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Arkansas Personal Income – 2015:Q1

Personal income in Arkansas increased by 1.0% in the first quarter of 2015, outpacing the national average 0.9%.  Arkansas’ growth rate ranked 25th among the 50 states.  The 1st quarter increase in income comes on top of an upwardly revised figure of 1.9% growth in the 4th quarter (previously reported at 1.2%).  Over the past four quarters, incomes have increased by 4.9% in Arkansas, compared to 4.4% for the entire U.S.  Relative to the previous cyclical peak (2008:Q2), incomes have risen 22.6% in Arkansas.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis
Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Farm income and proprietors’ income more generally were down, both in Arkansas and nationally.   On the other hand, personal current transfer receipts were up sharply, reflecting several special factors including a 1.7% cost-of-living adjustment to social security benefits.

Earnings was up 0.7% and accounted for 44% of total personal income growth.  As shown in the following table, earnings growth was relatively strong in Utilities, Construction, Management of companies and enterprises, and Accommodation and food services.  In addition to the decline in farm income, earnings from Manufacturing and Mining were also negative.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

 

Local Area Personal Income – 2013

The Bureau of Economic Analysis released new statistics on local area personal income this morning.  The new data for metro areas and counties show a pronounced slowdown in economic growth in 2013 compared to 2012, but the slowdown was not unique to Arkansas.  Nationwide, per capita personal income growth slowed from 4.4% in 2012 to 1.3% in 2013.   As shown in the table below, Fayetteville was the only metro area in Arkansas that grew faster than the national average in 2013.   Growth in three of Arkansas metro areas was negative in 2013, and with the exception of Northwest Arkansas none of the state’s metro areas experienced growth above 1%.  Revised figures for 2012 show that the slowdown in 2013 was particularly sharp in Arkansas, with all metro areas falling from above average growth in 2012.  Taking a somewhat longer view, two-year average growth rates for all of Arkansas’ metro areas except Texarkana exceeded the nationwide average.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The same pattern of sharp deceleration was evident in the county-level data as well.  Each of Arkansas’ 75 counties experienced a slowdown in growth between 2012 and 2013.  Individual county growth rates ranged from a high of 6.9% in Scott County to a low of -4.6% in Hempstead County.  Above-average growth was more common among individual counties than among metro areas:  34 of the state’s counties had growth rates that exceeded the national average.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Levels of per capita income continue to vary widely across the state.   In 2013, three of Arkansas’ counties had per capita personal income above the national average:  Pulaski, Union, and Arkansas counties.  At the other extreme, Sevier county had per capita income that was only 55.7% of the U.S. average.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Arkansas Personal Income – 2014:Q2 and Revisions

New data on personal income that came out last week included first-published data for the second quarter of 2014, along with revisions going back as far as 2001.  The news on personal income for Arkansans was generally quite positive, but also highlighted some areas of weakness in the state’s economic expansion since the 2008-09 recession.

The news for the most recent quarter was certainly upbeat:  Personal income in Arkansas rose 1.9%–above the national average of 1.5% and ranking Arkansas as the 7th fastest growing state for the quarter.  A revision to the data for the first quarter of the year was also good news:  Previously reported as a decline of 0.2%, the revised data for 2014:Q1 showed an increase of 0.8%.  The update to the first quarter data was largely due to a substantial upward revision to estimates of farm income (which accounted for much of the weakness in the first-published report).  As shown in the chart below, Arkansas personal income is 18.5% higher than at the previous cyclical peak of 2008:Q2.  Over the same period, U.S. personal income is up 17.4%.  On the basis of overall personal income, Arkansas’ cumulative recovery is faring slightly better than the nation’s.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The past revisions to the data for Arkansas were also positive.  As shown in the chart below, the data for 2012 and 2013 were revised upward substantially — averaging 2.3% over that two year period.  The spike in income during the fourth quarter of 2012 was subject to a particularly large revision.  Recall that this spike was attributable to income-shifting associated with changes in income tax laws that went into effect at the beginning of 2013 (see, Arkansas Personal Income – How Policy Has Affected Growth).  It is therefore not surprising that the revision for 2012:Q4, in particular, was primarily attributable to an upward revision of the Dividends, Interest, and Rent component of overall personal income.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

In fact, the entire revision was attributable almost exclusively to the Dividends, Interest, and Rent component.  Of the total average upward revision for 2012 and 2013, Wages and Salaries accounted for approximately 1% and Proprietors’ Income accounted for about 19%.  Transfer Receipts and Employer Contributions for Pensions and Insurance were revised downward.  After those downward revisions in other components, the Dividends, Interest, and Rent component was left to account for 114% of the total revision.

