New Mexico Lags Surrounding States Like Texas, But Here’s the Upside: Dallas Fed
December 5, 2024 — New Mexico is the nation’s second-largest oil and gas producer (behind Texas). It is the home to cutting-edge federal research and houses a busy port of entry through which a growing volume of goods passes from Mexico, the nation’s No. 1 trade partner.
Yet, New Mexico’s economy has historically lagged other Southwest economies and the nation. It ranks low in household income and educational attainment, and its population has little changed over the past decade, while the populations in neighboring Texas and Arizona have boomed.
However, 2023 highlighted the state’s considerable upside. New Mexico achieved solid economic growth in part due to a booming energy sector and trade with Mexico.
State builds on a noteworthy 2023
New Mexico’s economy, measured by GDP, notably expanded last year. State output grew 6.8 percent, outpacing the nation’s 2.9 percent increase (Chart 1). Much of this growth was attributable to the burgeoning energy industry. Mining contributed 4.2 percentage points to the New Mexico state GDP in 2023.
This is in stark contrast to the sluggish growth persistent through most of the 2010s. Notably, New Mexico’s annual GDP growth averaged 1.0 percent from 2010 through 2022, lagging the nation as a whole, which expanded 2.3 percent annually. By comparison, Texas’ annual GDP growth was 3.3 percent and Arizona’s was 3.1 percent during that period.
Despite the recent gains, the state’s economic output remains relatively small. New Mexico’s GDP was $135 billion in 2023, compared with $2.6 trillion in Texas. Even with record-high levels of energy production, economic growth has cooled slightly this year, though oil price volatility can distort measurement of the value of state-level real (inflation-adjusted) GDP.
Slow job growth rate, sparse population pose challenges
New Mexico is the fifth-largest state by land area, with 121,697 square miles. It is also one of the least-populated states. The economy has long faced significant structural challenges. The state labor market is relatively small, with just 888,000 on nonfarm payrolls, a fraction of the 14.2 million jobs in Texas. The state’s annual job growth rate of 0.7 percent from 2010 through 2019—compared with 2.3 percent for Texas—has historically trailed the nation (Chart 2).
This sluggish pace reflects a lack of economic diversity and investment, as well as reliance on government and tourism jobs.
New Mexico had 2.1 million residents in 2023. The state’s population grew just 2.3 percent from 2010 to 2023, compared with the nation’s increase of 8.3 percent (Chart 3). The state has experienced both domestic outmigration and slow natural increase (births minus deaths). More New Mexicans have left the state than new residents have arrived every year since 2012, with the exception of 2020.
New Mexico’s stagnant population and socioeconomic issues, such as low educational attainment and high poverty rates, pose additional constraints. The state’s labor force participation rate of 57.5 percent in August 2024 is below its neighbors—Texas (64.4 percent) and Arizona (62.3 percent). However, Texas and New Mexico unemployment rates were identical, 4.1 percent, in August.
Additionally, Texas and Arizona attract businesses more readily than New Mexico, reflecting the benefits of their strong and diverse business sectors. New Mexico ranks in the middle of the pack in business tax climate at No. 23, according to the Washington, D.C.-based think tank the Tax Foundation. That is less favorable than Texas at No.13 and Arizona at No.14.
Educational attainment also presents a challenge to workforce development. While the share of the population 25 years and older with a high school diploma or a college degree has gradually increased in the past 10 years, the state trailed the U.S. In 2023, 31.6 percent of New Mexico’s population 25 years and older had a bachelor’s degree or higher versus 36.2 percent of the U.S.’s population.
Median household income in 2023 was $60,980 compared with $80,610 nationally. Nearly one-fifth of New Mexicans (17.8 percent) lived in poverty in 2023, according to American Community Survey data. The state also has a higher rate of food insecurity relative to the nation.
Roughly 10 percent of the state is Native American, including a portion of the Navajo Nation, which extends across the Four Corners region into Arizona and Utah and operates as a sovereign nation with its own separate administrative structure. Indigenous peoples have some of the highest poverty rates in the state at 30.5 percent. Those living on tribal land often confront poorly developed infrastructure and little economic growth.
Energy fuels economic expansion
Challenging the state’s sluggish past, the energy sector has led the recent turnaround in state output. Mining has long been a major industry in New Mexico. Miners historically sought out precious metals as well as fuel resources, such as coal and uranium. More recently, hydraulic…