It's The Economy, Stupid

One of the main concerns I have had over the years is whether or not a small jurisdiction in North America can grow its economy in a sustained way without a large boost in mining/oil and gas development.  The experience in Canada isn’t very heartening.  Among the small provinces – significant growth in the economy over time tends to be correlated to a heavy expansion of mining/oil and gas development – Saskatchewan and Newfoundland and Labrador (before the oil price collapse).  The notable exception is Manitoba.  As I have written elsewhere Manitoba has embarked on an immigration-led economic growth strategy.  PEI has made a smaller attempt at this.

But 10 provinces is a small sample.  What about in the US?  At first glance the same, disheartening trend seems to hold.  North Dakota’s GDP over the past decade has boomed up a cumulative 72% but the mining sector GDP is up 582%.  Oklahoma likewise had strong GDP growth but mining GDP is up 86%.

But looking at all smaller states there are some interesting ones.  Iowa, Montana, Nebraska, Oregon, South Dakota, Utah and Washington have all witnessed well above GDP growth over the past decade – with flat or declining GDP from mining.  How?  They are small states, many geographically isolated, etc.  Frankly, they look a lot like New Brunswick.

Iowa – It’s growth was led by agriculture, finance and insurance, professional services, accommodation and food services, and administrative services.

Montana – It’s growth was led by agriculture, non-durable goods manufacturing, information, finance and insurance, health care, professional services, and administrative services.

Nebraska – It’s growth was led by agriculture, utilities, wholesale trade, information, finance and insurance, health care, professional services, and administrative services.

Oregon– It’s growth was led by utilities, durable goods manufacturing (mostly computer/electronic equipment), professional services, administrative services, education, and health care.

South Dakota– It’s growth was led by agriculture, wholesale trade, information, health care, professional services, and administrative services.

Utah – It’s growth was led by agriculture, non-durable goods manufacturing, retail trade, information, health care, education, professional services, and administrative services.  Utah has seen a 54% increase in GDP from arts, entertainment and recreation too.  Hmm.

Washington – It’s growth was led by agriculture, durable goods manufacturing (transportation equipment) retail trade (42% growth!), information, education, health care, professional services, and administrative services.

A first level read on this is heartening for a place like New Brunswick.  We have growth potential in agriculture, too.  We have generated considerable export revenue from professional and business services.  We have not been as successful with information, education and manufacturing.  It’s also interesting that tourism (the proxy industry accommodation and food services) only shows up once as a significant contributor to GDP growth (Iowa).   Generally speaking accommodation and food services GDP will track – over time – overall industry growth as it mostly services in-state demand.  States with growing tourism sectors will see GDP growth outpacing the overall economy.  As the chart shows only one of the states here saw A&F GDP grow faster than the overall economy.

 

The challenge, of course, comes back to what are the drivers of export-led growth in sectors such as professional services, business services, and even agriculture to a lesser extent.  The main driver is talent.  Jurisdictions that can’t supply workers to these industries will not see growth.  Firms looking to service export markets will not set up and grow in places that cannot supply the talent for growth.

It’s good news that a few small states (and Manitoba!) have shown the way here with strong GDP growth over a longer period of time without the benefit of mining/oil and gas.