The revision to Dividends, Interest, and Rent reflects a realization that recent earnings on returns to wealth were larger than previously recognized.  But the small revision to Wages and Salaries suggests no improvement in the record on labor compensation during the business cycle expansion in Arkansas.  And even before the data revisions, the pattern was skewed — the new data highlight the imbalance.

The two charts below (using the newly revised data), show how the two components have fared in Arkansas relative to the national average.  The first shows Wages & Salaries, which comprise about 55% of total income in Arkansas.  While the data show that the recession did not impact Wages and Salaries in Arkansas as much as the rest of the nation, the pace of recovery has been slower.  Compared to the peak quarter of total personal income, Arkansas has seen a cumulative increase of 13.0%, while the U.S. increase has been 13.8%.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The second chart shows Dividends, Interest, and Rent, which accounts for about 21% of total personal income in Arkansas.  After a downturn of the same magnitude as the U.S. average, this component has shown remarkable growth in Arkansas.  Relative to 2008:Q2, this component has shown a cumulative increase of  27.5% in Arkansas, while increasing a total of 13.3% nationwide.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The relative strength of growth in Dividends, Interest, and Rent — in spite of its relatively small share in total income — fully accounts for the fact that Arkansas personal income growth has exceeded the national average during the economic expansion.  The relatively sluggish performance of the Wages and Salaries component highlights the weakness that appears to be holding back the recovery of the state’s labor markets.

Arkansas Personal Income – 2014:Q1

New figures came out this morning showing that Arkansas personal income declined by 0.2% in the first quarter.  Data for the fourth quarter of 2013 were also revised downward to show a 0.2% decline in that quarter as well.  Compared to the first quarter of 2013, the new data indicate year-over-year growth of 1.0%.  The weakness in Arkansas income was concentrated in farm income.  The report from the Bureau of Economic Analysis noted that first-quarter farm earnings declined by more than $1 billion in each of several agricultural states, including North Dakota, Minnesota, Iowa, Arkansas and Nebraska.  The report noted that the declines reflected falling crop prices.  Nonfarm income in Arkansas increased 0.9% in the first quarter, and was up 2.8% from the first quarter of 2013.

PI-2014Q1-map

The declining income in Arkansas over the most recent two quarters contrasts with modest but positive growth in personal income nationwide.  For the U.S. as a whole, personal income was up 0.8% in the first quarter following a (revised) 0.5% increase in the fourth quarter of last year.  The most recent data puts U.S. personal income 14.8% higher than its pre-recession peak.  For Arkansas, first quarter income was 13.6% higher than the previous cyclical peak.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Over the past four quarters, the price index for personal consumption expenditures increased by 1.1%.  Hence, on an inflation-adjusted basis, real incomes in Arkansas have fallen 0.1% over the past year.  For the U.S., real income increased by 2.5% over the same period.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The table below shows the critical role that declining farm income played in the first quarter report.  Total earnings (which includes wages and salaries, supplements to wages and salaries, and proprietors income) contributed -.42% to the quarterly decline in Arkansas personal income. The contribution of farm income to that total was more than a full percentage point.  All other sectors combined contributed +0.65% to personal income growth.  Some sectors showed notable growth, including Construction and Nondurable goods manufacturing.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

 

Regional Price Parities and Income – New Data for 2012

When the 2013 data on state personal income were recently released, we noted that per capita income in Arkansas was approximately 81% of the national average — essentially unchanged from the previous year.  But when it comes to purchasing power, incomes in Arkansas imply a higher standard of living than suggested by the 81% figure.

This morning, the Bureau of Economic Analysis released their first official set of statistics on Real Personal Income for States and Metropolitan Areas. (Experimental data had previously been released for years prior to 2012, see here and here).  The data confirmed that the cost of living is significantly lower in Arkansas than elsewhere in the U.S.  The overall price parity figure for Arkansas was 87.6, implying that prices were approximately 12½% lower than the nationwide average in 2012.   Adjusting incomes for this difference in the cost of living, Arkansas real incomes have a purchasing power that is 92.6% of the U.S. average.

