State By State Economy – Philadelphia Fed Index for Every U.S. State (thru June 2013)
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NOTE: You may be reading an outdated analysis.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 not actually an annualized growth rate over the next 6 months, which means you should roughly double it to estimate what it’s annual growth rate would be. 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 in the latest report for June 2013 shows that most of the country improved over the last month. Over the last month, the coincident index improved for 29 states, worsened for 7 states and stayed about the same in 14 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 44, a slight drop from last month’s one-month diffusion index of 50. In other words, the one-month positive change in current economic conditions was less widespread across the country this time around. The 3-month diffusion index remained fairly high at 72, but it was slightly down from a reading of 76 in last month’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)
- New Hampshire
States With Extraordinary Drops in Coincident Index vs Previous Month: (worst is at top of list)
Leading Indicator Overview
For June 2013, we see mostly signs of strength in the leading index chart. The report suggests that 38 states are projected to have a higher coincident index in 6 months, with 12 states to be lower. This is less impressive than the report from last month, which predicted that 9 state economies 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)
States With Extraordinary Drops in Leading Index vs Previous Month: (worst is at top of list)
- West Virginia
State Economic Performance Over 12 Months (December 2012 – November 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)
- New Hampshire
States In the Middle of an Extraordinarily Weak 12-Month Period: (worst is at top of list)
The list of states in the middle of a negative 12-month period is low again this month, but slightly more than last month. There are now 6 such states (Alaska, Kentucky, Michigan, Nevada, Oklahoma, Vermont), and only 1 of those (Alaska) is in the middle of a 1 percentage drop or more.
There are 5 states in the middle of an above-historically-average rate of growth of 3.3 percent. Here’s a table for all 50 states showing the expected 12-month growth in their economies (past 6 months + expected upcoming 6 months):
(NOTE: I have now confirmed with the Philadelphia Fed that the leading indexes are not actually the growth rate of the state coincident index over the next 6 months, but rather the actual percentage growth. Thus, the magnitude of the change in the next 6 months is about twice as much as what the index suggests, which throws off my analyses in the past. I will make sure it’s correct from here on. Sorry for any inconvenience, but I was going off what they say on their own website – that it’s a growth rate – but that simply doesn’t make sense since the leading index never goes above 2 basically, which would imply only a 2 percent growth rate – and we’ve had many times since the early 80’s when we should have expected a much higher growth rate.)
|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. It’s in the middle of a 12-month period of about 2.73 percent growth.
Nearly all states (42) showed growth over the last three months. The U.S. is mostly expected to grow over the next 6 months. Specifically, 38 states are expected to do so (this was 41 last report). The leading index for the nation overall is indicating slightly below average growth through December 2013. Most states (39) are in the midst of a 12-month period with below average but positive growth. New Hampshire is in the best shape overall, while Alaska is clearly struggling the most. Last month’s leader, West Virginia, was bumped down to #8 in June.
There is only ONE state (New Hampshire) with an above-historically-average annualized rate of growth for both the previous six months and the projected next six months – there were 7 such states last month. There is only ONE state (Alaska) with a negative rate of growth over both the last six months and projected next six months – there were 2 such states last month. Looking at the one-month changes, Michigan was the only state that had unusual changes in both the previous and expected upcoming six-month period in the same direction – negative.
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.