(Reuters) - The economies of U.S. states continued to recover in 2011, though their growth slowed considerably from a year earlier, according to a U.S. Commerce Department report released Tuesday, which signaled that some states may face rocky times ahead.
Altogether, U.S. real gross domestic product by state grew 1.5 percent in 2011, after climbing 3.1 percent in 2010, the report said.
“The recent trend of slowing growth in the overall U.S. economy is a worrisome development for the economic and fiscal outlook for those states still struggling to shake off the ill-effects of the recent recession,” Chris Mauro, head of U.S. municipals research at RBC Capital Markets, said in a note.
States are eager for their economies to improve and provide breathing room in their budgets, many of which will take effect July 1 for fiscal 2013.
The country’s 2007-09 recession devastated their revenue and drove up demand for basic services, forcing them to gut their budgets and pass temporary tax hikes. The U.S. economic recovery has had a tardy arrival in many states, raising concerns their economies may not be strong enough to fight off new threats such as unemployment or economic turmoil in Europe.
“We need to continue to be vigilant about the state’s finances, and we‘re, of course, watching what’s going on overseas,” Governor Dannel Malloy of Connecticut, the ninth fastest economic growth rate in the country, said in a statement. “We’re constantly aware of how far we have to go before any of us can feel satisfied about the economy.”
Connecticut’s economy grew 2 percent in 2011.
In 2011, the economies of six states shrank: Maine, New Jersey, Alabama, Mississippi, Wyoming and Hawaii. The declines were mild, with only Wyoming’s economy contracting more than 1 percent. That compares with 2010, when only the economies of Wyoming and Alaska contracted.
In 2009, the year states’ revenues collapsed from the recession, only seven out of 50 states saw their output grow, thanks largely to high natural resource prices.
The most astonishing part of the report was Arizona’s 1.5 percent growth in 2011, said Steven Cochrane, managing director of Moody’s Analytics. The state had been hurt by the housing market bust, alongside neighbors Nevada and California, and its economy shrank 8.2 percent in 2009. In 2010, Arizona’s economy grew 1.1 percent.
“Arizona has been surprising in its comeback and it reflects its economy is more diverse than Nevada‘s,” said Cochrane, who monitors a variety of economic indicators on the states. “I have to conclude the state is enjoying a recovery.”
According to the report, manufacturing was the leading contributor to GDP growth in 26 states, climbing 7.9 percent in 2011 after growing 17 percent in 2010. Professional, scientific and technical services contributed to growth in all states, but climbed a more modest 4.9 percent.
The Great Lakes region, an area rich in factories, expanded 1.4 percent.
“Given that manufacturing had such a strong role in the economy I would have expected the number to be higher,” said Cochrane, noting that most of the growth occurred in Michigan, home to major car companies. “Much of that manufacturing rebound was based in the automobile industry. It was less broad-based than we thought.”
The uptick in professional services, technology and business investment spending helped the west and New England, Cochrane said, while stable commodity prices helped agriculture-rich states and kept them from falling into a deep recession.
Commodity-rich North Dakota was 2011’s best performer. Largely buoyed by mining, it grew 7.6 percent, compared with 9 percent in 2010 and 2 percent in 2009.
Per capita real GDP in 2011 was greatest in the banking state Delaware, $63,159, and lowest in Mississippi, $28,293, according to the report. Per capita GDP for the entire country was $42,070 that year.
Reporting by Lisa Lambert. Editing by Bernadette Baum