Nearly two years ago we wrote a piece on how impressive the economic performance of oil producing states was in 2013 and noted how their performance outpaced the nation by a large margin. Today, in the midst of sinking commodity prices, volatile equity markets, a strong dollar and weakening global growth, we revisit the recently released Q2 2015 quarterly GDP by state data, published by the Bureau of Economic Analysis (BEA), to see how the changed economic landscape is reshaping economic conditions across regions and industries.
This new BEA data allows us to see how specific industry sectors contributed to the acceleration, slowdown, or reversal of economic performance across all 50 states.
Interestingly, the finance and insurance sector was the leading contributor to overall growth, accelerating a respectable 12.4 percent in the second quarter of last year, and was a key contributor to growth in 28 states. The sector contributed .85 percentage points to the GDP growth across all states, followed by professional, scientific and technical services (.52), wholesale trade (.50), information (.44) and construction (.38), together fueling over 70 percent of the overall growth. Due to plunging oil and agricultural prices and chronic droughts in agriculture-heavy California, mining (including oil drilling) and to lesser extent agriculture contributed negatively to GDP growth in Q2 2015. The mining sector nose-dived 17.9 percent in the second quarter, negatively impacting economic growth in 49 states. Construction was a bright spot last summer, growing 9.8 percent in the second quarter, and positively contributing to real GDP growth in 48 states and DC.
Washington state reported the fastest growth rate of 8.0 percent in Q2 2015, following a modest 1.6 percent in the first quarter. States with negative economic growth, not surprisingly, include energy-dependent states like Oklahoma, Wyoming, West Virginia, and North Dakota, where the mining sector alone subtracted more than 2.0 percentage points from real GDP growth.
Growth trends have been flipped on their head over the last 18 months. It’s no wonder the market is scratching its collective head wondering what to make of it all. Most of the states that are struggling now used to be the fastest recovering and most promising states in the post-Great Recession U.S, creating thousands of jobs in mining, construction, durable goods manufacturing and related industries. We expect these regions to continue performing at subdued levels in the near-term until local oil-production and prices start seeing some signs of life.
Combined production of the top ten oil producing states was 94 percent of the total U.S. crude oil production in October 2015. Therefore, low crude oil prices have a significantly larger impact on a relatively small number of states where oil is the main lubricator of economic activity. In the direct line of fire are such states as Texas, North Dakota, Alaska, Wyoming, Oklahoma, and Louisiana. Due to their large and diversified economies, California and Colorado will be affected to a somewhat lesser extent.
On the positive side, the majority of states will likely see uninterrupted economic growth despite these oil and mining industry challenges.
To learn more, check out this week’s U.S. Outlook Report.
Tags: economy, finance