As 2023 approaches its end, the market performance reflects some investors' optimistic sentiment towards economic stability and strength. However, data from the Federal Reserve Bank of Philadelphia shows that the economy of most states in the United States is shrinking.
As shown in the figure below, these data track the three-month implicit changes in state level economic growth through indicators such as non farm employment, average working hours of production workers, unemployment rate, and wages and salaries.
Nicholas Colas and Jessica Rabe, co founders of DataTrek Research, said on Monday, "Nationwide, the number of states with still growing economies decreased from 33 in the first three months to 16 in October. During the same period, the number of states with contracting economies increased from 16 to 27."
Although key indicators in many states seem to be deteriorating, it is important that, based on their contribution to overall GDP, 7 out of the 10 most critical states - California, Texas, Florida, Illinois, Pennsylvania, Georgia, and North Carolina - are still experiencing economic growth.
Colas and Rabe believe, "This should be enough to prevent the overall US economy from falling into recession this quarter. How these trends develop in the fourth quarter's balance will tell us a lot about the state of the US economy as we enter 2024."
Despite a significant slowdown in the economy of half of the states in the United States, the market remains optimistic as it enters the end of the year. The stock market rebounded in November, and Wall Street's forecast for 2024 is relatively optimistic. The bond market has shown clear signs, indicating that investors believe that the US economy will avoid a recession in the short term.
DataTrek stressed in the report that the interest rate gap between high-yield bonds and US treasury bond bonds has been narrowing, which means that the economic outlook is more optimistic.
"Bond investors, especially those in high-yield companies, are often very cautious because the best thing they can do is to receive interest and funds in a timely manner. This makes their current confidence particularly significant," he said.
DataTrek added that unlike the stock market, the bond market has had a much more firm view of the economy in the past six months. The stock market has fluctuated at different times this year due to fluctuations in economic signals.