The condition of state economies continues to improve, with personal income and employment inching up while housing prices show marked signs of recovery. The states hit hardest by the housing collapse—Arizona, California, Florida and Nevada—all show encouraging signs of recovery in that sector and more generally. A handful of small states have unemployment rates that are the envy of the larger states, but those low rates may also indicate labor shortages that could constrain growth going forward. On balance, the economic signals are positive, with some large and important state economies helping to lead the way.