Income – Page 4 – Arkansas Economist

Income and Poverty in 2010

U.S. incomes decline and poverty rises – but Arkansas fares better than most other states

Yesterday’s report from the Census Bureau showed that real household median income in the U.S. declined by 2.3% in 2010, and the share of the population below the poverty level rose to 15.1%–the highest level since 1993. Clearly, the severity of the 2008-09 recession and the sluggish pace of the subsequent recovery are continuing to suppress standards of living. Nevertheless, there are caveats to the coverage of the Census statistics that moderate some of the dismal interpretations of these statistics. Moreover, the data for Arkansas contain some relatively positive news.

One important detail about the Census Bureau’s measurement of income is that it includes only “money income.” It does not include government transfers such as housing subsidies, the value of publicly provided medical care, and food stamps. The value of these transfers has grown rapidly in recent years, particularly since the onset of the recession. If we consider overall standards of living — especially for the lower-income segment of households — comparisons to previous years’ money-income figures tell only part of the story.

Arkansas has long been among the lowest-income states in the nation. Yesterday’s report did not change that generalization. Median household income in Arkansas was $38,571, the second lowest in the nation. Given the uncertainty associated with sampling and measurement error, Arkansas is one of nine states in which a three-year average of median household income is not significantly different from the lowest level (statistically speaking).

However, in inflation adjusted terms, the 2010 income figure represents an increase of 3.8% compared to the previous year. Arkansas was one of only 22 states to see an increase, and in fact, ranked as the 7th highest growth rate among the 50 states plus the District of Columbia.

The Poverty Rate in Arkansas was 15.5% in 2010 — nearly equal to the national average. In comparison to 2009, the poverty rate in Arkansas was down from 18.9%. Arkansas was one of only 16 states to see a decline, and the drop of 3.4 percentage points was the largest in the nation. There is a range of statistical uncertainty in the poverty numbers as well, but using a 2-year moving average measure, the Arkansas’ poverty rate was basically unchanged from 2008-09 to 2009-10.

One important factor to consider when comparing income and poverty in Arkansas to the rest of the country is differences in cost-of-living. The median income statistics and poverty levels are adjusted for inflation, but not for differences in prices across states and regions. According to the most recent statistics on relative cost of living indexes, Arkansas has the fifth-lowest cost of living in the nation, with the general price level equal to about 91.4% of the national average. If the income and poverty statistics were adjusted for differences in prices, the standard of living in Arkansas is higher than indicated by the uniform national statistics (see previous post: The Poverty Rate and the Cost of Living).

A Note on Per Capita Income in Arkansas MSAs

by Michael Pakko
General Information, Income, Metro Areas (MSAs)
August 10, 2011

Yesterday’s personal income report for metropolitan areas did not include the usual calculations for per capita income. Although population figures from the 2010 Census are available for metropolitan statistical areas, the statistics for 2009 have not yet been reconciled with the new Census data (the available 2009 numbers are extrapolated from the 2000 Census).

Although we cannot yet make comparisons over time, it is possible to calculate levels of per capita income using the 2010 data. The calculations are shown in the table below:

Sources: Census Bureau, Bureau of Economic Analysis

The highest per capita income levels are in the Little Rock MSA (1.9% below the national average) and the lowest are in Pine Bluff (23.3% below the national average). Note that the national per capita income level used in the table ($39,901) is for all of the United States, not just the metropolitan portion of the country. Per capita income for the metro areas of the U.S. is somewhat higher: $42,254.

Updated Aug 10, 2001 @ 4:16 PM — Corrected figures for U.S. per capita income.

