States face personal income declines in 2009

While expectations are growing for a better year in 2010, analysts are still sifting through the economic ashes of 2009 as figures become available. Personal income in 2009 probably declined nationally. Moreover, it is increasingly apparent that for many states (and most Western states), 2009 will go into the books with the worst performance on this indicator since records began four decades ago.

While expectations are growing for a better year in 2010, analysts are still sifting through the economic ashes of 2009 as figures become available. Personal income in 2009 probably declined nationally. Moreover, it is increasingly apparent that for many states (and most Western states), 2009 will go into the books with the worst performance on this indicator since records began four decades ago.

Personal income consists largely of wages, dividends and interest received, proprietor profits, and transfer payments such as pensions. Layoffs, furloughs, and shorter work weeks in 2009 have combined to reduce income, which in turn leads to cutbacks in spending and yet more negative impacts on workers. A side effect is less revenues for state and local governments from sales and income taxes.

New third quarter 2009 personal income numbers were released by the U.S. Bureau of Economic Analysis on December 23rd. On the national level, third quarter personal income was up 0.3 percent from the preceding quarter. On the state level, personal income was up in the third quarter in 43 states and down in 7 states.

Alaska recorded the fastest quarter-to-quarter growth (0.9 percent) while Louisiana had the largest decline (-4.9 percent). But the gains in the third quarter were weak and not sufficient to make up for the "off-the-cliff" decreases in the first quarter of 2009, when personal income declined or showed zero growth in every state in the nation.

As a result, the year-to-date changes in 2009 personal income now available through the third quarter indicate that many states will show new lows or even negative growth when figures for the full year are released at the end of March. National personal income has not decreased on an annual basis since 1949, some 60 years ago.

The consensus among economy-watchers is that U.S. personal income could decrease by as much as two percent for 2009. Year-to-date through the third quarter, U.S. personal income is down 1.7 percent compared to last year.

Largest declines were in the West

By region, the Southeast had the smallest decrease in year-to-date personal income (-1.3 percent) while the Rocky Mountain and Far West regions recorded the largest declines (-2.3 percent). No state has experienced an annual decrease in personal income since 1997 (when North Dakota had a decline of 2.1 percent).

In the four decades that reliable state personal income estimates have been available, only Wyoming among the Western states has ever recorded an annual decline. The previous annual minimums in personal income growth recorded for Western states were in 2002 or the mid 1980's, but it appears that new lows could be reached in the current recession when final figures are in.

Nevada, Wyoming and Idaho had the largest percentage decrease in personal income through the first three quarters of 2009 (see table). Arizona, California, and Colorado also had declines greater than the nation.

Unless the fourth quarter brings a surprising surge in the data, most Western states in the table appear to be on track not only for new lows, but for outright first-time decreases in personal income. Nationally, personal income in the fourth quarter is expected to increase by at most about 1 percent over the third quarter of 2009.

For Nevada, Wyoming and Idaho (and maybe Arizona, California and Colorado), that pace of expansion will not be enough to pull annual personal income growth out of the negative range for the year as a whole.