Popular Economics Weekly
A very interesting report by the Philadelphia Fed is just out that surveys economic growth in all 50 states. And the report shows excellent growth continuing in most of the country as of September.
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for September 2015, indexes that measure near term growth. In the past month, the indexes increased in 41 states, decreased in six, and remained stable in three, for a one-month diffusion index of 70. Over the past three months, the indexes increased in 43 states, decreased in six, and remained stable in one, for a three-month diffusion index of 74.
This is firstly, a very good sign when 41 states show expanded growth. Secondly, the pink and red states are obviously coal or oil-driven economies, hence their downturn with the oil glut and falling energy prices in general may be temporary. Their economies were doing very well before energy prices declined, and in fact no states had negative growth as recently as December 2014, according to the Philadelphia Fed.
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. They are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
So the 10 fastest growing states (in dark green) that have grown more than 1 percent include California, Florida, South Carolina, and Maine. The worst performing states (red or pink) over the last 6 months are West Virginia (coal), North Dakota (oil), Alaska (oil), Wyoming, and Oklahoma (oil); obviously due to the drop in oil prices, as I’ve said.
California is an example of a fast growing state not dependent on the energy sector, due to Silicon Valley and its fast growing high tech industries. In fact, the California Legislative Analysts Office predicts something like a $10 billion budget surplus by the 2019-2020 fiscal year; maybe due to cheaper energy prices.
“As shown in the above graph, we project that operating surpluses will grow at a rate of between about $1 billion and $3 billion each year between 2014–15 and 2017–18, at which point we estimate that they will reach $9.6 billion under current laws and policies, says the LAO. “As the temporary taxes authorized by Proposition 30 phase out over several fiscal years near the end of our forecast period, we project that operating surpluses will remain stable as revenues and expenditures grow at similar rates. All this is premised upon our assumption of continuing economic growth through 2020.”
That is really the question, of course. Such projected growth means we remain in what I have called ‘goldilocks’ economic growth that is neither too hot (i.e. too much inflation), or too cold (too little inflation). And that will probably be up to Janet Yellen’s Fed, which is unwilling to raise interest rates this year, at least.
Harlan Green © 2015
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen