U.S. Economic Activity Moves South As Northeast’s Decline Continues

Americans have been moving South for decades. In 2022, three of the five fastest growing states were in the South, the other two being Idaho and South Dakota. Despite this robust population growth, the South’s economy remained smaller than many other regional economies, including the dense, urbanized economy of the Northeast. But after decades of strong population and economic growth, the economic output of the South finally eclipsed the Northeast’s, and its lead will continue to grow.

As recently reported in Bloomberg, the combined GDP of Texas, Florida, Georgia, Tennessee and the Carolinas (which I’ll refer to as the six-state South) surpassed the GDP of the Northeast region that includes Washington, D.C. and the 11 states from Maryland up to Maine. In 2005, the Northeast’s share of national GDP was 23.5%, while the six-state South’s was 21.8%. In 2022, the numbers flipped: The South’s share was 23.8% while the Northeast’s was 22.4%.

This shift in economic activity has been decades in the making. Migration to the Sun Belt—the southern portion of America that stretches from the Carolinas all the way to Southern California—has been occurring for decades. It turns out many people do not like the cold and dreary winters of Buffalo, Pittsburgh, Boston, and other Northeast cities. People, especially retirees, have always been drawn to the South’s warmer winters and sunny days, and the spread of air conditioning made living there in the summer tolerable.

In 1950, the Northeast contained 28% of the U.S. population, while the six-state South contained a mere 16%. By 1996, the six-state South’s share of the population already exceeded the Northeast’s. In 2022 the six-state South contained 26% of the country’s population versus 19% in the Northeast, as shown in the figure below.

While warmer weather plays an important role in the six-state South’s rise relative to the Northeast, it is not the only factor. The six states in the South also have much freer economies and lower tax burdens, as shown in the table below.

According the Fraser Institute’s Economic Freedom of North America (EFNA) Index, which measures the ability of individuals to act in the economic sphere free of undue restrictions, the average rank of the six-state South is 8, while the average rank in the Northeast is 33. Even this big difference is misleading since New Hampshire—which has drastically different economic policies than its neighbors—brings the Northeast average down with its second-place rank. Omitting New Hampshire increases the Northeast’s average rank to 36. State economic freedom is important: The data show states with more economic freedom have faster population growth and higher incomes.

In addition to lower levels of economic freedom, Northeast states have worse business tax climates and higher tax burdens. The Tax Foundation ranks states by their business tax climates, which includes both tax rates and the types of taxes states levy. The average rank for Northeast states is 38, while the average for the six-state South is 17. In fact, the Northeast has the four worst performers—New Jersey, New York, D.C., and Connecticut. Bloomberg’s article notes that corporations are fleeing the Northeast for Florida and other Southern states, which is not surprising given the six-state South’s better business tax climates.

States in the Northeast impose high taxes on individual taxpayers, too. According to the Tax Foundation, the average state and local tax burden in the Northeast is 12.4% of net state product. In the six-state South, it is only 8.8%, or 29% lower. In some cases, the difference is astonishing: New York’s burden of 15.9% is more than double Tennessee’s burden of 7.6%. No wonder so many people are leaving high-tax New York and New Jersey for the South. As one example, the Bloomberg article discusses a couple from New Jersey who cut their property tax burden from $16,000 to $2,000 when they moved to South Carolina.

Finally, we cannot forget about housing prices. Northeast cities such as New York City, Boston, Providence, and Washington, D.C., have some of the most restrictive land-use regulations in the country. These regulations inhibit construction and increase housing prices, making these cities unaffordable for many families.

Meanwhile, cities in the six-state South such as Charlotte, Nashville, Atlanta, and Houston make it easier to build new housing which keeps prices relatively low. Middle-income workers—plumbers, teachers, police officers, restaurant managers—who cannot afford the $712,000 price tag of the typical home in New York City can move to Charlotte where the typical home only costs $385,000.

The South is unlikely to relinquish its lead over the Northeast. The South has had more attractive weather and a lower cost of living than the Northeast for some time. The Northeast’s big cities are powerful drivers of economic growth that kept the region’s economies ahead of the South’s despite steady outmigration, but we have reached a tipping point. The six-state South will continue to gain strength as the Northeast’s high taxes and burdensome regulations encourage more people and businesses to follow their neighbors, customers, and suppliers southward.