Metro Area Personal Income – 2010

by Michael Pakko
General Information, Income, Metro Areas (MSAs)
August 9, 2011

This morning, the Bureau of Economic Analysis (BEA) released statistics on 2010 personal income for the nation’s metropolitan areas. The BEA reported that “Personal income rose in 2010 in all but four of the nation’s 366 metropolitan statistical areas (MSAs).” This represents a vast improvement over 2009, when revised figures show that personal income increased in only 131 of the 366 metro areas. As shown in the map below, many of the fastest-growing MSAs were scattered across the southern U.S. The top quintile includes the Arkansas MSAs of Fayetteville-Rogers-Springdale and Jonesboro. Three other MSAs–Fort Smith, Pine Bluff, and Texarkana were in the next highest quintile.

As shown in the table below, personal income growth exceeded the national average for metro areas in all but two of Arkansas’ MSAs. In Hot Springs, a growth rate of 2.8% nearly matched the national growth rate of 2.9%, while growth in the Little Rock-N. Little Rock-Conway MSA was only 1.4%. The national rankings diplay in interesting pattern: the slower-growing MSAs in Arkansas for 2010 were among the best performers in the recession year of 2009. When taken as a two year average, growth rates for all of Arkansas’ MSAs — except Memphis — were at or above the median for the U.S.

The 2009 growth rates reported in the table have been revised since their initial release last year. The growth rate for Fort Smith (-1.5%) is unchanged from the preliminary figures, but all other growth rates were revised upward. In fact, the preliminary figures had shown negative growth rates for Hot Springs, Jonesboro and Texarkana, while the revised statistics show positive growth.

The breakdown of personal income sources shown in the table indicates that net earnings growth was positive in all MSAs except for Little Rock. (Net earnings includes wage and salary disbursements, supplements to wages and salaries, and proprietors’ income.) Transfer receipts provided substantial support for personal income in all of Arkansas metro areas, especially the smaller MSAs.

— Updated Aug 10, 12:35 PM to include data for Memphis.

Average Weekly Wages

Last week we reported on the comprehensive employment statistics from the Quarterly Census of Employment and Wages (QCEW). This week the BLS released a detailed report on Arkansas, and the business media have tended to focus on the wages component of that report. The Arkansas Democrat-Gazette, for example, ran the story under the headline “$738 weekly salary ranks state at 47th.” The low ranking for wages in Arkansas should come as no surprise. Arkansas has long been near the lower end of the nation’s income distribution, and relative rankings change very slowly.

As shown on the map below, there are fairly wide discrepancies in average weekly wages among Arkansas counties. The fourth quarter data show average weekly wages ranging from a high of $885 in Calhoun County to a low of $436 in Newton County. None of the counties in Arkansas meet the national average of $971.

Source: Bureau of Labor Statistics, Quarterly Census of Employment and Wages

But income comparisons convey only part of the story. Differences in the standard of living in different states and regions also depend on costs of living. In general, states with lower wages also tend to have lower living costs, so that differences in purchasing power are not as pronounced as they might appear when considering wage data alone.

According to data from Council for Community and Economic Research (C2ER), Arkansas ranks as having the fourth-lowest cost of living in the nation. Based on a sample that includes groceries, housing, utilities, transportation, health care, and miscellaneous goods and services, the C2ER composite index for Arkansas for 2010:Q4 is 90.61 — that is, the cost of living in Arkansas is almost 10% lower than the national average.

As shown in the table below differences in cost of living tend to narrow the differences in living standards from state to state. Using the raw wage data alone, Arkansas average weekly wages of $738 amount to only 76% of the national average. After adjusting for the relatively low cost of living, the purchasing power of those wages are nearly 84% of the national average, and Arkansas moves up the rankings to #40.

Sources: Bureau of Labor Statistics, Council for Community and Economic Research

The tendency for average wages and the cost-of-living to covary positively is not coincidental. In international economics, the relationship is known as the Balassa-Saumaulson effect, a productivity-based explanation of why price levels tend to be lower in low-income countries, after adjusting for exchange rates. Even in an economy as regionally integrated as the United States (and with no variable exchange-rates to consider), goods that are traded nationwide can have a local service component. Lower local wages tend to drive down the local (nontradeable) component of costs, keeping the average price level lower than in high-wage areas. Over time, we would expect (and hope) that wages in Arkansas tend to converge toward the national average. The key to this process is capital accumulation — of both physical and human capital. But a side effect of this process is that we should also expect the cost of living to rise as well. Convergence in standards of living can therefore be an even slower process than wage convergence.

