Measuring economic conditions: an extension of the Stock/Watson methodology

This study develops an economic indicator tailored to measure economic conditions at the state level by recognizing that a state's economy is an integrated part of the region and responds to both regional and national economic outlooks. This article applies our methodology to the state of Rhode Island. In the case of Rhode Island, the addition of a regional economic indicator appears to make a significant improvement over the Federal Reserve Bank (FED) of Philadelphia coincident index. Therefore, this preliminary study indicates that it is worthwhile to expand this project to include all 50 states.