PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Variation in State Economic Performance for First Quarter 2017

By at 3 August, 2017, 12:55 pm

by Raymond J. Keating-

In late July, the U.S. Bureau of Economic Analysis released first quarter data on real state GDP growth. As is typically the case, economic growth actually can and does vary considerably from state to state, and region to region.

Top Growth States

In the first quarter 2017, the top growth states were Texas, West Virginia, and New Mexico, and they expanded by 3 .9 percent, 3.0 percent and 2.8 percent, respectively.

Those rates of growth far outdistanced the national rate of 1.2 percent, and that was largely due to mining, namely, energy production. The BEA explained: “Mining grew 21.6 percent nationally. This industry contributed to growth in 48 states. It was the leading contributor to growth in Texas, West Virginia, and New Mexico—the three fastest growing states—which grew 3.9 percent, 3.0 percent, and 2.8 percent, respectively.”

Rounding out the top five growth states were Washington (2.7 percent) and Wisconsin (2.1 percent).  In fact, growth was so sluggish in the first quarter that only eight states grew at 2.0 percent of better, with Idaho at 2.1 percent, Maryland 2.1 percent, and Virginia at 2.0 percent rounding out those eight states.

States With Negative Growth

At the other end, seven states actually experienced an economic decline, with Nebraska’s growth rate registering -4.0 percent, South Dakota at -3.8 percent, Iowa at -3.2 percent, Hawaii at -0.9 percent, Kansas at -0.7 percent, Montana at -0.5 percent, and Minnesota at -0.3 percent.

It was agriculture that hit several of these states hard. As the BEA noted: “Agriculture, forestry, fishing, and hunting declined 39.8 percent nationally. This industry subtracted from growth in 39 states. The largest subtractions occurred in South Dakota, Iowa, and Nebraska, the states with the largest declines in real GDP. Real GDP in these states declined 3.8 percent, 3.2 percent, and 4.0 percent, respectively.”

Enabling Growth Through Policy

While economic growth varies considerably from quarter to quarter, it certainly pays for a state’s economy to be as diverse as possible in terms of major industry groups. That is best accomplished not by elected official and/or bureaucrats trying to pick winners and losers, but instead by establishing an overall policy environment that incentivizes entrepreneurship, investment and business development. That means, for example, light tax and regulatory burdens.

Texas has followed such a policy model, and it certainly has paid off in terms of faster economic growth. From 1998 to 2016, for example, real annual economic growth in Texas averaged 3.3 percent. That was 50 percent faster that the average U.S. rate of 2.2 percent over the same period.

In the end, when government intrudes and grows, the private sector is crowded out. That, in turn, means slower economic growth. So, whether at the federal, state or local level, limit government taxes, regulations, spending and debt, and the private sector has greater freedom to create, innovate, and drive growth.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

 

 

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