Ten States With the Slowest Growing Economies

June 13, 2014 by Thomas C. Frohlich

450570609The United States economy grew 1.9% in 2013, down from the 2.8% growth rate in 2012. GDP growth of all but two states was positive last year, although economic growth at the state level varied considerably.

While some states experienced truly substantial growth, helping to drive the U.S. economy, others languished, according to a recent release from the Bureau of Economic Analysis (BEA). In all, 12 state economies grew by less than 1% last year. Maryland’s economy remained flat, the third consecutive year in which the state’s growth rate slowed. And after being among the nation’s fastest growing economies in 2011 and 2012, Alaska’s GDP fell 2.5% last year. Based on figures published by the BEA, these are the states with the lowest real GDP growth rates in 2013.

Click here to see the 10 slowest growing state economies

Click here to see the 10 fastest growing state economies

One factor that impacted growth at both the national and state levels was government spending. According to Cliff Woodruff, an economist at the BEA, “[in] some of the bottom states, government seemed to be one of the sectors that was affecting those states.” This was especially the case in Alaska and Virginia, where low government spending dragged down GDP by at least one quarter of a percentage point. In all, the government sector weighed down growth rates in 39 states.

In many of the states with the slowest GDP growth, government output as a percent of GDP was relatively high. In four of these states, the government sector contributed to more than 15% of total output. In Maryland, the government sector accounted for 21% of state GDP in 2013. By contrast, nationwide, the government sector accounted for just 12.5% of output last year.

Outside of government spending, however, these states’ economies were often very different. For example, the three slowest growing states — Alaska, Maryland and Virginia — were also among the nation’s wealthiest. Meanwhile, Tennessee and Alabama, which had among the lowest median incomes in the nation, also posted weak growth rates last year.

Industries in the private sector that contributed to underwhelming GDP growth figures differed considerably between these states as well. In Alaska, mining accounted for nearly all of the decline in output. According to Woodruff, “Alaska has continued to see a decline in [oil] production on their North Slope.” On the other hand, finance and insurance played a major part in constricting growth in New York. And in Tennessee, durable goods manufacturing and construction both weighed considerably on growth.

Slowing GDP growth does not always have an immediate affect on many aspects of the economy. Just three of the slowest growing states had unemployment rates above the U.S. rate for 2013. Additionally, the unemployment rate in a few of these states was well below the national benchmark, including in Virginia, where just 5.5% of the workforce was unemployed last year.

However, the housing market lagged alongside GDP growth in the nation’s slowest growing states. Home prices in every slow-growing state grew at a slower pace than the nation’s home price growth of 7.6% in 2013. In seven of these states, housing price rose by less than 4%. In Maine, one of the slowest growing states, home prices rose just 1.8% last year.

Based on figures published by the BEA, 24/7 Wall St. reviewed the 10 states with the slowest growing economies. The BEA’s state growth figures are measured by real gross domestic product, which accounts for the effects of inflation on growth. GDP figures published by the BEA for 2013 are preliminary and subject to annual revision. Real GDP figures for past years have already been revised. Population figures are from the U.S. Census Bureau and reflect estimated growth between July 1, 2012, and July 1, 2013. We also used eata on median household income, poverty, and food stamp participation from the U.S. Census Bureau. Last year’s unemployment rates are annual averages and from the Bureau of Labor Statistics. Home price data are from the Federal Housing Finance Agency. Information from the Energy Information Administration was also utilized.

These are America’s slowest growing states.

10. Maine
> GDP growth: 0.9%
> 2013 GDP: $54.8 billion (6th lowest)
> 1-yr. population change: -0.01% (2nd lowest)
> 2013 unemployment: 6.7% (23rd lowest)

Maine’s economy grew by just 0.9% in 2013, about half the national growth rate. While many states with slow economic growth had large output in dollar terms, Maine’s 2013 GDP was actually quite small, at just $54.8 billion, versus neighboring Massachusetts’ $446 billion GDP. Government spending accounted for 13.8% of the state’s economy last year, slightly higher than the national rate. In many cases, and in Maine particularly, low government spending last year was a drag on GDP. The government sector lowered statewide GDP growth by 0.26 percentage points last year. Nationwide, government spending lowered GDP growth by 0.12 percentage points. Nearly 18% of Maine households used food stamps in 2012, among the highest rates in the nation.

