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Arkansas Personal Income – 2009

This morning, the Bureau of Economic analysis released their report on State Personal Income for the fourth quarter of 2009.  Because the fourth quarter figures complete the data for 2009, the BEA press release focused on annual income in 2009 compared to 2008.  For the year, 44 states experienced declines in personal income, with an average of -1.7%.   In Arkansas, personal income was down by only 0.2%, placing our state in the top ten in terms of income growth for the year.

PIMap2008-09

Per capita income averaged $31,946 for Arkansas in 2009, down by 1.0% (compared to a 2.6% decline for the U.S. average).  In terms of per capita income growth for the year, Arkansas ranked 12th in the nation.

The quarterly pattern of income growth over the year is also of interest.  Following two quarters of modest declines, Arkansas personal income was up by 1.1% in the fourth quarter.  This was the 9th largest increase in the country. 

The chart below shows the pattern of personal income for Arkansas compared to the U.S.  Both series peaked in the second quarter of 2008, so the data are normalized to equal 1.0 in that quarter.

Sourse:  Bureau of Economic Analysis
Sourse: Bureau of Economic Analysis

For the U.S., personal income fell by to 2.7 percent of its 2008Q2 value by the first quarter of 2009.  By the end of the year, U.S. income was down 1.4% from its peak.  The decline in Arkansas was more protracted and gradual.  Arkansas personal income hit a low point in the third quarter of 2009 (1.7% below peak), but the strong performance in the fourth quarter raised incme to a level only 0.6% below the 2008Q2 peak.

New Poverty Measures to be Developed

The Commerce Department yesterday outlined plans for a new methodology for measuring the poverty rate [“Census Bureau to Develop Supplemental Poverty Measure”].  The new measure will not replace the existing poverty-rate calculation, but serve as a supplement:  “the supplemental measure will not be the measure used to estimate eligibility for government programs. Instead, it will be an additional macroeconomic statistic, providing further understanding of economic conditions and trends.”

As reported in a previous article on the Arkansas Economist, intensive research on new measures of poverty has been underway for many years.  The new measure will incorporate many of the changes that have been recommended by researchers, including the adjustment of poverty measures for differences in the cost of living across geographic areas. 

Final details about the new measure are still being worked out — it will not be available until the fall of 2011 (when the poverty statistics for 2010 are released). 

To see how differences in cost-of-living affect Arkansas’ rankings in the poverty statistics, see my previous post on the topic:  “The Poverty Rate and the Cost of Living.”

Third Quarter Personal Income Growth

Figures for personal income growth in the 50 States and District of Columbia were released this morning.  In Arkansas, personal income was essentially unchanged from the previous quarter.  The press release from the Bureau of Economic Analysis was generally upbeat, noting that the report showed “19 states seeing net earnings growth for the first time in at least a year.”  With income growth improving in many States, the zero-growth measured for Arkansas placed our state in the lowest quintile with a rank of #42.

spiq309

Today’s report is a very good example of why it is important to look beyond a single data observation.  For many states in the nation, even modest income growth represents a vast improvement over recent quarters.  However, Arkansas suffered a more modest slowing of income during the recession.  Personal income during the first two quarters of the year declined by less than one-tenth of one percent in Arkansas.  Income declines in other parts of the country were far greater, with a national average of -1.5%. 

The report released today shows that Arkansas personal income in the third quarter was only 0.09% lower than in the fourth quarter of 2008.  From this longer term perspective (cumulative growth during 2009), Arkansas is in the highest quintile among the states, with a rank of #8. 

Arkansas may not be showing the gains that are being recorded in other states, but we didn’t suffer as severe a downturn either.   It’s good news that other parts of the country are showing signs of recovery – this can only help businesses in Arkansas as demand for our goods and services picks up in other parts of the nation .

The UALR Arkansas Economic Forecast Conference

The UALR Arkansas Economic Forecast Conference took place today.  I thank all of those who attended, and extend special thanks to the participants:  Richard Bell, Roby Brock, Lane Kidd, Chris Masingill, David Sanders and Julie Stackhouse. 

