America’s Fastest and Slowest Growing State Economies

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Every state posted GDP growth between 2000 and 2010, according to the latest U.S Department of Commerce data, which was released earlier this week. The growth rates, however, were very wide. Michigan’s GDP grew a little over 2%. Wyoming’s nearly doubled. This wide range reflects the extent to which GDP improvement is good fortune much more than it is due to government planning or industrial policy.  Factories close because of the worldwide economic slowdown while inclement weather can destroy crops.

The information shows how important the stability of just one or two industries in any state can be. Many of the states in the industrial Midwest lost manufacturing jobs, as would be expected. Most had slow population growth between 2000 and 2010 and a lack of economic expansion seems to have coincided with relatively low median income. States that lost major industries or where those industries were crippled were left with poorly paying jobs. The median incomes in Indiana, Georgia, Missouri, and Michigan are low and grew more slowly than wealthier states. The improvement over the ten year period amongst these states was usually strong.

The presence of natural resource may be the dividing line that separates the rapid growth states from the rest. Wyoming, North Dakota, Utah, and Alaska are all blessed with large deposits of minerals, oil, or crops. That may have hurt their economies briefly when oil prices were low. The surge in commodities values has helped them more recently.

The other salient point from the data is what a difference a few years can make. The Nevada economy has suffered as much as that of any other state in the last three years. Construction spending has collapsed with real estate prices. Tourism and gambling have also been badly hurt. Nevada’s GDP grew 51% from 2000 and its population rose 35%. The state is better off economically than it was a decade ago, but that fact is certainly lost on the people who live and work there now. The Nevada real estate collapse may be bad enough that a recovery could take another decade.

Growth often looks better when it is from a small base. Among the states with the most rapidly growing GDPs are four of the eight least populated states. Their economies are  small even when compared to weakened states like Michigan. A very modest growth in absolute GDP can translate into high double-digit growth. Absolute growth has to be remarkable to make the GDP growth rate of a large state top the national average. The only large state economy that was marked by that level of growth was Texas, the second largest state by GDP. The Lone Star state’s GDP rose 52% between 2000 and 2010. The state’s population increased 116% over the last four decades. Abundant natural resources and a strong higher education system brought people to the state who in turn took advantages of these advantages to drive even more rapid growth. Texas has a GDP of $1.1 trillion and its economic base is diversified over industries as widely apart as oil production, technology, and telecommunications. The state is home to 51 of the Fortune 500’s headquarters. Its state university system is one of the best and largest in the nation. Texas is the template for all state growth both in terms of size and diversity. Natural resources over a number of decades have raised the fortunes of many companies. That, in turn, has helped the state educate its future workforce. That educated work force has brought more jobs across a broadly diversifying base.

Michigan is not as blessed as Texas.  When the biggest industry that supported its GDP growth faltered, it had no resources to fall back on.