As shown in the figure below, the 2012 statistics showed Arkansas to be the second-lowest cost state in the nation.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Regional price parities are generally lower in non-metropolitan areas than in metropolitan areas, and tend to be higher in the larger metro areas.  Differences in goods prices tend not to vary geographically as much as prices for services, and much of the regional variation in prices is driven by differences in rent costs.  The table below illustrates these patterns for Arkansas, breaking down prices of goods and services for metro- and non-metro areas of the state.   In the non-metro portions of the state, prices are generally 15% lower than the national average, led by rental costs that are just over half the U.S. mean.  The most expensive areas of the state are Memphis, Little Rock, and Fayetteville, each with an overall price parity exceeding 90.0.  Among metro areas, Jonesboro has the lowest cost of living.  In fact, today’s announcement from the Bureau of Economic Analysis showed Jonesboro to be fourth on the list of the most inexpensive metro areas in the nation.

Source:   Bureau of Economic Analysis
Source: Bureau of Economic Analysis

 

Arkansas Personal Income – 2013:Q4

New data from the Bureau of Economic Analysis (BEA) shows that Arkansas personal income rose by only 0.2% in the fourth quarter of 2013, compared to a growth rate of 0.6% for the U.S.  Over the four quarters from 2012:Q4, growth was 0.7% in Arkansas and 1.4% for the U.S.  The year-over-year growth rates are distorted by the expiration of the payroll tax holiday at the end of 2012.  In the absence of that change in tax policy, growth would be nearly one full percentage point higher.  Since the official end-date of the recession (2009:Q2), personal income growth has averaged approximately 3.7% for both the state and the nation.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

Personal income data are not adjusted for inflation. To account for changes in purchasing power over time, the chart below uses the price index for personal consumption expenditures to illustrate real (inflation adjusted) personal income. After adjusting for price changes, real personal income in Arkansas was -0.1% in the fourth quarter and -0.3% over the most recent four quarters. For the U.S., quarterly real income growth was 0.3%.  From the fourth quarter of 2012, U.S. real income growth was 0.4%.

Sources:  Bureau of Economic Analysis, author's calculations
Sources: Bureau of Economic Analysis, author’s calculations

Annual Data for 2013
The news release from the BEA focused on annual averages for 2013 compared to the previous year.  On that basis, Arkansas income growth was 2.2%, compared to 2.6% for the U.S.  In terms of year-over-year growth, Arkansas ranked 35th among the 50 states.  The release noted that the national price index for personal consumption expenditures was 1.1% over the same period, implying real income growth rates of approximately 1.1% for Arkansas and 1.5% for the U.S.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

The BEA news release also summarized data for per capita personal income.   Arkansas per capita income was $36,086, up 1.8% from 2012.  This figure represents approximately 81% of the national average.  Arkansas’ rank among the 50 states dropped from 45th to 46th.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

(Note:  If it were included in the state rankings, the District of Columbia would be ranked #1 with a per capita income of $74,513 — more than 67% above the national average.)

Earnings by Industry
Total earnings in Arkansas increased by 2.9% in 2013, compared to 3.4% nationwide.*  The table below summarizes earnings by industry.  Comparing Arkansas with the U.S. total, notable sectors of weakness included construction and manufacturing.  Earnings in several service-providing sectors in Arkansas exceeded nationwide growth rates; particularly in the categories of professional and business services.  Farm income in Arkansas also outpaced the national average.

Source:  Bureau of Economic Analysis
Source: Bureau of Economic Analysis

__________

*Total earnings includes wages and salary disbursements, supplements to wages and salaries, and proprietors’ income.  It does not include dividends, interest and rent; or personal current transfer receipts — nor does it adjust for employer and employee contributions for government social insurance.

 

Arkansas Personal Income – New and Revised Data

Arkansas personal income increased by 0.6% in the second quarter, compared to a 1.0% increase in the U.S. data.  Compared to a year earlier, Arkansas personal income was up 2.1%.  Nationwide, the four-quarter increase was 2.6%.

