Gross Domestic Product Growth across States
The Bureau of Economic Analysis recently released its annual report documenting patterns of gross domestic product (GDP) growth across states. Real GDP growth slowed in 38 states in 2008.
In states with counties in the Fourth District (Ohio, Kentucky, West Virginia, and Pennsylvania) real GDP growth varied markedly in 2008. West Virginia’s growth rate (2.5 percent) was the highest of the four District states and the sixth-highest in the nation. Ohio’s (−0.7 percent) was the sixth-lowest of all the states. Pennsylvania’s real GDP growth was 1.1 percent, while Kentucky’s was essentially flat. States that were in the upper tail of the distribution in 2008 tend to be located in the Plains Region or near the Rocky Mountains and to have significant resource extraction industries. States in the lower tail of the distribution are those with heavy-manufacturing industries, such as Michigan, Indiana, and Ohio.
Specific industrial sectors contributed systematically to differences in real GDP growth across states in 2008. Manufacturing and construction generally reduced GDP growth in Fourth District states and the United States as a whole, while professional and business services, education and health services, and the information sector raised growth. The drag of manufacturing on Ohio’s and Kentucky’s real GDP growth is quite substantial and reflects, in part, the weak performance of automotive-related industries. One difference between Ohio and the other states in the Fourth District and U.S. is the relative weak performance of the financial services sector. Financial services in Ohio lowered state GDP by 0.5 percentage point.
All four Fourth District states lagged the nation in per capita GDP growth. This was particularly true of Kentucky and Ohio, where GDP per capita rose roughly $1,300 and $1,500, respectively, over the past decade. In comparison, national per capita GDP rose $5,250 over the same period.
Not surprisingly, there is an overall negative relationship between a state's GDP growth and changes in its unemployment rate. States with low GDP growth experienced, on average, more substantial rises in unemployment rates, though, to be sure, there is substantial variation in the relationship across states. For example, seven states experienced a rise in the unemployment rate of roughly 3 percentage points in 2008. The real GDP growth rate of these states in 2008 varied from a little above −2.0 percent to a little below 2.0 percent.
Likewise, those states with the largest declines in payroll employment growth from January 2008 to December 2008 tend to have lower GDP growth. This relationship is somewhat more pronounced than the one between unemployment and GDP growth. Again, this is not too surprising as a state’s production of goods and services is directly related to labor usage.