Gov. Scott Walker cites Philadelphia Fed to say Wisconsin ranks No. 2 in economic growth

In recent weeks, Gov. Scott Walker -- and his allies -- began emphasizing an obscure measurement  to argue that his policies were improving the state’s economy: an index created by the Federal Reserve Bank of Philadelphia.

It sounds like a prestigious, important metric. But until Walker started discussing the Philly Fed report, scant attention was paid to this index of states’ economies. The report is meant to predict how the states’ economies will grow in the next six months, but  is seldom cited nationally and almost never used to compare one state with another. More on that last point later.

But after the report issued Sept. 24, 2013, the Philly Fed became a talking point for Walker and his supporters, including the Wisconsin Manufacturers and Commerce, which featured it in a $1 million television ad campaign.

For his part, Walker’s office highlighted the Sept. 24, 2013 report in public appearances, social media, and with a news release. The headline: "Wisconsin ranked #2 in economic growth."

Amid concern about jobs, is Wisconsin really ranked second for economic growth?

As we looked into Walker’s claim, we learned that  there’s good reason the report doesn’t receive much attention: The index varies wildly from month to month. In late spring, the index ranked Wisconsin’s economy as second worst in the nation, behind only Wyoming.

How did we go from bottom of the barrel to the cream of the crop?

The Philly Fed index seeks to measure state-by-state economic growth using variables such as building permits, initial unemployment insurance claims and data from a survey of manufacturers.

A key component is each state’s monthly jobs report. This figure is based on reports from only about 3 percent of the state’s employers. It comes with a large margin of error, is revised in subsequent months, and ultimately replaced with more-accurate quarterly figures that come from virtually all state employers.

The preliminary Philly Fed report for April  2013  showed only five states with contraction, assigning Wisconsin an index rank of -0.74 percent. Wyoming, with a rank of -1.29 percent, was the only state with a lower index.

Things changed in the report issued one month later. The state’s April ranking was revised to 40th. And the new report, for May, said Wisconsin had moved up to 20th place.

This volatility is identical to that seen in the monthly jobs reports. Walker’s own administration once highlighted those jobs reports as a measure of success, but now criticizes them as inaccurate. Yet the same data is used to create the Philly Fed index.

State by state comparisons?

The Philly Fed doesn’t provide a first-to-worst listing for the states, but it is easily created by ranking states by the percentage change in the states’ indexes from month to month.

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That is what Walker did in September, when he declared the August numbers showed Wisconsin ranked second. The index for Wisconsin grew 0.51 percent from July to August. The only other state that had a larger change was North Dakota, which increased 0.52 percent.

Nationally, the index changed 0.23 percent in the same time frame.

To be clear, the Philly Fed doesn’t do the ranking. The bank provides the monthly index and shows the change on a map. States are grouped into seven categories based on the size of the change. It’s a simple process to calculate the percentage change, and then sort them from highest to lowest.

After Walker touted the number, the Philly Fed issued a statement saying that it was wrong to use its data to compare performance between states: "We do not consider state rankings based on the coincident and leading indexes to be valid."

When we asked the governor’s office about this, they said such state-to-state comparisons were valid, and cited an unusual source: The Philly Fed itself.

Walker’s staff pointed us to the part of the bank’s website that explains the indexes. it reads: "The model and the input variables are consistent across the 50 states, so the state indexes are comparable to one another."

When we went back to the bank, spokeswoman Marilyn Wimp said they were sticking with their most recent statement -- don’t compare states -- despite what the website says.

And bank spokesman Thomas Elliott directed us to a January 2013 report issued by the bank that  evaluates the effectiveness of the index. That report says the index provides a good measure of states’ economies but that state-by-state comparisons are problematic because the system doesn’t provide good measurements for states that have a lot of agriculture or mining.

Here is the relevant portion: "Since the volatility of the percent change in these indexes is relatively large compared to the average change, an individual state’s ranking based on the percent change can jump wildly from one end of a relatively narrow range to the other. Rank order is not persistent, thus state rankings are misleading."

We asked Elliott if the bank has told Walker not to make state-to-state comparisons.

"We were proactive in reaching out to those who mischaracterized our indexes," he responded.

Our rating

Walker said  the Philadelphia Federal Reserve Bank ranks Wisconsin as "No. 2 in economic growth."

But the bank did not provide the information as a ranking and maintains it is not valid to make such state-to-state comparisons. What’s more, the number for each state is based in part on monthly employment numbers which Walker’s own administration has criticized as inaccurate.

Still, the fact the bank’s own website seems to invite a comparison.

We rate Walker’s statement Mostly False.