Economic Indicators Erratic and Uneven Growth among U.S. States
by guest contributor Bradford Langs
Now in its seventh year, the U.S. economic recovery (which began in July 2009) has been deemed modest at best. Both gross domestic product (GDP) and job growth remain erratic and uneven overall – particularly among states. Regarding GDP, the quarterly rate has been bouncing around in the -1.5% to +4.6% range. 2Q15 results at 2.3% were about average for this recovery, while 1Q15 was revised upward to +0.6%.
During the second quarter of 2015, some additional weak economic data has emerged, as both wage growth and consumer confidence fell. Unemployment rates do remain low in the 5.3% range, but that is partly due to an increase in workers leaving the labor force.
Throughout this period of modest economic recovery, the Fed has kept interest rates at historically low levels. However, at their more recent meetings, the Fed changed its language to signal a higher likelihood of increased rates this year. Most recently, they stated it “will be appropriate to raise the target rates… when they have seen some further improvement in the labor market”. So keep a close eye on the upcoming jobs reports. Note: the market has currently pegged a greater than 50% probability for a 25 basis point interest rate hike in September 2015 and a greater than 70% chance in December 2015.
So the national economy is modestly improving, but this is certainly not your typical economic recovery. Having said that, there are certainly regional and state pockets within the country that are performing just fine. In this study, select housing (building permits, mortgage delinquencies and mortgage foreclosures) and employment (jobs and unemployment rates) data are examined to determine trends. Housing and employment data were selected as they are generally considered leading or coincident economic indicators. The analysis compares current levels of these 5 indicators for all 50 states today vs. a year ago. As this information is tracked over time, it can provide a rather good indicator of how individual state economies are either improving or declining. The study is not intended to determine which are the best or worst performing economies, but rather what direction the economies are heading. It is interesting to look at national, regional, state, and even county trends.
1Q2015 STATE RANKINGS
Top 10 / Bottom 10
- New Mexico
- West Virginia
- South Dakota
On the national level, all five indicators showed a positive trend. Either 4 or 5 indicators have been positive since 3Q2011. The magnitude of improvement has slowed somewhat, indicating the recovery is ongoing but modest. For 1Q15 vs. 1Q14, national results follow:
- Employment increased 0.4%
- Unemployment fell 17.9%
- Mortgage delinquencies declined 10.5%
- Mortgage foreclosures decreased 13.0%
- Building permits improved 8.9%
Improving trends are visible in the Pacific (Washington, California, Oregon, and Hawaii) and Mountain (Nevada, Montana, Colorado, and Idaho) regions.
Softer trends are present in the Middle Atlantic (Pennsylvania, New York and New Jersey), South Atlantic (Virginia, West Virginia, Georgia), and Southeast Central (Alabama and Kentucky).
On the state level, areas that were particularly hard hit during the recession appear to be on the mend, including Nevada, Florida and Michigan.
Several states have been exhibiting very strong growth for the past several years, including Arizona, California, Colorado, Idaho, Minnesota, Montana, North Dakota, Texas and Utah.
States that have been struggling for the past several years include Alabama, New Mexico, Pennsylvania, and Vermont.
Uneven Recovery Continues
The U.S. economy continues to exhibit mixed trends, although the overall bias is towards positive growth. The recovery is uneven, with pockets of strength and weakness existing in different geographic regions and different states. Not surprisingly, states that generally perform well have diversified economies which include industries such as government, healthcare, military and technology. During this recovery, some more cyclical industries such as auto and airlines have been helping generate jobs. Therefore, it is important to look at trends over several quarters to get a clearer picture of change.
Bradford Langs, CFA, is the Chief Risk Officer at CoastalStates Bank in Hilton Head Island, South Carolina. He has over 25 years of experience in portfolio, credit and risk management from Wall Street to Main Street. He has compiled the quarterly Economic Indicators Report, based on two data sets on the employment side (employment and unemployment) and three data sets related to housing (building permits, mortgage delinquencies and foreclosures) for over 20 years.
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The U.S. economy continues to exhibit mixed trends, although the overall bias is towards positive growth. The recovery is uneven, with pockets of strength and weakness existing in different geographic regions and various states. Not surprisingly, states that generally perform well have diversified economies which include industries such as government, healthcare, military and technology.
CA, NV, WA