CHICAGO, IL--(Marketwired - Aug 14, 2014) - Despite hitting a soft patch earlier this year, the U.S. economy has bounced back with vigor, according to the BMO Economic Scorecard released today. Although the economy contracted 2.1 percent in Q1, real GDP rebounded by 4 percent in Q2 and is on track to top 2 percent growth in 2014 for the third consecutive year. Real GDP growth for 2015 is forecasted to top 3 percent.
"The momentum we're seeing in the U.S. economy is consistent with what we're hearing from our customers, which is that they're confident in the prospects for their businesses," said Dave Casper, Executive Vice President and Head, Commercial Banking, BMO Harris Bank. "That optimism is being expressed in the investments they are making in their businesses, including everything from technological upgrades to ambitious hiring plans."
"The recovery continues with gusto, driven by strong job gains and improved consumer confidence that is triggering increased spending," said Michael Gregory, Head of U.S. Economics, BMO Capital Markets. "Businesses too are showing greater confidence, which we expect to parlay into more business investment and factory activity."
Business conditions in the first half of the year were marked with volatility. Business investment rebounded from a lull seen in the first quarter, but net exports were down and contributed to a slowdown in growth for a second straight quarter.
North Dakota and Texas sat on top in the business condition rankings, supported by surging energy production. Colorado, another energy state, sits in the top quartile as well. Florida too has experienced improved conditions, with population growth on the rise and expanded hiring in tourism-related sectors.
States along the Mississippi have demonstrated weaker business conditions, with slow population growth and a higher number of bankruptcies.
"The Midwest remains mixed, with those in the Western half of the region outperforming those in the East, partly due to more exposure to energy and agriculture, and less exposure to manufacturing," said Robert Kavcic, Senior Economist, BMO Capital Markets.
"The U.S. labor market continues to show signs of improvement, with non-farm payroll growth averaging 277,000 per month in the second quarter, one of the strongest showings in the last 15 years," said Mr. Kavcic. "The participation rate, however, remains near multi-decade lows, wage growth remains muted and a notable share of the workforce is underutilized."
States with exposure to the energy sector again are leading the pack, with North Dakota, Texas, Oklahoma and Louisiana rounding out the top quartile. The Minnesota labor market was above average both in terms of growth in employment and hours worked, and posted one of the lowest jobless rates in the country at 4.6 percent. Wisconsin has moved up sharply, with solid job growth, increases in hours worked and sturdy wage gains.
Illinois and Arizona are laggards, with Illinois' jobless rate above the national average, and Arizona's job growth slowing with fewer hours worked and lower wages.
"An increase in mortgage rates last year, compounded by a harsh winter, led to a soft patch in the housing market last year," said Mr. Kavcic. "Those states who were hit the hardest during the downturn continue to have the greatest momentum."
Nevada, California and Arizona are in the top five of the housing market ranking, and home prices surging and foreclosure rates declining. Still-elevated housing vacancies, coupled with a high foreclosure rate, are preventing Florida from joining these states in the top quartile.
Illinois has moved up into the top 20, although price growth remains subdued compared to other states that were harder-hit. Construction has picked up after a slow winter, and the 20,000 units started over the last year is the best number in 5.5 years.
"State and local government finances dragged on the U.S. economy in Q1, but rebounded 3.1 percent in Q2. Overall, state finances continue to improve," said Mr. Kavcic.
Only eight states have planned spending reductions for 2015. Net tax cuts should contribute more than $2-billion in fiscal 2015, with personal income tax cuts accounting for most of that total.
The western Midwest has the most favorable fiscal conditions, led by the Dakotas and Nebraska. These states have high employment rates on which to back expenditures, strong fund balances and low pension liabilities.
States that are underperforming include Mississippi, New Mexico, Kentucky and Illinois, slowed down by low employment rates and elevated pension liabilities.
To view a full copy of the report, visit www.bmocm.com/economics
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through more than 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Banking products and services are provided by BMO Harris Bank N.A. and are subject to bank or credit approval. BMO Harris® and BMO Harris Bank® are trade names used by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and CDN $582 billion in assets (as of April 30, 2014).