On Friday, the Bureau of Economic Analysis released preliminary figures for GDP and personal income by state for last year. I prefer using personal income over GDP for comparing state economic performance because GDP includes corporate profits that are not distributed to individuals, but are partly based on where the corporations’ headquarters are located. So Delaware ranks very high in GDP, less so on personal income. But let’s dig into both figures.
Every state but North Dakota and Iowa had real, inflation-adjusted GDP growth in 2024. Growth was strongest across the South and weakest in the Great Plains. Note that these figures adjust for US-level inflation, but not state-specific inflation rates, so they will overstate growth for states that had faster-than-average inflation and understate growth for states that had slower-than-average inflation. With those caveats, the fastest-growing state was Utah (4.5 percent), and the slowest-growing state was North Dakota (-0.7 percent).
Personal income growth, not adjusted for inflation, looked like this in 2024. Every state saw nominal personal income growth, but the entire Mississippi River area had poor income growth, while the Pacific and South Atlantic regions did very well. The fastest-growing state was North Carolina (6.9 percent), and the slowest-growing state was North Dakota (0.1 percent).
A few states, like Arkansas and Oregon, had markedly different personal income growth and GDP growth last year. One reason for this is the changing international terms of trade. When oil prices fall, for example, that hits oil-producing states’ GDP hard right away, but it may take a little longer for the hit to personal income to arrive (drillers and refiners might not lay off staff or cut pay right away). Soft oil prices were undoubtedly a major reason for North Dakota’s economic woes in 2024.
In the short run, these sorts of industry-specific shocks play a big role in explaining why some states grow faster than others. But over time, state-level policies play a big role, too. In particular, state policies that deter population growth have a big impact on economic growth. Here are the estimated population growth figures for 2024.
The results are not too surprising. For the most part, the states with rapid population growth in 2024 (Arizona, Nevada, Utah, Idaho, Texas, Florida, the Carolinas) have had rapid growth throughout this century. Delaware is a more recent fast grower, and New Jersey is the real surprise, with a growth rate of 1.3 percent bucking its usual downward trend.
At the state level, historical fertility patterns and migration are the primary drivers of population growth — and, by extension, income growth. State governments can’t do much to encourage people to have more children, and even if they did, the effects on the labor market would come decades later; but they can affect migration. States that make it hard to build and have high taxes and regulations tend to lose people to states that have abundant housing and lower taxes and regulations. In that light, it’s not surprising that Washington (which does not have a personal or corporate income tax) is the fastest-growing state on the Pacific Coast. Or that Indiana, which has a 3 percent flat tax and a friendly regulatory climate, grows faster than its neighbors to the east, west, and north, and Louisiana and Mississippi, lowest on economic freedom in the South, lag behind the rest of the South in population growth.
In December, we’ll finally get updated estimates using state-specific inflation rates, which will provide a clearer picture of which states truly performed best last year.