The most recent report also incorporated the latest comprehensive (benchmark) revision of the data.  As illustrated in the chart below, the newly revised data suggest that the drop in incomes during the 2008-09 recession was slightly less severe — but more protracted — than indicated by the pre-revision data.  Previously-published data showed a peak-to-trough decline of 4.7% (from 2008:Q2 through 2009:Q3).  The new data show a downturn off only 3.5% for the same period, but with a slower trajectory of recovery through 2010.  Since the beginning of 2011, however, the revised data show a slightly higher growth rate than previously reported.

Source: Bureau of Economic Analysis

Data for U.S. personal income were also revised, altering the comparison of Arkansas and U.S. income growth during the recession and recovery.  As shown in the next figure, the new data suggest that the downturn in Arkansas was nearly as large as the U.S. average.  Previously, the data suggested that Arkansas’ downturn was not as severe as the nation’s.  On the other hand, the upward revision to Arkansas data in 2011 and 2012 now indicates that Arkansas is on a more rapid path of recovery than the nation as a whole.  As of the second quarter of 2013, personal income in Arkansas is 12.9% higher than its pre-recession peak.  U.S. personal income has shown a net increase of 11.9% over the same period.

Source: Bureau of Economic Analysis

The newly-revised data had little impact on estimates of how recent changes in tax policy has affected personal income growth (see previous post).  The expiration of the payroll tax holiday at the beginning of the year is estimated to have lowered first quarter growth by approximately 0.9%.  The surge in dividend income in the fourth quarter of 2012 (to avoid higher income tax rates in 2013) added at approximately 0.7% to end-of-year income — subtracting a commensurate amount from first quarter growth.  Combined, these two effects reduced first-quarter growth by 1.6%.  The reported first-quarter growth rate of -0.9% (revised) would have been approximately +0.7% in the absence of these changes in tax policy.

Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Adjusting for the expiration of the payroll tax holiday.  Income growth from 2012:Q2 through 2013:Q2 would have been approximately 3.1% for Arkansas and 3.6% for the U.S.

# # #

Note:  Our analysis of the second-quarter personal income data was delayed by the Federal government shutdown.  The data were originally released on September 30, but were inaccessible from October 1 through October 16 while the website of the Bureau of Economic Analysis was non-functional.

Arkansas Personal Income – How Policy Has Affected Growth

Recent statistics on personal income have been subject to significant influences by Federal tax policy.  In the most recent quarter (2013:Q1) Arkansas personal income declined by 1.9%, compared to an average decline of 1.2% nationwide.  These declines followed sharp increases in the fourth quarter of 2012: +3.0% for Arkansas (revised up from 2.2%) and +2.8% for the U.S. (revised up from 1.9%).  The relatively large drop in Arkansas in the first quarter ranked the state #48 among the 50 states plus D.C.  But as noted in the news release from the Bureau of Economic Analysis, “The decline in first-quarter personal income reflected the effects of several special factors including the expiration at the beginning of 2013 of the ‘payroll tax holiday.'”

In Figure 1 below, total personal income for Arkansas and the U.S. are compared on an index scale, with the previous business cycle peak (2008:Q2) normalized to a common value of 100.  Two prominent features are shared by the U.S. and Arkansas series:  a sharp increase in the 1st quarter of 2011 and an equally sharp decline in the 1st quarter of 2013.  These movements largely reflect the initiation and conclusion of the payroll tax holiday.

Figure 1:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

To get an idea of the magnitude of the tax holiday effect, Figure 2 shows two ratios constructed using the data for Arkansas.  The denominator for both ratios is the sum of “Wage and salary disbursements” and “Proprietor’s income”.  The numerators are (1) “Employee and self-employed contributions for government social insurance” and (2) “Employer contributions for government social insurance.”  The payroll tax holiday affected the first, but not the second.

Figure 2:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

The sharp drop in the employee ratio represents the payroll taxes that were not deducted from employee paychecks during 2011 and 2012.  By using simple regression methods, we can use the employer contribution ratio to estimate the magnitude of the tax holiday’s impact on wages and salaries (and on total personal income).  The result of this exercise reveals that the payroll tax holiday boosted Arkansas personal income by nearly a full percentage point (0.96%).  A comparable calculation for the U.S. suggests a slightly smaller impact (0.92%).  As a relatively low-income state, the payroll tax holiday had a larger-than-average impact in Arkansas because more wage and salary income is subject to Social Security taxes.

