Posts

State of the Union: Using Individual State GDP to Predict Recessions

avatar of @shakavon
25
@shakavon
·
0 views
·
2 min read

As economists view recessions as national events, it can be helpful to track the economic health of individual states to get a better understanding of the overall health of the national economy. The Federal Reserve Bank of Philadelphia's state coincident indexes (SCIs) are a tool that can be used to assess whether each state is experiencing recession-like conditions and whether a threshold of states experiencing negative growth might signal a national recession.

The SCIs are calculated using nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements, and are set to match the long-term growth trend of each state's gross domestic product. By looking at the number of states experiencing negative month-over-month growth based on the SCIs, it's possible to see if the pattern is consistent with past recessions. As the figure below shows, during national recessions, as defined by the National Bureau of Economic Research, the number of states with negative SCI growth increases.

Some U.S. recessions have been more widespread than others, with all states experiencing recession conditions during the 2007-09 and 2020 recessions and only about two-thirds of states experiencing negative growth during the 1990-91 recession. There have also been periods of business expansion where a large number of states experienced negative growth, particularly after the 1990-91 and 2001 recessions.

By calculating an average threshold based on the number of states with negative SCI growth during the first month of a national recession, it's possible to determine whether the U.S. is likely in a recession. For the six recessions since 1980, the average threshold has been 26 states. The 2008 recession was an outlier, with only 9 states experiencing negative growth at the start of the recession, likely due to uncertainty at the time about whether the economy was entering a recession. By October 2008, 47 states had registered negative SCI growth.

So, is the U.S. currently tipping into a recession? As of January 2023, it does not appear that this is the case, as fewer than 26 states have negative SCI growth. However, it's important to continue monitoring state-level economic indicators to get a complete picture of the health of the national economy. By tracking these indicators and understanding tools like the SCIs, we can be better prepared for any potential recessions that may come our way.

Thanks for reading here's the link to the website https://www.stlouisfed.org/on-the-economy/2022/dec/are-state-economic-conditions-harbinger-national-recession

And if you are looking to obtain funds to start a business and located in the United States visit https://galaxyofstars.org/galaxy-grants/ to sign up to win up to $10,000 to start your business. Deadline Jan 30th 2023 and let them know Shakavon Thomas sent you peace ✌🏾