States with the Fastest Growing Economies

U.S. gross domestic product (GDP) grew by 2.5% in 2012 after growing 1.6% in 2011, the most the economy has grown since 2006. Nationally, manufacturing, trade and the finance and insurance industry made some of the biggest contributions to growth.

While the national economy grew, some of the country’s largest state economies, including California and Texas, increased at an even faster rate. In Texas, population growth and energy production helped boost the state’s overall GDP rate of 4.8%. The oil boom also contributed to the impressive 13.4% economic growth in North Dakota. Based on GDP growth figures provided by the Bureau of Economic Analysis (BEA), these are the 10 fastest growing states for 2012.

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Some of the biggest economic growth on a state level came from the booming energy industry. In North Dakota, the mining industry — which includes natural gas and oil extraction — contributed 3.3 percentage points to growth in the state’s GDP. The biggest growth of any state in the country came in that sector. Other states also saw significant growth due to their energy industries. West Virginia’s natural gas extraction contributed the second highest state GDP growth from the energy and mining sector, at 2.44 percentage points.

Durable goods manufacturing, which includes auto manufacturing and computer parts and other similar products manufacturing, was another important growth sector for many of these states. In Indiana, it was more than half of GDP growth. In Oregon, close to 3 percentage points came from durable goods manufacturing in computer parts and other similar products.

Auto manufacturing recently has seen a major resurgence in some states. In Tennessee, about a third of the increase in GDP came from growth in durable goods manufacturing, which includes the state’s growing auto industry. In an interview with 24/7 Wall St., Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities (CBPP), noted that considering carmakers were bailed out by the government, “Auto manufacturing is actually a success story, especially if you think about where they were a few years ago.”

Many states with the most economic growth have made progress in other sectors. California, which has been one of the most depressed economies in the country for years, may have seen growth in its telecom, tech, financial markets and banks, according to Bernstein. Meanwhile, Washington and Oregon GDPs grew as a result of exports.

GDP growth often goes hand in hand with population growth. North Dakota, Texas and Utah — all top states for GDP growth in 2012 — were among the five largest for population growth that year. In some cases, explained Bernstein, population growth is the result of immigration. “You’re going to find border states with heavy immigrant presence generating faster population growth.” This was the case in states like Texas.

In states like North Dakota, population growth was in due to the increase in available jobs attracting workers to the area. North Dakota, which had the largest proportional increase in jobs last year because of its booming oil sector, also had the biggest increase in population. “North Dakota’s not an immigration story, it’s an energy story,” Bernstein added.

Based on figures published by the BEA, 24/7 Wall St. reviewed the 10 states with the fastest growing economies. The BEA’s state growth figures and the industries’ contributions to growth are measured by real gross domestic product. GDP figures published by the BEA for 2012 are preliminary and are subject to annual revision. Real GDP figures for past years already have been revised — substantially in some cases. Population figures are from the U.S. Census Bureau and reflect growth between the July 1, 2011, and July 1, 2012, estimates for each state. Employment and unemployment statistics are from the Bureau of Labor Statistics’ Local Area Unemployment group.

10. West Virginia
> GDP growth: 3.3% (tied for 8th highest)
> Real 2012 GDP: $56.4 billion (11th smallest)
> 1-yr. population change: 0.03% (3rd lowest)
> 1-yr. employment growth: 0.77% (17th lowest)

West Virginia’s GDP grew by 3.3% in 2012, with over a third of this growth due to the mining industry. The state was the nation’s second largest coal producer as of 2011. However, according to USA Today, the electric utilities that buy much of the state’s coal “are retiring coal-fired plants or upgrading plants to burn cheaper natural gas.” While coal producers may lose out in this shift, natural gas producers are likely to benefit. Other than coal, the state is also home to a portion of the Marcellus Shale, a geological formation where much of America’s natural gas is produced. West Virginia’s economic growth is even more impressive considering its population remained almost flat in each of the past two years.

