Traditionally, the Texas economy has been dependent on the production of cotton, cattle, timber, and petroleum. In recent years, cotton has declined in importance, cattle ranchers have suffered financial difficulties because of increased production costs, and lumber production has remained relatively stable. But in the 1970s, as a result of rising world petroleum prices, oil and natural gas emerged as by far the state's most important resource. The decades since World War II have also witnessed a boom in the electronics, computer, transport equipment, aerospace, and communications industries, which has placed Texas 2nd only to California in manufacturing among all the states of the Sunbelt region. Between 1972 and 1982, the Texas economy grew 6 percent a year, twice the national average, led by a booming oil industry. Other factors that contributed to the Lone Star State's robust economy in the early 1980s were a plentiful labor market, high worker productivity, diversification of new industries, and less restrictive regulation of business activities than in most other states. The result was a steady increase in industrial production, construction values, retail sales, and personal income, coupled with a relatively low rate of unemployment. In 1982, however, Texas began to be affected by the worldwide recession. Lower energy demand, worldwide overproduction of oil, and the resulting fall in prices, caused a steep decline in the state's petroleum industry. Unemployment in Texas jumped from 6.9% in 1982 to 8% in 1983, a period during which the national rate fell 0.1%. Much of this unemployment was among persons who came to Texas seeking jobs, particularly from northern industrial states. The rise and fall in the oil industry's fortunes affected other industries as well. Thousands of banks had speculated in real estate in the early eighties. By the late eighties, many of their investments had become worthless, and numerous banks were declared insolvent.
In the wake of the oil-centered recession, Texas began attempts to diversify. The state government has successfully wooed hightech industries to locate in Texas. The percentage of economic activity contributed by the oil and gas extraction industry dropped from about 20% to 6% between 1980 and 2000. Electronics, telecommunications, food processing, services and retail trade, on the other hand, saw substantial growth in the 1990s. While output from oil and gas extraction increased 7.4% between 1997 and 2001, output from general services rose 35.4%; from financial services, 32.5%; from retail and wholesale trade, 30.7%; from the transportation and public utilities sector, 26.4%; and from government, 24%. In the recession and slowdown of 2001 and 2002, employment growth in Texas followed the national trends, remaining negative through the fourth quarter of 2002. Shortfalls in state revenues following, particularly, the collapse of capital gains income, faced the state government with a serious budget deficit. Higher oil prices in 2003, following a Venezuelan oil strike and the US-led invasion of Iraq, should benefit the Texan economy.
In 2001, Texas's gross state product gross state product was $763.9 billion, the 3rd largest among the states, to which general services contributed $156.4 billion; trade, $131.7 billion; financial services, $118.2 billion; manufacturing, $93.8 billion; government, $85.4 billion; transportation and public utilities, $83 billion; mining (of which 97.9% was oil and gas extraction), $46.9 billion; and construction, $37.8 billion. The public sector in 2001 constituted 11.2% of gross state product, compared to the 12% average for the states.