Sector Geography: What Each State Builds

When we talk about “the American economy,” we speak in averages. The national unemployment rate. The national GDP growth figure. The national inflation number. These aggregates are useful, but they conceal as much as they reveal. Behind the national statistics is a continent-sized patchwork of radically different economic structures — states that mine, states that manufacture, states that govern, states that entertain, and states that code.

The Bureau of Labor Statistics tracks nonfarm employment across eleven “supersectors” — broad industry categories that together account for every payroll job in America. When you break these supersectors down by state, the fingerprints emerge. Texas looks nothing like California. Michigan looks nothing like Nevada. Washington, D.C., exists on another planet entirely. Each state’s employment mix reflects decades of accumulated decisions: where ports were built, where minerals were found, where factories were erected, and where people chose to live.

This episode maps that economic geography. We start with Texas — a state large enough to be the tenth-largest economy in the world if it were a country — and then zoom out to compare how different states specialize, what drives their dominant sectors, and what happens when the nation’s economic diversity runs into a recession that doesn’t treat every state equally.

Texas employed 14.236 million nonfarm workers in January 2025, making it the second-largest state economy by employment after California. If Texas were its own country, its labor force would rank ahead of Australia, the Netherlands, and Chile. The sheer scale of the Texas economy makes its sector composition a matter of national significance.

The largest supersector in Texas is Trade, Transportation, and Utilities, with 2.785 million jobs — 19.6% of total nonfarm employment. This is not surprising for a state with three of the nation’s busiest ports (Houston, Corpus Christi, and Beaumont), a massive interstate highway system, and proximity to the Mexican border. The logistics infrastructure that supports oil and gas exports also supports an enormous retail and wholesale trade network. From the Port of Houston — the largest port in the nation by total tonnage — to the warehouses of Dallas-Fort Worth, Texas is where goods move.

Government and Professional & Business Services are tied at the second spot, each employing roughly 2.1 million workers, or 15.0% of total payrolls. The government figure reflects Texas’s enormous public university system, its state agencies spread across Austin, and its military installations including Fort Cavazos (formerly Fort Hood) and Joint Base San Antonio. Professional services captures the explosion of corporate headquarters that have relocated to Texas over the past decade — from Toyota to Charles Schwab to Hewlett Packard Enterprise — drawn by favorable tax policy and lower operating costs.

Education & Health Services accounts for 1.95 million jobs (13.7%), powered by the Texas Medical Center in Houston — the largest medical complex in the world — and a rapidly growing healthcare sector serving an expanding population. Texas added more residents than any other state between 2020 and 2025, and every new household needs doctors, nurses, teachers, and hospital administrators.

Then there is the sector that defines Texas in the popular imagination: Mining & Logging, which in BLS terminology includes oil and gas extraction. At 221,000 jobs, it represents just 1.6% of total employment — the same share as the Information sector. This seems impossibly small for a state synonymous with energy. But the paradox dissolves when you consider how the oil and gas industry actually works.

The 221,000 mining and logging workers are the roughnecks, drillers, and extraction engineers on the rigs. But the Permian Basin doesn’t operate in isolation. It requires pipeline construction workers (counted in Construction), refinery operators (counted in Manufacturing), petroleum engineers at corporate headquarters (counted in Professional Services), truck drivers hauling crude to refineries (counted in Trade, Transport, and Utilities), and bankers financing exploration (counted in Financial Activities). The true economic footprint of Texas energy sprawls across nearly every supersector. The Federal Reserve Bank of Dallas estimates that energy-related activity directly or indirectly supports roughly 10-12% of Texas employment — far more than the 1.6% figure suggests.

This is the fundamental lesson of sector employment data: the headline numbers tell you where people sit on payroll, not where the economic gravity originates. A state can be defined by an industry that employs relatively few people directly but shapes the entire economy through its supply chains, capital flows, and tax revenue.

