As economists ponder what’s behind the slowest U.S. economic recovery since World War II, a new explanation is taking shape: several states have suffered severe downturns of late that hampered growth nationwide.
Fresh research by Federal Reserve Bank of Kansas Senior Economist Jason Brown shows Kansas, New Mexico, Oklahoma and Wyoming experienced recessions last year, while others saw milder contractions, including Maine, Montana, North Dakota, Louisiana and West Virginia.
Brown said a ripple effect from the decline in commodity prices hit the oil- and coal-dependent states particularly hard, leading to economic contractions as local governments such as Oklahoma cut back on spending.
The findings also underscore the growing sense of economic inequality in the nation, as data compiled by Bloomberg show states like Washington and Massachusetts grew well above the national average last year. They saw employment climb as joblessness expanded in Louisiana, Oklahoma, Wyoming, North Dakota and Alaska.
The theme played out in the presidential race when Donald Trump targeted his campaign to voters left behind by the economic recovery, pledging after his win to help Americans he called “the forgotten men and women of our country.” Of all the states mentioned that experienced some degree of economic downturn, only New Mexico and Maine supported his rival, Hillary Clinton.
Identifying recessions at the state level isn't an exact science, as there’s no single authority that does so. Further complicating matters is the fact that data on gross domestic product is published with a longer lag than at the national level.
To come up with his findings, Brown took monthly, state-level data on economic activity from the Federal Reserve Bank of Philadelphia and ran two different statistical models, for two periods ending in September 2016. There's not enough information to say definitively whether states are out of recession just yet, he said.
Other researchers have found similar results. In January, S&P Global Ratings said that six of eight major oil-producing states fell into recession in 2015 and 2016, including New Mexico, Oklahoma and Wyoming. The report also shows Alaska, Louisiana and North Dakota entered recession and that North Dakota went from the fastest growing state in 2014 to the worst performer in 2015.
The states that S&P and Brown said were in recession represent 4.4 percent of U.S. GDP, meaning their downturns “certainly” affected national growth, he said by phone.