- Updated July 13, 2011 6:55 PM

Arkansas Personal Income – 2011:Q1

by Michael Pakko
Income
June 22, 2011

Total personal income in Arkansas rose by 1.9% in the first quarter, and is up 4.8% since the first quarter of 2010. The latest report on state personal income shows that income growth in Arkansas was slightly above the national average rate of 1.8%, ranking 16th among the 50 states. However, revisions to the data show that income growth was slower than initially reported in 2010, particularly in the fourth quarter.

The figure below tracks personal income for the U.S. and Arkansas, normalizing each series to equal 100 in 2008:Q2 (the previous cyclical peak). The decline in personal income in Arkansas during the recession was less than the national average, and income growth during the recovery has generally outpaced that of the nation. The latest observation shows that personal income in Arkansas is 4.8% higher than at the previous cyclical peak. For the U.S., personal income has shown a net increase of 3.8% over the same period.

A careful comparison of the figure above with a previous version of the same chart reveals that income growth in Arkansas is not outpacing the U.S. as much as previous data had suggested. The slow income growth in the fourth quarter, in particular, represents a sharp downward revision to previously-published data. As shown in the table below, Arkansas income growth was revised downward in each of the four quarters of 2010.

The report from the Bureau of Economic Analysis points out that a large share of the income growth in the first quarter is attributable to a two percentage-point decline in the Social Security payroll tax rate. This tax cut, applicable to calendar-year 2011, was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (i.e., the December political compromise that extended the Bush-era tax cuts, among other things). For Arkansas, the Social Security tax cut accounted for approximately 0.8 percentage points of the 1.9% personal income growth rate. Wage and Salary earnings accounted for 0.6 percentage points, with the remaining growth attributable to Dividends, interest and rent (0.44 percentage points); and Personal current transfer receipts (0.15 percentage points).

A breakdown of earnings by industry (which does not include that effects of the Social Security payroll tax cut) is shown in the table below.

Sectors showing the strongest growth in the first quarter included Mining and Durable goods manufacturing (which were among the strongest sectors nationwide). Earnings showed negative growth in a handful of sectors, including Farm income, Construction, Information services and Real Estate. The BEA reports that Farm income in agricultural states varied widely, depending on the mix of agricultural products in each state. “Farm income in some states, such as North Dakota, benefited from surging global wheat demand (which raised prices in the U.S. 18 percent in the first quarter) while farm income in other states, such as Iowa, plummeted because of rising livestock expenses and falling production.” Farm income in North Dakota was up 66.6%, while farm income in Iowa was down 15.1%. Arkansas farm income fell between these extremes.

Arkansas Personal Income

by Michael Pakko
Income
March 23, 2011

The latest data on state personal income shows that Arkansas continues to be one of the states recovering most robustly from the recession of 2008-09. Annual figures from the Bureau of Economic Analysis show that personal incomes rose 3.5% from 2009 to 2010, placing Arkansas among the top ten fastest growing states for the year. For the nation as a whole, incomes were up 3.0% for the year.

The news release from the Bureau of Economic Analysis noted that ten states–including Arkansas–rebounded to income levels higher than their pre-recession peaks. If we look at the detailed quarterly data, Arkansas reached that point in the first quarter of 2010, and incomes in the state were 4% higher than the previous peak by the fourth quarter of the year.

As noted in previous posts (here and here), the composition of total personal income is often distorted during recessions. Government programs to help support incomes of the unemployed and others suffering from economic hardship tend to expand during recessions, both as automatic responses (more households eligible for assistance from existing programs) and with additional support programs (special economic stimulus programs). Hence, it is often informative to look at income net of current personal transfer payments.

