Special Report

Ten States With the Fastest Growing Economies

466258533The United States economy grew 1.9% in 2013, down from the 2.8% growth rate in 2012, as growth in the world’s largest economy remained inconsistent. The largest contributors to the national economy were nondurable goods manufacturing, real estate and leasing, as well as agriculture and related industries.

While the U.S. economy grew less than 2%, the output of a number of states grew well in excess of 3% last year. North Dakota continued its torrid growth pace, leading the nation with a state GDP growth rate of nearly 10%. This year, Wyoming and West Virginia were the second- and third-fastest growing states, respectively, rebounding from slow growth in 2012. Based on data released this week by the Bureau of Economic Analysis (BEA), these are the 10 states with the highest real GDP growth rates for 2013.


Click here to see the ten states with the fastest growing economies

Click here to see the 10 slowest growing state economies

There were considerable differences in what drove national growth and what drove output in the fastest growing states, according to Cliff Woodruff, an economist at the BEA. “For the nation, it was nondurable goods manufacturing and agriculture, forestry, fishing and hunting [that] were the top two contributors to national growth,” Woodruff said.

On the other hand, in “five of the top states, [growth] was primarily a result of mining,” which includes oil, natural gas and coal production. Among these was Wyoming, the nation’s second-fastest growing state, where mining accounted for 6.1 percentage points of the state’s 7.6% growth rate.

All of the top four states for GDP growth were among the top four nationwide in terms of the mining sector’s share of growth. Additionally, three other top states were among the top 10 for GDP growth contributions from the mining sector.

Outside of those states that benefited from mining activity, a few of the nation’s fastest growing states did follow the national trend, deriving a significant share of their growth from agriculture. Among these were Idaho, Nebraska, North Dakota and South Dakota, where agriculture and related industries added at least one percentage point to growth. These states were all among the top five nationwide for the contribution of agriculture to the states’ growth rate.

Outside the mining and agriculture sectors, however, these states often shared little in common. For example, nondurable goods manufacturing contributed 1.2 percentage points to Texas’ 3.7% GDP growth, a larger contribution than in most states. However, the sector contributed far less in most other fast growing states.

Similarly, Colorado, Oklahoma, North Dakota, and Texas were all among the top states for construction’s relative contribution to output growth. However, construction output was a large drag on growth in both Wyoming and West Virginia, lowering GDP growth by 0.2 and 0.3 percentage points, respectively.

One common trait among a number of the fastest growing states, however, was a resilient government sector. According to Woodruff, “government was the largest detractor — if you will — from growth in most states.” While the government sector directly pulled down GDP nationwide, and served as a drag on output in all but 11 states, this was not the case in the fastest growing states. In fact, six of the top 10 growing states did not experience a drop in output from the government sector.

Strong GDP growth was also reflected in state job markets. The unemployment rate in all of the 10 fastest growing states was below the national rate of 7.4% in 2013. Each of the four states with the lowest annual average unemployment rates was among the 10 fastest growing states in 2013. This includes North Dakota, the nation’s fastest growing state, where the unemployment rate was just 2.9% in 2013. South Dakota and Nebraska, also among the fastest growing states, had unemployment rates below 4% last year.

Since having more people means more spending on goods and services, population growth often coincides with GDP growth. In fact, while the U.S. population rose just 0.7% between July 2012 and July 2013, the population growth in most of the states with the fastest growing economies was well above that. Five of the six states with the fastest population growth rates were also among the top 10 for GDP growth.

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, 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 the July 1, 2012, and July 1, 2013. We also used median household income 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 the 10 states with the fastest growing economies.

10. Nebraska
> GDP growth: 3.0%
> 2013 GDP: $109.6 billion (16th lowest)
> 1-yr. population change: 0.7% (25th highest)
> 2013 unemployment: 3.9% (3rd lowest)

Nebraska’s gross domestic product grew by an estimated 3% in 2013, while the U.S. economy grew by just 1.9%. The state’s job market has been in relatively good shape in recent years. Less than 4% of Nebraskan workers were unemployed in 2013, among the lowest rates nationwide. Like several other rapidly growing state economies, Nebraska’s economy relies heavily on agriculture. While the sector accounted for just 1.6% of the U.S. economy, it made up more than 10% of Nebraska’s output in 2013, more than in all but two other states. According to The Wall Street Journal, U.S. farmland prices have been on the rise for several years, particularly across the Farm Belt. In Nebraska, too, land value has more than doubled, although further growth is uncertain.

