Personal income returns to positive growth

Personal Income decreased in practically every state in the nation in 2009. For most states, such outright declines in personal income had not been seen since state income records began. Personal income fell nationally as well, for the first time in six decades. But so far in 2010, personal income has returned to positive growth. Through the first half of the year, U.S. personal income is up by 2.2 percent over the same period last year. While positive growth is welcome, the increase is small, and personal income gains remain uneven from state to state.

(Note: Personal income is the income received by persons from all sources, including earnings of workers and business owners, rental income, dividend and interest income, and receipts from transfers such as unemployment payments. State figures on personal income are available from the U. S. Bureau of Economic Analysis (http://www.bea.gov/regional/index.htm#state).

Personal Income decreased in practically every state in the nation in 2009. For most states, such outright declines in personal income had not been seen since state income records began. Personal income fell nationally as well, for the first time in six decades (1949 was the last year with negative personal income growth for the U.S.). But so far in 2010, personal income has returned to positive growth.

Through the first half of the year, U.S. personal income is up by 2.2 percent over the same period last year. While positive growth is welcome, the increase is less than one-half the average growth of nominal personal income for the 20 year period 1987-2007 of 5.7 percent.

Uneven gains

Moreover, personal income gains remain uneven from state to state. Six states posted personal income growth of more than 3 percent in the first half. But an additional 21 states had growth of less than 2 percent. The top 10 personal income growth performers in the first half are shown in the accompanying table. At the head of the pack is New Mexico, followed by Alaska, North Carolina, and Kentucky, all with gains of 3.5 percent or better.

Personal income declined in two states in the first half. In Nevada, personal income was down by 1.8 percent, after falling in 2009 by 5.0 percent, more than any other state. Personal income in North Dakota declined by 1.1 percent in the first half. Rounding out the bottom five states, but eking out positive growth, were South Dakota (0.4 percent) Wyoming (0.5 percent), and Arizona (1.2 percent).

Western states

The 12 states covered by the Western Blue Chip Economic Forecast were scattered from the top to the bottom ranks, with a Western state in first and last place, and three Western states in the bottom and top 10 (see table).

The weakest personal income growth forecasts among the Western Blue Chip states this month are for Wyoming and Nevada, consistent with the actual first half personal income figures from the U.S. Bureau of Economic Analysis. The strongest forecast is for Texas, at 3.8 percent growth.

Second half slowdown

Third quarter state personal income figures will be released in December. By that time, other indicators such as employment and retail sales already will be available to form a clearer picture of the health of the recovery in the various states for the year. Because of the delay in the release of state personal income data, economy-watchers use personal income to confirm and analyze changes in the economy.

In particular, with the recovery appearing to be losing momentum here in the second half, analysts will be watching the personal income figures closely to determine the sustainability of consumer purchasing power. Even at a slow pace of expansion, consumer spending is necessary to keep the recovery going. But any weakening in personal income could spell trouble for consumer purchases of goods and services, a component accounting for 70 percent of the economy.