Several energy cluster states in recession

The perils of regional economies being too dependent on single industry clusters, particularly as it affects the financing of state governments, are playing out in the Great Plains. Kansas, New Mexico, North Dakota, Oklahoma and Wyoming have been or still are experiencing recessions, beginning as early as spring 2015 for two, according to a new analysis by Jason P. Brown for the Tenth Federal Reserve District.

Testing two different approaches for assessing economic status, Brown’s review of national and state recession occurrences during the past 36 years found states whose economies are heavily dependent on the energy sector experience more recessions than the nation overall. Fortunately, for most of the energy states, recessions are usually shorter in duration than national downturns.

Until the Great Recession, the business cycles of the states in the Tenth Federal Reserve District heavily dependent on the fossil energy cluster tracked well with non-energy states. Beginning in winter 2009, a strong divergence began, that appears to be expanding still. Those Tenth District states with more diversified economies are performing twice as well as the energy cluster states.

Brown’s analysis suggests Kansas, New Mexico or Oklahoma were still in recession as of September 2016, Wyoming’s downturn appears to have ended in July 2016. Regardless, over-dependence on the energy industry is still playing out in each state’s tax revenues. All five of the states listed above are facing sizable budget deficits and cuts to the areas that could help diversify the economic base, such as higher education and innovation.