Philly Fed Shows State Economy Dispersion is at Post-Recession Highs

Categories: Commentary |

May 11, 2015

This week we examine the signals from the Philly Fed Index showing an increase in the dispersion of economic health among the States.

Philly Fed Coincident Index Illustrates Variability in State Economies

We at Lumesis are focused on providing the data and tools that allow for economic analysis to go deeper than commonly used national economic statistics allow.

One of the many data sets that we track on the DIVER platform is the Philly Fed Coincident Index. The index, which is available for the 50 States, is prepared using a combination of variables tracking certain employment data, hours worked in manufacturing, and wage and salary disbursements deflated by the CPI.

Looking at the 3-month change in the Philly Fed index through March reveals a wide dispersion in State economic growth.


West Virginia (-2.72%) and Alaska (-.69%) were the laggards.  The WVU Bureau of Business and Economic Research points to several factors in West Virginia’s weakness:  reduced production of coal and natural gas, and pressure on exports (11% of GDP) from a strong dollar.  Alaska is suffering due to low oil prices.  The Philly Fed Index for Alaska has been declining since its peak in April ’12.  Interestingly, this peak nearly matched its prior peak in November ’08.

Oregon (+2.06) and Michigan (+1.99) are the leaders.  Employment and income statistics for Oregon portray a very strong labor market.   A recent blog entry by the Oregon Office of Economic Analysis provides more detail.  Michigan has benefited from a healthy auto industry and a growing education and healthcare services sector.

Even if we ignore these outliers, the index shows a wide range of economic conditions around the country.  There is a full percentage point difference in the 3-month change between the 5thth ranked state (Utah, 1.09%) and the 45th ranked state (Virginia, .01%).

This reinforces our belief that analyzing granular State and local economic conditions is vital for effective management of municipal bond portfolios.  National economic statistics can mask vast differences in local conditions.

The chart below plots the 3-month change in the Philly Fed index for the last 10 years.  Overlaid on the national average is the value each month for the top decile (dark blue) and bottom decile (light blue) States for each period.

05-11-15 2

For more charts and analysis, sign up for a DIVER Analytics Trial.

As expected, the three datasets are correlated.  The period since October ’14 is an exception.  The national average is roughly unchanged (.51% vs. .55%), the top decile has improved (1.05% vs. .78%), and the bottom decile has declined (.04% vs. .27%).   Since October of last year the degree of dispersion across the States has been increasing.

To put this dispersion in historical perspective, we calculated the difference between the top decile and the bottom decile over time (the dark blue line minus the light blue line).  The results are interesting.

The dispersion in economic growth of the various States reflected by the Philly Fed is at its widest since the ’08/’09 recession.  Today the spread is 1%; at the peak during the recession the spread was 2%.

05-11-15 3

The highpoint for this statistic prior to the recession was October ’05 (1.2% vs. current 1.05%).

For history buffs:  the all-time high was April ’80 (2.9%).   In April ’80 Wyoming’s Philly Fed index had improved by 1%, while Michigan’s had declined by 4.5% in the prior 3 months.  If you don’t remember why Michigan was suffering in the early 80’s or perhaps weren’t born yet: Google “Datsun.”

While the current extreme value of this statistic may provide a signal for the national economy, we are most focused on its relevance for State and local finance.  The QE-induced version of the “great moderation” is ending and an increased focus on local economic conditions is required.

Our DIVER Geo Score provides a measure economic health for individual States, but also for individual counties and cities.

Lumesis (Mike, Mark and Stacey) will be in Las Vegas this week for the NFMA Annual Conference.  Look for us at Booth #3.  Gregg and Pete will be in St. Louis for the BDA meetings.

Have a great week,


Michael Craft, CFA


For more charts and analysis, sign up for a DIVER Analytics Trial.


CLICK HERE to Subscribe to the Weekly Commentary 

For more information, please contact:

Learn more about Lumesis

Learn more about DIVER Solutions