When you compare sector shares across states, a pattern emerges: every state has at least one supersector where its concentration significantly exceeds the national average. Economists call this a location quotient — the ratio of a sector’s share in a given state to that sector’s share nationally. A location quotient above 1.0 means the state is more specialized in that sector than the country as a whole. Above 1.5, and you’re looking at a defining characteristic of the state economy.

The table below maps eight states to their dominant specializations. These are not the largest sectors in absolute terms (almost every state’s largest sector is trade or government), but rather the sectors where each state punches far above its weight relative to the national average.

Several things stand out from this map of specializations.

Washington, D.C., is an extreme outlier. With roughly 35% of its employment in the government sector, D.C.’s economy is more than twice as concentrated in government as the next most government-dependent state. This is not just federal workers — it includes the vast ecosystem of government-adjacent employment: defense contractors, lobbying firms (classified under professional services), and policy think tanks. When Congress debates federal spending cuts, D.C.’s economy doesn’t just react — it quakes.

Nevada’s dependence on leisure and hospitality is extraordinary. At roughly 28% of total employment, the casino-and-tourism sector employs more than one in four Nevada workers. The national average is 11.3%. This concentration made Nevada the hardest-hit state during COVID-19 — its unemployment rate soared to 30.1% in April 2020, the highest in the nation, as the Las Vegas Strip went dark. When America stops traveling, Nevada stops working.

Michigan’s manufacturing share has been declining for decades but remains remarkable. At roughly 13.2%, Michigan’s manufacturing concentration is more than 50% above the national average of 8.4%. General Motors, Ford, and Stellantis (formerly Chrysler) are still headquartered in the Detroit metropolitan area, and the state’s network of Tier 1 and Tier 2 auto parts suppliers employs hundreds of thousands more. The transition to electric vehicles is reshaping this ecosystem — Michigan’s manufacturing jobs are increasingly in battery plants and EV assembly lines rather than traditional internal combustion engine production.

West Virginia’s mining concentration is nearly ten times the national average. At roughly 4.8% of state employment, mining and logging is a defining industry in ways that transcend the job count. Coal severance taxes fund state government, coal communities define the political landscape, and the decline of coal employment — from over 60,000 in the 1980s to under 12,000 today — has been the central economic story of Appalachian West Virginia for forty years.

While specializations make for interesting maps, the deeper truth about American state economies is how similar they are at the aggregate level. The service economy dominates everywhere. In every single state, the combined share of professional services, education and health, trade, and leisure and hospitality accounts for between 55% and 70% of total employment. Manufacturing, mining, and construction together rarely exceed 20% even in the most industrial states.

This is a relatively new phenomenon. In 1950, manufacturing alone employed roughly 30% of American workers. By 2000, that had fallen to 13%. By 2025, it sits at 8.4% nationally. The services transformation has been so thorough that even states we think of as “industrial” — Michigan, Ohio, Indiana — now derive the majority of their employment from service sectors. Michigan’s education and health sector (14.5%) is actually larger than its manufacturing sector (13.2%). Ohio’s professional services employment exceeds its manufacturing employment. Indiana’s trade, transport, and utilities sector is nearly twice the size of its manufacturing base.

The implications are significant. When we say “the economy is shifting from goods to services,” we are describing something that has already happened in every state. The remaining question is how fast the last bastions of goods-producing employment continue to erode, and whether new forms of manufacturing — semiconductors, electric vehicles, advanced pharmaceuticals — can create enough jobs to offset the long decline of traditional factory work.

To appreciate how differently state economies are structured, consider three states that are similar in population rank but radically different in economic character: Texas (29.5 million people, #2), California (39.0 million, #1), and Ohio (11.8 million, #7). Each represents a distinct economic archetype: the energy-trade powerhouse, the technology-entertainment hub, and the industrial-legacy state.

The grouped bar chart below compares the sector shares of these three states across the major supersectors. The differences tell a story about how geography, policy, and historical accident create divergent economic structures within the same national economy.

