska, AK	-1.9%		50	Alaska, AK	-2.8%
	U.S. Total	3.2%			U.S. Total	1.9%

The 4 states inside text boxes are the most populous.
The states with blue shading are the "Top 10" oil producers.

Data source: Philadelphia Federal Reserve, "Coincident Indexes" and "Leading Indexes" series.
Table: Reed Construction Data

Source: Reed Construction Data