Charles Steindel

The Federal Reserve Bank of Philadelphia’s state coincident indexes in November continued to be generally soft. In the one-month changes, Hawaii, Missouri, and Nevada had increases above .50 percent, but 12 were down, with West Virginia off by more than one percent. Over the three months ending in November, four states (Hawaii, Missouri, Iowa, and Alabama) had increases of 1.00 percent or more, while eight fell, with Montana and West Virginia seeing declines of more than one percent. Over the last twelve months, three states were down (Delaware by nearly 1 ½ percent), and seven others saw increases of less than one percent. Nine states saw increases of 3 percent or more, with Alabama’s 3.89 percent at the top.

The independently estimated national estimates of growth over the last three and twelve months were, respectively, .44 and 2.15 percent. The three=month reading seems to be in line with what the state numbers would have suggested, while the twelve-month one appears to be a bit lower.

Due to the absence of state unemployment rates for October, the indexes were computed using a modified method.

State Coincident Indexes in November in 2025

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State real GDP growth rates in 2025:3 ranged from 0.4% in North Dakota to 6.5% in Kansas. North Dakota’s performance was a major outlier (Minnesota was the next weakest state, with a 2.7% real growth rate) and appears largely attributable to a major, but localized, contraction in agricultural output. The vast majority of states had growth rates above 3.3% (in Massachusetts). Among larger states, Pennsylvania and North Carolina stood out with 5.6% growth rates (Michigan and Ohio were also above 5%0, while Florida’s rate was 3.5%.  Manufacturing and finance were major contributors to growth, and states in the Midwest, as well as New York, benefitted from those.  

Personal income growth rates ranged from 6.3% in Kansas to 0.1% in Louisiana. The weakness in Louisiana was due to an aberrant sharp contraction in transfer payments following very strong growth in the second quarter. On the flip side, gains in transfers played an outside role in New York’s 4.2% . Earnings growth was unusually high in Iowa and South Dakota; unusually low in Oklahoma. 

State GDP and Personal Income in Q3 2025

Joseph G. Carson

The GDPNow model has several shortcomings, and here's an example. After the Census Bureau released October's construction spending data, the GDPNow model increased its Q4 GDP estimate to 5.4%, up from the previous 5.3%. However, a closer look at the detailed construction data suggests that the Q4 GDP estimate should have been revised downward, not upward. The GDPNow estimate for Q4 residential investment was adjusted from -5.7% to -1.0%. Yet, October's construction data indicates spending declines in new single and multi-family construction, alongside an increase in reported spending on remodeling and improvements. The latter relies on a survey that the BEA does not incorporate into its GDP calculations. Instead, the BEA uses retail spending data from building materials and hardware stores to estimate home modeling. In October, consumer spending in that retail category decreased by 1.3%.

In summary, GDPnow estimates have several shortcomings and should not be considered a definitive measure of economic activity.

The Flaws of GDPNow

Joel Prakken

Because the federal government was shut down in October the Bureau of Labor Statistics (BLS) did not conduct a survey of consumer prices that month but then reported two-month changes (for September-November) in prices with the following release of the Consumer Price Index (CPI). At the time I, in a commentary here (“A Dodgy CPI Rent Reading for November,” December 20, 2025), and others viewed the reported sharp two-month deceleration in the shelter component of the CPI with suspicion.  Subsequent methodological clarifications from the BLS confirmed those concerns.

In October, for price levels not surveyed, the BLS assumed (unreported) changes of zero from September to October. In principle, with price levels then correctly measured in November, the two-month changes reported for September-November are correct. It is as if (implied) price increases in November include catch up effects, but with one important exception: rent.

The BLS stratifies its full panel of housing units into six subpanels that are surveyed in rotation. Each month the BLS assumes the monthly change in the shelter component of the CPI equals the sixth root of the six-month change in rent reported for the currently surveyed subpanel. Since a survey was not conducted during the shutdown, the BLS assumed that the rent for the subpanel that would have been surveyed in October was the same as in April when that subpanel was last surveyed. Because in October the six-month change in rent was thus assumed to be zero so, also, was the one-month change (i.e., the sixth root of zero).

