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Trends in personal income matter for state governments because tax revenue and spending demands may rise or fall along with residents’ incomes.
This article was originally published by The Pew Charitable Trusts and was written by Matt McKillop and Joe Fleming.
One of the longest U.S. economic expansions has lifted personal income in all states above pre-recession levels. But growth has varied, ranging from a constant annual rate of 0.6 percent in Connecticut to 4.0 percent in North Dakota. In 10 states, personal income fell over the year ending in the second quarter of 2017 as U.S. growth remained slow—less than one-third the rate seen two years earlier.
Since the recession began, national growth in personal income has been lower than its historical pace. Estimated U.S. personal income increased by the equivalent of 1.6 percent a year from the fourth quarter of 2007 through the second quarter of 2017, compared with the equivalent of 2.7 percent a year over the past 30 years, after accounting for inflation.
States have recovered at different paces. Only in mid-2015 did the final state—Nevada—recoup its personal income losses and return to its pre-recession level, after accounting for inflation. Nevada had vied with Illinois for the slowest rebound since the start of the recession until the latest figures, which showed Connecticut slipping to last place. Since the end of 2007, personal income in 18 states has grown faster than that of the nation as a whole.
Looking at recent trends, one-year growth in U.S. personal income edged up slightly after slowing for two years. Inflation-adjusted U.S. personal income grew by 1.3 percent in the second quarter of 2017 from a year earlier, less than one-third its pace of 4.7 percent at the end of 2014.
Personal income growth in 23 states outpaced the U.S. rate for the year that ended in the second quarter of 2017. Elsewhere, personal income fell in 10 states. Lingering weakness in the farming industry, which was a primary drag on national growth, was the most common reason. Additional reasons were contractions in the total earnings of employers and employees within three industries: construction, management, and information production and distribution services, as well as among state and local government employees. These results are based on estimates and subject to revision, as is Pew’s ranking of state growth rates.
Personal income estimates are widely used to track state economic trends. Trends in personal income matter not only for individuals and families but also for state governments, because tax revenue and spending demands may rise or fall along with residents’ incomes. Comprising far more than simply employees’ wages, the measure sums up all sorts of income received by state residents, such as earnings from owning a business or investing, as well as benefits provided by employers or the government.
Trends in personal income from the recession’s onset in 2007 through the second quarter of 2017:
- North Dakota has enjoyed the fastest annualized growth (4.0 percent) since the start of the recession. However, a worldwide drop in petroleum prices has cooled its oil boom, and the state’s personal income has trended down for nearly three years.
- The next-fastest growth over the past 9½ years has been in Texas and Utah (each at 2.6 percent), Colorado (2.4 percent), and Washington (2.3 percent).
- Connecticut’s expansion since the end of 2007 slowed to the equivalent of 0.6 percent a year—the lowest in any state—after year-over-year drops in personal income for three straight quarters.
- The next-slowest growth since the start of the recession has been in Illinois (0.7 percent); Rhode Island, Mississippi, and Missouri (each at 0.8 percent); and Alabama, Maine, Nevada, and West Virginia (each at 0.9 percent).
Trends in personal income for the second quarter of 2017, compared with a year earlier:
- Growth was fastest in Nevada (3.1 percent), Utah (2.8 percent), and Georgia and Washington (each at 2.4 percent), followed by Arizona, Colorado, Delaware, and Florida (each at 2.3 percent).
- Utah and Washington stand out as the only states with a one-year growth rate that ranked among the five fastest during each of the most recent four quarters.
- The 10 states where personal income fell from a year earlier were North Dakota (by 2.0 percent), Oklahoma (0.8 percent), Iowa and Kansas (each 0.7 percent), Connecticut (0.6 percent), South Dakota (0.5 percent), Wyoming (0.4 percent), Alaska and Nebraska (each 0.3 percent) and Rhode Island (0.1 percent).
- Alaska, Iowa, Kansas, North Dakota, Oklahoma, South Dakota, and Wyoming stand out for recording year-over-year drops during each of the four most recent quarters.
- Among the 40 states with gains, Illinois’ and Missouri’s were the smallest, at just 0.2 percent.
- In 36 states, personal income growth in the year ending in the second quarter of 2017 was weaker than its constant pace since the start of the recession.
Trends in personal income for calendar years beginning in 2007
Personal income has fluctuated since the recession, which lasted from December 2007 to June 2009. Growth in each calendar year shows the variation that occurred from 2007 to 2016. (See the “Year by year” tab for annual results in each state between calendar years 2007 and 2016.) By contrast, constant annual rates show the steady pace that income would have to rise each year to reach its latest level.
- West Virginia was the only state to escape the Great Recession, without a calendar year drop in personal income in 2009.
- As the country rebounded from the recession, personal income rose in 46 states in 2010—Arizona, Delaware, Kansas, and North Carolina were the exceptions. All states saw increases in 2011, and all but Delaware and Georgia recorded gains in 2012.
- In 2013, personal income fell in 36 states, reflecting a number of taxpayers accelerating income into 2012 in anticipation of a potential federal tax hike in 2013.
- The rebound resumed over the next two years, with personal income rising in every state but Kansas in 2014, and every state but North Dakota, Oklahoma, and Wyoming in 2015.
- In 2016, weak earnings from the energy, farm, and manufacturing sectors cut personal income in 10 states (Alaska, Connecticut, Iowa, Kansas, Louisiana, North Dakota, Oklahoma, Texas, West Virginia, and Wyoming).
What is personal income?
Personal income sums up residents’ paychecks, Social Security benefits, employers’ contributions to retirement plans and health insurance, income from rent and other property, and benefits from public assistance programs such as Medicare and Medicaid, among other items. Personal income excludes capital gains.
Federal officials use state personal income to determine how to allocate support to states for certain programs, including funds for Medicaid. State governments use personal income statistics to project tax revenue for budget planning, set spending limits, and estimate the need for public services.
Growth in personal income should not be interpreted solely as wage growth; wages and salaries account for about half of U.S. personal income.
Looking at personal income per capita or state gross domestic product, which measures the value of all goods and services produced within a state, can yield different insights on state economies. So can looking at household data, which are based on a different measure of income.
Download the data to see state-by-state growth rates for personal income from 2007 through the second quarter of 2017. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.