Energy boom fuels economic growth in Midwest states
06/25/2014 3:34 PM
06/27/2014 5:57 PM
While the national business outlook remains tepid, the energy sector is driving fast economic growth in some states.
A drilling boom for oil shale and natural gas has spurred prosperity throughout the middle of the United States. Despite having mostly smaller economies compared with coastal states, these states will continue growing for at least five more years, energy economists project, and they’ll have a positive impact on American jobs and the trade balance.
“It’s a boomtown mentality, something the West hasn’t seen for a long time,” said Scott Anderson, senior vice president and chief economist at Bank of the West in San Francisco. “You start to think back to the gold rush days in California. You really do see that middle strip of the country outperforming the coasts for a change.”
In 2010, East Coast states made up 38 percent of the nation’s gross domestic product, the sum of all goods and services produced. Last year, the East Coast produced 36 percent of the American GDP in dollars, while Midwest states increased by 1 percentage point to 14 percent of the national total. That’s according to an analysis by McClatchy of a report published earlier in June by the Bureau of Economic Analysis, part of the Commerce Department.
North Dakota’s gross domestic product grew 9.7 percent from 2012 to 2013, the most of any state and much higher than the national growth rate over the same period of 1.8 percent, according to the bureau’s report.
An analysis by McClatchy of employment numbers from the Bureau of Labor Statistics shows that when they’re overlapped with growth data, there’s a strong correlation between state-level growth and the dramatic increase in post-recession mining jobs through the Rockies and North Plains.
States with thriving energy sectors boost the local employment picture and draw people from other states who otherwise had few job opportunities, experts say. Residents in North Dakota see the job boom on a daily basis.
Vicky Steiner points to the number of out-of-state license plates in her town of Dickinson, N.D., rising quickly in the last couple of years. On a recent stop at the local Walmart, she saw plates from Missouri, Michigan and Louisiana. She said towns across her state were “bursting at the seams,” trying to provide civic services for their growing populations.
“We’ve been so insulated from the recession we have a hard time understanding it,” said Steiner, the executive director of the North Dakota Association of Oil and Gas Producing Counties, a nonprofit community organization in Dickinson. “A lot of people who really wanted oil and gas jobs are willing to make the sacrifice to move here for the money.”
Workers arriving in North Dakota to extract natural gas and oil shale _ sedimentary rock that contains a petroleum-like substance _ earn $100,000 a year and more, Steiner said. North Dakota’s story is mirrored in surrounding states with similar tales of higher-than-average GDP growth and spikes in energy jobs.
Wyoming, Colorado, Idaho, Montana, Texas, Oklahoma, Utah, North Dakota and South Dakota all recorded GDP growth of 3 percent or higher last year, well above many of the coastal states, according to the Bureau of Economic Analysis report. They also saw an upward tick in oil-and-gas drilling jobs after the recession ended.
“For the states with the fastest-growing GDP, a lot of that growth can be attributed to the energy sector,” said Michael Wolf, an economist at Wells Fargo Securities in Charlotte, N.C. “Assuming that prices stay relatively stable, I think we can expect continued growth.”
New drilling technologies allow for extraction in previously untapped regions of the nation. Mining, a category that encompasses oil and gas drilling, accounted for over two-thirds of Wyoming’s GDP growth as a percentage last year and almost half for Colorado.
Oil and gas extraction drove 14 percent of the GDP growth in Texas, a diverse state economy that’s the nation’s second largest.
The number of post-recession oil-and-gas drilling jobs in Middle America is also quickly rising. Oklahoma had 43,800 mining employees in 2010; last year it had nearly 60,000 _ a 36 percent jump.
“States that have active energy activity, a lot of energy activity, are doing better on average than states that do not,” said Michael Canes, an energy expert at Logistics Management Institute, a private consulting firm in McLean, Va. “People have become aware that energy offers opportunities for people _ for jobs and incomes in the United States.”
Midwestern states had, on average, a 5.6 percent unemployment rate in May, according to the Bureau of Labor Statistics. That’s below the national rate of 6.3 percent. With oil and gas drilling growing domestically, the U.S. can become less dependent on foreign oil and open doors to export its oil to other countries, experts said.
“This is a game changer,” said Anderson, the Bank of the West economist. “This is a structural shift in how the U.S. economy is going to produce growth in the future. It certainly is a positive story for the U.S. trade balance, which has been deteriorating significantly since the 1970s.”
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