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April 06, 2023 | 13:41
U.S. Economy: Sectoral and Regional Leaderboards
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U.S. Economy: Sectoral and Regional Leaderboards |
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The Bureau of Economic Analysis recently released statistics on how the U.S. economy fared in 2022. Real GDP grew 2.1% last year, or 0.9% y/y in Q4. With the final estimate, GDP by industry was newly released along with GDP by state. Below, we look at how America’s major sectors and regions fared in 2022. Industries |
In Table 1, we rank the 22 major industries according to 2022 average growth. We also show the change in real output on a Q4-over-Q4 basis and since 2019Q4, the period immediately prior to the pandemic. With the entire economy expanding 2.1%, individual industry performance ranged from a 20.9% increase in arts, entertainment and recreation to a 10.4% decrease in construction. Among the remaining sectors, six joined construction in contraction territory. At the top of the leaderboard, the arts, entertainment and recreation sector was the most impacted by the pandemic. Real output plummeted 59% during the first half of 2020. It took two years (by 2022Q2) to fully recover as venues and events slowly reopened and resumed. It also took time for consumer caution concerning crowds to ease. However, last year marked a return to normality as the sector also recorded the largest output gain on a Q4-over-Q4 basis. At the bottom, real construction output has been dropping since its peak in 2021Q2. This is when inflation in the sector began to noticeably accelerate, mirroring disrupted supply chains. For example, last year, the industry’s chain price index increased 19.2%, among the fastest across sectors. This theme was reinforced in 2022 by Fed rate hikes and the consequent tightening of financial conditions (residential and non-residential investment being among the most credit-sensitive activities). |
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Inflation’s drag on real economic activity is further emphasized by the fact that most of the contracting sectors were also the ones with the fastest inflation rates. In addition to construction, these industries included mining (53.5% inflation, partly owing to the spike in commodity prices after Russia invaded Ukraine), the broad agriculture sector (44.4%, due to the war in Ukraine along with drought and disease), utilities (19.0%) and non-durable manufacturing (17.1%). Meanwhile, top-ranked arts, entertainment and recreation registered just 2.8% inflation. The third-ranked information sector along with fourth-ranked management of companies and enterprises were the only industries exhibiting deflation (-1.4% and -1.8% respectively). For context, economy-wide GDP inflation was 7.0% last year. Further demonstrating tighter financial conditions’ drag on real economic activity, the finance and insurance industry increased only 0.5% in 2022, and contracted 3.1% Q4/Q4. Activity peaked in 2021Q4, posting a net gain of 9.5% over the first two years of the cycle. This was the fifth-highest among sectors up to this point (the leading information industry more than doubled this two-year move), helped by record-low interest rates and record-high equity prices. However, as the Fed began tightening policy at the end of 2022Q1, borrowing costs and stock prices reversed course. The information industry not only led over the first two years; it also tops total growth over the full cycle so far (three years) at 28.8%. Interestingly, among the 22 sectors, 10 ended 2022 with real output below pre-pandemic levels. However, the utilities sector didn’t suffer a recession; output peaked later in 2020, but has since slipped (with this winter’s mild weather contributing). Real output fully recovered and peaked during 2021 in construction (see above) and retail trade before dropping. The latter reflected product shortages, goods satiation and the shift to services. StatesTable 2 ranks the states. Compared to the national average (2.1%), 20 posted stronger gains while 30 were weaker. Most states have recouped their pandemic losses, but nine showed real GDP below 2019Q4 levels. Note that Iowa and Maryland had recovered during 2021 but output has since, on net, contracted. Meantime, three states (Idaho, Tennessee and Florida) saw double-digit growth since 2019Q4 and punched gains of 4% or more for all of 2022—both about twice the national average. |
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Idaho was the fastest growing state last year (at 4.9%) and was also the biggest winner of the nation’s historic rebound from the pandemic-induced recession, growing by more than 13% since 2019Q4. That was partly owing to a population boom that grew to nearly two million people for the first time last year (+1.8% y/y), according to the Census Bureau. Only Florida’s climbed by a faster rate (+1.9% y/y) and its economic growth cracked the third spot. Meantime, Texas, which registered the fifth-fastest GDP growth, posted the fourth-largest population growth. These states all saw greater net in-migration thanks to the era of remote working, better housing affordability, and a relatively tax-friendlier environment. On the flip side, Louisiana and California were among the top 10 states to see their population shrink. The exodus weighed on activity, with these states holding in the bottom 10 of economic growth rankings. While population gains may be one factor boosting GDP growth, industrial composition can also help explain relative economic performance. States with the greatest exposure to the best-performing industries tended to rank higher in terms of GDP growth, particularly if their local industry also outpaced the nation’s. Meanwhile, states with the highest exposures to the worst-performing industries tended to rank lower in terms of GDP growth. For example, Tennessee, the second-best economy, did particularly well in the information sector, with a near-25% gain in 2022, more than three times the national average. Meantime, Florida’s info segment grew by 16%. Both of these economies also posted solid gains in management of companies and enterprises, and at the same time, were less exposed to the worst-performing industries. Notably, although California had a large share of its overall economy in information, the industry there was particularly hard-hit, posting a meagre 0.4% gain (vs. the national average of 7.6%), pushing its growth ranking down to the bottom ten. Nevada, meanwhile, was the fourth fastest-growing state thanks, in part, to its large exposure to the accommodation and food services industry as well as a relatively large arts, entertainment and recreation sector. Of course, this could mean slower growth ahead for the state as these sectors normalize. Although Idaho topped the leaderboard, it had below-average exposure to the top-performing industries. Still, almost all its sectors posted solid growth, including mining (+10%) and agriculture (+9%), despite the national economy seeing declines in those industries. Bottom-ranked Alaska has long been heavily concentrated in mining, the second-worst performing industry last year. Mining is also a big part of the economy for Louisiana, North Dakota, Oklahoma, and Wyoming. And, although Texas maintains a high exposure too, its strong information sector posted one of the best growth rates among the states at over 19% (as Austin competes to become the next Silicon Valley), while professional, scientific and technical services saw solid growth as well. For all of last year, nine states clocked in robust growth at 3% or more, while on the other end of the spectrum, eight states failed to register any gains at all. Meantime, six industries posted at least 5% growth with six contracting by at least 2%. The sectoral and regional variations emphasize that, as the U.S. economy faces the threat of a recession, some industries and states will be able to weather the mild downturn much better than others. |