When we want to assess the national economy, we typically look at the growth rate of gross domestic product (GDP), as it accounts for all goods and services produced in the economy. Similar data are also available for local economies in a measure called gross metropolitan product (GMP).
Unfortunately, local GMP data are calculated only once per year and released with a nine-month lag. For more timely information, we use factor analysis to estimate the common trend (or factor) underlying the movement in 12 variables of regional economic activity. This common factor is used to produce an index of economic activity for 51 MSAs across the nation. Each index is calibrated to match the annual growth rate and volatility of GMP for the MSA. In other words, the value of the index can be interpreted as an annual growth rate of the local economy, which allows for ease of interpretation and comparison across metro areas. For more details, see this working paper.
Just as job growth and unemployment rates vary from one region to the next, economic growth of two areas (even in the same state) can also vary. The graph plots the economic conditions indexes of the two largest metro areas in Tennessee, and we can see how the Nashville metro area has grown at a faster pace than the Memphis metro area over the past few decades. During the 2001 recession, Nashville’s economy actually expanded most months. During the Great Recession, growth was negative in both regions, with growth resuming in Nashville in August 2009 and in Memphis in March 2010. In recent years, the Nashville economy has grown steadily at around 5 percent, while the Memphis economy has slowed from about 2.5 percent per year to around 1.5 percent.
How this graph was created:
Search for “metro area economic conditions” and select the metro areas you want to add to the graph. Or go to the Economic Conditions Index Release table, select the MSAs you want to view, and select “Add to Graph” at the bottom of the table.
Suggested by Maria Arias and Charles Gascon
View on FRED, series used in this post: