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Kyle Fee |

Economic Analyst

Kyle Fee

Kyle Fee is an economic analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include economic development, regional economics and economic geography.

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01.07.09

Economic Trends

Ohio’s Business Cycle

Kyle Fee

The National Bureau of Economic Research (NBER) has designated December 2007 as the starting point of the current recession. However, the recession referred to is the nation’s as a whole—individual states vary with respect to the timing of their business cycles as well as in the severity of their recessions. For instance, according to a 2006 report by the Federal Reserve Bank of Philadelphia (“What a New Set of Indexes Tells Us about State and National Business Cycles,”) about only half of the states experienced all four of the national recessions that occurred between 1979 and 2006.

To see how Ohio’s business cycle compares to those of other states and the nation, we examine the state coincident indexes published by the Federal Reserve Bank of Philadelphia. These indexes combine nonfarm employment, average hours worked in manufacturing, the unemployment rate, and real wages and salaries into a composite measure of economic activity.

Several patterns stand out when comparing Ohio’s coincident index and the national index. First, Ohio’s index declined during the five national recessionary periods that have occurred since the late 1970s, including the current recession. Second, Ohio’s index falls more sharply and for a longer period of time during recessionary periods than the national index. This likely reflects the fact that Ohio has a larger share of cyclically sensitive industries, such as manufacturing, compared to the nation as a whole. Third, while the coincident index for Ohio generally tracks the national index between the early 1980s and the early part of this decade, the indexes diverge in the recovery cycle after the 2001 recession. Ohio’s economy has clearly underperformed the national economy, as Ohio generated particularly weak employment growth over this period.

A closer look at more recent levels of the indexes reveals slightly different patterns across states heading into the current recession. Ohio’s economy appeared to weaken earlier than those of Kentucky and Pennsylvania. Ohio’s economy peaked in June 2007 and declined moderately between June 2007 and March of 2008. Kentucky’ sand Pennsylvania’s economic activity continued to expand through early 2008. In early 2008, all three states’ economic activity began to fall at a sharper rate. As of November of 2008, Ohio’s index had declined 3.9 percent from its peak, while Kentucky’s and Pennsylvania’s had fallen 2.8 percent and 5.4 percent from theirs, respectively. It is interesting to note that the national coincident index did not turn down until August 2008. This delay relative to Fourth District states reflects the fact that real GDP growth in the first two quarters of 2008 was still positive.

Comparing the dates of the peaks and troughs of Ohio’s business cycle with those of the nation(NBER) shows that Ohio has typically entered periods of declining economic activity earlier than the nation and that the declines have persisted longer. On average, Ohio’s economic activity slowed down 5.5 months prior to the typical national recession and lasted 1.3 months longer. When compared to the Philly Fed’s coincident index for the nation, Ohio enters periods of declining economic activity even earlier (7.3 months) than the nation. While Ohio’s coincident index is subject to revision, a peak date of June 2007 for the current cycle is not out of the question, based upon previous business cycle data.

Business Cycle Peaks and Troughs

  Ohio (Philly Fed Index) Nation (Philly Fed Index) Nation (NBER)
Cycle
Peak
Trough
Peak
Trough
Peak
Trough
1
May 1979
August 1980
March 1980 July 1980
January 1980
July 1980
2
March 1981
November 1982
August 1981 November 1982
July 1981
November 1982
3
June 1990
May 1991
September 1990 April 1991
July 1990
March 1991
4
June 2000
January 2002
May 2001 January 2002
March 2001
November 2001
5
June 2007
June 2008
December 2007

Source: The Federal Reserve Bank of Philadelphia.