State Economic Watch

Very good article from Governing Magazine about the impact of reduced Colorado River flows on Southwestern states, particularly Arizona. It’s well worth a read. The seven states that share the Colorado River water have been unable to agree on a framework to replace the existing water sharing agreement when it expires at the end of this year. Meanwhile, the flows in the Colorado River Basin continue to decline and reservoirs are well below capacity. As a result of the failed negotiations, the US Bureau of Reclamation will have to impose a set of guidelines on the states, and Interior Secretary Doug Burgum has been quoted as saying that "nobody will be happy". Hopefully, Governing will continue to publish follow-up articles on this very important topic.  

To paraphrase Steve Martin in The Jerk , “The Fiscal Survey of States is here, the Fiscal Survey of States is here!”. The National Association of State Budget Officers released its Spring 2026 Fiscal Survey of States today. For anyone with a keen interest in state fiscal affairs, this is your bible.

Most of the District commentary in today’s Federal Reserve Beige Book read the same. Ten of the twelve Federal Reserve Districts reported modest increases in economic activity, with Philadelphia reporting a slight decline and San Francisco posting unchanged conditions. All Districts however, reported flat, stable, low hire/low fire labor markets. Manufacturing activity was generally reported stronger, but consumer spending was mixed, with K-shaped consumption evidenced across all Districts. The high-income consumers continue to spend freely, with “unapologetic luxury” spending noted in the Atlanta District. At the same time, moderate income consumers are reducing trip frequency and generally “squeezing more life out of every dollar before deciding to spend it” as one Kansas City District respondent put it, while the lower income tier is struggling. Ports remain under some pressure from tariffs and fuel prices, although the comments from the New York and Atlanta Districts in that regar...

The “outlook for California is slightly weaker than it was three months ago” according to the latest UCLA Anderson Forecast . The Forecast projects that California’s “bifurcated economy” will continue to outperform the US in terms of output and income growth, but that this will be principally driven by the AI, aerospace and tech industries, while the other sectors of the state's economy will struggle. The authors note that California’s unemployment rate has been above 5% for 27 months, indicating a challenged labor market, and that the state is disproportionately affected by high energy prices due to its low emissions fuel mix requirement and its significant energy-dependent trade, transportation, and logistics sectors. At the same time, they cite the negative impact of current federal immigration policy on the state’s important construction sector. The Forecast calls for non-farm payroll growth of 1.2% in 2026 and 1.5% in 2027.

In what sounds almost like a Yogi-ism (it’s so crowded nobody goes there anymore), the Nevada state economist says that the state’s relatively high unemployment rate is actually a good thing, meaning, it's high for a good reason. Nevada’s unemployment rate was 5.3% as of April 2026, one percentage point higher than the US average, but David Schmidt, chief economist at the Nevada Department of Employment, Training, & Rehabilitation, attributes this to domestic immigration rather than a poor state employment market. His point is well taken, as Nevada’s labor force increased by over 37,000 y/y in April (SA), while its unemployed count increased by only about 1,800 over that period, according to the USBLS. Further, Nevada was the only state to see a y/y gain in employment in April. Schmidt also notes that the state’s 63.6% labor participation rate is notably higher than the US rate of 61.8%.

As a general rule, I’m not a big fan of these commercially produced “first-to-worst” state rankings. More often than not, they’re Frankenstein's monster concoctions that reflect the biases and agendas of the individual or organization that constructs them. They’re generally little more than marketing gimmicks that principally serve only to generate much needed content for political press releases. The latest of these was released by WalletHub yesterday. I’ll give these guys points for being transparent about their methodology and in fairness, the majority of the metrics they are utilizing for their analysis are straightforward and objective, and are not too dissimilar to what most pros would look at. In this way, the WalletHub product seems less ideological and gimmicky than some of the other state-by-state rankings out there. You can find a link to the WalletHub release here .