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But here’s the catch. For November, the monthly change in rent is the sixth root of the six-month change in rent reported from May to November for the NEXT subpanel in the rotation. Because that calculation was unaffected by the shutdown, the reported level of rent in November is correct but the implied monthly change in CPI-shelter does not include a catch-up effect. That won’t occur until April when the skipped subpanel is next surveyed. Meanwhile, the reported two-month change in shelter costs for November is too low by perhaps half.

To help clarify, I constructed this simple example. Suppose the level of rent increases steadily by 0.3% per month but, in October without a survey, BLS assumes the level of rent to be the same as last April. This is shown in the blue line in the chart. The monthly change in rent reported in the CPI is the sixth root of the six-month change in the blue line, shown as the maroon line in the chart. This drops to zero in October, the month of the missing survey, but doesn’t show a catch-up effect until this April.

Why does this matter? In November the two-month change in the CPI for shelter was 0.18% - or just 0.09% per month over September-November, and a sharp drop from monthly increases in the preceding months. Then, in December, the monthly increase jumped to 0.4%. One might be tempted to interpret December’s spurt as including the catch-up effect but, again, that won’t occur until April!  Rather, the 0.4% increase should be considered fundamental and suggests that increases in shelter costs, and the contribution they make to increases in the overall CPI, are not slowing as quickly as suggested by November’s report, or as quickly as hoped for. And of course, one must also interpret with appropriate wariness April’s upcoming reading on shelter costs, which likely will be strong.

A Dodgy CPI Rent Reading for November – Reprise

Sharmila Whelan

US voters have not waited for midterm elections—or even a full year—to register their dissatisfaction with Donald Trump’s turbulent return to office. In November last year, Democrats swept key state races in New York, Virginia, and New Jersey. The message from voters was unmistakable: rising living costs and the impact of higher import tariffs are biting hard.

The affordability crisis is already reshaping America’s political landscape. The _Financial Times_ examined the soaring cost of living in New York and the unexpected election of Zohran Mamdani, the 34-year-old Democrat to the office of the mayor. The numbers tell a stark story. Average childcare costs approach US$1,450 per month, yet only 14.5% of New York families can afford them. More than half of renter households spend at least 30% of their income on rent, and between 60,000 and 80,000 New Yorkers sleep in shelters every night.

And New York is far from an outlier.

Recently, a close friend visited us from Boston, and conversation inevitably turned to expenses. Even mundane purchases now come with sticker shock. A simple lunch—sandwiches for two—costs US$30 to US$35. When her German Shepherd needed an X-ray, the bill came to US$1,300; a CT scan was offered for US$3,000. Removing 11 trees from her garden cost US$9,000. She and her husband work in finance and are relatively affluent, so these examples are anecdotal—but they vividly illustrate how sharply costs have risen across the US.

When she insisted on picking up the lunch tab during her visit to the UK, we did not feel too guilty. At £54 with wine (US$71), it was a bargain, even after accounting for the US dollar’s depreciation against sterling.

Both the _Financial Times_ article and these conversations raise important questions. How widespread is the cost-of-living squeeze? How much pressure is Trump under to deliver on his MAGA agenda? And how constrained is the Federal Reserve as it balances rising inflation against already-stretched households?

**Income and Spending: A Divided Country**

In 2024, the average American took home US$64,426 after taxes, according to data from the Bureau of Economic Analysis (Figure 1). Per capita disposable income exceeded that level in just 18 states. The District of Columbia topped the list at US$92,365, followed by Connecticut at US$80,694. In contrast, residents in 33 states earned less than the national average. Mississippi ranked last at US$47,831, with West Virginia close behind at US$50,444.

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In other words, nearly two-thirds of US states have average take-home pay below the national mean, and the gap between the highest- and lowest-earning states is a staggering 48%.

Unsurprisingly, states with the highest disposable incomes are also the biggest spenders (Figure 2). In 2024, per capita consumption in the District of Columbia reached US$93,713, compared with a national average of US$58,499—a difference of 60%. Nineteen states spent above the national average, while 31 fell below it. Mississippi again ranked lowest at US$43,947, followed by Arkansas at US$46,259.

