How do state economies across the United States stack up? The U.S. Bureau of Economic Analysis (BEA) released new quarterly gross domestic product (GDP) data by state for the past 10 years (2005–2014) aimed at answering that question.
The statistics include information for 21 industry sectors and are reported in both current and inflation-adjusted chained (2009) dollars. The reason for this new compilation is to better show the “accelerations, decelerations, and turning points in economic growth at the state level, including key information about the impact of industry composition differences across states.”
Looking at the composition of the U.S. economy, about 88 percent of output (real gross product or RGP) is generated within the private sector. The largest category is “real estate and rental and leasing,” which accounted for more than 13 percent, followed by manufacturing with 12 percent. The next-largest sector is health care and social assistance, with just over seven percent. Output grew by almost 14 percent over the 10-year period, with a notable drop during the Great Recession and then recovery in the intervening years. The sector with the largest amount of output growth was real estate, followed by health care and social services then professional, scientific, and technical services. Manufacturing of durable goods (those lasting for more than a year) was also a notable source of expansion, though nondurable manufacturing declined slightly. In addition, there was notable shrinkage in the level of construction output.
The largest state economy is California, which as of the end of last year was producing almost $2.4 trillion in annual RGP, more than 13 percent of the national total. Texas was next, with about $1.7 trillion in yearly output (almost ten percent of the U.S. total), followed by New York ($1.4 trillion) and Florida ($0.9 trillion). Looking at the total percentage change over the last ten years, California slightly exceeded the national pace of RGP expansion with total growth of 15 percent, and New York fared somewhat better (17 percent). Florida, however, experienced less than three percent real growth. Texas was the success story, with total growth over the period of almost 43 percent.
California’s largest industry is real estate, which comprises 16 percent of the state economy (as defined by output). Next is manufacturing with 11 percent. California’s concentration in the information sector is almost nine percent, notably larger than that in Texas (less than four percent). California’s economy is also more concentrated in professional, scientific, and technical services than Texas (nine percent and six percent, respectively). These sectors are likely to be growth leaders going forward and are a worthy focus of economic development efforts.
In Texas, the largest category is manufacturing (at about 14 percent) followed by mining (12 percent). Real estate and rental and leasing is next, with less than ten percent, and health care and social services is five percent. It’s no surprise that Texas is more driven by mining and manufacturing, particularly nondurable manufacturing (which includes refining), than the nation as a whole. The oil surge was a primary contributor to the state’s growth over the past decade, with mining growing in importance over the ten years from eight percent of total Texas RGP to 12 percent. The sector is also part of the reason Texas entered the recession later and emerged earlier than other areas. It also explains part of (but certainly not all of) the state’s strong output expansion.
In New York, the “finance and insurance” industry group is the largest, comprising almost 18 percent of output; the importance of the industry group has also grown significantly over the past ten years. Real estate is the next-largest segment (14 percent). Manufacturing is less important to the New York economy at only five percent. Florida’s economy is concentrated in real estate (17 percent) and health care and social services (almost nine percent).
One problem with the BEA’s new dataset is that it ends as of the fourth quarter of 2014, so it doesn’t fully capture the recent changes associated with the dramatic decline in oil prices. A look at the more timely employment data from the U.S. Bureau of Labor Statistics (BLS) reveals more clearly what has been happening recently. While the pace of growth in Texas has certainly slowed (as expected), the state continues to generate jobs. In response to slowing in oil exploration and production, Texas saw a small contraction in employment for a couple of months this spring, but was quickly back on track (though as I have described previously, there will be a lingering and substantial residual negative effect compared to where we would be with high oil prices).
In July, Texas gained 31,400 jobs, compared to additions of 80,700 in California and 30,500 in Florida. While gains here were smaller, the unemployment rate remains significantly lower in Texas (at 4.2 percent) than in the United States as a whole (5.3 percent) and many other states including California (6.2 percent).
The strong growth in the mining sector led to a substantial part of output growth in Texas, but the state continues to generate jobs despite slowing in drilling activity. Efforts to diversify the Lone Star State’s business complex over the past 30 years have helped protect the economy from the inevitable cycles in oil and gas. We can look to other states to see what they are doing particularly well and see what lessons we can learn. Differences in the composition of economic activity help explain variation in growth patterns and can help inform discussions related to potential economic development efforts and other policy initiatives.