2016’s States with the Best & Worst Economies

WalletHub News Release, June, 2016

Two thousand fifteen was a banner year for the U.S. economy, thanks to a strong dollar, job gains, lower oil prices, increased consumer spending, and general improvements in the housing and business sectors. And the International Labour Organization expects steady growth ahead despite a slowing global economy.

But within the U.S., state economies could still be either boom or bust. Illinois, for instance, is currently in a fiscal free fall, with no budget for the second year in a row — putting its schools and social programs in peril — and the highest unemployment rate in the Midwest. Meanwhile, California has blossomed into the seventh largest economy in the world, boasting a GDP of $2.3 trillion, which was comparable to Brazil’s $2.2 trillion, in 2014.

With such wide disparities in growth, WalletHub’s analysts compared the economic performance of the 50 states and the District of Columbia across three key dimensions: Economic Activity, Economic Health and Innovation Potential. Continue reading below for our findings, expert commentary and a full description of our methodology.

Hawaii 42nd Place -- Total Score: 39.35 / 100

• Economic Activity Rank: 50
• Economic Health Rank: 17
• Innovation Potential Rank: 39
• Exports Per Capita: 51
• Unemployment Rate: 5 (tie)
• Percentage of Jobs in High Tech Industries: 49
• Venture-Capital Funding Per Capita: 44

Methodology

In order to identify the best-performing state economies, WalletHub’s analysts compared the 50 states and the District of Columbia across three key areas: 1) Economic Activity, 2) Economic Health and 3) Innovation Potential.

We first identified 23 relevant metrics, which are listed below with their corresponding weights. Each metric was given a value between 0 and 100, wherein 100 represents the most favorable economic conditions for a state and 0 the least.

Finally, we calculated the overall score for each state using the weighted average across all metrics and ranked the states accordingly.

Economic Activity – Total Points: 40

• GDP Growth: Full Weight (~8.00 Points)
• Exports per Capita: Full Weight (~8.00 Points)
• Percentage of Fast-Growing Firms: Full Weight (~8.00 Points)
  Notes: This metric measures the number of firms in each state that are included on the “Technology Fast 500” list (Deloitte report) as a share of total firms in each state.
• Business-Startup Activity: Full Weight (~8.00 Points)
• Quality of State Legal System: Full Weight (~8.00 Points)

Economic Health – Total Points: 40

• Unemployment Rate: Full Weight (~3.64 Points)
• Nonfarm Payrolls Change: Full Weight (~3.64 Points)
• Civilian Labor-Force Change: Full Weight (~3.64 Points)
• Median Annual Household Income: Full Weight (~3.64 Points)
• State-Government Surplus/Deficit per Capita: Full Weight (~3.64 Points)
• Unfunded Liability (Public Pension Plans) per Capita: Full Weight (~3.64 Points)
• Percentage of Population Lacking Health Insurance: Full Weight (~3.64 Points)
• Percentage of Residents Living Below Poverty Level: Full Weight (~3.64 Points)
• Foreclosure Rate: Full Weight (~3.64 Points)
• Immigration of U.S. Knowledge Workers (Average Educational Attainment of Recent Migrants from Abroad): Full Weight (~3.64 Points)

The number of recent immigrants in each education class was multiplied by its respective weight then divided by the total number of recent immigrants aged 25 and older for the final score.

• Migration of U.S. Knowledge Workers (Average Educational Attainment of Recent Migrants from Other U.S. States): Full Weight (~3.64 Points)

Notes: The educational attainment of recent migrants aged 25 and older from other states within the U.S. (“moved from a different state”) is classified as having either no high school diploma, a high school diploma (or equivalency), some college experience or an associate’s degree, a bachelor’s degree, or a graduate or professional degree. Each degree class was assigned a weight based on the equivalent average years of schooling the U.S. education system would require for the level of educational attainment:

• 0 for no high school diploma,
• 12 for high school diploma,
• 14 for some college experience or an associate’s degree,
• 16 for a bachelor’s degree, and
• 18.95 for a graduate or professional degree (the average number of years of schooling of the U.S. population of graduate, professional, and doctorate degree holders)

The number of recent immigrants in each education class was multiplied by its respective weight then divided by the total number of recent immigrants aged 25 and older for the final score.

Innovation Potential – Total Points: 20

• Percentage of Jobs in High-Tech Industries: Full Weight (~2.86 Points)
• Percentage of Jobs Held by Scientists and Engineers: Full Weight (~2.86 Points)
• Number of Independent-Inventor Patents per 1,000 Working-Age Residents: Full Weight (~2.86 Points)
• Industry R&D Investment Amount per Total Civilian Employed Population: Full Weight (~2.86 Points)
• Nonindustry R&D Investment Amount as a Percentage of GDP): Full Weight (~2.86 Points)
• Venture-Capital Funding per Capita: Full Weight (~2.86 Points)
• Entrepreneurial Activity: Full Weight (~2.86 Points)

Sources: Data used to create these rankings were collected from the U.S. Census Bureau, Bureau of Labor Statistics, U.S. Department of Commerce Bureau of Economic Analysis, Deloitte, U.S. Chamber Institute for Legal Reform, State Budget Solutions, CoreLogic, U.S. Patent and Trademark Office, The National Science Foundation, National Venture Capital Association and Ewing Marion Kauffman Foundation.

PBN: Hawaii's economy ranked 10th-worst in nation by WalletHub