Proceedings of the conference are available on the

Arkansas Economic Forecast Conference page

News coverage:

    State rebound to take time, says economist

    UALR Economist Foresees Modest Growth Ahead

The Poverty Rate and the Cost of Living

When the latest data on state-level poverty rates was released last week (September 10), I was asked to comment for a story in the Arkansas Democrat-Gazette.  I pointed out that poverty rates are not adjusted for differences in the cost of living.

My point was the comparisons across states and regions can be misleading.  For example, Arkansas poverty rate in 2007 ranked it as the 4th highest in the nation, yet Arkansas also ranked as the 6th lowest in the nation for median gross rental rates for housing. When it comes to the affordability of the basic necessities of life, a uniform nationwide poverty threshold doesn’t adequately capture differences across states and regions.

This has long been a recognized shortcoming of the existing poverty rate measures.  In 1995, studies from the General Accounting Office (GAO) and the National Academy of Science (NAS) independently reached the same conclusion:  Cost of living differences matter, but a lack of data prevents the adjustment of poverty rates for regional cost disparities.  Since the NAS study, researchers have been working on recommendations for improving the quality of poverty rate statistics.

A recent flurry of research activity at government statistical agencies has aimed to address this shortcoming.  Just last month, Trudi Renwick—a statistician/economist at the Census Bureau—presented some recent findings on this topic at the Annual Meeting of the American Statistical Association.  In addition to providing a thorough review of the literature on the topic, Renwick reported comparisons of three different methods for adjusting the official statistics.  The first method is the Census Bureau’s experimental adjustment for Fair Market Rent (FMR) using data from the Department of Housing and Urban Development.  The second method—from an April 2009 report by Census Bureau researcher Alemayehu Bishaw—uses median gross rental costs derived from the American Community Survey (ACS).   The third adjustment technique— reported in November 2008 by Betina Aten and Roger D’Souza—represents collaborative research by the Bureau of Economic analysis and the Bureau of Labor Statistics to use hedonic regression methods for estimating regional price parity (RPP) differences incorporating a more comprehensive measure of cost-of-living.

The table below reports various measures of the poverty rate for Arkansas, comparing some of the alternatives to the current official standard.  The first set of rates (from Bishaw, 2009) uses the official poverty definition, comparing the unadjusted measure with two of the techniques for housing cost differences. After accounting for relatively inexpensive rents in Arkansas, the poverty rate falls by two percentage points, and Arkansas moves down in the rankings from 4th highest to 8th highest poverty rate in the nation.

The second set of estimates (from Renwick, 2009) uses the NAS alternative definition for the poverty threshold (which incorporates different expenditure and income definitions from the official definition).  The unadjusted alternative measure shows a slightly lower poverty rate for Arkansas, with a correspondingly lower state ranking.  When adjustment for regional price disparities is included in the analysis, the results are dramatically different:  For two of the three adjustment techniques, Arkansas does not even rank above the median for poverty rates.  Indeed, the most comprehensive adjustment—the Regional Price Parity approach—Arkansas ranks as having one of the lowest poverty rates in the nation.

The cost of living matters when it comes to poverty rates.  After accounting for differences in prices from state to state, the poverty rate in Arkansas is not nearly so high as the official statistics suggest.

 – Michael Pakko

Alternative Poverty Rates and Rankings for Arkansas
Alternative Poverty Rates and Rankings for Arkansas

REFERENCES

Aten, Betina, and Roger D’Souza. November 2008. “Regional Price Parities: Comparing Price Level Differences Across Geographic Areas,” Survey of Current Business 88:11, pp. 64-74.

Bishaw, Alemayehu. April 2009. “Adjusting Poverty Thresholds Based on Differences in Housing Costs: Applications in the American Community Survey, “ poster presentation prepared for the Population Association of America Annual Conference.

Citro, Constance F., and Robert T. Michael (eds). 1995. Measuring Poverty: A New Approach. Washington, D.C.: National Academy Press. (National Academy of Science recommendations).

Renwick, Trudi.  August 2009.  “Alternative Geographic Adjustments of U.S. Poverty Thresholds: Impact on State Poverty Rates,” Paper presented at the Annual Meeting of the American Statistical Association Section on Social Statistics, Washington, DC.