Dominated by coal and steel, Pennsylvania is an important contributor to the national economy, but its role diminished considerably during the 20th century. The state reached the height of its economic development by 1920, when its western oil wells and coal fields made it the nation's leading energy producer. By that time, however, Pennsylvania's oil production was already on the decline, and demand for coal had slackened. No longer did the state dominate US steel production: Pennsylvania produced 60% of the US total in 1900, but only 30% in 1940 and 24% in 1960. Philadelphia, a diversified manufacturing center, began to lose many of its textile and apparel factories. The Depression hastened the decline. Industrial production in 1932 was less than half the 1929 level, and mineral production, already in a slump throughout the 1920, dropped more than 50% in value between 1929 and 1933. By 1933, 37% of the workforce was unemployed.
Massive federal aid programs and the production of munitions stimulated employment during the 1940s, but some sections of the state have never fully recovered from the damage of the Depression years. Declines in coal and steel production and the loss of other industries to the Sunbelt have not yet been entirely counterbalanced by gains in other sectors, despite a steady expansion of machinery production, increased tourism, and the growth of service-related industries and trade. Manufacturing, the 2nd-largest employer in Pennsylvania—providing one million jobs in the 1990s—lost about 350,000 jobs during the 1980s. The outlook for the steel industry remained uncertain in the 1990s, as Pennsylvania's aging factories faced severe competition from foreign producers. Services, in contrast, recorded about as much growth as manufacturing lost. The fastest growing service industries were concentrated in the medical and health fields. Coming into the 21st century, the annual growth rate for Pennsylvania's economy averaged 4.75% (1998 to 2000), which was then more than halved to 2.2% in the national recession of 2001. Manufacturing output, which grew 5.2% from 1997 to 2000 (although decreasing as a share of total output from 20.1% to 18.4%), fell -7.2% in 2001 (decreasing its share to 16.7%). The strongest growth in output was in various service sectors, with output from general services up 28% from 1997 to 2001; from financial services, up 22.1%, and from trade, up 19.5%.
In 2001, Pennsylvania's gross state product gross state product was $408.4 billion, the 6th largest among the states, to which general services contributed $98.6 billion; financial services, $79.3 billion; manufacturing, $68.3 billion; trade, $62.3 billion; government, $41.4 billion; transportation and public utilities, $35 billion, and construction, $18.5 billion. The public sector in 2001 constituted 10% of gross state product, below the 12% average for the states.