New Mexico, the nation’s second-largest oil and gas producer after Texas, combines cutting-edge federal research with robust trade activity at its bustling ports of entry. These elements position the state as a potential economic powerhouse. However, challenges like slow population growth, low household income, and limited educational attainment have historically hampered its progress.
In 2023, New Mexico made significant strides, propelled by a thriving energy sector and increasing trade with Mexico, offering hope for continued economic transformation.
Building Momentum: A Noteworthy 2023
New Mexico’s economy surged forward in 2023, with its gross domestic product (GDP) growing by 6.8%, surpassing the national average of 2.9% (Chart 1). This growth was primarily driven by the energy sector, with mining alone contributing 4.2 percentage points to state GDP.
From 2010 to 2022, the state struggled with an average annual GDP growth rate of just 1.0%, far behind Texas (3.3%) and Arizona (3.1%). While recent gains are promising, New Mexico’s 2023 GDP of $135 billion pales in comparison to Texas’ $2.6 trillion. The state’s economic progress has slightly slowed this year, partly due to fluctuations in oil prices.
Overcoming Structural Challenges
Despite its vast land area of 121,697 square miles, New Mexico is one of the least-populated states. Its labor market is relatively small, with just 888,000 nonfarm jobs compared to Texas’ 14.2 million. Between 2010 and 2019, New Mexico’s annual job growth rate was 0.7%, trailing the national average (Chart 2).
Population growth has also been modest, increasing by just 2.3% from 2010 to 2023, compared to the national growth rate of 8.3% (Chart 3). Factors such as domestic outmigration and low natural increase contribute to this stagnation.
Persistent challenges include:
Educational Attainment: In 2023, only 31.6% of New Mexico’s population aged 25 and older had a bachelor’s degree or higher, below the national average of 36.2%.
Household Income: Median household income was $60,980 in 2023, significantly lower than the national median of $80,610.
Poverty Rates: Nearly 18% of residents lived in poverty, with Native American communities facing even higher rates (30.5%).
These socioeconomic issues, coupled with limited infrastructure and economic diversity, hinder the state’s ability to attract businesses and grow its workforce.
Energy as an Economic Catalyst
The energy sector remains central to New Mexico’s economic resurgence. Advances in hydraulic fracturing have positioned the state as a leader in fossil fuel production. From 2019 to 2023, crude oil production doubled, and natural gas output increased by 79% (Chart 4).
The state’s oil and gas revenues hit $11.5 billion in fiscal 2023, comprising 20% of general fund revenues and expected to reach 23% by fiscal 2025. These funds have enabled investments in education, infrastructure, and state reserves.
While energy-sector employment grew 5.3% from December 2022 to June 2024, efficiency improvements may limit future job growth.
Cross-Border Commerce and Santa Teresa’s Growth
New Mexico’s trade with Mexico has flourished, driven by shifts in global supply chains and congestion at Texas border ports. In 2023, the Santa Teresa Port of Entry handled $27.6 billion in trade, primarily electronics, machinery, and medical instruments (Chart 5).
Santa Teresa’s three expanded industrial parks now support over 7,000 jobs and contribute $2 billion annually to the state economy, a dramatic rise from 2020. However, infrastructure challenges like limited electric grid capacity, water availability, and internet connectivity could hinder further growth.
Innovation and Government Leadership
New Mexico is a hub for research and development, with $7 billion in R&D activity in 2021 and nearly 36,000 jobs tied to the sector. Institutions like Sandia National Laboratories and Spaceport America have long bolstered the state’s innovation economy.
Professional and business services—a sector paying 26% higher-than-average wages—grew 4.2% from December 2022 to June 2024 (Chart 6). Meanwhile, government employment expanded 6.0%, reflecting the state’s reliance on public sector jobs.
**Chart 6 Here**
Seizing the Moment: Challenges and Opportunities
New Mexico’s economic future hinges on leveraging energy revenues to address systemic challenges. Investments in education, infrastructure, and business incentives are crucial for sustained growth. Recent initiatives include:
Higher teacher salaries and universal free school meals.
Free college tuition for state residents.
Expanded child tax credits and pilot guaranteed income programs.
The legalization of recreational marijuana has also added a new revenue stream, generating $24.5 million in excise tax revenue in fiscal 2023.
While obstacles like slow population growth and internet infrastructure persist, New Mexico’s energy sector and border trade provide a foundation for long-term success. With strategic investments and policy reforms, the state is poised to transform its economy and compete on a national level.
New Mexico’s blend of natural resources, trade potential, and innovation offers a unique opportunity for growth. By addressing its structural challenges, the state can capitalize on its strengths and chart a path toward a more prosperous future.
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Source Article: https://www.dallasfed.org/research/swe/2024/swe2416