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9. South Dakota
> GDP growth: 3.1%
> 2013 GDP: $46.7 billion (4th lowest)
> 1-yr. population change: 1.3% (6th highest)
> 2013 unemployment: 3.8% (2nd lowest)

South Dakota’s agricultural industry accounted for 13.7% of the state’s economy, the most in the nation. Additionally, the industry contributed roughly 1.7 percentage points to the state’s economic growth rate, more than anywhere else in the U.S., except North Dakota. According to a South Dakota State University survey, high commodities prices have driven up the price of farmland in the state, as buyers have sought property to expand production as an investment. These were the two most common reasons to buy farmland. The expansion indicates farmers are confident in the industry. Like most states with growing economies, South Dakota’s unemployment rate was among the nation’s lowest, at just 3.8% as of 2013, second only to North Dakota.

8. Texas
> GDP growth: 3.7%
> 2013 GDP: $1.5 trillion (2nd highest)
> 1-yr. population change: 1.5% (4th highest)
> 2013 unemployment: 6.3% (17th lowest)

Not only does Texas have a rapidly growing economy, but also its GDP of $1.5 trillion in 2013
was exceptionally large in dollar terms. It was second highest nationwide last year and greater than the combined GDP of the other states on this list. GDP growth exceeded the national growth rate by a large margin in each of the last three years. By some measures, including employment and economic output, Texas has largely recovered from the recession. Booming oil production is likely the largest factor contributing to the economy’s strong growth. The mining industry, which includes oil production, accounted for 13.5% — well over $200 billion — of Texas’ economic output, five times the sector’s contribution to the national output. Economic prosperity, however, does not necessarily mean all residents are well-off. More than 22% didn’t have health insurance in 2012, more than in any other state. And 17.9% lived below the poverty line, more than in all but a handful of states.

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7. Utah
> GDP growth: 3.8%
> 2013 GDP: $141.2 billion (19th lowest)
> 1-yr. population change: 1.6% (2nd highest)
> 2013 unemployment: 4.4% (4th lowest)

Unlike most other states with rapidly growing economies, Utah cannot attribute its recent economic growth to agricultural or energy booms. Rather, the state seems to have an exceptionally attractive business climate, including relatively low taxes and a strong job market. Just 4.4% of Utah workers were unemployed as of last year, among the lowest rates nationwide. Residents were also relatively wealthy, with a median household income of more than $57,000 in 2012, well above the $51,371 median for the U.S. overall. While economic growth does not always mean prosperity for all, in Utah, income inequality is exceptionally low.

6. Colorado
> GDP growth: 3.8%
> 2013 GDP: $294.4 billion (18th highest)
> 1-yr. population change: 1.5% (3rd highest)
> 2013 unemployment: 6.8% (25th highest)

While the up and coming retail marijuana industry may one day account for a larger share of Colorado’s economy — through tourism and retail sales — it is the strong energy sector that boosted the state’s output in 2013. Mining accounted for nearly $20 billion, or 6.7%, of the state’s total output, among the larger proportions nationwide. Oil drilling activity in the state, however, has met considerable public backlash. Participation in environmental initiatives is on the rise, and there seems to be a growing desire to preserve the state’s environment. Still, the state’s energy sector has grown dramatically in recent years. Between 2007 and 2012, crude oil and natural gas production rose by 89% and 38%, respectively. Economic growth may also have contributed to prosperity among state residents. A typical Colorado household earned $56,765 in 2012, well above the national household median income.

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5. Idaho
> GDP growth: 4.1%
> 2013 GDP: $62.2 billion (9th lowest)
> 1-yr. population change: 1.0% (12th highest)
> 2013 unemployment: 6.2% (15th lowest)

Idaho’s real GDP remained essentially unchanged between 2010 and 2012. Last year, however, the state’s economy grew dramatically by 4.1%. Idaho’s agricultural industry accounted for 1.1 percentage points, or more than a quarter of that growth, five times more than the industry’s contribution to nationwide GDP growth. Last year, 8.7% of total industry output came from the agricultural sector, more than in all but four other states. As of 2012, 5.6% of Idahoan employees worked in agriculture and related industries, well more than double the proportion of Americans who did so, and more than in all but a handful of states.

