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This report examines New Mexico’s economy over more than a century to inform statewide and regional economic development efforts. By mapping both long-term trajectories and recent changes, the analysis is designed to support effective strategies for state and local leaders as they seek to address persistent challenges, respond to new risks, and leverage unique opportunities across the state’s diverse economies.

Long-Term Perspective (1900–2020)

The first section of this report provides an overview of New Mexico’s longer-term growth path to understand how the past influences the present and future of the state economy. New Mexico’s population never accelerated like some of its neighbors and peers. Slowdowns and uneven growth meant that New Mexico never attracted people in the way that Arizona, Colorado, or Utah did. Recent population growth has been the slowest in the last 120 years for New Mexico, indicating important economic problems that have made people “vote with their feet” to leave the state. Population growth and migration patterns are always co-evolving with what is happening in the state economy. Early in the 20^th century, New Mexico’s economy was centered on agriculture, and over the next century, New Mexico saw a uniquely precipitous drop in employment in this sector. New Mexico missed early waves of manufacturing-led industrialization that benefited other states. This likely indicates a limit on how much manufacturing growth is possible moving forward, as the state has fewer latent capabilities and assets than other states that historically had larger manufacturing sectors. Mining, including the extraction of oil and gas, grew to be a critical part of the New Mexican economy and government revenues, but never accounted for more than 10% of jobs. Government activity also grew to be a uniquely large part of the state economy in New Mexico because of both state and federal funding.

Beneath the long-term statewide trends, New Mexico’s economy is striking for the variation of economic performance and drivers across the state. From a long-term perspective, many rural areas are still responding to major economic shocks to their sources of tradable income that often happened many decades ago. In an ideal world, major urban hubs would absorb the outmigration from regions that are losing population. However, as rural communities navigate these challenges, urban areas have not been in a strong enough position to absorb displaced populations from other parts of the state or in-migration from other states. As the state economy has evolved from industries that are rooted in place (such as agriculture and mining) to industries that thrive in more urban settings (such as professional services), the weaknesses of urban economies in New Mexico in comparison to other states stand out.

Medium and Short-Term Perspective (1997-2024)

Several of the challenges of New Mexico over the long-term have continued to play out over the last 25 years. New Mexico’s per capita growth has been relatively low, and its income level has fallen further behind other states, especially within the region. The period of 2005-17 was exceptionally weak, marked by several years of per capita contraction that cannot be explained by national patterns. Arguably, the most important problem over 2005-17 was that state and local government activity followed a procyclical pattern that made the downturn worse when fiscal policy could have been designed to partially offset the pain of the downturn. The decline in the state government activity appears to be driven by a significant drop in tax collection that was only partially cushioned by increased federal spending at the time. While New Mexico is now enjoying a period of more robust growth, an economic upswing since 2018 has yet to offset the effects of a prolonged stagnation. Past dynamics suggest that today’s “boom” in growth will likely be followed by a period of “bust”. Whether the current higher growth trajectory should be expected to continue hinges on the sustainability of current growth drivers and the potential for others to emerge.

Again, beneath these state patterns, there is significant variation in economic performance across New Mexico’s regions.  A few urban counties, most of all Bernalillo County, drive the state’s overall economic activity, and their growth has lagged national trends. Counties across the state have growth patterns that are largely uncorrelated with each other. One can see the effects of state-level downturns across many counties, but state growth does not translate equally in all counties. In fact, some counties have grown in a negatively correlated way with statewide growth over the last 25 years. Depending on their local economic drivers, some counties are currently growing rapidly — for example, Lea and Eddy counties, which benefit directly from current oil and gas expansion in the Permian Basin. Several rural counties have seen growth, driven by different sectors in recent years, even as they face long-term pressures. Meanwhile, several urban economies are struggling to absorb population and labor. A deep dive into Albuquerque’s growth finds that an undersupply of housing is the most binding constraint today.

Implications for Economic Strategy and Policy

New Mexico is building on several strengths in its economic development strategy. Recent successes, including major business investments in Albuquerque and Las Cruces and the expansion of universal childcare and tuition-free college, mark important steps forward. The state has channeled a great part of its oil and gas windfalls into permanent funds, ensuring increased reserves for use in education, early childhood, and future flexibility. Annual distributions from these reserves now account for major shares of education spending, and they are projected to become an even larger part of the state budget. New Mexico has also had some success in targeting sectors for investment attraction and in a public push in site development and site readiness for investment. The state also faces new and recurring stressors, and this report has several implications for strategy moving forward. As federal funds recede, the state’s reserves are increasingly needed to offset cuts in healthcare, higher education, and other urgent areas, narrowing available fiscal space for new priorities. New Mexico has improved its ability to save revenues generated during the current resource boom, but it will also have to navigate spending tradeoffs. We suggest more deployment of the state’s fiscal resources to expand regional capacity to attract investment and actions to better address housing supply constraints in urban areas — both of which are small budget items in relation to existing priorities but with large potential gains. While New Mexico is moving in the right direction by targeting sectors and identifying key sites for development, the diversity of regional challenges and opportunities calls for greater regional tailoring. County-by-county analyses of diversification opportunities, using economic complexity methods, are available in this online repository. As for addressing labor supply constraints, investments in childcare and higher education effectively target long-term pressures on talent retention and attraction. However, the principal obstacle remains housing. There are state and local actions that can be taken to allow housing supply to better meet growing demand.