Analysis

Personal Income Growth Shows Uneven U.S. Recovery

One of the longest U.S. economic expansions in history has lifted personal income in all states. But growth has varied, from a constant annual rate of less than 1 percent in Nevada to almost 5 percent in North Dakota since the start of the Great Recession. Weakening energy prices have cost four states some of those gains, though, over the year ending in the first quarter of 2016. 

Nationwide, growth in personal income has been slower than usual. Since the downturn began in the fourth quarter of 2007, estimated U.S. personal income has increased by the equivalent of 1.7 percent a year through the first quarter of 2016, compared with the equivalent of 2.8 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—recover its personal-income losses and return to its pre-recession level. Adjusted for inflation, personal income in 19 states has grown faster than in the nation as a whole since the start of the recession.

Looking at recent trends, data show that inflation-adjusted personal income rose by 3.2 percent in the first quarter of 2016 from a year earlier, with 25 states outpacing U.S. growth. All but four states made year-over-year gains. Personal income fell from a year earlier in Alaska, North Dakota, Oklahoma, and Wyoming, hit by losses as energy prices dropped. Still, levels in these states remained higher than before the recession.

Personal income estimates are widely used to track state economic trends. As the economy expands or shrinks, state personal income also changes. These trends 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 counts 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.

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Trends in inflation-adjusted personal income since 2007, the onset of the recession:

  • North Dakota enjoyed the fastest annualized growth (4.7 percent) since the start of the recession, measuring by the constant pace it took for personal income to reach levels in the first quarter of 2016. Next were other leading oil producers: Texas (3.0 percent), Alaska (2.6 percent), and Oklahoma and Colorado (2.3 percent).
  • Nevada, where home prices and construction earnings plunged when the housing bubble burst, had the slowest growth among all states: an annualized rate of just 0.3 percent since the fourth quarter of 2007.
  • After Nevada, Illinois (0.7 percent) had the slowest annualized growth rate in personal income, followed by 1.0 percent in Arizona, Connecticut, and Maine.

 

Trends in personal income for the first quarter of 2016, adjusted for inflation and compared with a year earlier:

  • The top 10 states experienced growth of at least 4 percent: New Hampshire (5.4 percent), Maine (4.6 percent), Tennessee (4.4 percent), Utah (4.4 percent), Oregon (4.3 percent), South Carolina (4.3 percent), Washington (4.3 percent), Michigan (4.3 percent), California (4.1 percent), and Nevada (4.1 percent).
  • The four states where personal income fell—North Dakota (by 3.9 percent), Wyoming (2.4 percent), Oklahoma (0.4 percent), and Alaska (0.4 percent)—were hurt primarily by declining earnings in the mining industry, which includes coal, natural gas, and oil production. However, North Dakota still enjoyed the greatest growth of any state for inflation-adjusted personal income since the recession’s onset, while expansions over this period for Alaska and Oklahoma ranked third and fourth, respectively.
  • Among the 46 states with gains, West Virginia’s was the slowest, rising by just 0.5 percent, as weakness in the mining industry also stunted its growth.

Personal income in 40 states grew faster between the first quarters of 2015 and 2016 than its constant pace since the end of 2007, accelerating those states’ economic expansions. In six states—Louisiana, Minnesota, Montana, Nebraska, Texas, and West Virginia—personal income increased in the past year but did so at a slower pace than each state’s constant growth rate since the recession, moderating their growth trends. The constant rate since the recession shows by how much income would have increased each year if it had grown to its latest level at a steady pace.

Some ups and downs since recession

The constant rate of growth between 2007 and 2015 masks volatility in personal income that occurred in intervening calendar years. (See the “Year by year” tab for annual results in each state between 2007 and 2015.)

Measuring total dollars of personal income received in each calendar year, this economic gauge fell in every state in 2009. The country rebounded over the next three years: 49 states’ personal income rose in 2010—Nevada was the outlier—and all states saw increases in 2011 and 2012. In 2013, personal income fell in 39 states, reflecting a number of taxpayers shifting income to 2012 from 2013 to avoid potential increases in certain federal tax rates, and the expiration of other tax rates. The rebound resumed over the next two years, with personal income rising in every state but Kansas in 2014. For calendar 2015, personal income was higher than in 2014 in all but three states: Iowa, North Dakota, and South Dakota.

What is personal income?

Personal income tallies 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.

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, set spending limits, and estimate the need for public services.

Looking at personal income per capita or state gross domestic product, which measures the value of all goods and services produced within a state’s borders, can 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 2016. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.  

Analysis by Ruth Mantell and Alex Boucher

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