9. Illinois
> GDP growth: 0.9%
> 2013 GDP: $720.7 billion (5th highest)
> 1-yr. population change: 0.11% (6th lowest)
> 2013 unemployment: 9.2% (3rd highest)

Durable goods manufacturing accounted for 7.1% of Illinois’ output last year, higher than the 6.6% the sector contributed to national GDP. The sector, however, has been under some stress in recent years. Illinois-based Caterpillar, one of the world’s largest heavy equipment manufacturer, has suffered dramatic declines in demand for its mining equipment. As a result, the company slashed area jobs. Nearly 13% of state workers were in employed in manufacturing in 2012, among the highest proportions in the nation. Any cuts to manufacturing jobs, whether at Caterpillar or elsewhere, is likely to impact the state’s workforce. Illinois’ 9.2% unemployment rate last year was exceptionally high, greater than all but two other states.

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8. Alabama
> GDP growth: 0.8%
> 2013 GDP: $193.6 billion (25th lowest)
> 1-yr. population change: 0.34% (17th lowest)
> 2013 unemployment: 6.5% (tied-18th lowest)

Already one of the poorest states in the nation, Alabama’s economy is also slow growing. Alabama’s median household income was just $41,574 in 2012, among the lowest in the nation. Additionally, nearly one in five residents lived below the poverty line that year, more than in all but a handful of states. Perhaps as a result, 16.8% of households relied on food stamps, among the highest rates in the nation. Lower government spending resulted in a 0.27 percentage point drag on GDP growth, more than in all but four other states. However, at the end of last year, Governor Robert Bentley pointed out that his administration had generated more than $1 billion in annual savings for taxpayers. According to the Tax Foundation, as of fiscal 2011, Alabama had one of the lowest state and local tax burdens in the nation.

7. Tennessee
> GDP growth: 0.8%
> 2013 GDP: $287.6 (19th highest)
> 1-yr. population change: 0.63% (24th lowest)
> 2013 unemployment: 8.2% (8th highest)

Compared with strong GDP growth rates of 2.8% in 2011 and 3.3% in 2012, Tennessee’s 0.8% 2013 economic growth was exceptionally weak. Like Alabama, the government sector had a negative impact on Tennessee’s GDP growth. Durable goods manufacturing also weighed down growth in Tennessee, which is home to Nissan, Volkswagen and General Motors plants. The state was among the nation’s poorest, with a median household income of less than $43,000 in 2012, versus more than $51,000 nationwide. That year, nearly 18% of residents lived in poverty, while 17.7% of households relied on food stamps, both among the highest rates nationwide. The 8.2% unemployment rate in 2013 was among the highest in the country.

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6. Missouri
> GDP growth: 0.8%
> 2013 GDP: $276.3 billion (22nd highest)
> 1-yr. population change: 0.33% (16th lowest)
> 2013 unemployment: 6.5% (tied-18th lowest)

Missouri’s economy has underperformed the U.S.’s every year since 2010. This was especially the case for the nondurable goods sector last year, which was the top-contributing industry to nationwide growth but dragged down state GDP growth by 0.12 percentage points, more than any other state. However, not all news was bad for the state, as durable goods manufacturing actually contributed 0.27 percentage points to growth. Additionally, the state’s unemployment rate in 2013 was just 6.5% — lower than the national rate of 7.4%. Job growth in the state has been relatively strong over the past year, altough Missouri has yet to recover all jobs lost during the Great Recession.

