At the beginning of 2016, a minor war broke out between two intellectual camps: one said that as a result of the collapse in energy prices, the US economy would slide in a recession as the bulk of the states responsible for job gains under Obama were the same ones that would get crushed with oil plunging. The opposing camp – which boasted Janet Yellen at one point – vociferously claimed that sliding oil prices are great for consumers and with thanks to the extra purchasing power, the US would not only avoid a recession but prosper. One year later we look back to see which, if any, of the two camps was correct.
As it turns out, the truth was in the middle, because while the US in total may have avoided an economic contraction (at least according to the NBER), numerous states did in fact enter a recession.
Based on new research by Kansas Fed Economist Jason Brown, several states suffered severe downturns as of the third quarter of 2016 that hampered growth nationwide. According to the report, Kansas, New Mexico, Oklahoma and Wyoming experienced recessions last year, while others saw milder contractions, including Maine, Montana, North Dakota, Louisiana and West Virginia.
As noted first by Bloomberg, Brown said a ripple effect from the decline in commodity prices hit the oil- and coal-dependent states particularly hard, leading to economic contractions as local governments such as Oklahoma cut back on spending.
The findings also underscore the growing sense of economic inequality in the nation, as data compiled by Bloomberg show states like Washington and Massachusetts grew well above the national average last year. They saw employment climb as joblessness expanded in Louisiana, Oklahoma, Wyoming, North Dakota and Alaska.
These “mini recessions” may have had far greater political implications than previous expected: of all the states mentioned that experienced some degree of economic downturn, only New Mexico and Maine supported his rival, Hillary Clinton. Perhaps it was sheer luck, or an active analysis of which US states are in the more dire of economic straits, but Donald
Trump targeted his campaign to voters “left behind by the economic
recovery”, pledging after his win to help Americans he called “the
forgotten men and women of our country,” and which were found mostly in the contracting states. He won.
To be sure, as Bloomberg notes, identifying recessions at the state level isn’t an exact science, as there’s no single authority that does so. Further complicating matters is the fact that data on GDP is published with a longer lag than at the national level. So, to come up with his findings, Brown took monthly, state-level data on economic activity from the Philly Fed and ran two different statistical models, for two periods ending in September 2016. There’s not enough information to say definitively whether states are out of recession just yet, he said.
Other researchers have found similar results. In January, S&P Global Ratings said that six of eight major oil-producing states fell into recession in 2015 and 2016, including New Mexico, Oklahoma and Wyoming. The report also shows Alaska, Louisiana and North Dakota entered recession and that North Dakota went from the fastest growing state in 2014 to the worst performer in 2015.
Finally, since the states that S&P and Brown said were in recession represent 4.4% of U.S. GDP, their downturns “certainly” affected national growth.