State By State Economy – Philadelphia Fed Index for Every U.S. State (thru October 2012)
A state by state economy analysis is provided by the Federal Reserve Bank of Philadelphia each month. How’s your state doing? I’d love to hear about it in the comments section.
NOTE: You may be reading an outdated analysis. Please visit my latest state by state economy analysis for more info.
On this site, I share a lot of indices that tell us how things are going in the country – for example, my weekly economic indicators roundup. But what each of you feels is much more related to what’s happening in your specific state. Wouldn’t it be great if there were an economic index we could follow that tracked exactly that? Fortunately, that’s what the Federal Reserve Bank of Philadelphia does on a monthly basis, providing us a look at the state by state economy.
They produce a “Coincident State Index” that combines several different economic factors into one number. This basically tracks the current rate of GDP (measure of all economic output) growth (or contraction if it’s negative) for the state. The other index is a “Leading State Index” that combines several different leading indicators to predict the annualized pace at which the Coincident State Index will be growing over the next six months.
Philadelphia Fed State Coincident Indexes
Look at the chart below to see how fast each state’s GDP is growing right now. It’s color-coded, so the green colors mean the state’s economy is growing (the darker the better), and the red colors mean the state’s economy is shrinking (the darker the worse). Blue indicates essentially no change.
Philadelphia Fed State Leading Indexes
Look at the chart below to see how fast each state’s Coincident Index is expected to grow over the next six months. This is actually an annualized growth rate over the next 6 months, not the actual growth itself. It’s color-coded, so blue is the best, and the green colors mean the state’s economy is expected to grow (the darker the better), and the red colors mean the state’s economy is expected to shrink (the darker the worse).
Coincident Indicator Overview
The current situation continues to improve in the latest report. Over the last month, the coincident index improved for 41 states, worsened for 4 states and stayed about the same in 5 states. We can calculate a “diffusion index,” which is a measure of how widespread the increases (or decreases) were. The highest diffusion index possible is 100, and the lowest is negative (-) 100. The latest one-month “diffusion index” came in at 74, slightly higher than last month’s one-month diffusion index of 68. In other words, the one-month positive change in current economic conditions was pretty widespread across the country in October. The 3-month diffusion index in October also increased to 66 from a reading of 52 in September’s report.
One way to determine whether something unusual is going on at a state by state economy level is to look at the 1-month percent change for every state and grade those changes “on a curve.” Basically, I’m looking for any state whose 1-month percent change falls outside of the middle 95 percent of the curve. (Geek note: This will be z-scores above 1.96 or below -1.96)
States With Extraordinary Gains in Coincident Index vs Previous Month: (best is at top of list)
- South Carolina
States With Extraordinary Drops in Coincident Index vs Previous Month: (worst is at top of list)
Leading Indicator Overview
For October, we see continued signs of strength in the leading index chart. The report suggests that 47 states are projected to have a higher coincident index in 6 months, with 3 states to be lower. This is barely lower than the report from last month, which predicted that only 1 state economy would shrink.
One way to determine whether something unusual is going on at a state by state economy level is to look at the 1-month change in the expected 6-month growth rate for every state and grade those changes “on a curve.” Basically, I’m looking for any state whose 1-month change falls outside of the middle 95 percent of the curve. (Geek note: This will be z-scores above 1.96 or below -1.96)
States With Extraordinary Gains in Leading Index vs Previous Month: (best is at top of list)
- West Virginia
States With Extraordinary Drops in Leading Index vs Previous Month: (worst is at top of list)
State Economic Performance Over 12 Months (May 2012 – April 2013)
One way to look for anything unusual that is going on overall at a state by state economy level is to look at the growth rate in the most recent 6-month period for every state’s coincident index and the current level of its leading index. In other words, how well did things go over the last six months, and how are things expected to go over the next six months? We can average the 6-month change of the coincident index with the leading index (which represents the expected growth rate in the upcoming 6 months). We can then grade the results on a curve and look for outliers. Basically, I’m looking for any state whose combination of changes in its economy over the last six months and the expected changes the next six months falls outside of the middle 95 percent of the curve. (Geek note: This will be z-scores above 1.96 or below -1.96)
States In the Middle of an Extraordinarily Strong 12-Month Period: (best is at top of list)
- South Carolina
States In the Middle of an Extraordinarily Weak 12-Month Period: (worst is at top of list)
- West Virginia
The list of states in the middle of a negative 12-month period shrank from last month. There are now 7 such states, of which only 1 is in the middle of a 1 percentage drop or more. Last month, there were 5 states with a negative 12-month period and 1 with a 1 percent drop or more. There are 3 states are in the middle of an above-historically-average rate of growth of 3.3 percent (versus 7 last month). Here’s a table for all 50 states showing the expected 12-month growth in their economies (past 6 months + expected upcoming 6 months):
|Rank||State||Expected 6 mo Growth Rate (%)||Growth Rate (%) Last 6 mo||12-Mo Avg (%)|
The overall picture of the state by state economy painted by these reports is an economy that is growing but below historically average rates.
Well over half of all states (39) showed growth over the last three months. The U.S. is almost universally expected to grow over the next 6 months. Specifically, 47 states are expected to do so (this was 49 last report). The leading index for the nation overall is indicating below average growth through April 2013. Most states (40) are in the midst of a 12-month period with below average but positive growth. South Carolina is in the best shape overall, while West Virginia and Delaware are probably struggling the most – West Virginia has actually had nice growth over the past six months, but it’s expected to shrink big time in the next six months.
There is only 1 state (South Carolina) with an above historically average annualized rate of growth for both the previous six months and the projected next six months (2 states met those criteria last month). There is only 1 state with a negative rate of growth over the last six months and projected next six months (last month there was also 1). Looking at the one-month changes, no states had unusual changes in both the previous and expected upcoming six-month period.
The one caveat I’ll mention is that these state-level leading indexes use “interest rate spreads” as part of the calculations. That is, they look at the difference between the interest rate that longer-term US Treasuries are paying versus very short-term ones. Because the Federal Reserve has intervened and lowered interest rates to essentially zero, using this kind of analysis as part of the equation can yield overly optimistic results.