4. Oklahoma
> GDP growth: 4.2%
> 2013 GDP: $182.1 billion (22nd lowest)
> 1-yr. population change: 0.9% (17th highest)
> 2013 unemployment: 5.4% (11th lowest)

Oklahoma has been one of the nation’s fastest growing states in the last three years, with its GDP rising 3.4%, 3.0% and 4.2% in 2011, 2012 and 2013, respectively. Mining is a key part of Oklahoma’s economy, accounting for 15% of the state’s output and more than half of its GDP growth last year. Specifically, Oklahoma is among the nation’s leaders in oil and natural gas production. Also, Cushing, Oklahoma, is one of the nation’s largest oil hubs and a key delivery point — much of the nation’s oil is stored, priced, and blended in Cushing. In 2013, the average unemployment rate in Oklahoma was just 5.4%, versus 7.4% nationwide. Additionally, home prices at the end of last year were up 7.9% in the past five years, among the highest increases nationwide over that time and above the 4.1% gain nationally.

3. West Virginia
> GDP growth: 5.1%
> 2013 GDP: $74.0 billion (12th lowest)
> 1-yr. population change: -0.1% (the lowest)
> 2013 unemployment: 6.5% (18th lowest)

After shrinking by 1.4% in 2012, West Virginia’s economy grew by 5.1% last year, more than all but two other states. While West Virginia is well-known as one of the nation’s largest coal miners, the state is also a burgeoning source of natural gas. According to a report by the Bureau of Business & Economic Research at West Virginia University, the state’s coal production is expected to decline in the coming years, while natural gas production has risen dramatically and is expected to continue to grow. However, outside the mining sector, the state had little in the way of growth. Last year’s 5.1% rise in GDP was driven largely by the mining sector, which added 5.5 percentage points to GDP growth, meaning, on balance, the state actually contracted outside the sector. By one measure, West Virginia is among the poorest states in the nation. The median household income in the state was just $40,196 in 2012, lower than in all but two other states.

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2. Wyoming
> GDP growth: 7.6%
> 2013 GDP: $45.4 billion (2nd lowest)
> 1-yr. population change: 1.0% (11th highest)
> 2013 unemployment: 4.6% (6th lowest)

Wyoming’s economy grew by 7.6% in 2013, just one year after its economy experienced the worst contraction in the nation. The fact that growth rates in Wyoming may be somewhat volatile should not come as a surprise. The state was the nation’s least populous last year, with slightly less than 583,000 residents.. Additionally, the state is highly dependent on the fortunes of the mining sector. Last year, 37% of Wyoming’s total output came from mining, the most of any state. The state’s budget is also highly dependent on taxes from resource extraction. Mining alone accounted for 6.2 percentage points of the state’s 7.6% growth in 2013. Wyoming leads the U.S. in coal production, and all eight of the nation’s largest mines are in Wyoming’s Powder River Basin, according to the EIA. Wyoming is also among the largest states for natural gas production.

1. North Dakota
> GDP growth: 9.7%
> 2013 GDP: $56.3 billion (5th lowest)
> 1-yr. population change: 3.1% (the highest)
> 2013 unemployment: 2.9% (the lowest)

North Dakota has been the fastest growing state in the nation every year since 2010. In fact, the state’s GDP grew by 9.7% last year after it already grew by a stratospheric 20% in 2012 alone. The state’s oil boom, driven by hydraulic fracturing — or fracking — in the Bakken shale formation, has been responsible for much of this growth. Last year, mining directly contributed 3.6 percentage points to the state’s growth rate. Other growing industries, such as real estate and construction, have also contributed to the state’s growth. State residents have benefited from this growth. The state’s unemployment rate as of last year was just 2.9%, the lowest in the nation, while home prices were up nearly 28% over the past five years, also better than any other state.

Click here to see the 10 slowest growing state economies

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