From the Philadelphia Fed:
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for July 2014. In the past month, the indexes increased in 41 states, decreased in five, and remained stable in four, for a one-month diffusion index of 72. Over the past three months, the indexes increased in 47 states, decreased in two, and remained stable in one, for a three-month diffusion index of 90. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index rose 0.3 percent in July and 0.9 percent over the past three months.Below is a map showing the changes by state:
(click image to enlarge)
The index is a combination of four-state level indicators:
The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
A note of caution. While the coincident index can help to gauge a state’s economic activity, for several reasons it is not an adequate measure to rank states by economic activity/growth. The problem is that the index cannot control for variations between state economies. As noted by Paul Fiora, senior economist at the Philadelphia Fed:
“We do not consider state rankings based on the coincident and leading indexes to be valid,” says Paul Flora, Senior Economic Analyst at the Federal Reserve Bank of Philadelphia in an email to the Cap Times.
Flora says the differences in the various state economies influence the relative change in the index from month to month. He says an older, mature economy, such as New York, tends to experience smaller percentage changes than a smaller, younger economy, such as North Dakota.
“Comparisons between the two are not very meaningful,” he says.
Flora also warns there is significant volatility from month to month in the index, which is designed to serve as a proxy for a state’s GDP or gross domestic product.
“An individual state’s ranking based on the percent change can jump wildly from one end of a relatively narrow range to the other,” he says. “Rank order is not persistent, thus state rankings are misleading.”