Monday, May 22, 2017

The Wyoming Economy and Other States

Last week I reported on the poor performance of the Wyoming GDP. Today, let us take a look at how our state compares to the rest of the country.

To begin with, let me repeat the growth track record for the private sector. Figure 1 shows annual, inflation-adjusted growth numbers for our private sector, reported quarterly, since 2006:*

Figure 1

So how does this growth record stand up in a national comparison? To begin with, here are the private-sector growth rates for 2016 for all states:

Table 1
Private sector growth 2016
Washington 4.00% Maryland 1.45%
Oregon 3.61% Missouri 1.38%
Georgia 3.39% Nebraska 1.35%
New Hampsh. 3.36% Pennsyl. 1.32%
Utah 3.21% Illinois 1.29%
Florida 3.19% Minnesota 1.25%
California 2.98% Connecticut 1.16%
Hawaii 2.79% Wisconsin 1.04%
S. Carolina 2.50% Arkansas 1.01%
Nevada 2.41% New York 0.87%
Massach. 2.40% Iowa 0.85%
Idaho 2.38% Mississippi 0.81%
Arizona 2.34% Vermont 0.63%
Tennessee 2.33% Virginia 0.58%
Colorado 2.09% Kansas 0.43%
Michigan 2.05% Texas 0.30%
N. Carolina 1.86% Delaware 0.12%
Ohio 1.85% Montana -0.06%
Kentucky 1.82% Louisiana -0.52%
Rhode Island 1.74% New Mexico -0.94%
New Jersey 1.68% W. Virginia -0.97%
South Dakota 1.67% Oklahoma -2.71%
Indiana 1.57% Wyoming -4.17%
Alabama 1.53% Alaska -5.98%
Maine 1.50% N. Dakota -7.30%

It is worth noting that Alaska, despite its sharper GDP downturn in 2016, actually has taken less of a beating on the job front. It appears as though their non-minerals private sector is somewhat more resilient than ours.

One of our problems is our heavy dependency on government, especially in many local communities. Figure 2 reports the private sector share of our state's economy. At the top of the list we find states with the largest private sectors; it may come as a surprise that Illinois is second in the nation. After all, we have heard about their extreme budget problems, which surely are indicative of an over-bloated government. However, GDP numbers do not reflect such financial phenomena as pension obligations or the cost of government debt. The national accounts system that produces GDP statistics measures real-sector activity, where people get paid for producing a good or a service.

With this in mind, it is troubling, quite frankly, to note that Wyoming, for 2016, ranks 43rd of all the states. Our private sector's contributions to the economy - to GDP - is smaller than in New York and California:

Figure 2

As an illustration of how much the private sector has weakened in our state, in 2007 and 2008 it produced 88-89 percent of all value in our state's economy. Today, that share would have put is in the top-ten of all states.

The weakness of the private sector has many implications, of course, one of which is that it would be a very bad idea to impose new taxes on the businesses that are still open in our state. A gross receipts or corporate income tax would be particularly harmful. 

To reinforce this point, consider how we rank in Table 2, which reports average private-sector growth rates for the past five years:

Table 2
Five year average
North Dakota 5.06% New York 1.51%
Texas 4.23% New Jersey 1.47%
Oklahoma 3.68% Wisconsin 1.47%
California 3.54% Nevada 1.44%
Colorado 3.31% Missouri 1.35%
Utah 3.30% Arkansas 1.29%
Washington 3.30% South Dakota 1.27%
Florida 2.79% Illinois 1.27%
Georgia 2.70% Kentucky 1.24%
Tennessee 2.56% Kansas 1.23%
South Carolina 2.35% Alabama 1.23%
Idaho 2.28% Rhode Island 1.18%
Michigan 2.27% Delaware 1.18%
Iowa 2.20% Maryland 1.16%
Massachusetts 2.13% Oregon 1.03%
Pennsylvania 2.06% New Mexico 0.98%
Arizona 1.90% Virginia 0.88%
North Carolina 1.90% Maine 0.75%
Ohio 1.89% Mississippi 0.74%
Minnesota 1.88% Vermont 0.36%
Hawaii 1.87% Connecticut 0.27%
New Hampshire 1.84% West Virginia 0.08%
Montana 1.58% Louisiana 0.02%
Indiana 1.58% Wyoming -1.37%
Nebraska 1.57% Alaska -1.51%

On the one hand, it is interesting to note that states with significant natural-resource dependency rank at the bottom - West Virginia, Louisiana, we and Alaska - but on the other hand, North Dakota, Texas and Oklahoma made the top of the list. So did Colorado, which by at least some accounts now produces more oil than Wyoming does. But it is also worth noting that Connecticut is in the bottom-five, a state that, as I explained the other day, is rich on wealthy income-tax payers. This is another warning signal to our state lawmakers: if you try to remedy a budget problem by raising taxes or, as it is also called, diversifying the tax base, you end up hurting the economy without solving the budget problem. 

Now, imagine where we would be if we imposed new taxes on a resource-heavy economy.
*) All data in this article is from the Bureau of Economic Analysis.

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