As shown in the chart below, income net of transfer payments has been slower to recover than total income. Nevertheless, Arkansas has consistently outpaced the national average by this measure as well. As of the fourth quarter of 2010, income-less-transfers in Arkansas reached the same level as the previous peak in 2008:Q3. Meanwhile, the national average for this measure of income remains nearly 2% below its previous peak.

The composition of income gains was also encouraging. In the fourth quarter and for the year as a whole, Arkansas saw increases in wages and salaries; employer-provided benefits; proprietors’ income; and dividends, income & rent. One category of income that declined in 2010 was unemployment insurance payments. As the economic expansion matures and unemployment rates subside, we should expect to see unemployment and other transfer income to decline as wages and salaries increase.

Arkansas Personal Income – 2010:Q3

While a great deal of attention today was focused on the state employment/unemployment report, another key set of economic statistics also came out: The Bureau of Economic Analysis reported that Arkansas personal income increased by 1.0% in the third quarter (seasonally adjusted). For the U.S. as a whole, the growth rate was 0.7%. Arkansas’ above-average growth ranked among the ten states with the fastest growing incomes in the nation.

For U.S., the third quarter increase represents the fourth consecutive quarter of growth. For Arkansas, the run of positive growth had now gone for five quarters. The chart below compares the pattern of personal income growth for both the U.S. and Arkansas, relative to their common cyclical peak in 2008:Q2. Total personal income in Arkansas didn’t decline as sharply as the U.S. during the recession, and it has increased slightly faster during the recovery.

As discussed in a previous article, the BEA definition of personal income includes transfer receipts (social security payments, unemployment insurance, etc.). During recessions transfers tend to rise, serving as a buffer that protects total income from sharp declines. A better measure of the underlying strength of the economy omits transfers: Personal Income less Transfer Receipts. By this measure, incomes peaked in the third quarter of 2008 and declined sharply through the second quarter. U.S. income less transfers declined for another quarter, while in Arkansas the recovery in income growth began rising and has outpaced U.S. growth since then.

In the third quarter, Personal Income less Transfer Receipts rose by 0.7% in Arkansas and 0.5% for the nation as a whole. Transfer Receipts increased by 1.5% in Arkansas and by 1.3% nationwide. Hence, part of Arkansas relatively high growth rate was due to an relatively larger expansion of transfer payments. But even after accounting for this factor, Arkansas personal income grew at a faster rate than the total for the U.S.

The third quarter personal income report suggests that the economic recovery is ongoing, and that Arkansas continues to emerge slightly ahead of the rest of the the nation.

Arkansas Personal Income – 2010:Q2

This morning, the Bureau of Economic Analysis (BEA) released new data for state-level personal income. In the second quarter of 2010, all 50 states (plus D.C.) showed positive income growth, ranging from 2.0 percent in North Dakota to 0.3 percent for Nevada. Arkansas personal income increased by 0.9 percent, just slightly lower than the national average of 1.0 percent.

As shown in the chart below, personal income in both Arkansas and the U.S. peaked in the second quarter of 2007, with the data for Arkansas showing a shallower downturn during the recession than the U.S. The second quarter increase in Arkansas represented the fifth consecutive quarter of positive income growth.

According to the press release from the BEA, Arkansas is one of 27 states where personal income has now climbed above the current-dollar level reached before the recession. In part, the relatively strong performance of Arkansas reflects newly-revised data. This morning’s announcement included revised statistics for the period 2001 through 2009. The chart below shows how the revisions affected data for Arkansas.

Metro Area Personal Income – 2009

by Michael Pakko
General Information, Income, Metro Areas (MSAs)
August 9, 2010

Statistics on personal income for the nation’s Metropolitan Statistical Areas (MSAs) in 2009 were released this morning by the Bureau of Economic Analysis (BEA). The national economy was hitting the trough of a recession in 2009, so it is not surprising that the majority of MSAs experienced negative growth last year. From the BEA press release: “Personal income declined in 223 MSAs, increased in 134, and remained unchanged in 9 MSAs. On average, MSA personal income fell 1.8 percent in 2009, after rising 2.7 percent in 2008.”

