I imagine the different sectors of economic activity in any state argue about their relative importance. Lately the contest in North Dakota has been about the relative importance of agriculture and mining. My personal opinion is that if the data support an actual argument of this point than you are fortunate enough. These debates rage though and so I tend to investigate. There are many different ways to approach these types of questions but I am not going to go through a refereeing of different methods. I will just go through what I think the data are trying to impart to us.
I am using North Dakota Real GDP (chained 2009 dollars) from 2003 to 2012. I stop with 2012 because it is the last year for which the detailed information is available currently. I use real GDP simply in an attempt to control for inflation changes. These data are available from the Bureau of Economic Analysis (link). The annual update for these data occurs next week so we will be able to see if there are any changes.
The first thing to notice is that North Dakota RGDP increased 72.9% from 2003 to 2012, going from $26.25 billion to $45.39 billion. This is obviously excellent economic performance. Over the same time the farm component of the agriculture GDP category increased by $1.56 billion. For mining, I include the oil & gas category and the support activities. The increase over this time was $4.875 billion. The category of mining that excludes oil and gas barely increased over this timeframe.
As a share of the total increase in this time period agriculture accounts for about 8.2% of the gain while mining and support activities accounted for 25.5% of the increase. So mining accounted for more than three times the increase due to agriculture. It is fairly clear then, at least to me, over this time frame that the lion’s share of the increase in real GDP is due to the oil and related support activities.
None of this should come as a surprise to those observing the state over the last few years. Farm real GDP increased by just over 90% over these 9 years which is impressive. However, real GDP from oil and gas extraction and support activities increased by 172.3% in that same time span. There was a significant transformation of the structure of the North Dakota economy at this time.
The question many have right now has to do with the staying power of this transformation. Will the recent price declines reverse some of the changes? Certainly that seems logical outcome, and maybe even a likely one. However there are some reasons to believe the decline will not be identical to the increase. The scale of oil and gas activity is now much greater than at the start of the time period. That will change some of the attitudes of the businesses involved in the industry. In addition for many businesses this was really only their first foray into the price volatility common in the oil industry. How they respond, and whether some of them will still be around to respond is an as-yet unanswered question.
As I mentioned earlier, we will get an update to the data mid-week next week. It will be interesting to see if there are any changes as we get more data.
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