Fewer U.S. state economies improved during the first three months of the year and a measure of gains in their health rose at half the rate at the end of last year.
The Bloomberg Economic Evaluation of States index shows that 31 states gained during the quarter compared with the previous three months, led by North Dakota, Michigan, Kentucky and Tennessee. That was down from 35 during the last three months of 2011 as more states showed signs that their economies were stalling, including Arizona, Nevada and New Jersey.
The states’ performance shows ebbing economic growth early this year amid government spending cuts and weaker business investment. That pushed the median gain in the index, which marks the midpoint of states’ performance, to 2 percent from 4 percent in the fourth quarter of 2011.
“At the state level, you can clearly see the economy decelerating,” said Joseph Brusuelas, a senior economist with Bloomberg LP in New York. “Whatever momentum the U.S. economy had at the end of last year is dissipated.”
The index, known as BEES, indicates a retreat from the last three months of 2011, when states had their broadest advance in more than a year, and shows the challenge President Barack Obama faces in an election defined by the economy.
The results were mixed for key presidential battleground states. Arizona, New Mexico, Nevada and Virginia were among those that showed declining health, while Pennsylvania, North Carolina, Ohio and others gained.
The BEES Index is based on the performance of local-company shares, tax collections, home prices, mortgage delinquencies, job growth and personal income, giving equal weight to each component. It is intended to indicate the direction of each economy, rather than absolute health, so a state that’s quickly rebounding will receive a higher rank than one with a steady but slower pace of growth.
The states involved in manufacturing and energy were among the top gainers. Both industries have helped stoke the economy in the aftermath of the 18-month recession that ended three years ago, the longest contraction since the Great Depression.
“Those two industries have been a big part of the recovery for the U.S.,” Robert Dye, chief economist for Comerica Bank (CMA:US) in Dallas.
Buoyed by oil and natural gas production, North Dakota was the top performer. The state had rising incomes, job gains and increased tax collections. Montana, Texas and Colorado, all among states with the biggest job gains, were also in the top one-third of U.S. states
“There is an increasing bifurcation of the American economy between areas of the country involved in the extraction of minerals, energy and agricultural development, with those that are highly dependent on construction and the service sector lagging behind,” said Brusuelas, the Bloomberg economist.
Illinois, which raised taxes, was also among the top 10 performers in the Bloomberg index.
Two of the states hardest hit by the real-estate rout, Arizona and Nevada, showed signs of declining economic health.
Nevada was among the worst performers, hurt by declining real estate prices, tax collections and the biggest decline in employment in the nation.
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