It has taken more than a decade but NSW has re-emerged as Australia's strongest state economy.

NSW leads the nation's economic pack having edged out the minerals-rich Western Australia, which has held the number one spot for the past three years, a quarterly review of the states by Australia's biggest bank has found.

The key factor in NSW's economic resurgence has been the strength of the housing sector. New dwelling commencements in NSW were more than 36 per cent above the decade average, said the "State of the States" report [PDF, 300 KB] by the Commonwealth Bank's stockbroking arm, Commsec.

More than 52,000 dwellings were approved in NSW in the 12 months to July, the highest level since May 2000.

It is the first time NSW has been in the top spot since Commsec started its state rankings in 2008. The last time NSW was the nation's clear economic leader was in the early 2000s following the Sydney Olympics.

Premier Mike Baird said he was proud the state economy was leading the nation.

"NSW is shining again," he said. "And a strong NSW means a strong Australia."

Commsec economist Savanth Sebastian said the housing sector had been the state's economic "X-factor".

"That has propelled NSW to the top of the leader board," he said. "It's been a meteoric rise. If anything I think the momentum shift in NSW is going to get stronger over the next six to 12 months."

NSW was ranked in the top spot for dwelling commencements and population growth, and second for retail trade, business investment and unemployment. It ranked third on housing finance and fourth on overall construction work.

"It's well over a decade since NSW was as strong as it is now," Mr Savanth said.

The Commsec report assesses each state according to economic growth, retail spending, equipment investment, unemployment, construction work, population growth, housing finance and dwelling commencements. The latest level of each indicator is compared with the state's decade average.

The most recent official growth figures released by the Bureau of Statistics showed growth in NSW's State Final Demand – a key indicator of state economic activity – was the strongest in Australia at 3.6 per cent.

Factors beyond the state government's control – especially record low interest rates and a weaker Australian dollar – have been crucial to NSW's economic improvement.

Even so, the strength of the state economy is a boon for Mr Baird with economic management sure to be a centrepiece of the Coalition's bid for re-election in March.

"When we came in to government NSW was pretty much at the bottom of the pack," Mr Baird said. "But we've methodically gone about restoring the economy, investing in the drivers of the economy … it's clear that from an economic management perspective we are delivering for the people of this state."

In another vote of confidence in the NSW economy, international ratings agency Standard and Poor's last week upgraded the outlook for the state's triple-A credit rating.

Mr Baird said the groundwork had been done to allow a pipeline of infrastructure spending in NSW that would underpin future jobs growth and help boost productivity.

"Now is when the jobs start to fall from the sky," he said.

"We are literally going into an age of sunshine for NSW because of the benefits of that infrastructure spending."

Mr Baird said robust growth was essential if the state government was to deliver the services and infrastructure expected by voters.

"Not only is the economy in NSW moving but we are back to leading the nation," he said.