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ANALYSIS | But the pace of states' economic growth is very different.
This article is by the State Fiscal Health initiative of the Pew Charitable Trusts.
States’ economies have improved at different paces since the Great Recession, as reflected by the combined personal income of all residents. First-place North Dakota has grown more than four times faster than last-place Connecticut. In a sign of underlying economic strength, total personal income rose in all 50 states in early 2019 for the second straight quarter.
The national recovery has been long-running, but economic growth, reflected in the combined personal income of all residents, is still off its historic pace. Through the first quarter of 2019, total U.S. personal income rose by the equivalent of 1.9 percent a year since the recession began, compared with the equivalent of 2.6 percent over the past 30 years, after accounting for inflation. The rates represent the constant pace at which inflation-adjusted state personal income would need to grow each year to reach the most recent level and are one way of tracking a state’s economic trends.
After tumbling nationwide except in West Virginia during the depths of the recession, personal income totals have recovered in all states but have grown at far different rates. Since late 2007, growth has been strongest in a group of Western and Southern states and in North Dakota, which continued to lead; the sum of its residents’ personal income has increased the equivalent of 3.3 percent a year. Connecticut, Mississippi, and Illinois have recorded the weakest recoveries, with growth rates at or below the equivalent of 1 percent a year. Trends in personal income matter to state governments because tax revenue and spending demands may rise or fall along with residents’ incomes.
In the first quarter of 2019, U.S. personal income grew the equivalent of 2.0 percent from a year earlier, after adjusting for inflation. Although growth was slightly slower than in the final quarter of 2018, gains in both periods were widespread. It was just the second time since the onset of the recession nearly 12 years ago that every state had consecutive quarters of year-over-year growth; this last happened in the first half of 2011. Results for the first quarter of 2019 are based on estimates and subject to revision, as is Pew’s ranking of growth rates for state personal income.
Personal income estimates include wages and salaries, which make up about half of the total, and other income received by state residents, such as earnings from owning a business and property income, as well as benefits provided by employers or the government, such as Social Security checks and Medicaid and Medicare coverage. State personal income does not include realized or unrealized capital gains, such as those from stock market investments. These statewide sums are aggregates and should not be used to describe trends for individuals and households.
Growth Since the State of the Recession
The constant annual growth rate for each state’s aggregate, inflation-adjusted personal income since the fourth quarter of 2007 (when the 2007-09 recession began) to the first quarter of 2019 shows:
- North Dakota has had the strongest annualized growth (3.3 percent) since the start of the recession after the use of new drilling technologies led to an oil production boom. Stung by falling oil prices in 2014 and 2015, the state experienced nearly three years of declines in residents’ combined personal income. But North Dakota’s aggregate income has trended upward again since the start of 2018.
- The next-largest growth rates since late 2007 were concentrated in the West and the South: Utah (3.0 percent), Washington (2.9 percent), Colorado and Texas (both 2.7 percent), California and Idaho (both 2.6 percent), Oregon (2.5 percent), Montana (2.4 percent), South Carolina (2.3 percent), and Tennessee (2.2 percent).
- Connecticut’s growth was the weakest of any state, the equivalent of 0.8 percent a year since the end of 2007. Connecticut has lagged largely because of losses in manufacturing, especially in the chemical industry.
- The other slowest-growing states were Mississippi (0.9 percent) and Illinois (1.0 percent).
Growth over the past year
Estimated change in each state’s aggregate, inflation-adjusted personal income in the first quarter of 2019 from a year earlier (subject to data revisions) shows:
- Nationally, total personal income rose 2.0 percent in the first quarter of 2019 compared with a year earlier, below its post-recession peak of 5.3 percent growth at the start of 2011.
- The fastest growth was in West Virginia (4.3 percent) followed by Idaho (3.7 percent), Nevada (3.5 percent), Arizona (3.3 percent), Colorado (3.2 percent), Washington (3.1 percent), and North Dakota (3.0 percent).
- The slowest growth was in New Hampshire, Rhode Island, Connecticut, New York, and Massachusetts, each with a growth rate of less than 1.0 percent. Revised data for the fourth quarter of 2018 showed Rhode Island’s personal income increased 0.7 percent—the third-slowest growth rate—rather than declining, as previously reported. However, Rhode Island was the only state with a decline in the third quarter of 2018.
- For the second consecutive quarter, personal income grew in every state.
- Thirty-one states outpaced U.S. growth in personal income.
Ups and downs since recession
This analysis’ use of constant annual growth rates allows comparisons of states’ economic performance since the recession, which lasted from December 2007 to June 2009. However, personal income did not actually change at a steady pace, instead falling in some years and rising in others.
Viewed by calendar year, inflation-adjusted personal income fell in eight states in 2008 but in 49 states in 2009, with West Virginia the only state to escape the 18-month recession without a calendar-year drop. The country rebounded over the next three years until 2013, when personal income fell in 40 states, in part because many taxpayers shifted the timing of income in reaction to federal tax changes. Weak earnings in industries such as farming and energy weighed down personal income and helped account for declines in 11 states in 2016. Every state had an increase in total personal income in 2018, just the third time that has happened since the onset of the recession.
Since the recession began, Delaware and North Dakota have endured the most frequent drops, with personal income falling in five of the 11 years. However, Delaware has not had a decline since 2013, while North Dakota’s annual total personal income most recently fell in 2015, 2016, and 2017. Although West Virginia’s personal income grew during the recession, the state has experienced two declines since then—in 2013 and 2016. The fewest decreases over the 11 years were in Colorado, Idaho, Illinois, Utah, and Washington. Their personal income fell just once, in 2009.
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. Likewise, growth in total state personal income should not be seen as a measure of how much the income of average residents has changed. Other measures should be used to approximate income growth for individuals, such as state personal income per capita or household income based on different data.
Looking at state gross domestic product, which measures the value of all goods and services produced within a state, would yield different insights on state economies.
Download the data to see state-by-state growth rates for personal income from 2007 through the first quarter of 2019. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.