The States With the Best and Worst Economies

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Detailed Findings and Methodology:

Residents of top-ranked state economies tend to be relatively affluent, while the chances of financial distress increase in poorly-ranked states. The median household income, which was not used to rank states, exceeds the national median in all 10 of the best state economies. A population with greater disposable income may be more able to purchase goods and services, which helps ensure the success of local business.

However, an affluent population is by no means synonymous with a strong economy. In fact, two of the 10 states with the worst economies — Wyoming and Alaska — have among the highest median household incomes of any state.

Among the top 10 states, only California’s poverty rate exceeds the national rate. Among the bottom 10, eight states have poverty rates that exceed the national rate.

Jobs in many high-paying industries require college education. And areas with a well-educated labor force often attract businesses in such industries. According to the Bureau of Labor Statistics, occupations that are expected to grow the most over the next several decades are also the ones that tend to require more education. In that sense, the educational attainment of a population can be a useful forward-looking factor when considering an economy.

In an email to 24/7 Wall St., BLS senior regional economist Martin Kohli wrote, “The demand for jobs with higher levels of education reflects in part the growth of the healthcare industry (driving the demand for nurses and other health care professionals) and IT spending (driving the demand for computer occupations and some management analysts).”

The presence of valuable natural resources in a state can also be a major advantage to a state’s economy, although this is not always the case. “States have different endowments of natural resources, and the extent to which these are advantageous to states can change with prices” of the resources, Kohli wrote.

Perhaps the most notable example of a state benefiting from its natural resources is North Dakota’s, where the energy sector accounts for the state’s nation-leading five-year average GDP growth rate of 4% per year.

North Dakota’s GDP contracted last year, however, demonstrating in one case that abundant natural resources are by no means a guarantee of economic growth, let alone of the other benefits expected of a healthy economy, such as steady jobs. In fact, top ranked economies with robust energy sectors seem to be the exception rather than the rule.

The natural resources and mining industries in eight of the 10 states with the worst economies employ above-average shares of the state workforce. For example, 7.9% of workers in Wyoming, the state with the sixth worst ranked economy, are employed in the sector, the highest percentage.

To identify the states with the best and worst economies, 24/7 Wall St. reviewed for each state average GDP growth rates between 2011 and 2016 from the Bureau of Economic Analysis, the poverty rate from the U.S. Census Bureau’s 2015 American Community Survey, the unemployment rate in May 2017 from the Bureau of Labor Statistics, average employment growth rates between 2011 and 2016, and the percentage of adults (age 25+) with at least a bachelor’s degree. These five metrics were scaled using the min-max normalization method, then linked to an index value by taking the geometric mean.

In addition to the components of the ranking, we considered the following state data. GDP in 2016 and industry contribution to each state economy came from the BEA. Exports as a percentage of GDP, the homeownership rate, the median household income, median home value, and uninsured rate came from the U.S. Census Bureau’s 2015 American Community Survey. The affordability ratio of median home value to median household income is a 24/7 Wall St. calculation using ACS data. Data on employment by industry, wage by industry, and the U-6 unemployment rate, or underemployment rate, came from the BLS and are annual averages for 2016.