Uneven State Growth and Local Impact

Following key economic indicators helps you make better decisions in annual revenue forecasting, budget development or long range planning. This week we call your attention to Gross Domestic Product (GDP) by state.

State Performance Impacts Local Options

Your community is unique and may be doing better or worse than your peer cities, but keep your state’s performance in mind. Education and infrastructure funding is heavily dependent on state funding. These services drive long-term economic growth. Also, states set broad tax and regulatory policy that limits what local communities can do. To fix their budget problems, states often shift the burden on localities. GDP is a good indicator of your state’s overall performance.

What is State GDP?

GDP by state is released every calendar quarter, with about a quarter delay, from the U.S. Bureau of Economic Analysis (BEA). It is a state version of national GDP. GDP is the final value of every good and service produced in a place. Our analysis compares [first quarter of 2016] to the first quarter of 2015> We are interested in absolute changes and the relative performance of the states. We discuss 51 jurisdictions, because the BEA considers the District of Columbia a state for their calculations.

Uneven State Performance Compared to the U.S.

Total growth over the year for all states gives us a 3.3% national economic growth rate. Performance from state to state varied. There were 29 states that grew faster than the overall U.S. rate. There were 14 states that grew slower and there were eight states that had shrinking economies. This diverging pattern across the country has been common since the recovery from the financial crisis. Let’s look at the best and worst performers as groups.

Fastest Growing States

Among the faster than average growth group, seven states grew at least 150% faster than the U.S. These grew at 5% or faster over the year, and included: Maine, New Hampshire, New York, Florida, Tennessee, Virginia and Washington. Combined, these represent 21% of the total U.S. economy ($3.8 trillion.) Their total growth was $195 billion. This means they accounted for one-third of the total growth in the country.

Shrinking State Economies

On the other end of the spectrum were eight state economies that shrank over the year. These include: North Dakota, Louisiana, West Virginia, New Mexico, Oklahoma, Texas, Wyoming and Alaska. These eight states account for almost 13% of the U.S. economy ($2.3 trillion.) They lost a combined $48 billion in economic activity. Collectively their declines shaved a third of a percentage point off U.S. growth over the year. Given recent low fossil-fuel prices, it is unsurprising that these poor performers are energy-producers.

These diverging absolute growth rates mean some states’ share of the total national economy is changing. Some states grew in relative importance while others declined. In the last year, four states increased their share of national GDP: New York, Florida, Tennessee and California. Five states lost absolute national share. These were: Connecticut, Illinois, Alabama, Louisiana and Texas. The remaining 42 states maintained their relative importance in the U.S. economy.

 

A year of data is not destiny. It is a good reminder, however, that troubled state economies often mean pressure for local governments as states reduce local aid. In a few weeks we will be reporting a more detailed study of how state economic performance has been affecting local government finances.

What’s Next

Next week we will look at one of the most important tools for helping local leaders make better – fiscal impact analysis. In the meantime, sign up for email updates and let us know how we can help you nurture your community.

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