U.S. States Showing Gains in Economic Health Hit Nine-Month Low

Most U.S. states’ economies showed signs of worsening during the second quarter, the weakest results in nine months, illustrating the economy’s faltering recovery leading into a presidential election.

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The economic health of 36 states, including Michigan, California and Connecticut, declined in April through June from three months before, according to the Bloomberg Economic Evaluation of States index. It was the worst showing since the third quarter of 2011, when all but five states declined.

The retreat reflects the drop in hiring by businesses, which restrained workers’ incomes and weighed on stock prices. Tax collections also grew more slowly in some states, reflecting the weaker pace of economy’s expansion.

“Firms are behaving quite cautiously with respect to fixed business investment and hiring across the nation,” said Joseph Brusuelas, a senior economist with Bloomberg LP in New York. “We’re feeling the drag all over, even where things are slightly better.”

The BEES Index is based on the performance of local-company shares, tax collections, home prices, mortgage delinquencies, job growth and personal income, giving equal weight to each component. It is intended to indicate the direction of each economy, rather than absolute health, so a state that’s quickly rebounding will receive a higher rank than one with a steady but slower pace of growth.

Showing Improvement

Ten states showed signs of improvement in the second quarter, driven by energy producers, including North Dakota, Colorado and Texas, compared with gains for 35 states during the previous three months. Four states showed no change in economic direction, including Iowa and Massachusetts, according to the index.

The pullback through June occurred in some of the states that are key battlegrounds in the race between President Barack Obama and Republican challenger Mitt Romney, which centers on who would best revive the economy.

Virginia and North Carolina dropped as home prices stumbled. Florida and Colorado gained at a slower pace. Ohio’s economic health was unchanged, after gaining during the previous three months.

States that had been lifted by demand for manufacturing, agriculture and oil and natural gas production also saw retreats in the measure of economic health. In North Dakota, the index’s top performer, the growth in employment and tax collections slowed. Michigan, the center of the automobile industry, declined in the index, held back by a drop in tax collections and employment that continued from the previous quarter.

U.S. states are being restrained by weaker demand for exports, as well as falling natural gas prices as a result of a production boom in the U.S., said Chris Jones, who tracks the U.S. economy for TD Economics in Toronto.

“It’s a broad slowdown in the world economy,” he said.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net;

To contact the reporter on this story: Ilan Kolet in Ottawa at ikolet@bloomberg.net.

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