Is This a Positive Indicator for U.S. Economic Health?

With concerns centered around the budget cuts that were triggered as a result of the sequester on March 1st, 44 of the 50 states in the country have reported strengthening economies over the fourth quarter, the highest number of states since 2006. The gains match the growth made from that year, a full year before the recession triggered nationwide contractions on various levels.

Overall, the high rate of growth signals that the economy is shaking off the pangs from the near-collapse in 2007 and 2008. Alan Krueger, President Obama’s chief economist, said in an interview with Bloomberg this month that he expects a “tailwind” from housing construction to help propel growth this year.

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New Jersey, Maryland, Maine and Wyoming suffered declines in the fourth quarter, while Arkansas, Nebraska, and Delaware remained stagnant. The metrics used measure tax collections, home prices, mortgage delinquency, job growth, personal income and performance of local company stocks, as indicators of economic health, Bloomberg reported.

All 50 states and Washington D.C. experienced increases in personal income, and only three states — Connecticut, Nebraska and Maine — did not experience gains in employment. States may not continue to improve at the same pace, according to Chris Mauro, head of municipal strategy at RBC Capital Markets. Growth in personal income was driven by payments such as dividends and bonuses being shifted to the fourth quarter ahead of expected tax increases, he wrote in his report.

“The fourth quarter’s gains are likely unsustainable and we expect state revenue growth to return to its recent anemic level in coming quarters,” Mauro said.

In 2012, 29 states showed improvements in their economies, over 17 in 2011. Despite the pickups, the growth is still slower than it could be.

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“What we’re seeing is the modest recovery in housing and increase in hiring bolstering the economy,” said Joseph Brusuelas, a senior economist with Bloomberg. “The conditions are in place for the economy to continue growing around 2 percent, as it has since the start of the recovery.”

The full effect of budget cuts has yet to be realized, and will likely result in declines in employment in the Maryland, D.C., and Virginia areas, Brusuelas said.

“Most states are on the recovery track,” said Robert Dye, chief economist for Comerica Bank. “That reflects broad-based improvements in the economy.” As for the budget cuts, “We’re still in the middle of that process. We haven’t seen the full impact of those job losses,” he said.

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