With these calculations in hand, we can answer the hypothetical question:  “What would have been the growth rate of personal income in 2013:Q1 were it not for the expiration of the payroll tax holiday?”  For Arkansas, income growth would have been -0.9% instead of the reported -1.9%.  For the U.S., the growth rate would have been -0.3% instead of the reported -1.2%.

These quarter-to-quarter growth rates are also affected by another set of tax-policy changes:  A number of other income tax increases were scheduled to take effect at the beginning of 2013, prompting “the acceleration of the receipt of income, especially personal dividends and salary bonuses, into the fourth quarter in anticipation of first-quarter changes in individual income tax rates.”  (An example is the special $5 per share dividend paid out by Little Rock-based Dillard’s Inc. at  the end of 2012.)  The impact of this effect is more difficult to quantify since it could potentially impact a number of categories in the personal income accounts; and more importantly, it is driven by behavioral responses to tax rate changes.

One manifestation of the end-of-year distortion is obvious in the “Dividends, interest, and rent” category of personal income.  Figure 3 shows this category of income as a percent of total personal income (using data for Arkansas).  The “hypothetical” path illustrated in Figure 3 is constructed by simply averaging the values for the prior and subsequent quarters.   This method implicitly assumes that the surge in income in 2012:Q4 would not have been otherwise realized — but it serves as a decent first-approximation of the effect.

Figure 3:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

If Dividends, etc., had followed the hypothetical path in Figure 3, personal income in Arkansas would have been 0.72% lower than reported in the fourth quarter of 2012.  For the U.S., total personal income would have been 0.60% lower.  This would also have the effect of lowering growth rates for the fourth quarter of 2012, and raising quarterly growth rates for the first quarter of 2013 by similar magnitudes.  Table 1 summarizes the impact of the two effects independently and jointly:

 Table 1:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

The results of these counterfactual exercises are just estimates, of course.  In particular the fourth quarter surge in income is likely to have affected sources of income other than dividends so the growth-rate adjustment is partial, at best.  We can conclude, however, that the dramatic ups and downs in personal income growth over the past two quarters are related to tax policy changes.  In the absence of these changes, fourth quarter growth would have been lower and first quarter growth higher.

Transfer Payments and Inflation
In addition to the temporary effects of tax policy changes, personal income data are influenced by other factors relating to public policy.  For example, government transfer payments generally follow a counter-cyclical pattern — rising during recessions and tapering off during economic expansions.  In part, this is due to the so-called automatic stabilizer effects of government policies:  For example, unemployment insurance payments increase when the unemployment rate rises.  In addition, policymakers often respond to recessions by adopting specific stimulus policies.

Figure 4 shows how Personal current transfer receipts have grown during and since the recession of 2008-09.  Expressed as a percent of total personal income, transfers increased sharply in 2009 and have since held relatively stable.  For the U.S., transfers rose from less than 15% of total income up to approximately 18%.  For Arkansas the transfer share rose from 20% to more than 24%.  The upticks in these ratios in 2013:Q1 partly reflect continued increases in transfer receipts, but are also related to the decline in total personal income induced by the end of the payroll tax holiday.

Figure 4:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

By removing “personal current transfer receipts” we can get a clearer view of the strength of income growth in the private sector — wages, salaries, proprietors’ income, etc.  As shown in Figure 5, the recovery in personal income less transfers has not been as substantial as total income (shown in Figure 1).  Whereas total income in the first quarter of 2013 was 8% higher than the previous cyclical peak, the measure that excludes transfers is now only 4 to 5% above early-recession levels.

Figure 5:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Finally, one further adjustment is helpful for putting personal income growth into context: accounting for inflation.  Over the past 5 years, inflation has eroded the purchasing power of income by over 8% (as measured by the price index for personal consumption expenditures).  As a result, the real (inflation-adjusted) value of personal income has not risen as much as the nominal (dollar-denominated) value.  Figure 6 shows Real Personal Income less Transfer Receipts.*  After the adjustment for inflation, this measure of personal income remains below its value from the reference-period of 2008:Q2.  The surge in income during 2012:Q4 had briefly raised income to the parity-value of 100 for both Arkansas and the U.S., but the first-quarter downturn brought it back down to -2.6% for Arkansas and -1.9% for the U.S.

Figure 6:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

# # #

*Real Personal Income less Transfer Receipts is the measure of personal income used by the National Business Cycle Dating Committee to help establish start- and end-dates for recessions.