5. New York
> GDP growth: 0.7%
> 2013 GDP: $1.3 trillion (3rd highest)
> 1-yr. population change: 0.38% (20th lowest)
> 2013 unemployment: 7.7% (14th highest)

New York’s economy is one of the largest in the U.S., trailing only Texas and California. The state’s total output exceeded $1.3 trillion in 2013. The financial and insurance industries are among the major industries in the state and have collectively accounted for more than 15% of its output last year. However, the financial and insurance industries were also a drag on growth in 2013, responsible for a more than 0.1 percentage point drop in GDP growth, among the worst figures nationwide for the sector. The government sector also served as a drag on GDP growth, especially troubling in a state with the nation’s highest state and local tax burden, according to the Tax Foundation. Governor Andrew Cuomo has worked to address the state’s fiscal imbalance by cutting spending while also reducing the state’s burdensome taxes.

4. Pennsylvania
> GDP growth: 0.7%
> 2013 GDP: $644.9 billion (6th highest)
> 1-yr. population change: 0.07% (3rd lowest)
> 2013 unemployment: 7.4% (19th highest)

While the U.S. has hardly been a model of consistent, sustainable growth in recent years, growth in Pennsylvania has been even more anemic. One of the largest drags on the nation’s sixth-largest state economy was educational services spending, which fell enough to lower GDP growth by 0.15 percentage points last year. Governor Tom Corbett has been criticized for cutting education spending by more than $1 billion in his first two budgets as part of plans to balance the state’s books. This year, however, Corbett’s has vowed to increase educational spending. Also not especially helpful for growth, Pennsylvania’s population barely grew last year, adding less than 10,000 residents to a state with nearly 12.8 million inhabitants.

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3. Virginia
> GDP growth: 0.1%
> 2013 GDP: $452.6 billion (11th highest)
> 1-yr. population change: 0.89% (18th highest)
> 2013 unemployment: 5.5% (13th lowest)

Virginia’s economy grew slower than that of the U.S. for the third consecutive year. Last year, both the professional scientific and technical sector, as well as the government sector, weighed down GDP growth. Still, these industries remain quite large in Virginia. The professional, scientific, and technical sector accounted for 13% of the state’s output last year, more than anywhere else in the U.S., while government accounted for nearly 19% of the state’s output, more than in all but three states. Much of the 2013 drop in growth may be the result of automatic federal budget cuts that went into effect last year. These have disproportionately hit Virginia, which is home to several major defense contractors, including Northrop Grumman and General Dynamics.

2. Maryland
> GDP growth: 0.0%
> 2013 GDP: $342.4 billion (15th highest)
> 1-yr. population change: 0.74% (23rd highest)
> 2013 unemployment: 6.6% (22nd lowest)

Despite its economy not growing in 2013, Maryland is one of the wealthiest states in the nation. Residents were exceptionally well off financially, with a typical household earning $71,122 in 2012, the most of any state in the country. As was the case in several other slow-growing state economies, a relatively high percentage of GDP came from the professional, scientific, and technical industries in Maryland — 10.0% last year, more than in all but two other states. Similarly, the government sector was also quite large, accounting for 21% of the state economy last year. As with Virginia, Maryland was significantly impacted by the federal government sequester in 2013.

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1. Alaska
> GDP growth: -2.5%
> 2013 GDP: $59.4 billion (8th lowest)
> 1-yr. population change: 0.66% (25th lowest)
> 2013 unemployment: 6.5% (tied-18th lowest)

Alaska had one of the fastest growing state economies in previous years. Real GDP grew 4.2% in 2011 and 3.5% in 2012, both among the highest growth rates in the U.S. Residents were also quite wealthy, with a typical household earning $67,712 in 2012, third most nationwide. Because of the state’s high oil revenue, Alaska has no income or property taxes, and is able to pay out annual dividends to all state residents. Such dependency on the energy sector, however, may be unsustainable. Crude production has fallen steadily since the 1980s. Alaska’s GDP growth wasn’t just slow last year. GDP actually declined by 2.5%, the only state in the nation with negative economic growth. The mining sector was the largest drag on output, lowering GDP growth by 2.55 percentage points.

Click here to see the 10 fastest growing state economies