As is their relatively new practice, the U.S. Bureau of Economic Analysis issued a combined combined report on state-level GDP and Personal Income. [Link: Analysis of Arkansas GDP] The report showed that Arkansas Personal Income increased at a rate of 6.1% in the first quarter of 2024–somewhat slower than the 7.0% growth rate for the U.S. Arkansas’ quarterly growth rates have been erratic over the past two years, but this first observation for 2024 suggests a resumption of a trend paralleling the national average.
The contributions to overall growth from Net earnings and Dividends, interest & rent were nearly identical for the state and the nation. Arkansas growth rate lagged in the Transfer receipts component.
Nationwide, and for some of the higher-growth states, transfer payments accounted for a particularly large component of growth. The BEA report noted that “The increase in transfer receipts in the first quarter of 2024 reflected a 3.2 percent cost-of-living adjustment for social security recipients, along with increases in refundable tax credits and Medicaid benefits.” These adjustments had significant impacts on some states, but were proportionately smaller for Arkansas.
A breakdown of the major components of total earnings shows the key change in the turn-around in Arkansas’ growth in the first quarter: Proprietors’ income. After declining by 22.8% over the four quarters of 2023, Proprietors’ income rose by 4.4% in 2024:Q1 (an annualized growth rate of 18.8%). Dividends, interest & rent increased at an annualized rate of 5.3%, while Wages and salaries increased at a 4.7% pace.
As reported for the fourth quarter, Farm Proprietors’ Income has been the driving factor in the unusual swings in Arkansas’ growth patterns for Total Proprietors’ Income (and Total Personal Income) over the course of 2022 and 2023. In 2024:Q1, both farm and non-farm components increased.
A breaking down the components of earnings by industry highlights the importance of the Farm sector. Other important contributors to personal income growth were Construction, Health Care, and Administrative services.
The erratic nature of Farm income clearly complicates the analysis of underlying trends in personal income growth. The volatility in the time-series is likely related to changes in inventory valuations that accompany variability in commodity prices. In measuring farm income, the BEA factors in changes in agricultural commodity prices to revalue inventories, even though those changes may not actually impact farmers’ cash flows. To the extent that is true, the quarter-to-quarter fluctuations likely overstate the true volatility of farm income.
One final note: The personal income data are not adjusted for inflation. If we adjust the first quarter growth rates for a 3.4% rate of inflation (using the PCE price index) the rate of real personal income growth was 2.6% for Arkansas and 3.5% for U.S.