9. Tennessee
> GDP growth: 3.3% (tied for 8th highest)
> Real 2012 GDP: $240.5 billion (18th largest)
> 1-yr. population change: 0.88% (19th highest)
> 1-yr. employment growth: 1.26% (20th highest)

Durable goods manufacturing contributed to roughly one-third of GDP growth in Tennessee in 2012, among the highest contributions of any state. Much of this growth likely came from the transportation equipment manufacturing sector, which accounts for a large portion of manufacturing jobs in the state — Nissan, Volkswagen and General Motors Co. (NYSE: GM) all have manufacturing plants in Tennessee. The sector continued to add jobs in early 2013 as well. But despite GDP growth of 3.3%, well ahead of the nationwide 2.5% growth rate, 8% of workers were unemployed in 2012, roughly in line with the 8.1% figure for the United States overall.

Also Read: The Best Cities for High-Tech Jobs

8. Indiana
> GDP growth: 3.3% (tied for 8th highest)
> Real 2012 GDP: $255.4 billion (16th largest)
> 1-yr. population change: 0.32% (15th lowest)
> 1-yr. employment growth: 0.38% (10th lowest)

Indiana’s GDP fell 6% in 2009, one of the biggest contractions in the nation. That year, the U.S. GDP fell by 3.3%. However, since then the state’s economy has been one of the fastest growing in the nation. In 2010, its GDP rose 6.4%, second highest in the nation, and in 2011 it rose by 2.2%, also among the higher rates that year. The manufacturing sector was the largest contributor to GDP growth in the state. It accounted for 15.3% of the state’s GDP last year, the second highest percentage in the nation. Durable goods output, as part of the manufacturing industry, was responsible for more than half of the state’s GDP growth in 2012. Both Honda Motor Co. Ltd. (NYSE: HMC) and Chrysler, which have manufacturing plants in Indiana, are expected to ramp up hiring in the near term.

7. Utah
> GDP growth: 3.4%
> Real 2012 GDP: $111.8 billion (18th smallest)
> 1-yr. population change: 1.45% (4th highest)
> 1-yr. employment growth: 1.76% (11th highest)

Utah’s economic output increased by 3.4%, boosted by some of the nation’s largest gains in durable goods manufacturing, retail trade and the finance and insurance sector. As the state’s economy has grown, so have job opportunities. In 2012, total employment was up 1.8% from just the year before, and the state’s unemployment rate was just 5.7%, among the lowest in the nation. Jobs in financial services, after falling for years due to the financial crisis, have recovered steadily since early 2010 and were up 3% over the 12 months ending in December 2012. In a recent report, the U.S. Chamber of Commerce ranked Utah among the nation’s most successful states at growing high-tech businesses and developing a highly skilled workforce.

6. California
> GDP growth: 3.5% (tied for 5th highest)
> Real 2012 GDP: $1.75 trillion (the largest)
> 1-yr. population change: 0.95% (18th highest)
> 1-yr. employment growth: 1.99% (7th highest)

California has the largest economy of any state in the nation, at $1.75 trillion in 2012. The state also was among the most damaged by the housing crisis during the Great Recession. In 2009, California’s economy contracted more than 5%, and grew only 0.3% and 1.2% in 2010 and 2011, respectively. According to the Federal Housing Finance Agency, as of the first quarter of 2013, home prices in the state were down by more than 16% in the past five years, compared to 9% for the nation overall. While still high, California’s unemployment rate has declined in recent years, from 12.4% in 2010 to 10.5% in 2012. Also, through a mixture of tax hikes and spending cuts, California recently recorded a budget surplus. Just three years earlier, the state had faced a deficit of nearly $60 billion.

