Regional Economic Outlook

What's happening with the major U.S. regional economies? The latest Economy.com regional outlook has this to say.

Labor markets in the South and West have been fairly stable for over one year, while the Northeast and the Midwest suffered in the early months of this year but saw better results in the second quarter. While recent monthly job figures are subject to revision, they seem to be indicating greater stability for the two weaker regions as we enter the second half of the year, which should help support consumer spending and credit quality.

When measured by income growth minus transfer payments, which is a rough proxy for economic output, only the Northeast is lagging. The Midwest has improved and is keeping up with the South and West. Yet, when combining the two factors of job growth with industrial production, much of the Northeast and the Midwest remained in recession through midyear. The states in recession account for over 40% of total gross state product nationwide, indicating the risk that still faces the economy as it struggles to gain traction.

As with the broader macroeconomy, regional economic conditions will only rebound solidly once business investment improves. One factor that will determine the pace of new investment is the condition of balance sheets among firms. Business bankruptcy filings are one indicator of such conditions.

Since the recession began in early 2001, the Northeast has rather consistently seen the number of business bankruptcy filings in the region fall, and they have fallen sharply over the past six months. Filings have been elevated the longest in the West, although they too have fallen over the past six months. It is not surprising that the West saw the strongest rise in business filings given that it enjoyed such a remarkable surge in entrepreneurship during the late 1990s. Many of these firms did not survive the tech collapse in late 2000, causing further stress throughout the regional economy. Significantly, the first quarter of this year was the first time in four years that saw business filings fall in all four regions, indicating a broad improvement in balance sheets.

Economy.com outlook. (If you are a subscriber.)