Real Personal Income and Purchasing Power, 2007-2011

The Bureau of Economic Analysis (BEA) released a brand new set of data yesterday:  Real Personal Income for States and Metropolitan Areas, 2007-2011 (Prototype Estimates).  The data are not as timely as those we usually cover here on the Arkansas Economist, but they are rich in detail.

When economist refer to “real” magnitudes, it means that the data have been adjusted to reflect price differences.  Typically this involves adjusting “nominal” growth rates to account for changes in the price level over time — i.e., inflation.  What is truly novel about the prototype estimates that came out yesterday is that they are also adjusted to reflect differences in relative price levels from one region to another.

As described in a previous post, the BEA’s new set of Regional Price Parities (RPPs) are intended to measure differences in the cost of living across states and metro areas.  Hence, the “real” personal income statistics released yesterday convert dollar-denominated figures into units of current local purchasing power.

As shown in Figure 1 below, the cost of living varies considerably among the states.  In 2011, the RPP for Arkansas was 89.2, meaning that prices in Arkansas are more than 10% below the national average (which is equal to 100, by definition).  The highest prices in the nation are in Hawaii (116.0) and the lowest are in South Dakota (87.0).  In the 2011 data, Arkansas ranked as having the 5th lowest prices in the nation.

Figure 1:
Source: Bureau of Economic Analysis

As shown in Figure 2, RPPs do not vary much over time, but they do differ even among areas within the state.  As of 2011, the average RPP for metropolitan areas in Arkansas was 90.9, while the non-metro RPP was only 85.5.

Figure 2:
Source: Bureau of Economic Analysis

To the extent that RPPs do vary over time, increases or decreases can be interpreted (roughly) as indicating a higher or lower rate of inflation than the national average.  Typically, nominal growth rates are converted to real values by simply adjusting for the nationwide inflation rate.  By using the RPP adjustments, the real income calculations reflect a more accurate and nuanced measure of income that better reflects purchasing power at the local level.  Figure 3 shows changes in personal income in Arkansas — and for its metro and non-metro areas — from 2008 through 2011.  The recession of 2008-09 is reflected in the negative growth rates in 2009.  Statewide, real income declined by 2.5%, but the downturn was sharper (-3.3%) in the non-metro areas of the state than in the metro areas (-2.1%).  During the recovery in 2010 and 2011, total metro-area income has grown faster than non-metro income.

Figure 3:
Source: Bureau of Economic Analysis

However, there is one additional adjustment that is necessary to evaluate how incomes support real purchasing power:  population growth.  If real income in an area is rising simply because there are more people earning the same amount per person, then living standards have not really improved.  Consequently, the best measure of overall economic welfare is “real per capita personal income,” displayed in Figure 4.

Figure 4:
Source: Bureau of Economic Analysis

In general, the metro areas of the state have been growing in population, while the non-metro regions have experienced slower growth — or even outright population declines (see Arkansas Population Estimates for 2012).  Figure 4 shows that these changes in population are important.  In real per capita terms, the recession hit metro and non-metro areas about equally, and the recovery has been slower in metro areas.  In fact, metro area per capita real income declined in 2011, pulling the statewide average negative.  Non-metro areas displayed a small but positive growth rate.

The most significant implication of using RPPs to adjust nominal incomes is how it affects comparisons of the relative purchasing-power of incomes.  It is often noted that Arkansas is far below the national average of per capita income.  However, when regional differences in prices are taken into account, the standard of living in Arkansas is much closer to the national norm.  In nominal terms, Arkansas per capita income was only 81% of the U.S. average in 2011.  But after adjusting for price differences, real per capita income (RPP-adjusted) was 91.2% of the national average.  The adjustment for relative prices moves Arkansas up in the rankings among the 50 states plus D.C. from #46 to #41.

Figure 5:
Source: Bureau of Economic Analysis, with calculations by IEA.

Although the adjustment of per capita income using RPPs brings the statewide standard of living closer to the U.S. average, there remain significant differences between the metro and non-metro areas of the state.  As of 2011, real per capita personal income in Arkansas’ metro areas was 95.7% of the U.S. average, while the corresponding figure for the state’s non-metro areas was only 84.5%.