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While US wages—especially at the professional high end—are significantly higher than in countries such as the UK, the issue is not merely that Americans spend more in nominal terms. It is the sheer scale of the difference, which is becoming increasingly visible in household budgets.

During another recent visit, a cousin from the US was touring UK universities with his wife and teenage son. He explained that putting his son through three years of graduate school in the US would cost roughly US$400,000. By comparison, international tuition fees in the UK typically range from £33,000 to £105,000 (US$43,000–US$138,000). He was, unsurprisingly, hoping his son would be accepted by a British university.

**Housing, Childcare, and the Urban Squeeze**

Living in major metropolitan areas is particularly punishing. In 2023, the average New Yorker devoted 38% of total expenditure to housing. In Los Angeles the figure was 37%, and in Chicago 34%.

According to the Department of Health and Human Services poverty guidelines, in 2025 a single parent living in San Francisco would need to earn US$105,751 a year. Of that income, around 35% would go on housing, 23% on childcare, nearly 10% on medical expenses, 8% on transportation, and 8% on food. For a household with two adults and one child, the required income rises to US$115,803—yet even then, housing would absorb 32% of after-tax income, childcare 21%, and food more than 11%.

This is against a backdrop where average per capita disposable income in California stands at US$73,684. The arithmetic simply does not add up for many households.

**Spending Beyond Means**

To assess the pressure more systematically, we examined the ratio of per capita personal consumption expenditure to per capita disposable income in 2024. A ratio of 1.0 or higher indicates that households are spending all—or more—than they earn, either by running down savings or taking on debt.

Nationally, the ratio stands at 0.90, meaning the average American spends 90% of disposable income (Figure 3). We consider a ratio closer to 0.8 a sign that households are under less strain and able to save meaningfully. Only 24 states meet or beat the national average. Wyoming fares best at 0.77, followed by South Dakota and Oklahoma.

At the other end of the spectrum are Maine, the District of Columbia, and Delaware, where spending exceeds disposable income. In total, 27 states have ratios above the national average—clear evidence that financial pressure is widespread.

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The picture looks even bleaker in real terms (Figure 4). Over the period 2019–2023, real consumption growth outpaced real income growth in 34 states and nationally. In other words, purchasing power has eroded across much of the country for several years.

260109SW4.jpg

**Politics, Policy, and the Fed’s Dilemma**

This backdrop helps explain why Trump has shifted away from a “big bang” deregulation agenda or aggressive corporate tax cuts. Instead, his “One Big Beautiful Folly Bill” focuses on demand-side stimulus and household income relief—despite the irony that the lowest-income households may benefit least.

The cost-of-living crisis is also why Trump will prioritise a domestically focused MAGA agenda this year. As for the Federal Reserve, the central cut the Fed Funds rate by 75bps in 2025 but the political pressure to ease monetary policy further remains especially with consumer price inflation easing off in November.

Does this change our assessment of the US economy or our investment stance? The short answer is no. Business-cycle indicators—including profit and investment cycles—point to stronger growth in 2026. Fiscal policy remains supportive, with households set to benefit by an estimated US$3.1 trillion through tax cuts and cash transfers. Monetary policy, meanwhile, is easing.

We remain overweight US equities and expect the rally to broaden. Any near-term correction would likely be healthy rather than destabilising.

That optimism is supported by earnings data. Third-quarter US earnings growth has been both strong and broad-based. Median year-on-year earnings growth across the Russell 3000 reached 11%. Six of the eleven sectors in the S&P 500 reported positive average earnings growth, with utilities, real estate, and industrials posting robust sales growth and expanding margins.

For households, living in the US increasingly hurts. For investors, however, the outlook remains more resilient than the politics might suggest.

State Coincident Indexes in November in 2025

Charles Steindel

More Viewpoints

State GDP and Personal Income in Q3 2025

The Flaws of GDPNow

A Dodgy CPI Rent Reading for November – Reprise

The Price of the American Dream