Forbes; Nevada On Top of American Dream Index
Is the economy strong enough to deliver the American dream? Middle-class prosperity, that is?
We address that question with a new index that blends seven economic factors into a single number for each state. Employment growth, layoffs, construction activity and entrepreneurship are among the components in our formula.
The American Dream Index aims to capture a middle-class zeitgeist. Our jobs number focuses on goods-producing employment—in manufacturing, mining, construction and agriculture, that is—because that's where America is supposed to get great again.
We downplay the service sector, even though service keeps more people busy than production does. Why? Because the service sector too rarely offers the middle-class jobs that used to be the heart of the economy. Neither $150-an-hour doctors nor $9-an-hour retail clerks are part of the middle class.
Nevada ranks on top in the inaugural version of Forbes' American Dream Index. (Photo: SAUL LOEB/AFP/Getty Images)
The American Dream Index will be, by design, a lot more volatile than gross domestic product, the usual thermometer for economic progress. It is sensitive to recent layoff announcements and to short-term trends in job creation and in unemployment claims. It varies considerably from state to state and from month to month. Forbes compiles an annual look at the Best States for Business, which measures the strength of the local economy. The ADI is focused on the trendline.
Mass layoffs figure into our index, since those affect the animal spirits of middle America more than the small job gains and losses that drive the unemployment rate. We incorporate a measure of entrepreneurial verve from the Kauffman Foundation. We have labor force participation in the mix; some states are doing better than others at bucking the discouraging downward trend in this number.
Full coverage: The American Dream Index
The index is scaled so that the population-weighted average for the 50 states starts out as 100 for January 2017. We expect that average to move over the next few years. It will be dragged down by a recession or pushed up by a robust expansion.
The top-performing state based on recent trends is Nevada with a score of 108.8 thanks to big gains in goods-producing jobs and construction activity. Alaska scores the worst due largely to the collapse of oil prices.
The seven factors in play in the American Dream Index are below, along with the best and worst performers in the different categories at the launch of the ADI.
Bankruptcies. We factor in commercial and personal filings as reported by Epiq, a data source for lawyers. The states are compared on their rates based on the annualized filings per 1,000 people. Alabama has the highest level of bankruptcies and Alaska the lowest over the past 12 months.
Building permits. We measure both the level of permitting and the recent trend based on monthly data from the U.S. Census. New Hampshire is trending up, while North Dakota is trending down. Utah has the highest level of building permits and Rhode Island the lowest.
Entrepreneurship. This measure is derived from an annual index created by the Kauffman Foundation. Kauffman looks at startup activity, paying particular attention to whether salaried workers are choosing to strike out on their own or are becoming independent contractors after getting axed. Montana is tops for startup activity, while Wisconsin brings up the rear.
Goods-producing employment. We incorporate the trend in manufacturing, mining, construction and agriculture jobs based on seasonally-adjusted, monthly data from the Bureau of Labor Statistics. Nevada scored the best on goods-producing jobs, while Alaska ranked last.
Labor participation rate. We factor in the trend of the labor participation rate over multiple months. The BLS reports data monthly on the LPR, which measures the percentage of the population that is either employed or unemployed. Put another way, those working or actively seeking work. North Dakota has the top rate at 72.1%, but Maine has trended up the most in recent months. West Virginia has the lowest rate at 53.2%, while Louisiana fares the worst based on recent trends.
Layoffs. Outplacement firm Challenger, Gray & Christmas reports state-by-state totals of jobs lost due to large layoffs. We measure the layoff rate per 1,000 workers.
Unemployment insurance claims. The Bureau of Labor Statistics report this data weekly and we look at the trend over the past year relative to the size of the workforce.