Where Texas leads: Texas has a notably higher share of employment in Trade, Transportation & Utilities (19.6% vs. California’s 17.2% and Ohio’s 18.3%), Construction (6.1% vs. CA 5.1%, OH 4.5%), and Mining & Logging (1.6% vs. essentially zero in CA and OH). The trade advantage reflects Texas’s geographic position as a logistics gateway — the state shares a 1,254-mile border with Mexico, and the Houston-Galveston port complex handles more foreign tonnage than any other U.S. port. The construction share reflects a population growing by roughly 400,000 per year, driving a constant need for housing, infrastructure, and commercial buildings.

Where California leads: California’s economy is defined by its outsized concentration in Information (3.5% vs. TX 1.6%, OH 1.2%) and Professional & Business Services (16.8% vs. TX 15.0%, OH 13.6%). The Information sector includes software development, data processing, internet publishing, and media production — the combined footprint of Silicon Valley, Hollywood, and the venture capital ecosystem that funds both. California also leads in Leisure & Hospitality (11.8%), reflecting its tourism economy along with Los Angeles’s entertainment industry. The state’s tech specialization has made it enormously productive per capita — California’s GDP per worker is roughly $142,000, compared to $121,000 in Texas and $106,000 in Ohio.

Where Ohio stands apart: Ohio’s economic signature is manufacturing. At roughly 11.7% of total employment, Ohio’s manufacturing share is nearly 40% above the national average and significantly higher than Texas (6.8%) or California (7.2%). This reflects the legacy of the Rust Belt — the steel mills, rubber plants, and machine shops that made Ohio the industrial heart of America in the early twentieth century. While many of those factories are gone, a new generation of advanced manufacturing has taken hold: Honda builds cars in Marysville, Intel is constructing a $20 billion semiconductor fabrication complex in New Albany, and Procter & Gamble headquartered in Cincinnati manufactures consumer goods distributed worldwide.

Ohio also has a notably higher share in Government (14.8%) than Texas (15.0%) or California (13.5%), reflecting the state’s large public university system (Ohio State is the third-largest university in the country) and its tradition of robust state and local government employment. What Ohio lacks is the technology sector: at just 1.2% of employment in Information, Ohio’s tech economy is roughly one-third the size of California’s on a proportional basis.

Specialization is a double-edged sword. The same concentration that makes a state economy powerful in good times makes it fragile in bad ones. When a state’s dominant sector contracts, the effects cascade through the entire local economy — from the primary job losses through the supply chain, to the restaurants and retailers that serve those workers, to the tax base that funds public services.

The history of American recessions is littered with examples of state-level devastation that barely registers in national statistics.

Michigan in 2008–2010: The Great Recession hit Michigan harder than any other state. The state’s unemployment rate peaked at 15.2% in June 2009 — nearly five points above the national peak of 10.0%. General Motors and Chrysler went through bankruptcy. Auto production fell by 40%. The state lost 865,000 jobs between 2000 and 2009 — a decline unprecedented in any state since the Great Depression. Michigan’s manufacturing dependence, which had been the source of middle-class prosperity for decades, became the mechanism of collapse.

North Dakota in 2015–2016: The Bakken shale oil boom had made North Dakota the fastest-growing state in America from 2010 to 2014. Employment in mining surged from 8,000 to 24,000. When oil prices collapsed from $107/barrel to $27/barrel, the state’s mining sector lost 40% of its workforce in eighteen months. North Dakota’s GDP contracted by 4.1% in 2015 while the national economy grew 2.7%. The entire state entered a recession that the rest of the country never noticed.

Nevada in 2020: COVID-19 shut down the Las Vegas Strip on March 18, 2020. Within weeks, Nevada’s unemployment rate hit 30.1% — the highest of any state. The leisure and hospitality sector, which employs more than one in four Nevada workers, effectively ceased to exist overnight. Hotels went dark. Casinos locked their doors. Convention centers emptied. Nevada’s economy, built on people traveling to a specific place to spend money, was uniquely vulnerable to a pandemic that told people to stay home.