5. Minnesota
> GDP growth: 3.5% (tied for 5th highest)
> Real 2012 GDP: $253.0 billion (17th largest)
> 1-yr. population change: 0.60% (25th lowest)
> 1-yr. employment growth: 0.88% (23rd lowest)

Minnesota had one of the nation’s lowest unemployment rates in 2012, at just 5.6%, and one of its highest GDP growth rates, at 3.5%. Finance and insurance contributed 0.63 percentage points to the state’s growth — more than all but four other states and roughly twice the industry’s contribution nationwide. Currently, the finance and insurance sector accounts for almost 10% of the state’s GDP, among the higher percentages of all states. However, this relatively robust GDP growth did not translate into an equally robust jobs growth; more than half of all states grew jobs at a faster pace than Minnesota.

Also Read: States With the Most Government Benefits

4. Washington
> GDP growth: 3.6%
> Real 2012 GDP: $324.2 billion (14th largest)
> 1-yr. population change: 1.08% (11th highest)
> 1-yr. employment growth: 1.12% (22nd highest)

Washington has made considerable efforts to become a major exporter, according to Bernstein. This has allowed the state to become less dependent on U.S. consumers and companies for business, and to “be nimble enough to take products to where the growth is.” In addition to exports, Washington’s information sector contributed nearly one-third of its GDP growth in 2012, the most of any state. The sector accounted for 9% of GDP in 2012, also the most of any state. However, information sector employment has been flat in recent years, with no employment growth recorded in 2012.

3. Oregon
> GDP growth: 3.9%
> Real 2012 GDP: $187.4 billion (25th largest)
> 1-yr. population change: 0.80% (21st highest)
> 1-yr. employment growth: 0.35% (8th lowest)

In each year since 2010, Oregon has been one of the fastest growing states in America. Similar to several other fast-growing states, a revival in durable goods manufacturing has contributed considerably to GDP growth. Last year, durable goods manufacturing was responsible for roughly three-quarters of Oregon’s GDP rise, the highest contribution in the nation. Overall manufacturing made up nearly 28% of Oregon’s output in 2012, while one-fourth of the state’s output was due to durable goods manufacturing, the highest percentage in the nation. Much of this durable good manufacturing was in computers and electronics components, often produced by Intel Corp. (NASDAQ: INTC). The company is the state’s largest private sector employer, with more than 17,000 workers, according to the company’s website.

2. Texas
> GDP growth: 4.8%
> Real 2012 GDP: $1.21 trillion (2nd largest)
> 1-yr. population change: 1.67% (2nd highest)
> 1-yr. employment growth: 2.17% (6th highest)

The GDP of Texas, already the nation’s second largest state economy behind California, rose by nearly twice the 2.5% clip for the United States overall. Two factors — the energy boom and population growth — have been driving economic growth, according to Bernstein. Part of a long-running trend, population rose by roughly 1.7% in 2012, the second highest increase in the nation. (The state’s population grew by more than 20% between 2000 and 2010.) Energy also has been a major factor in the state’s growth. The mining industry, which includes oil and gas extraction, contributed 0.9 percentage points to GDP growth, more than all but two other states. The mining industry in Texas is the largest of any state in the nation, accounting for $123.3 billion of the nation’s $285.2 billion in mining output during 2012.

1. North Dakota
> GDP growth: 13.4%
> Real 2012 GDP: $38.7 billion (5th smallest)
> 1-yr. population change: 2.17% (the highest)
> 1-yr. employment growth: 3.02% (the highest)

For the third consecutive year, North Dakota had the fastest economic growth of any state in the country. It also led the nation in both total population and employment growth last year. Much of this was due to the state’s oil boom; North Dakota is now the second largest oil producer among all 50 states, after Texas. Last year, the mining sector contributed almost 3.3 percentage points to the state’s impressive 13.4% GDP growth. The agriculture, construction, wholesale trade and transportation and warehousing industries also added more to GDP in North Dakota than in any other state. North Dakota’s unemployment rate has been below 4% — the lowest in the United States — for each of the past three full years, due to its thriving resource economy.

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