Most would agree that this is not your typical U.S. economic recovery. The myriad of data tracked continues to provide mixed signals.
Gross Domestic Product (GDP), for example, has been on a roller coaster ride, with a sharp dip in 1Q and a nice uptick in 2Q. The forecast for the next several quarters is somewhere in the 2-3% range. The good news: Job creation is up, unemployment rates are down, inflation is in check, housing affordability is excellent, and the housing market continues its rebound. The flip side: GDP growth is lackluster, the labor participation rate is falling and mortgage origination volume is significantly down (due to soft consumer confidence, stricter underwriting guidelines, delay in first-time home ownership, and the lingering inability of some homeowners to sell properties that are underwater). It is therefore sometimes difficult to discern what is really happening with respect to the economy given all the different variables.
Housing and employment statistics… are generally considered leading or coincident economic indicators.
The Economic Indicators Report, an analysis that I launched over 20 years ago, is designed to get a better handle on economic trends by monitoring them over time. The report examines select housing (building permits, mortgage delinquencies and mortgage foreclosures) and employment (jobs and unemployment rates) data which, together, provide great insight into national, state and regional economic trends.
Housing and employment statistics were selected as key data points because they are generally considered leading or coincident economic indicators. The analysis compares current levels of these five indicators for all 50 states today versus one year ago. Tracked over time, this information 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 the direction in which the economies are heading. It provides an insightful view of national, regional, state, and even county trends.
Second quarter 2014 findings reveal that:
- The national economy is improving, albeit at a modest pace.
- All five indicators were positive for the second consecutive quarter, vs. four positive indicators in the previous two quarters.
- On a regional basis:
- The Mountain, Midwest and Pacific regions are demonstrating the best trends.
- The Central States region and New England are in the middle of the pack.
- The Southeast Central, Middle Atlantic and South Atlantic are lagging behind the others.
- On the state level:
- The top 10 improving economies include Utah, Colorado, Idaho, North Dakota, Minnesota, Montana, Indiana, Texas, New Hampshire and Illinois.
- The bottom 10 trending economies include New Mexico, Alabama, West Virginia, Vermont, DC, Mississippi, Kentucky, Kansas, Nebraska, and Maryland.
2Q2014 STATE RANKINGS – Top 10 / Bottom 10
4. North Dakota
7. Indiana (tie)
9. New Hampshire
44. Kansas (tie)
47. District of Columbia
49. West Virginia
51. New Mexico
On the national level, all five indicators showed a positive trend in the second quarter of 2014. Either four or five indicators have been positive since 2Q2011. The magnitude of improvement has slowed somewhat, indicating the recovery is ongoing but modest.
Comparing 2Q14 versus 2Q13:
- Employment increased 1.1%
- Unemployment fell 15.1%
- Mortgage delinquencies declined 11.8%
- Mortgage foreclosures decreased 23.2%
- Building permits improved 4.4%
Over the past three years, either four or five indicators showed positive movement. The turning point occurred in the 2Q11, when more than half of the indicators began to trend positive.
Improving trends are visible in the Midwest (Minnesota, Indiana, Illinois, Wisconsin,Iowa and Michigan), Mountain (Utah, Colorado, Idaho, Montana, Arizona, andNevada), and Pacific (Washington and California) regions.
Softer trends are present in Southeast Central (Alabama, Mississippi and Kentucky), Middle Atlantic (New York and Pennsylvania) and South Atlantic (West Virginia, DC, and Maryland) regions.
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, Montana, and Utah.
States that have been struggling for the past several years include New Mexico,Pennsylvania, and Vermont.
U.S. Economic Recovery: Modest but Uneven
Although it does not always feel like it, the U.S. economy is improving at a modest pace. The recovery is certainly not spread evenly over the country. Pockets of strength and weakness exist in different regions. It is important to look at trends over several quarters to get a clearer picture of change. Additionally, strong government leadership and management can play a critical role in shaping direction.
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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