Washington, D.C., during sequestration (2013): When automatic federal spending cuts took effect in March 2013, D.C.’s economy decelerated sharply while the rest of the nation continued to recover from the Great Recession. Federal agencies furloughed workers, defense contractors reduced headcount, and the ripple effects spread through D.C.’s restaurants, retail, and real estate. The District’s GDP growth rate fell to 0.3% that year — well below the national average of 1.8%.

The eight states above are the most dramatic examples of sector specialization, but almost every state has a distinctive economic fingerprint. Below is a broader view of specialization patterns across the country, organized by the sector in which each state most dramatically exceeds the national average.

Several patterns in this broader view merit attention.

The government cluster is heavily geographic. Virginia, Maryland, and D.C. form the federal employment corridor — the three jurisdictions together account for a disproportionate share of federal civilian employment, defense contracting, and intelligence community work. But New Mexico (Los Alamos and Sandia National Laboratories, Kirtland Air Force Base) and Hawaii (Pearl Harbor, Pacific Command) also have government shares well above the national average because of their military and research installations.

The financial activities cluster is surprisingly dispersed. New York and Connecticut are expected — Wall Street and the Hartford insurance industry. But Delaware’s role as the incorporation state of choice for American corporations creates a large financial services sector relative to its tiny population. Nebraska and South Dakota have unusually high financial activity shares because their favorable usury laws attracted credit card operations: Citibank, First National Bank of Omaha, and Capital One all operate major processing centers there.

The manufacturing belt has shifted south. While Michigan, Indiana, and Wisconsin retain their traditional industrial strength, the fastest manufacturing job growth in recent decades has been in Alabama, South Carolina, and Mississippi — states that attracted foreign automakers (Mercedes in Tuscaloosa, BMW in Spartanburg, Toyota-Mazda in Huntsville, Hyundai in Montgomery) with right-to-work laws, tax incentives, and lower labor costs. South Carolina’s manufacturing sector now employs roughly the same share of the state workforce as Michigan’s.

The eleven BLS supersectors are useful categories, but they necessarily group very different activities together. “Professional and Business Services” includes $500-per-hour management consultants and $15-per-hour security guards. “Education and Health Services” encompasses tenured professors and home health aides. “Trade, Transportation, and Utilities” covers commodities traders and warehouse workers. The same supersector can mean very different things in different states.

Consider Professional and Business Services in California versus Alabama. In California, this sector is disproportionately composed of software engineers, data scientists, venture-funded startup employees, and entertainment industry professionals — high-wage workers who contribute enormously to GDP per capita. In Alabama, the same supersector includes more temporary staffing agencies, janitorial services, and administrative support — lower-wage activities that serve the manufacturing and military base economy. The supersector label is the same; the economic reality is profoundly different.

This is why state-level GDP per worker varies so dramatically even when employment structures look similar on paper. California’s economy produces roughly $142,000 per worker annually. Mississippi produces roughly $78,000. Both states have education-and-health sectors that employ about 15% of the workforce. But California’s health sector includes Cedars-Sinai, Stanford Medical Center, and UCSF — institutions that perform cutting-edge research and attract highly paid specialists. Mississippi’s health sector, while essential, is oriented more toward primary care delivery in a state with lower incomes and higher chronic disease burdens.

The lesson: sector shares tell you what a state does, but not what a state earns. To understand true economic power, you need to combine employment data with wages and productivity — topics we will address in later episodes of this series.

America’s economic geography is not static. Several major forces are reshuffling the sector map in ways that will be visible in BLS data over the next decade.

The semiconductor onshoring wave. The CHIPS and Science Act of 2022 has catalyzed over $200 billion in committed semiconductor fabrication investment. Intel is building in Ohio. TSMC is building in Arizona. Samsung is expanding in Texas. Micron is building in New York. Each of these facilities will create thousands of high-wage manufacturing jobs in states that had been losing manufacturing share for decades. Ohio’s manufacturing sector, which declined from 17% of employment in 2000 to 11.7% in 2025, may see its first sustained reversal.

