Federal government’s war on American energy hits North Dakota hard
A couple of weeks ago I wrote about South Dakota’s relative economic success. What may have also struck you about that story is how badly the economy of North Dakota has performed in recent years. As Figure 1 shows, in 2022 North Dakota’s economy was actually 5.0% smaller, in real terms, than it was in 2018. What explains this poor performance?
Figure 1: Real change in real Gross Domestic Product, 2018 to 2022
A comparison of the economies of the United States, South Dakota, and Minnesota is revealing. Table 1 shows the share of state Gross Domestic Product (GDP), which each sector accounted for in 2018, and the percentage point difference in that share from the share for the United States.
Table 1: Sector share of GDP in 2018
We see that the United States has seven sectors accounting for more than 5.0% of GDP, while Minnesota has six sectors accounting for 5.0% of GDP. This shows that, relatively speaking, Minnesota has a well-balanced economy. For South Dakota the number is seven, but for North Dakota the number is eight, indicating a relatively unbalanced economy.
The rightmost three columns show us the sectors with the biggest deviation from the United States share. So while Wholesale trade accounts for more than 5.0% of GDP in each state, that isn’t too different to the average for the United States. Where we do see big deviations are in Agriculture, forestry, fishing and hunting, where North and South Dakota both derive much greater shares of their GDP than the United States average, and Professional and business services, where they derive mush smaller shares (deviations greater than five percentage points highlighted in orange).
What stands out and is of particular relevance is North Dakota’s relatively small share of GDP derived from Manufacturing and large share from Mining, quarrying, and oil and gas extraction. North Dakota derived 21.7% of its GDP from Mining, quarrying, and oil and gas extraction in 2018 compared to just 2.4% for the United States. North Dakota was, then, uniquely exposed to any downturn in that sector.
And, as Table 2 shows, that is exactly what has happened. Between 2018 and 2022, the Mining, quarrying, and oil and gas extraction sector shrank by 12.8% nationally and by 25.4% in North Dakota and the state’s economy was hit disproportionately hard by this downturn.
Table 2: Change in real GDP by sector, 2018 to 2022
North Dakota’s natural resources are a blessing, but as we noted in our report “Energy Leadership: How American Energy Production Can Make The World Safer,” it is not one that the state has been allowed to exploit in recent years, largely because of actions undertaken by the federal government. Washington’s war on American energy production has its most acute economic impacts in North Dakota.