State personal income: second quarter 2003

Survey of Current Business, Nov, 2003 by G. Andrew Bernat, Jr.

PERSONAL income for the Nation, which is measured only in current dollars, grew 0.8 percent in the second quarter of 2003, the same as in first quarter and up slightly from the 0.6-percent increase of the fourth quarter of 2002 (table A). Led by above-average growth in natural resources and mining, 6 of the 10 fastest growing states were in the Plains and Rocky Mountain regions (chart 1).

This article presents preliminary estimates of state personal income for the second quarter of 2003 and revised estimates for the first quarter of 2003. Additional estimates are provided in two tables at the end of the article.

Personal income growth by component

Nationally, net earnings grew 0.8 percent in the second quarter of 2003, the same as in the first quarter of 2003 and slightly faster than the 0.7-percent growth of the fourth quarter of 2002 (table B). Net earnings increased in all states except Rhode Island, as net earnings in 21 states and the District of Columbia grew faster than in the first quarter, when net earnings in 28 states grew faster than in the fourth quarter of 2002.

Transfer payments grew slightly faster in the second quarter of 2003 than in the previous quarter. Twenty-five states experienced faster growth in transfer payments in the second quarter of 2003, compared with 27 states in the first quarter of 2003. Nationally, unemployment benefit payments, the most volatile component of transfer payments, increased 6.5 percent after declining 3.4 percent in the first quarter. Unemployment benefit payments grew in 41 states; North Carolina, Idaho, and Indiana registered gains of more than 20 percent. Together, all other transfer payments--which include old-age, survivors, disability, and other benefits--grew 1.6 percent.

Nationally, property income (dividends, interest, and rent) increased 0.1 percent in the second quarter, compared with declines of 0.1 percent in the first quarter and 0.4 percent in the fourth quarter. A 1.7-percent increase in dividends and a 0.5-percent increase in interest income more than offset a decline in rental income.

Earnings growth by industry

Nationally, earnings grew in every industry except durable-goods manufacturing and leisure and hospitality (table C). Financial activities accounted for 0.28 percentage point of the 0.8-percent growth in earnings, and they contributed the most to earnings growth in 24 states (table D). Government accounted for 0.14 percentage point, and natural resources and construction each accounted for 0.10 percentage point. Natural resources, particularly farming, was the largest contributor to earnings growth in 12 states. Fast growth in farming was particularly important in the Plains states--notably in North Dakota, South Dakota, Nebraska, and Iowa, which were among the 10 fastest growing states. Earnings growth in government was the largest contributor in eight states and the District of Columbia.

Earnings in durable-goods manufacturing in 32 states declined. The most pronounced decline was in Washington, where earnings declined 4.6 percent. Earnings in durable-goods manufacturing increased in the other states and the District of Columbia, but in all these states except New Hampshire and Michigan, its contribution to total earnings growth was relatively small. In New Hampshire and Michigan, durable-goods manufacturing's contribution to earnings growth was second only to that of financial activities.

The decline in earnings in leisure and hospitality was larger than the decline in earnings in durable-goods manufacturing. It was also more widespread; earnings in this industry declined in 40 states. Virtually the entire decline was accounted for by the arts, entertainment, and recreation industry (NAICS 71); earnings in the accommodation and food services industry (NAICS 72) was unchanged from the first quarter.

Earnings growth since the 2001 recession

Defining a jobless recovery as a recovery in which the number of jobs is no higher six quarters after the trough of a recession than at the trough, the two recoveries since 1990 were jobless recoveries. In the current recovery, the total number of wage and salary jobs in the Nation was slightly lower in June 2003 than in November 2001, the trough of the recession. In contrast, in four of the five recoveries before 1990, the number of jobs in the economy six quarters after the trough was, on average, almost 5 percent higher than at the trough.

While the term "jobless recovery" may describe the current recovery for the Nation as a whole, it has not been a jobless recovery in all the states. In 20 states, the number of jobs six quarters after the trough of the 2001 recession was higher than at the trough, but the total number of jobs in the Nation was nearly 1 percent lower (chart 2).

States with faster job growth exhibited faster earnings growth. Chart 3 shows the earnings growth in states, which are grouped in quintiles on the basis of the growth in the number of jobs during the first six quarters of the recovery. The 10 states with the highest job growth had substantially higher year-over-year growth in quarterly earnings than the other states. Earnings for the states in the top quintile, in terms of job growth during the recovery, grew an average of 1.4 percent each quarter in the six quarters of the recovery, compared with an average quarterly growth rate of 0.6 percent for the lowest quintile. In all the quintiles, the largest contributor to total earnings growth was the education and health services sector, primarily health services. Growth in state and local government and in financial activities were the next most important contributors to total earnings growth. Earnings in nondurable-goods manufacturing declined in all five quintiles, and earnings in durable-goods manufacturing declined in three quintiles, including the highest. Earnings in the information sector declined in all but the middle quintile. (1)