2018’s Best & Worst State Economies
U.S. economic growth depends heavily on the performance of individual states. But some contribute more than others. California, for instance, blossomed in 2017 as the fifth largest economy in the world, boasting a GDP larger than that of countries like the U.K., France and India. Meanwhile, Alaska, a state with valuable natural resources, is struggling with the highest unemployment rate in the country, at 7.3%.
In order to determine which states are pulling the most weight, WalletHub compared the 50 states and the District of Columbia across 28 key indicators of economic performance and strength. Our data set ranges from GDP growth to startup activity to share of jobs in high-tech industries. Read on for our findings, expert insight from a panel of researchers and a full description of our methodology.
State Economy Rankings
‘Economic Activity’ Rank
‘Economic Health’ Rank
‘Innovation Potential’ Rank
|6||District of Columbia||58.81||7||7||17|
Not all economic growth strategies are effective. For the best ways to stimulate the economy and achieve lasting prosperity, we asked a panel of experts to share their thoughts on the following key questions:
- What are the most effective ways for state and local officials to boost their local economies?
- What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?
- States often compete for business investment by offering tax breaks and other incentives. Do such efforts more often result in a net positive or net negative impact on state economies? Do such efforts create a “race to the bottom” across states?
- What makes a state attractive to potential entrepreneurs?
- In evaluating the states with the best economies, what are the top five indicators?
In order to determine the best state economies, WalletHub compared the 50 states and the District of Columbia across three key dimensions: 1) Economic Activity, 2) Economic Health and 3) Innovation Potential.
We evaluated those dimensions using 28 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the highest economic performance.
We then determined each state and the District’s weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order our sample.
Economic Activity – Total Points: 33.33
- GDP Growth: Quadruple Weight (~13.33 Points)
- Share of Fast-Growing Firms: Triple Weight (~10.00 Points)
Note: This metric measures the number of firms in Deloitte’s Technology Fast 500 list as a percentage of total firms.
- Exports per Capita: Full Weight (~3.33 Points)
- Startup Activity: Full Weight (~3.33 Points)
Note: This metric measures the rate of newly established firms.
- Quality of Legal System: Full Weight (~3.33 Points)
Economic Health – Total Points: 33.33
- Unemployment Rate: Double Weight (~4.30 Points)
- Underemployment Rate: Half Weight (~1.08 Points)
- Change in Nonfarm Payrolls (2017 vs. 2016): Full Weight (~2.15 Points)
- Change in Total Civilian Labor Force (2017 vs. 2016): Full Weight (~2.15 Points)
- Increase in Ratio of Full-Time Jobs to Part-Time Jobs (2016 vs. 2015): Half Weight (~1.08 Points)
- Median Annual Household Income Adjusted for Cost of Living: Full Weight (~2.15 Points)
- Growth in State Personal Income (2017 vs 2016): Full Weight (~2.15 Points)
- Government Surplus/Deficit per Capita: Full Weight (~2.15 Points)
- Unfunded Public Pension Plans per Capita: Full Weight (~2.15 Points)
- Share of Uninsured Population: Half Weight (~1.08 Points)
- Share of Population in Poverty: Full Weight (~2.15 Points)
- Foreclosure Rate: Full Weight (~2.15 Points)
- Growth in Number of Businesses (2016 vs. 2015): Full Weight (~2.15 Points)
- Fiscal Health: Full Weight (~2.15 Points)
Note: This metric is based on the George Mason University Mercatus Center’s state fiscal rankings, particularly the State Fiscal Condition Index, which refers to the sum of cash, budget, long-run, service-level and trust-fund solvency indices for each state.
- Building-Permit Activity: Full Weight (~2.15 Points)
Note: This metric measures the total number of new privately owned residential-building permits issued annually per capita.
- Average Educational Attainment of Recent Immigrants: Half Weight (~1.08 Points)
Note: The educational attainment of recent immigrants aged 25 and older from a foreign country is classified as having either no high school diploma; a high school diploma or equivalent; some college experience or an associate’s degree; a bachelor’s degree; or a graduate or professional degree.
- Average Educational Attainment of Recent Migrants from Other U.S. States: Half Weight (~1.08 Points)
Note: The educational attainment of recent migrants aged 25 and older from other states within the U.S. is classified as having either no high school diploma; a high school diploma or equivalent; some college experience or an associate’s degree; a bachelor’s degree; or a graduate or professional degree.
Innovation Potential – Total Points: 33.33
- Share of Jobs in High-Tech Industries: Full Weight (~5.56 Points)
- Share of Jobs STEM Professionals: Full Weight (~5.56 Points)
- Independent Inventor Patents per 1,000 Working-Age Population: Full Weight (~5.56 Points)
- Industry R&D Investment Amount per Total Civilian Employed Population: Full Weight (~5.56 Points)
Note: “R&D” refers to research and development.
- Nonindustry R&D Investment Amount as Share of GDP: Full Weight (~5.56 Points)
Note: “R&D” refers to research and development.
- Entrepreneurial Activity: Full Weight (~5.56 Points)
Note: This metric is based on the Kauffman Index of Startup Activity, which is an equally weighted index of three normalized measures of startup activity, as defined by the Kauffman Foundation: the Rate of New Entrepreneurs (percentage of adults becoming entrepreneurs in a given month); the Opportunity Share of New Entrepreneurs (percentage of new entrepreneurs driven primarily by “opportunity” vs. “necessity”); and the Startup Density of a Region (number of new employer businesses, normalized by the business population).
Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, Deloitte, United Health Foundation, U.S. Chamber Institute for Legal Reform, American Legislative Exchange Council, Mercatus Center at George Mason University, Council for Community and Economic Research, Renwood RealtyTrac, United States Patent and Trademark Office, National Science Foundation and Ewing Marion Kauffman Foundation.
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