While every state continues to experience the impacts of the economic downturn and resulting recession, it will be many years before people understand the full nature and causes of the financial crisis. But it appears that one of the contributing factors to both the crisis and the anemic nature of the recovery has been the weakened position of the U.S. economy in global markets. This relatively untold story of the recession and recovery is, in fact, perhaps one of the major developments in the U.S. economy, one that will have significant impacts on state economies for decades into the future--particularly if the nation continues to ignore the issue. Some have argued that, given the economic downturn, now is not the time to focus on innovation; rather, everyone's chief concern should be job creation. Yet, fostering innovation and creating jobs are by no means mutually exclusive. To be well positioned to drive innovation-based growth, state economies need to be firmly grounded in "New Economy" success factors. This report uses twenty-six indicators to assess states' fundamental capacity to successfully navigate the shoals of economic change. It measures the extent to which state economies are structured and operate according to the tenets of the New Economy. In other words, it examines the degree to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven, and innovation-based. With these indicators as a frame of reference, the report then outlines a new approach to state economic development based on the need to move to "win-win" strategies that help both states and the overall U.S. economy better compete in the new global economy. Weighting Methodology is appended. (Contains 1 box, 26 data sources and 102 endnotes.)