State economic quality: Iowa, Illinois on divergent paths
Twice each year, global investment management firm Conning releases its State of the States credit quality report. Conning ranks each of the 50 states based on 13 factors such as employment growth, economic growth, income levels, housing activity and various credit-specific metrics. The purpose is to assign a ranking that reflects each state’s ability to repay its debts and the general health of its economy.
Conning’s latest report reflects that, in the past six months, there has been a gradual improvement in state credit quality across the nation. Two contributing factors are the broader U.S. economic growth that has driven job creation and additional tax revenues and a general reduction in the growth rate of state spending.
The western and southwestern states have the highest concentration of top-ranked states. Conversely, there is a heavy concentration of lower-ranked states spread out across the midwest and south. Obviously, on a state-by-state basis, credit quality ranges from the good, the bad to the ugly. The top five ranked states are Colorado at No. 1, followed by Idaho, Utah, Texas and Nevada. The lowest-rated states are No. 46 New Jersey, followed by New Mexico, Kentucky, Louisiana and lastly, Mississippi.
But what about Iowa and Illinois? Where exactly do they fall in this 50-state comparative analysis?
Iowa is ranked No. 22. Among its strengths, Iowa has the second lowest state-wide unemployment rate. It also has the fourth lowest state debt per personal income. This ratio of total state debt compared to its citizens’ income helps assess a state’s ability to repay its debt obligations through various tax revenues. Finally, Iowa has the fifth lowest state debt per capita, or, the amount of state debt attributable to each person in the state.
But Iowa’s weaknesses are notable when compared to other states. It ranks No. 49 in annual personal income growth and No. 49 in annual state economic growth.
Unfortunately, for Illinois citizens, their state’s economic condition is not as vibrant as its Iowa neighbor. Illinois is ranked No. 42. For its relative strengths, Illinois has the eleventh highest annual personal income growth. It also has the twelfth highest state economic output per capita. This is the total dollar-value of all goods and services produced divided by the state’s population, which helps measure economic production and productivity.
But Illinois’ budgetary woes, blistering high taxes and miserable credit rating continue to plague its overall economic health. Of all 50 states, Illinois’ credit rating ranks dead last, with an investment grade just above junk, or speculative classification.
As a result, Illinois ranks No. 49 in state debt per personal income (compared to Iowa’s No. 4 ranking). This conveys the heavy tax burden placed on Illinois citizens to pay off the state’s massive debt load. Illinois also ranks No. 42 on the ALEC-Laffer Economic Index, which measures a state’s economic outlook based on 16 state policy variables, including personal and corporate income tax rates, property and sales tax burdens and state minimum wage, among others. For those keeping score, Iowa’s index ranking is No. 29.
Finally, Illinois’ troubling current and projected economic climate are likely the driving factors in its No. 48 ranking in population growth. According to the U.S. Census Bureau, Illinois has had four consecutive years of population decline. From July 2016 to July 2017, 83 of Illinois’ 102 counties experienced a population loss. The main cause of this loss was Illinois citizens relocating to other states at a rate of one person every 4.6 minutes! Chicago’s Cook County experienced the greatest loss (20,000) – the largest population loss of any county in the nation. Iowa’s population growth ranking is No. 25.
As we approach the final days of the third quarter corporate earnings season, this will be the last summary guide I’ll provide to help track the progress of this quarter’s results. Overall, this continues to be one of the strongest earnings seasons in nearly a decade. After four weeks, of the 445 (89 percent) S&P 500 companies that have reported so far, third quarter earnings have increased by 27.8 percent over the past year – above the pre-season estimate of 19.3 percent. Also, third quarter revenues have increased by 8.6 percent – above the initial 7.3 percent estimate.
Of the 11 sectors that make up the U.S. economy, the energy sector continues to report the highest earnings growth rate at 115.9 percent, followed by the financial sector at 44.8 percent. The industrial sector, which includes manufacturing and construction companies, ranks seventh with an earnings growth of 19 percent. John Deere is one of the last industrial companies to report its earnings, scheduled for Nov. 16.
Mark M. Grywacheski, Investment Advisor
Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets, or developments mentioned.
Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