The EV supply chain migration. Electric vehicle and battery manufacturing is gravitating toward the Southeast. Georgia landed Rivian and SK Innovation battery plants. Tennessee attracted Ford’s BlueOval City. Kentucky secured Envision AESC and Toyota battery investments. These investments are creating a new manufacturing geography that overlaps with — but does not exactly replicate — the traditional auto manufacturing map.

The remote work reshuffling. The pandemic permanently changed the geography of information and professional services employment. Workers in these sectors can increasingly live anywhere. The BLS data is starting to reflect this: states like Montana, Idaho, and Utah are seeing faster growth in professional services employment than their local economies would historically have supported. When a software engineer moves from San Francisco to Boise but keeps their Bay Area salary and employer, Idaho’s professional services sector grows while California’s holds steady — and the per-worker productivity gap between states narrows.

The energy transition. Texas’s mining and logging sector has been flat for a decade despite enormous growth in total state employment. At the same time, Texas has become the nation’s largest generator of wind energy and is rapidly building solar capacity. These renewable energy jobs show up not in mining and logging but in construction (building the farms) and utilities (operating them). The BLS supersectors, designed in an era of coal mines and oil rigs, struggle to capture the economic reality of a wind farm that creates construction jobs for two years and then operates with a handful of technicians indefinitely.

State-level sector data is not just an academic curiosity. It has real implications for investors who need to understand regional economic exposure.

Real estate investors use sector employment data to assess concentration risk. A property portfolio concentrated in Houston office space is implicitly a bet on the energy sector. A portfolio of Las Vegas hotels is a bet on leisure and hospitality. Diversifying across states is not the same as diversifying across sectors — unless you understand what each state’s economy actually depends on.

Municipal bond investors need sector data to evaluate the tax base supporting a state or city’s debt. West Virginia’s long-term fiscal health is tied to whether mining severance tax revenue can be replaced as coal declines. Nevada’s gaming tax revenue — which provides a significant portion of state funding — is directly linked to the health of the leisure and hospitality sector. A bond analyst who doesn’t understand sector geography is flying blind.

Equity investors tracking regional economic indicators — state employment reports, regional Fed surveys, local building permits — need to know which national sectors they are really tracking. The Texas employment report is partly an energy indicator. The California employment report is partly a technology indicator. Michigan’s manufacturing data is, in many ways, an early read on auto sales. Reading state data through a sector lens turns regional indicators into sector indicators, and vice versa.

Corporate decision-makers choosing where to expand or relocate are, whether they know it or not, reading the BLS sector data. When a company chooses Austin over San Francisco, it is choosing a state with lower costs (Texas has no state income tax) but also a different sector ecosystem — one more oriented toward trade, energy, and construction than toward pure technology. When a manufacturer chooses South Carolina over Michigan, it is choosing a state with a rising manufacturing sector and lower union density. The BLS data is the quantitative skeleton behind every site-selection decision in America.

Not all supersectors are created equal in their economic characteristics. Some are high-wage and high-productivity. Others are low-wage and labor-intensive. Some are cyclical, swinging wildly with the business cycle. Others are defensive, holding steady through recessions. Understanding these characteristics helps explain why states with different sector mixes respond so differently to economic shocks.

The wage data reveals the most striking feature of American sector geography: the sectors that employ the most people are not the sectors that pay the most. Trade, Transportation & Utilities — the largest supersector in Texas and many other states — pays roughly $1,050 per week. Leisure & Hospitality, which dominates Nevada and Hawaii, pays just $550 per week — less than half the average for Information ($2,400) or Mining & Logging ($1,850). When a state’s economy shifts from manufacturing ($1,350/week) to leisure ($550/week), total employment may hold steady while total income falls.

