November 20, 2015
By Bradford Langs
The U.S. economic recovery is in its sixth year, although this recovery has been deemed modest at best. In fact, the Fed has not raised rates in nearly ten years, but may be positioning for its first rate hike at the December 15-16th meetings. Should the Fed raise rates, it has stressed that any rate-hike path will be shallow and gradual. GDP growth has been somewhat erratic for several years, most recently growing only 1.5% in the 3Q2015. The Bloomberg Survey of Economists expects 4Q2015 GDP to increase to 2.7%. On the inflation front, CPI is projected to end the year at 0.6%, and hit 1.8% in 2016. The unemployment rate is expected to end the year sub 5.0%, with economists expecting those same levels throughout 2016. The stock market should end the year relatively flat. Wage growth is modest. In summary, the US economy is plodding along, but given this lack of robust growth, the Fed should be conservative when it does start raising rates.
So the national economy is modestly improving, but what is happening in your backyard? 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. There are some interesting standouts on the list. Nevada’s relatively strong economic comeback from the deep dive it took during the recession is clearly indicated. Its better position was bolstered by strong improvements in employment growth and much lower mortgage delinquencies. California’s economic strength as of late positions it in the number two position. Michigan’s good showing is primarily due to lower unemployment and a step up in building permits. On the other side of the coin, North Dakota’s weaker quarterly results are clearly in line with the 2015 fall off in the oil patch.
The U.S. economy has officially rebounded from the Great Recession in both GDP and employment terms, but the Fed’s continuing policy of near-zero interest rates, enabled by low inflation and low wage growth, strengthens the feeling that things are just not back on the right track. Residents of some states have reason to feel more confident than others, and our analysis of key economic indicators provides insight into which states have and will continue to stand out.
“The study is not intended to determine which are the best or worst performing economies, but rather what direction the economies are heading. There are some interesting standouts on the list.”
The following list highlights the top ten and bottom ten ranked in order of their directional strength on key economic indicators, reflective of their economic health vs. the same time period a year ago.
2Q 2015 STATE RANKINGS
Top 10 / Bottom 10
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 2Q15 vs. 2Q14, national results follow:
- Employment increased 0.5%
- Unemployment fell 14.5%
- Mortgage delinquencies declined 12.2%
- Mortgage foreclosures decreased 12.4%
- Building permits improved 22.8%
Improving trends are visible in the Pacific (California, Washington, and Hawaii), Mountain (Nevada, Utah, Idaho, Colorado), and Middle Atlantic (New York and New Jersey) regions.
Softer trends are present in the North Central (South Dakota, North Dakota, Nebraska, Kansas and Missouri), and South Central (Oklahoma and Louisiana).
On the state level, areas that were particularly hard hit during the recession appear to be on the mend, including Nevada, Florida and Michigan. The following chart demonstrates this improvement, and shows the power of looking over historical time periods for trends (especially over a business cycle).
Average Ranking 2008 – June 2015
Several states have been exhibiting very strong growth for the past several years, including Arizona, California, Colorado, Idaho, Minnesota, Texas and Utah.
States that have been struggling for the past several years include Alabama, Alaska, New Mexico, Oklahoma, Pennsylvania, Vermont, and West Virginia.
“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.”
Overall U.S. Trend Leaning in Positive Direction
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.
Disclaimer: The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column. This column does not reflect the position or views of MUNINET LLC or MuniNetGuide.
The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice. Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.