Tampa, Florida
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Gross domestic product, or GDP, is the broadest measure of overall economic growth. Nationally, GDP growth of 2% to 3% is generally considered healthy, and that’s what we are seeing in the United States today. The GDPNow measure from the Atlanta Federal Reserve estimates that the economy is growing at a 2% pace.

While GDP is typically discussed on a national level, we can also drill this data down by state and metro. In doing so, we can see what areas are the most meaningful to the U.S. economy and which ones are growing or contracting. The chart below shows the top five states by share of total GDP.

Note from the data:

  • The top five states represent more than 40% of the U.S. economy. The latest data shows the top five states account for 41.2% of the economy, up slightly from 40.6% in 2018.
  • GDP share and population go hand in hand. The top four states for GDP share align with the top four for population. Illinois ranks sixth for population (behind Pennsylvania) but ranks fifth for GDP share.
  • California is still an economic powerhouse. Despite some high-profile corporate relocations from the state and some outbound migration, California actually gained share as a percent of total U.S. GDP since 2018. Texas and Florida have also gained share over the same period.
  • New York and Illinois lost share. The declines correspond with migration out of colder, slower-growth regions (Midwest, Northeast) toward the warmer and faster-growing economies of the Southeast.

When drilling into the metro-level economic growth data, we see some of the shifts we’d expect. For example, prior to the pandemic, California had two metros in the top 10 for annual growth. The latest data shows none. Seattle was also in the top 10 but has since been bumped off the list.

Note, although some of California’s metropolitan areas have hit a rocky patch in terms of growth (i.e., San Francisco, San Jose) the rest of the state still performed relatively well, with San Diego, Sacramento, Los Angeles/Orange County, and Riverside all posting economic gains. Thus, although San Jose and San Francisco have lost steam, the state still gained share since 2018.

In the most recent data, Texas and Florida’s relative strength is apparent. For example, Austin took the top spot, and Dallas came in fifth. Florida, though, came in the strongest, with four metropolitan areas in the top 10. This shows the shift of economic activity to the Southeast that has happened over the last several years.

Everything Is Bigger in Texas (and It Keeps Growing)

Texas is benefiting from numerous strong drivers of economic growth. The main one is strong domestic migration to the state from more costly areas such as California. The population relocation is also driving businesses to the state. Since 2020, 139 firms have relocated their headquarters to Texas, with 40% of these firms originating in California. This is attributable to Texas’ pro-business climate, featuring in the top 10 (No. 6) of CNBC’s latest best states for business rankings. Texas also has no corporate income tax or state individual income tax, which gives further incentives for companies and people to relocate to the state.

Texas has traditionally been viewed as an affordable market with relative bang for the buck for housing. However, as with other growing areas, affordability has become an issue, especially in high-demand and in-migration metropolitan areas like Austin and Dallas. The affordability crunch has slowed the housing market, but the economic impact of Texas can’t be denied.

Florida’s Appeal Expands Well Beyond Retirees

Similar to Texas, Florida is seeing a population boom. Florida has often been seen as a retirement destination—and it still is— but, increasingly, other factors are bringing residents into the state. As with Texas, Florida has seen large growth in companies relocating to the state, including the investment firm Citadel founded by billionaire Ken Griffin. Florida was also ranked in the top 10 (No. 8) by CNBC in its best states for business rankings. Similar to Texas, there is no state individual income tax, an attractive motivation for relocators.

Florida, though, has also been a victim of its own success as housing has become increasingly unaffordable. Many top destination metros in Florida (Cape Coral, Tampa, and Orlando) are some of the most unaffordable in the nation relative to incomes.

Shrinking Metros and States

While select markets in the Southeast are growing, some metros are losing steam. Some of the largest losers in terms of GDP for 2022 on a metropolitan level were Bakersfield, California (-3.3%); Stockton, California (-2.2%); and Tulsa, Oklahoma (-2.2%). As we mentioned, California is still a state economic power, but it has been experiencing more uneven growth.

At the state level, the three states that lost the most GDP share between 2018 and 2022 were Illinois (-0.3 percentage points), Pennsylvania (-0.2 percentage points), and New York (-0.2 percentage points).

Key Takeaways

Many of the shifts across the country are in response to the pandemic and the accompanying change in where and how people work. People have been willing to relocate to areas with more space and a relatively low cost of living.

As areas like Florida and Texas continue to grow, however, they will have to work to maintain affordability while still attracting residents. So far, many growing states have been able to navigate affordability challenges effectively, but further economic and population gains will continue to bring tension between affordability and growth.