As we’ve seen in Louisiana and West Virginia, the commodities downturn has had a real impact on state budgets.
Back in April for example, we explained how a sharp decline in oil tax revenue helped push [12] LSU to the brink of bankruptcy and in West Virginia, the impact [13] of falling coal prices has put significant pressure on the state’s books.
The commodities rout can be at least partly explained by a combination of two factors. Slumping demand from China (i.e. a cessation of the bid which, in the pre-crisis world, producers assumed would exist in perpetuity) and easy access to capital markets (thanks to ZIRP) have helped create a global deflationary supply glut [14] which will likely put continued pressure on prices for the foreseeable future. Underscoring the depth of the downturn is the following table from Morgan Stanley:
[15]
Amid the carnage, Bloomberg is out [16] with a look at which US states will be hurt the most by the commodities "meltdown." The following map shows what percentage of each state’s GDP is derived from energy, mining, and agriculture:
[17]
Here’s more color from Bloomberg [16]:
In the brutal commodities meltdown, all U.S. states are not created equal.
In fact, the impact has been vastly different. The Bloomberg Commodity Index last week reached a 13-year low and has plunged 61 percent since its peak in 2008. That matters a lot in, say, Wyoming, Louisiana, Texas and Nebraska. Not so much in New Jersey or Massachusetts, for example.
Wyoming is home to most of the top producing coal mines in the U.S. Its mining and agriculture industries generated 36 percent of its economic output in 2014, more than any other state, according to Moody's Analytics's calculations using Commerce Department data.
The top nine states on the map got at least 10 percent of their gross state product from energy, mining and agriculture last year: Wyoming, Alaska, North Dakota, West Virginia, Oklahoma, Texas, New Mexico, Louisiana and South Dakota. Another six got more than 7 percent, compared to just 3.9 percent for the U.S. as a whole.
New Jersey, Massachusetts, New York, Rhode Island and Connecticut have almost none of their economies in those industries, just 0.3 percent or less.
A year ago, Federal Reserve policy makers and many private economists viewed falling oil prices as an economic boom that would boost consumer confidence and spending. While there's been some evidence of that in restaurant sales for example, it's been partly offset by the slowdown in mining and farming that has reduced employment in a checkerboard of states.
The commodities collapse has cut monthly employment gains in the U.S. by around 50,000 a month this year, estimates Mark Zandi, Moody's chief economist in West Chester, Pennsylvania.