Recovery Apparent in All Major U.S. Economic Regions

It's time for an update on regional economic trends. Signs of economic stability are rather evenly distributed among the nation's four major economic regions.

Payroll employment has leveled off in each of the four broad regions. In a period of rapid productivity gains, income is perhaps a better indicator of overall regional economic growth. So, let's look at what is happening to income growth across the regions.

Th Northeast has experienced the slowest income growth since 2001 because its highest earning industry—financial services—was hit particularly hard by the recession and the corrections in equity markets associated with it. In fact, the region’s total income has yet to rise above its pre-recession level, a sign of the extent of the weakness.

Elsewhere, income growth has rebounded. In the West, income is just back to its previous high. Income is well above pre-recession peaks in the Midwest and the South, although the rate of growth has slowed over the past year. While labor markets in the Midwest are quite weak, the earnings for those still working have risen, helping to support an otherwise beleaguered regional economy. Looking forward, some improvement can be expected in the Northeast, as long as the rebound in equity markets is sustained. Similarly, rising defense procurement contracts and a turnaround in business investment will support income growth in the West once again next year.

At a turning point in the economy, one often must turn to anecdotal evidence, such as that available in the Federal Reserve’s Beige Book. It reports increasingly optimistic comments from communities all around the country. Among its comments this month, it reports that 10 of the 12 Fed districts see moderately improving manufacturing activity. Only the Dallas and Richmond districts fail to see improved manufacturing conditions, due to high exposure to telecommunications in Dallas and to textiles and other nondurables in Virginia and the Carolinas.

Weak business investment poses a more widespread risk to all regions. Should overall demand and prices falter and should firms pull back on their nascent spending on capital equipment, recoveries could be delayed in tech-based regions, such as Silicon Valley, parts of Southern California, the Pacific Northwest, Austin and Dallas, Atlanta, Raleigh, central New Jersey and Boston. Similarly, signs of emerging stability in the industrial Midwest could also disappear with weakened demand for industrial, farm and construction equipment.

A tempered global recovery would hurt the West the most. Its dependence upon exports of tech products, commercial aircraft, timber products and the like makes it the most vulnerable to continued weak global demand.

Overall, the South and West will continue to lead the economy into a stronger recovery through the rest of this year and next.

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