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 three times faster than last-place Connecticut and Mississippi. Over the past year, this key economic indicator recorded widespread gains, rising in all states except Rhode Island as of the fourth quarter of 2018.
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 fourth quarter of 2018, total U.S personal income rose by the equivalent of 1.9 percent a year since the recession began, compared with the equivalent of 2.7 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 two other states recorded the weakest recovery, 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 latest year, expansion was widespread but the year-end growth rate was among the leanest in recent years. As of the fourth quarter of 2018, adjusting for inflation, personal income totals increased from a year earlier in all states but one—Rhode Island—the most states since all 50 posted gains at the end of 2014. Rhode Island’s performance was partially affected by losses in the finance and insurance industry. But U.S. personal income grew at its second-slowest year-end rate in five years: the equivalent of 2.3 percent. Results for the fourth quarter of 2018 are based on estimates and subject to revision, as is Pew’s ranking of growth rates for state personal income.
The widespread growth was punctuated by a strong finish to the year by both energy- and farm-dependent states. Oil and coal prices were higher in most of 2018 than in recent years. And farm earnings, although still below pre-recession levels after inflation, received a temporary boost as the Agriculture Department began providing payments from its Market Facilitation Program to farmers affected by trade disputes. Total personal income in Alaska, Louisiana, Nebraska, New Mexico, North Dakota, South Dakota, Texas, West Virginia, and Wyoming grew faster in the fourth quarter of 2018 than it had in any quarter in the past three years on the back of one or both of those factors.
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.
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 fourth quarter of 2018 shows:
Estimated change in each state’s aggregate, inflation-adjusted personal income in the fourth quarter of 2018 from a year earlier (subject to data revisions) shows:
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. Even Rhode Island’s totals were higher in 2018 compared with 2017, despite a diminished growth rate in the second half of the year.
Since the recession begun, 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. The fewest decreases over the 11 years were in Colorado, Idaho, Illinois, Utah, and Washington. Their personal income fell just once, in 2009.
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 fourth quarter of 2018. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.