Strategic Framework: The Texas economy did well in 2021, but peer states did better

This is part of our blog series for Texas 2036’s Strategic Framework, which provides in-depth, cross-cutting data to inform key decisions about the most significant issues facing the state.

While the Texas economy has shown remarkable resilience, with jobs increasing and state revenues hitting record highs, it may surprise many that the state’s 2021 annual economic growth rate actually lagged behind our peer states.

The primary indicator for Texas 2036’s Strategic Framework Goal No. 34 — Economic Prosperity — looks at the annual growth rate in the state’s gross domestic product in constant, non-inflationary dollars. For 2021, the Texas economy grew 3.9%. This is a pretty good number — one of the best in our state’s recent history — yet it still ranked 12th out of 12 peer states and below the national average of 5.9%. Annual data for 2022 is not yet available for this metric.

The chart below shows Texas’ real GDP growth percentage by year from 1998, the earliest year available, to 2021. With the exception of three negative years — the Great Recession for 2008 and 2009, and the Pandemic in 2020 — Texas has had consistent economic growth. And even when we’ve seen declines, they’ve generally been lower than the national average. For example, the Texas economy shrank by just 0.4% in 2009, while the nation dropped 2.6%. Likewise, in 2020, Texas dropped 1.8%, while the nation dropped 2.8%. Overall, Texas has enjoyed a compound annual growth rate of 3.1% since 1997, which is among the best in the nation and tied for second among our 12 peer states.

The 2021 data, where Texas ranks last among peer states, may be reflective of the fact that Texas had a smaller dip than other states in 2020. The chart below compares the nation’s five most populous states — California, Texas, Florida, New York and Illinois — and their annual growth rates for 2020 and 2021. Here, only Florida outperformed Texas in 2020, dropping by just 1.6% — versus the 1.8% drop in Texas. But all of the other states outperformed Texas in 2021. Notably, Florida experienced both less of a decline in 2020 and more-than-twice the economic growth in 2021.

This data point does not incorporate any of the economic growth experienced in 2022, including more recent activity in the energy sector. When one examines quarterly data for the first two quarters of 2022, Texas appears to have sustained inflation-adjusted economic growth, while the nation as a whole has experienced a slight decline. As shown below, among the five most populous states, Texas is the only state with economic growth in both of the first two quarters of 2022.

Given the trends across the first two quarters of 2022, there’s a good chance we’ll be much improved in our peer state comparisons next time this data is updated.