State GDP

BEA has released estimates of state GDP for the second quarter. Along with the new quarterly figures revised histories of state GDP were released, consistent with last summer’s benchmark GDP revision.

The highlighted figures were real growth rates from Q1 to Q2. Quarterly GDP data by state are derived by allocating GDP industry figures across the states, using fairly limited information. This suggests these quarterly growth numbers—and with them, the growth ranks assigned by BEA—with a grain of salt. Be that as it may, Texas led the way with a, well, Texas-sized rate of growth of 6.0%. When we look at the divergence by industry between Texas and the nation, we see one clear cause of the large gain there: a marked pickup in energy production. Other oil and gas producing states, such as Oklahoma, North Dakota, and Alaska, saw comparable growth coming from this sector. The other big growth sector for Texas, though, was wholesale trade. The Lone Star State saw, by a substantial margin, the largest growth contribution from this sector of any state. There is no obvious reason (other than the mechanics of the allocation method) why such a large share of the national growth of that industry in Q2 was assigned to Texas establishments. Michigan was number 2, with a 5.4% rate of growth. The prime contributor to Michigan’s strong showing was durable goods manufacturing: the GDP by industry data had shown a strong 10.4% rate of growth in Q2, and it would be no surprise to see Michigan being credited with a good portion of that growth (incidentally, the GDP by industry figure was quite a bit different than the industrial production series, which had durable production creeping up at a 2.2% rate in the spring. These data sets are not as comparable as one would think by looking at their titles).

The lowest ranking state in Q2 was Delaware. Still, its 2.5% rate of growth would normally be considered fairly respectable. When we look at regions, not surprisingly, Texas’ home, the Southwest, led the way, with a 5.5% rate of growth. The range in the other regions went from 3.3% in the Mideast to 4.5% in the Plains.

The nominal state GDP numbers get less play, but are interesting since they give a sense of the size of the tax base state and local governments have available to meet funding needs. The four largest states in population (California, Texas, Florida, and New York) all are reported to have Q2 GDPs above $1 trillion, at an annual rate—the figure in California is nearing $3 trillion (no other state is about $2 trillion).* Ten other states report GDPs above $500 billion. Many of these states—Illinois and New Jersey are prime examples—are often cited as having very serious public sector pension funding problems. When one looks at the size of the uptick in funding compared to the size of the state economies it may be that a better perspective is gained on their underlying ability to tackle such problems.

*The Q1-Q2 increase in the annual rate of Texas’ nominal GDP was about $45 billion. The level of Delaware’s nominal GDP is estimated to be about $75 billion. In other words, Texas’ Q2 growth was (at an annual rate) sufficient to offset most of a sudden disappearance of Delaware. This comparison may suggest that ranking state quarterly GDP growth rates without taking account their sizes has its limitations.