The U.S. economy is relatively diversified and not especially reliant on a single industry. Nationwide, the largest industry after real estate is ambulatory and outpatient health care services — accounting for 3.7% of GDP.
The majority of states are similarly diversified, with the largest industry accounting for less than 6% of GDP. Still, there are seven states where the largest industry outside of real estate accounts for over 10% of GDP.
State economies that rely heavily on a single industry are exposed to broader economic implications from swings in that industry. Oklahoma, for example, a state that derives 14% of its GDP from oil and gas extraction, was hit hard when oil prices collapsed in the last five years. From 2015 to 2016, the state’s largest industry contracted by 20.2%. Partially as a result, Oklahoma’s GDP declined by 3.8% the same year, the second steepest economic decline of any state.
A variety of factors can explain why certain industries thrive in certain parts. For many states, geography, topography, and the presence of natural resources largely explains their industrial makeup.
For example, Louisiana’s location along the Gulf Coast makes it a practical destination for international oil shipments. As a result, the state is home to 18 oil refineries that account for nearly a fifth of total U.S. refining capacity. Similarly, Wyoming has over a third of all recoverable U.S. coal reserves. It is no coincidence that mining is the state’s largest industry, accounting for 12.7% of its GDP. Meanwhile, farming is the largest industry in Idaho largely because its ideal soil conditions and climate. All told, in 11 states the largest industry is the direct result of the state’s natural resources and location.
Nuanced legal codes and tax incentives have also been instrumental in developing major industries in some states. In Georgia, for example, broadcasting is the dominant industry largely because of tax breaks lawmakers put in place over a decade ago. As a result, film and television production spending in the state climbed from $93 million in 2007 to $2.7 billion in fiscal 2018. Similarly, South Dakota became a banking hub shortly after state lawmakers eliminated regulatory caps on interest rates and fees for banks in an attempt to attract new business during the economic recession in the early 1980s.
Demographics and the overall age of a state’s population also can explain why a certain industry is dominant. Hospitals, nursing, and residential care facilities — including nursing homes — is the largest industry in five states: Maine, Massachusetts, Michigan, Missouri, and Montana. In each of those states, the typical resident is older than the typical American. Similarly, each of those states is home to a larger share of 65 and older residents than the 15.2% national share.
The presence of major companies can also often shape a state’s industrial composition. Publishing, which includes software publishing, is the largest industry in Washington, largely because the state is home to the headquarters of software giant Microsoft.
Similarly, Fortune 500 insurance giants Nationwide and Progressive are each headquartered in Ohio — a state where the insurance industry accounts for the largest share of GDP after real estate.
To identify the largest industry in each state, 24/7 Wall St. reviewed each state’s industries and their respective GDP contributions from the Bureau of Economic Analysis. All BEA data is as of 2016, the most recent period for which detailed data is available. With only a few exceptions, the largest industry in each state is real estate. In order to identify regional industrial differences, we excluded the real estate sector in our examination. All government sectors were also excluded. Only industries on the same subsector level were included, and as a result, broader categories such as manufacturing, construction and retail were not considered. Employment and wage figures for private employees in each industry came from the Quarterly Census of Employment and Wages. The QCEW and BEA industry data were aligned according to their North American Industry Classification System codes. Median age and share of the population 65 and older are from the U.S. Census Bureau’s American Community Survey and are for 2016. Economic output and GDP are used interchangeably regarding industry contribution.