How well has Wisconsin economically performed, as compared to its neighbor Minnesota, and to the US overall: here are six pictures of economic activity, employment, unemployment, real personal income, gross state product, and median household income, with which to make an assessment.
Figure 1: Log coincident indices for Minnesota (blue), Wisconsin (red), United States (black), normalized to 2007M12=0. NBER defined recession dates shaded gray. Source: Philadelphia Fed, NBER, and author’s calculations.
This is perhaps the most significant of the graphs, if one is interested in measures of overall economic activity. The Philadelphia Fed describes the index thusly:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
The approach uses the Stock-Watson methodology for extracting a latent variable for each state economy. The specific method is the Kalman Filter. For additional technical details, see this working paper (published in REStat).
Hence, in order to get the most comprehensive assessment of overall economic activity at high (monthly) frequency, this seems the best indicator, subject to the caveat that this is (like GSP, employment, etc.) an estimate.
Note that Wisconsin economic activity fell more during the recession than the Nation as a whole, and Minnesota, its next door neighbor (which has conducted a much less fiscally contractionary policy). At the same time, Wisconsin has not experienced a measurably faster rate of growth than the Nation (or Minnesota). Since the US trough (2009M10), US growth has been 2.6% per annum (calculated as log differences), Wisconsin growth since Wisconsin trough (2009M12) has been 2.5%. The analogous figures since 2011M01 are 2.9% (US) and 2.6% (WI). Note that Minnesota, which did not experience as large a decline as Wisconsin, has grown 2.9% since 2011M01, and 2.7% since MN trough (2009M10).
Further note that as of 2009M12 (Wisconsin’s trough), Wisconsin was 3.8% lower than the National average (normalizing at 2007M12); that is Wisconsin fell by 3.6 percent more during the recession. As of 2015M03, it was 4.6% — that is Wisconsin has continued to fall behind the Nation. As is apparent from Figure 1, this characterization is true for Wisconsin relative to Minnesota as well.
Hence, the assertion that Wisconsin’s recession was substantially milder than the Nation’s as a whole is not validated using the coincident indicator (although there may very well be an indicator for which it is true).
Figure 2 depicts the evolution of nonfarm payroll employment.
Figure 2: Log nonfarm payroll employment for Minnesota (blue), Wisconsin (red), United States (black), normalized to 2007M12=0. NBER defined recession dates shaded gray. Green shaded area pertains to CES data for which QCEW data is not available. Source: BLS, NBER, and author’s calculations.
Wisconsin employment falls a little less than the Nation’s (0.5% as of 2009M12), but grows much more slowly. Interestingly, Minnesota fell less than Wisconsin (0.8%), but Wisconsin employment has grown more slowly so that by March 2015, Wisconsin cumulative employment relative to Minnesota is 2.3% lower. In other words, in this case again, Minnesota experienced a smaller downturn and yet has faster employment growth.
One could argue that Wisconsin has experienced a slower trend employment growth for many years, predating 2011M01. In order to account for the counterfactual, I estimated a cointegrating relationship between US and WI employment over the pre-2011M01 period, and used out of sample forecasting to assess whether WI employment has been lower than that implied by historical correlations, with statistical significance (technically, an ex post historical simulation where I take the right hand side variable to be exogenous). The answer is yes; see this post.
Figure 3 depicts the evolution of unemployment rates.
Figure 3: Unemployment rates for Minnesota (blue), Wisconsin (red), United States (black), in %. Numbers denote unemployment rates relative to 2007M12. NBER defined recession dates shaded gray. Source: BLS, NBER, and author’s calculations.
The assertion that Wisconsin’s unemployment rate has come down particularly fast is true over the past few months. However, Minnesota’s has come down more since the onset of the recession in 2007M12 (as has the Nation’s). It is also useful to recall that Wisconsin typically has a lower unemployment rate than the Nation’s by about 0.8-0.9 percentage points.
Turning to personal income (Figure 4), one sees a different pattern. Wisconsin experiences a smaller decrease in real income, and yet experiences slightly slower growth than the US and Minnesota, particularly since 2011Q1.
Figure 4: Log real personal income for Minnesota (blue), Wisconsin (red), United States (black), in Chained dollars, normalized to 2007Q4=0. Deflation using CPI-RS. NBER defined recession dates shaded gray. Source: BLS, NBER, and author’s calculations.
We do have a new experimental real GSP series with which to do comparisons of output at the state level. Unfortunately, these series extend only up to 2013Q4. In any case, Minnesota, Wisconsin and the US series are depicted in Figure 5 (normalized to 2007Q4).
Figure 5: Log real Gross State Product (GSP) for Minnesota (blue), Wisconsin (red), United States (black), in Chained 2009 dollars, normalized to 2007Q4=0. NBER defined recession dates shaded gray. Source: BEA, NBER, and author’s calculations.
Since 2011Q1 to 2013Q4, US real output growth has exceeded that of Wisconsin by a cumulative 2% (log terms).
Finally, median household income has increased in Wisconsin, going into 2013. But before that (2011-2013), it was flat. In contrast, in Wisconsin’s neighbor Minnesota, median income jumped in 2011. While it decreased in 2013, the MN-WI gap was still +3500 2013$ larger than in 2010.
Figure 6: Log real household median income for Minnesota (blue), Wisconsin (red), United States (black), in Chained 2013 dollars. Note: data not strictly comparable over years. Source: Bureau of the Census via FRED, NBER, and author’s calculations.
Finally, here I plot the American Community Survey (ACS) series for Minnesota, Wisconsin and US, which are not subject to the same problem of intertemporal comparability as the BuCensus figures (cited for instance here), and are estimated with greater precision due to larger sample sizes.
Figure 6(revised): Median household income for Minnesota (blue), Wisconsin (red), and US (black). A reading of 0.045 means that the value is 4.5% higher than it was in 2010. Source: American Community Survey/Census Bureau, and author’s calculations.
In these comparisons, I have only contrasted with Minnesota and the Nation as a whole. Comparisons with Wisconsin’s geographic neighbors can be found here.
Update, 5/14 4pm Pacific: For more on the Wisconsin-Minnesota comparison, see this excellent survey by Ann Markusen in the American Prospect, entitled “The High Road Wins”. A more extensive analysis is here.