The map of metro areas from BEA, displayed below, shows that income growth in Arkansas’ MSAs was mixed, but generally better-than-average. Pine Bluff was in the highest-growth quintile, with Little Rock in the second quintile. The remainder of the state’s MSAs ranked in the third and fourth quintiles, with none finishing among the bottom fifth.

Table 1 provides more detail, comparing personal incomes of Arkansas’ MSAs to the total metropolitan portion of the U.S. Personal income declined in 5 of the state’s 7 MSAs, but increased in the Pine Bluff and Little Rock. Income growth in each of Arkansas’ MSAs out-performed the nation’s metro areas as a whole.

Table 2 shows figures for per capita income in Arkansas MSAs. In per capita terms, only Pine Bluff experienced positive income growth in 2009; Its growth rate of 1.6 percent puts it in the top 25 among the nation’s metro areas. Fayetteville’s per capita income declined slightly more than the national average, and Jonesboro’s decline was about equal to the total metropolitan portion of the U.S. The other 5 MSAs in Arkansas experienced smaller losses than other metro areas across the nation.

The last two columns of Table 2 show per capita income in Arkansas’ MSAs as a percent of per capita income in the metropolitan portion of the U.S. The latest data show that Arkansas’ metro areas generally remain below-average. Fort Smith, Jonesboro, and Pine Bluff are in the lowest quintile of MSA per capita personal income. Fayetteville, Hot Springs, and Texarkana are in the fourth quintile. The MSA with the highest per capita income, Little Rock, ranks in the second quintile. Despite the fact that Arkansas’ metro areas outperformed other parts of the country in 2009, they gained little ground terms of per capita income.

The 2009 comparison of personal income in Arkansas’ MSAs to the rest of the nation’s metro areas is affected by two factors. First, the recession in Arkansas was not generally as severe as in many parts of the country. This accounts for the fact that all of Arkansas’ MSAs experienced above-average income growth. On the other hand, evidence from statewide income growth and Arkansas taxable sales suggest that Arkansas reached a trough in economic activity in the third quarter of 2009 — one quarter later than the national economy. This tends to depress measured growth rates for the year compared to those parts of the country that entered an economic recovery phase earlier than Arkansas. As a result, the annual income statistics for Arkansas’ MSAs in 2009 reflect more weakness than do current economic conditions.

Arkansas Personal Income – 2010:Q1

State-level data on personal income in the first quarter were released by the Bureau of Economic Analysis this morning. The statistics show a second consecutive quarter of positive growth for Arkansas. Personal income was up 0.4% in the first quarter of this year, following a (revised) growth rate of 0.6% in the previous quarter. For the U.S. as a whole, personal income growth was 0.9%.

Among the 50 states, this growth rate was among the lowest in the country (47th). However, as indicated by the figure below, Arkansas personal income did not fall nearly as sharply during the recession as did incomes in much of the rest of the country. From the peak in 2008Q2, personal income in Arkansas fell by only 1.5% by the 2009Q3. Over the same period, personal income for the U.S. was down by 2.3% (at its lowest point, U.S. personal income was down by 2.7% in the 2009Q1). In some sense, the latest figures show that the rest of the country is now catching up with Arkansas.

Although the report showed total personal income was up in the first quarter, net earnings were slightly lower (-0.3%) as were dividends, interest and rent (-1.0%). Consequently, the overall increase in income was attributable to transfer payments (+3.2%). This pattern was common in many other states as well, with the increase due to payments associated with the American Recovery and Reinvestment Act (ARRA). ARRA payments were up by over 33% in Arkansas in the first quarter.

Breaking down the decline in net earnings by sector, the decline was most pronounced in farm income. Earnings were up in manufacturing, wholesale and retail trade, and several other categories of service-sector employment (including government).