Using state indexes to define economic regions in the US

When studying the interaction of multi-state regions in the US, regional economists typically use the regional divisions developed by the Bureau of Economic Analysis (BEA). The BEA's grouping of the 50 states into eight regions is based primarily on cross-sectional similarities in the states' socioeconomic characteristics. Since many economic studies of regions concentrate on similarities and differences in regional business cycles, it is also appropriate to group states into regions based on some common cyclical behavior. This paper groups states into regions based on common movements in state indexes of economic activity. Comparable indexes are estimated for the 48 contiguous states, and cluster analysis is applied to the monthly changes in these indexes to group the states into regions with similar business cycles.The cluster analysis identifies six distinct regions consisting of contiguous states with similar monthly changes in their economic activity indexes. These regions differ in varying degrees from the commonly used BEA regions.