WI Expected to Have Third Lowest Growth During First Half of 2012
Philly Fed Is Bearish on Wisconsin Economy
Each month the Federal Reserve Bank of Philadelphia (the Philly Fed) calculates a measure of recent economic growth in each state, which it calls the “coincident index.” It combines four state-level indicators to yield a single measure of economic growth in each state.
As we noted in a mid-December blog post, WI had the lowest coincident index over the 3-month period from August through October, and we are still very close to the bottom of the heap in the more recent coincident index that goes through the end of 2011. What I didn’t realize until this week is that Wisconsin doesn’t fare any better in the Philly Fed’s forward-looking analysis of each state’s economic conditions, where we rank third lowest.
In addition to calculating the coincident index every month, the Philly Fed produces a “leading index” for each state. These predict the growth of a state’s coincident index over the following six months. (They are based in part on the coincident index, but also include a few other variables correlated with economic growth, such as state-level housing permits and state initial unemployment insurance claims.) I don’t know if anyone has ever analyzed the predictive capacity of the leading index, but it seems to be a respected measure.
The most recently calculated set of leading indexes (released last Friday) calculates a negative growth rate in the first half of 2012 for just six states, and Wisconsin is among that group. In fact, only two other states, Rhode Island and Alaska, are expected to have a more negative rate of economic growth than Wisconsin over the first six months of the year.
Wisconsin’s poor showing in the leading index wasn’t lost on the author of a political newsletter in Illinois. The piece he wrote on Monday provides a map showing the growth projections for the upper midwest, and in light of Governor Walker’s frequent criticisms of Illinois, I suspect he took pleasure in writing the title of that article: Federal Reserve report projects Illinois economy will outperform Wisconsin and Indiana.
Our state’s poor economic performance in the second half of 2011 and its negative forecast for the first half of this year are surprising considering that many other manufacturing states seem to be rebounding. A recent article in the Dayton Daily News says that the Philly Fed’s statistics show that the “industrial Midwest” is leading the nation’s economic recovery. As it happens, their definition of the Midwest doesn’t include Wisconsin, or even Illinois, but the more relevant point is that other states in the Great Lakes region that also rely heavily on manufacturing are experiencing much more positive economic growth.