Cyclicality is equally important. States concentrated in mining, construction, manufacturing, and leisure experience deeper recessions and more volatile growth than states concentrated in education/health, government, and professional services. This is why Michigan’s unemployment rate swings more dramatically than Massachusetts’s, why Nevada suffers more in downturns than Virginia, and why North Dakota’s economy can go from boom to bust in twelve months while the national figures barely move.

For context, here are the national supersector employment shares as of January 2025. These are the benchmarks against which every state’s economic fingerprint is measured.

The national picture confirms what we see at the state level: services dominate. The four largest supersectors — Trade/Transport/Utilities, Education & Health, Government, and Professional & Business Services — together account for roughly 64% of all nonfarm employment. Add Leisure & Hospitality, and you reach 75%. Goods-producing sectors (Manufacturing, Construction, Mining & Logging) collectively account for just 14.3% of jobs.

This is the backdrop against which state specializations play out. When Texas has 19.6% in trade versus the 18.5% national average, the absolute difference is just 1.1 percentage points — but applied to 14.2 million workers, that means roughly 160,000 extra trade-sector jobs beyond what you’d expect from the national pattern. When California has 3.5% in information versus 1.9% nationally, that 1.6-point premium represents roughly 260,000 “extra” tech workers — the population of a mid-sized city, concentrated in San Francisco, San Jose, and Los Angeles.

If concentration creates vulnerability, then diversification creates resilience. Which states have the most balanced employment structures — the most even spread across supersectors, with no single industry dominating?

The answer may surprise you: the most diversified state economies tend to be the large, Sun Belt states with growing populations. Texas, despite its energy reputation, is actually one of the most diversified economies in the country. No single supersector exceeds 20% of employment. Florida is similarly diversified — while tourism is important, the state’s healthcare, trade, construction, and professional services sectors are all substantial. Georgia, North Carolina, and Arizona also score well on economic diversification metrics.

By contrast, small states tend to be less diversified, simply because a smaller economy has fewer industries to draw upon. Wyoming (mining), Vermont (education/government), Alaska (government/mining), and D.C. (government) all have one or two sectors that dominate the landscape. This is not necessarily a policy failure — it reflects the reality that a state with 300,000 workers cannot sustain the full range of industries that a state with 14 million workers can.

The COVID-19 pandemic provided a natural experiment in state economic resilience. States with diversified economies — Texas, Georgia, North Carolina — recovered faster than states dependent on a single vulnerable sector. States with heavy leisure concentration (Nevada, Hawaii) were the last to return to pre-pandemic employment levels. And states with large, stable government sectors (Virginia, Maryland) experienced the mildest downturns, as federal spending actually increased during the crisis.

Before we draw too many conclusions, it is worth noting what the BLS supersector data does not capture.

Agriculture. The BLS nonfarm payroll survey excludes farm employment by design. This means that Iowa’s massive agricultural economy — one of the most productive farming states in the world — is invisible in the supersector data. What you can see is the downstream effect: food processing shows up in manufacturing, grain logistics shows up in trade and transportation, and farm equipment production shows up in durable goods manufacturing. But the farmers themselves are not counted.

Self-employment. The Current Employment Statistics survey counts payroll jobs, not self-employed individuals. This undercounts sectors like real estate, consulting, gig work, and freelance creative work. California’s entertainment industry, for example, relies heavily on independent contractors — freelance writers, producers, and technicians — who do not appear in CES data.

Underground and informal economy. States along the Mexican border (Texas, California, Arizona, New Mexico) have significant informal economic activity that does not appear in any government survey. Estimates of unreported employment in these states suggest it could add 2-5% to official job counts.

Remote work misallocation. The BLS counts employees at their employer’s location, not their home location. A remote worker employed by a California tech company but living in Montana is counted as a California employee. As remote work becomes permanent for millions of workers, the BLS data increasingly overstates employment in corporate-headquarters states (California, New York, Texas) and understates it in destination states (Montana, Idaho, Colorado).