Rocky Mountain States Still Growing the Fastest Through May
Jim Haughey -- July 5, 2007
The economic growth rates in each region, as set out below, are based on the Economic Activity Indexes calculated by the Philadelphia Federal Reserve Bank. The index uses state income and employment data and is scaled to approximately match Gross Domestic Product (GDP) growth.
New England, 2.9%
England, which means strong per capita income growth, since the population is nearly stable. This suggests a relatively heavy share for replacement and renovation work and a relatively light share for “more space at minimum cost” in the mix of construction demand. Maine and Vermont continue to trail the rest of the region because they lack the concentration of high-growth technology and service industries that dominate the rest of the region. These industries typically peak late in the business cycle. Therefore, economic growth in New England will be average or better for at least another year.
Mid Atlantic, 3.3%
The recent surge in growth comes entirely from Pennsylvania. Growth slackened in New York, New Jersey and Delaware early in 2007. Growth will continue to be slightly faster than the national average well into next year on the strength of the ongoing improvement in manufacturing and the usual rapid growth late in the business cycle of New York’s large financial industry.
South Atlantic, 2.8%
Growth in Florida has sagged to a 1.9% pace, mostly due to the collapse of the housing market. However, migration to Florida is being restrained by the fear of hurricanes, the 2004 to 2006 spike in housing prices and the doubling of property insurance premiums. This is partly offset by rapid growth in the Carolinas. Myrtle Beach (South Carolina) and neighboring Wilmington (North Carolina) have replaced South Florida as the hot, low-cost retiree and vacation destination. Economic growth in Georgia has slowed slightly, but remains well above the national average. The housing collapse has had relatively little negative impact in Atlanta.
South Central, 2.7%
The slower growth largely reflects the end of the initial surge in hurricane rebuilding. Within the regional average, strong growth in energy industries is masking stagnant growth in most other locations. Persistent high energy prices will lead to expanded investment in the energy sector for several years. These large projects exceed the capacity of regional non-residential contractors. The result will be that more construction resources will move into the Gulf region.
Great Lakes, 1.3%
Economic growth in the Great Lakes continues to trail well behind the rest of the country. Michigan and Ohio are the only states in recession. The exodus of the auto assembly and parts industries to southern states, Mexico and Asia is the major negative in this region’s economy. The impact is not only from the job cuts already in place, but, just as importantly, from announced future layoffs that have caused precautionary cutbacks in consumer and business spending. A few areas continue to expand at the national average or above. This includes Chicago’s business center, the corn/ethanol regions and off-highway heavy equipment manufacturing centers.
The corn/ethanol regions are booming, but manufacturing centers in Minnesota and Kansas have been weak lately. They are expected to resume growing at an average pace or faster this summer. Farm prices make short-term growth trends volatile in this region. South Dakota (corn) grew at a 3.9% annual pace in the last three months while North Dakota (wheat) grew only 0.2%.
Rocky Mountains, 5.2%
The housing collapse has slowed economic growth significantly in Arizona (3.5%) and Nevada (0.3%), but lower-cost Montana (9.5%), Utah (6.1%) and Idaho (4.8%) continue to expand rapidly. Their growth is driven by net immigration from more expensive regions, as well as by having the country’s highest rate of natural population growth (i.e., births minus deaths). The expanding mining and energy industries are also contributing to rapid growth. Mines that were closed for ten years or more are now being reopened.
Economic growth persists at 5.5% to 6.0% in Oregon and Washington, but has dropped to 2.7% in California. Some of the growth in the northwest is due to the exodus from higher-cost California. Both Oregon and Washington are also getting a growth boost from their own rapidly expanding technology and aviation industries. The slack growth in California will persist until the housing market clearly moves up from the current cyclical bottom. This will be no sooner than early next year and more likely later in 2008. Home prices have to fall a further 5% to 8% in California.
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