State Economies Show Most Gains Since Before Recession
The economic health of 44 U.S. states improved in the fourth quarter, the most in any period since 2006, as almost all benefited from growing employment and personal income.
The gains matched the total in the second quarter of 2006, more than a year before the 18-month recession began, according to the Bloomberg Economic Evaluation of States index.
The improvement reflects continuing growth in the national economy. President Barack Obama’s chief economist, Alan Krueger, said in an interview this month that he expects a “tailwind” from housing construction to help propel growth this year.
“Most states are on a recovery track,” said Robert Dye, chief economist for Dallas-based Comerica Bank, in an interview. “That reflects broad-based improvements in the economy.”
Only four states -- New Jersey, Maryland, Wyoming and Maine -- had declines in the last three months of 2012 compared with the previous quarter. Arkansas, Nebraska and Delaware had no change. The index measures tax collections, home prices, mortgage delinquency, job growth, personal income and performance of local company stocks.
In the fourth quarter, every state and the District of Columbia had gains in personal income. Every state except Connecticut, Nebraska and Maine, had gains in employment. The number of people employed in the District of Columbia also declined.
States may not continue to improve at the same pace, according to Chris Mauro, New York-based head of municipal strategy at RBC Capital Markets LLC. Growth in personal income was driven by payments such as dividends and bonuses being shifted to the fourth quarter ahead of expected tax increases, he wrote in a March 28 report.
“The fourth quarter’s gains are likely unsustainable and we expect state revenue growth to return to its recent anemic level in coming quarters,” Mauro wrote.
The BEES index shows state economies strengthening in the past year. Twenty-nine states, led by energy producers North Dakota and Colorado as well as Michigan, showed improvements to their economies in 2012 compared with 17 in the prior year.
North Dakota had a 9.8 percent increase in its economic health last year compared with the year before, boosted by a 13.3 percent increase in personal income and nearly 25 percent increase in tax revenue.
“What we’re seeing is the modest recovery in housing and increase in hiring bolstering the economy,” said Joseph Brusuelas, a senior economist with Bloomberg LP in New York. “The conditions are in place for the economy to continue growing around 2 percent, as it has since the start of the recovery.”
Automatic federal budget cuts of $85 billion that started on March 1 may hurt states’ economic health, said Dye. A resulting reduction in federal grants to states probably will lead to job losses, especially in Maryland, Virginia and the District of Columbia, he said.
“We’re still in the middle of that process,” said Dye. “We haven’t seen the full impact of those job losses.”
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