States of Recession
The U.S. economy contracted 10.1% through the first two quarters of 2020, owing to the pandemic-related lockdowns. In the wake of this third estimate, the Bureau of Economic Analysis (BEA) released real GDP figures on a state and industry basis. All states experienced a recession, but to different degrees. For example, the deepest downturn was 14.8% in Hawaii and the shallowest contraction was 7.1% in Utah. Between these bookends, state economic performance displayed a geographical theme (Chart 1).
The BEA divides the economy into eight regions . In the New England, Mideast and Great Lakes, three-quarters of the 16 states suffered recessions that were worse than the national average. In contrast, three-quarters of the 16 states in the Plains, Southwest and Rocky Mountain displayed better-than-average downturns. Meanwhile, in the Southeast and Far West, there was an even split among the 18 states between better-than-average and worse-than-average contractions. Note that the Southeast tipped to outperformance (by one state) and the Far West tilted to underperformance (also by one state).
One of the drivers of relative state economic performance was how COVID-19 infections unfolded, along with the stringency and duration of each jurisdiction’s lockdown. Looking at the national total (Chart 2), there were two infection 'waves' during the spring and summer. The first surge saw the seven-day average of new daily cases top 31,000 on April 10 before drifting down to well below 21,000 by June 9. Then, the second surge saw the case rate top 66,000 on July 22. However, this pattern reflects the fact that all states did not experience their major surge in cases at the same time. During the early spring, many states in the northeastern quadrant of the country saw case rates spike. New York, at one point, was an epicentre of the pandemic. Meanwhile, states in other parts of the country registered only grinding gains. By April, all jurisdictions had some form of a lockdown; the stringency reflected the height and slope of the state's new infection curve. In May, the lockdowns began to lift, in some cases too early or too enthusiastically. In many states that previously registered only grinding gains, case rates subsequently spiked, causing these jurisdictions to either postpone or rollback their reopening plans. However, lockdowns were not reinstituted.
Looking back at relative cumulative cases by the end of June, there is evidence of weaker-than-average economic performance corresponding with higher-than-average total COVID cases, and vice versa (Chart 3). Employing the groupings mentioned above, in the New England, Mideast and Great Lakes regions, while 75% of the 16 states suffered worse-than-average recessions, 69% had above-average total cases. And, in the Plains, Southwest and Rocky Mountain regions, while 75% of the 16 states displayed better-than-average downturns, 63% had below-average total cases. However, the evidence is not overwhelming, with too many extreme mismatches. For example, Hawaii, Vermont, Wyoming, Maine, New Hampshire and Alaska had bottom quartile economic performance (deepest recessions) but total COVID cases in the top quartile (least infections). And, Delaware, Maryland, Iowa and Arizona had bottom quartile cases (most infections) but top quartile economic performance (shallowest recessions).
Also affecting economic outcomes is each state’s industrial structure and how their dominant industries were impacted by the pandemic and the policy responses to it. Although the entire economy contracted 10.1%, individual industry performance was all over the map (Table 1). For example, those industries requiring more in-person contact saw activity contract very sharply, including arts, entertainment & recreation (-61.0%), accommodation & food services (-46.0%), transportation & warehousing (-24.9%, e.g. airlines and public transit), and other services (-22.7%, e.g. personal services). Other notable underperformers included health care & social assistance (-16.7%, reflecting cancelled appointments and procedures), durable goods manufacturing (-14.5%, e.g. many production lines couldn’t physical distance), and mining (-12.7%, reflecting the collapse in oil prices and output).
However, the industries most amenable to working from home fared much better, including finance & insurance (-0.6%), information (-2.5%), real estate, rental & leasing (-2.8%), and management of companies & enterprises (-3.2%). The highly-automated and capital-intensive utilities sector was the best performing industry (-0.3%).
State exposure to these worst- and best-performing industries, compared to the national average, can partly explain relative economic outcomes, assuming a state’s individual industry performance is comparable to the industry’s nationwide performance. Obviously, this is not always the case given things like local labour disruptions and extreme climate events. The impact on relative state economic performance is reinforced to the extent larger exposures to the strongest industries are mirrored in smaller exposures to the weakest industries, and vice versa.
Looking at the states with the deepest recessions (Chart 4), many have much larger exposures to the worst performing industries. For example, compared to the U.S. share: Hawaii has 6.6 ppts more to arts, entertainment & recreation; Nevada has 9.6 ppts more to accommodation & food services; Michigan has 8.2 ppts more to durable goods manufacturing; Vermont has 3.8 ppts more to heath care & social assistance with Maine at 4.5 ppts; Wyoming has 22.4 ppts more to mining and 5.6 ppts to transportation and warehousing; Louisiana has 4.5 ppts more to mining. Alaska, another bottom-quartile economic performer, has 20.5 ppts more exposure to mining and 7.9 ppts to transportation and warehousing.
Eying the states with the shallowest recessions (Chart 4 again), many have much larger exposures to the best performing industries. For example, compared to the U.S. share: Washington has 10.2 ppts more to information; Iowa has 6.4 ppts more to finance & insurance with South Dakota at 7.3 ppts; Maryland has 3.5 ppts more to real state, rental & leasing; Georgia has 3.0 ppts more to information. Delaware, another top-quartile economic performer, has 17.8 ppts more exposure to finance & insurance and 4.4 ppts to real estate, rental and leasing.
Unfortunately, industry exposure, like COVID cases, is not a definitive guide to relative state economic performance. Elsewhere, growth momentum seems to shed a little light on subsequent economic performance. Washington (#2), Colorado (#3), Utah (#4) and Arizona (#7) were among the 10 fastest growing states in 2019 and were among those with the shallowest recessions. Hawaii (#50), Vermont (#42) and Michigan (#41) were among the 10 slowest growing states in 2019 and were also among those with deepest recessions. On balance, all the factors mentioned above, taken together, help inform on relative state economic performance. They should help in assessing the recoveries as well.
 New England includes Connecticut (CT), Maine (NE), Massachusetts (MA), New Hampshire (NH), Rhode Island (RI) and Vermont (VT). The Mideast includes Delaware (DE), Maryland (MD), New Jersey (NJ), New York (NY) and Pennsylvania (PA). This region also includes the District of Columbia. The Great Lakes include Illinois (IL), Indiana (IN), Michigan (MI), Ohio (OH) and Wisconsin (WI). The Plains include Iowa (IA), Kansas (KS), Minnesota (MN), Missouri (MO), Nebraska (NE), North Dakota (ND) and South Dakota (SD). The Southeast includes Alabama (AL), Arkansas (AR), Florida (FL), Georgia (GA), Kentucky (KY), Louisiana (LA), Mississippi (MS), North Carolina (NC), South Carolina (SC), Tennessee (TN), Virginia (VA) and West Virginia (WV). The Southwest includes Arizona (AZ), New Mexico (NM), Oklahoma (OK) and Texas (TX). The Rocky Mountain region includes Colorado (CO), Idaho (ID), Montana (MT), Utah (UT) and Wyoming (WY). The Far West includes Alaska (AK), California (CA), Hawaii (HI), Nevada (NV), Oregon (OR) and Washington (WA). [^]