Philly Fed index sees variable growth in district states

A slow-growing national economy hides the fact that individual states often see very different growth rates, a fact illustrated by an index of leading indicators measured at the individual state level by the Federal Reserve Bank of Philadelphia.

The State Leading Index attempts to predict the increase (or decrease) in general economic activity at the state level over the next six months. The index is constructed from a wide variety of state and regional data series (including things like nonfarm payroll employment, average hours worked in manufacturing, housing permits, initial unemployment insurance claims and a few other wonkish measures). These individual measures are then summarized into a single statistic, and its growth (or decline) is tracked over time.

The index suggests that both national and district state economies will continue their slow growth in the near term; however, the district states have displayed different growth patterns over the past couple of years. Among the district states, Montana has been by far the biggest laggard coming out of the recession, but might also be said to have the strongest upward trajectory. Conversely, since hitting a high-water mark of 2.2 in May 2010 (which implied that economic activity would increase by 2.2 percent by the end of 2010), Minnesota has watched its index performance steadily deteriorate. North Dakota, which has been outperforming other district states and the nation since the recession, also does so in this index.

Individual state values also need some context. For example, Michigan’s two most recent index values, both over 4.3, are far higher than those of other district states or the national average. But this is due largely to the fact that the variables used to tabulate the index—mostly having to do with employment and economic activity—have taken a severe beating and are rising from a steeply depressed base.

The index was also designed to gauge the economic outlook in major population centers and as such is not fined-tuned to western district states, which have small populations, are less dependent on manufacturing and more heavily dependent on commodity prices, and are subject to the vagaries of weather for crop growing.