A Look at What’s Driving (or Stunting) Income Growth in the States – Governing

Gains in personal income appear to be headed in different directions across states.

Thanks in large part to population gains and the addition of high-paying jobs, most Western states recorded personal income growth rates of at least 4.5 percent for 2016, according to newly released annual estimates from the federal Bureau of Economic Analysis (BEA).

Nevada and Utah enjoyed particularly strong years, increasing 5.9 percent and 5.6 percent respectively. The southeastern U.S. and part of New England also registered sizable year-over-year gains.

Other parts of the county, however, didn’t experience the same kind of growth.

Across the Great Plains and areas of the Midwest, personal incomes didn’t rise nearly as sharply, generally only between 2 percent and 3 percent for the year. The weakest performing states were those with economies tied to oil and natural gas, many of which saw personal incomes either decline or fail to keep pace with inflation.

Nationally, state personal incomes — which include earnings from employment, property income and current transfer receipts — increased an average of 3.6 percent without adjusting for inflation. That’s down from 4.5 percent in 2015.

Personal income growth serves as a crucial economic indicator for states, especially for those relying more on income taxes to fund their budgets. The Rockefeller Institute of Government recently reported that many states have lowered their forecasted tax revenues for fiscal 2017.

Changes in earnings from hiring or wage hikes primarily drove most states’ growth.

Much of Utah’s economy, for instance, hadn’t experienced significant wage growth over the first few years of the economic recovery. That’s since changed, according to Carrie Mayne, chief economist at the state Department of Workforce Services. Entry-level positions and jobs in Utah’s traditionally low-paying leisure and hospitality sector were among the industries that started to experience gains.

“It’s really the story across the board here in the state,” says Mayne.

Given the state’s younger demographics and population gains — the strongest nationally last year, Mayne expects wage growth to continue this year. Along with Utah, other states with the steepest year-over-year percentage increases in personal income included Georgia, Florida, Nevada and Washington.

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SOURCE: U.S. Bureau of Economic Analysis, 2015-16 annual personal income estimates

How states fared last year depended largely on the performance of their major industries. Nationally, gains in construction, health care and the professional, scientific and technical services industry accounted for the single largest sources of earnings growth.

In Washington state, the two largest contributors to rising earnings were the information and retail trade industries. Seattle-based Amazon has provided a significant boost for both industries while also embarking on a number of local construction projects for its expansion.

Paul Turek, state economist for the Washington State Employment Security Department, says technology and information companies in and around Seattle are helping to propel the rest of the state’s economy forward.

“Growth has been going on for a while, but it really hit its peak in 2016,” he says.

In stark contrast to Washington and Utah, energy-dependent Alaska, North Dakota and Wyoming all suffered year-over-year declines in personal income, without even adjusting for inflation, as oil production slowed.

The slump in Wyoming’s oil industry has hindered other sectors of the state’s economy as well, says Jim Robinson, principal economist with the state department of administration and information. While most states experienced gains in construction, for instance, that industry contracted in Wyoming. Restaurants and accommodation services were similarly hurt by fewer oil field workers staying in hotels or dining out.

If there’s good news for the state, it’s that estimates for the last quarter of 2016 showed marginal improvements, signaling that the worst may be over.

“We may have bottomed out,” says Robinson. “I don’t see a whole lot of change in the next six months to a year.”

While not as severe as the oil and gas industry’s downturn, a decline in farming earnings similarly limited growth in other states. The industry was hardest hit in Idaho, Iowa, Montana and South Dakota, according to BEA estimates.

Fluctuations in personal income are somewhat a function of changes in population, so comparing per capita totals are more useful in assessing the financial gains of a state’s existing residents. Nationally, per capita personal income climbed 2.9 percent last year, registering the largest increases in Hawaii (4.2 percent) and New Hampshire (4.3 percent).

Property income, another component of personal income that includes dividends and interest payments, increased an average of 1.9 percent for the year. States with the largest increases included California, Hawaii, North Dakota and Utah.

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