Metropolitan Areas
The RPP data in yesterday’s report are also broken down by individual Metropolitan Statistical Areas (MSAs).  Even among the various MSAs, Relative Price Parities differ considerably (Figure 6).  Prices are higher in the larger MSAs of Memphis, Little Rock, and Fayetteville.  The smaller metro areas have prices that are comparable to the non-metro areas of the state.

Figure 6:
Source: Bureau of Economic Analysis

Real per capita income growth rates in Figure 7, below, reveal an uneven pace of recovery among the state’s metro areas during 2010 and 2011.  In 2010, the negative growth in total metro area income (shown in Figure 4) was concentrated entirely in three MSAs:  Fort Smith, Little Rock, and Jonesboro. Growth was positive in Arkansas’ other metro areas.   In 2011, however, growth rates were positive for all areas of the state.

Figure 7:
Source: Bureau of Economic Analysis

Finally, how do the state’s MSAs stack up in terms of real per capita personal income, adjusted for purchasing power?  Figure 8 shows that even though prices tend to be higher in larger metropolitan areas, higher incomes tend to compensate for the differences.  In dollar terms, incomes in Arkansas MSAs range from 74.3% of the national average in Pine Bluff to 96% in Little Rock.  After adjusting for relative prices, the real per capita income figures show that Little Rock has a standard-of-living slightly above the national average.  Pine Bluff remains the MSA with the lowest relative income level, but the standard of living is nearly 11 percentage points higher than the nominal, dollar-denominated figures suggest.

Figure 8:
Source: Bureau of Economic Analysis, with calculations by IEA

The new RPP data have now moved from the experimental phase to prototype.  There are likely to be further refinement in the methodology and coverage of the data, but it is extremely useful to now have an official set of measurements for geographic relative price differences.  As detailed here and in yesterday’s report from the BEA, the new data bring a novel perspective to the examination of income differences across the nation and within the state of Arkansas.

Arkansas Personal Income – 2012:Q4

The Bureau of Economic Analysis released new data on state personal income this morning.  In Arkansas, personal income rose by 2.2% for the quarter, compared to a 1.9% growth rate nationwide.  Arkansas’ growth rate for the quarter was the 12th highest in the nation.  Data for the third quarter were revised downward, but growth for the entire year remained relatively strong at 4.9% (Q4/Q4).

As shown in the figure below, personal incomes in Arkansas have risen to a level that is 9.3% higher than the previous cyclical peak (in 2008:Q2).  By comparison, U.S. personal income is 8.3% higher over the same period.  These figures do not include the effects of inflation, however.  After accounting for price increases of approximately 6.7% over the period (as measured by the price index for personal consumption expenditures), real personal income is up 2.4% in Arkansas and 1.9% for the U.S.

Source: Bureau of Economic Analysis

The press release noted particularly strong growth in the fourth quarter, citing special and accelerated dividend payments that were associated with end-of-year expectations for higher income tax rates in 2013.  The report also cited accelerated bonus payments and other irregular pay in anticipation of tax rate changes.  These effects had their largest impacts on states where the finance industry is particularly prominent.

The BEA report also noted the impact of severe heat and drought on agricultural production and income in the summer and fall of 2012.  Although the impact of these weather-related effects were fairly large and negative for states in the upper Midwest and great plains states, the impact on farm incomes in Arkansas was positive.  Record crop yields and high prices combined to boost Arkansas farm incomes by 44% over their levels in the fourth quarter of 2011.

The table below compares annual growth rates in total personal earnings for Arkansas and the U.S.  For the year in total, earnings growth was 2.6% in Arkansas, compared to 3.3% for the U.S.  Sectors generating large income gains included Farming, Utilities, and Management of companies.  Industries in which Arkansas earnings growth lagged the nation included Mining, Nondurable goods manufacturing, and Finance and Insurance.

Source: Bureau of Economic Analysis

With data now available for the year as a whole, today’s report also highlighted new measures of per-capita income in 2012.  Per capita personal income in Arkansas was estimated at $34,723 — about 81% of the national average ($42,693).  This ranked Arkansas #45 among the 50 states.  As noted in a previous post, the real purchasing power of incomes are affected by regional differences in the cost of living.  Updated estimates of regional price parities will come out later this summer (scheduled for June 12).  For now, using the 2006-2010 estimates of regional price differences, price-adjusted per capita income in Arkansas amounted to 91% of the national average in 2012, moving the state up to #41 in the rankings (not including D.C.)