Home New mexico economy States started 2021 with record growth in personal income

States started 2021 with record growth in personal income

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More than half of states recorded their strongest personal income growth in the first quarter of 2021 as the economic recovery gathered pace. Multiple rounds of government benefits linked to the pandemic have resulted in year-over-year gains in all states, while income – the bulk of personal income – has also increased slightly in most states. The large increase in total personal income will be temporary, however, as federal relief payments decline.

In the first quarter of 2021, almost all states recorded double-digit growth in total personal income compared to the same period a year earlier, when the sharp recession of March-April 2020 derailed the economy for the first time. . Utah (19.8%), Idaho (19.4%) and West Virginia (19.2%) saw the largest increases. Nationally, the sum of personal income of residents from all sources increased by 14.4% after adjusting for inflation, the highest year-over-year growth rate since publication of this key economic indicator began in 1948.

A spike in government assistance to individual Americans led to dramatic gains in all states, with total aid more than doubling in Hawaii, Nevada and Utah from the previous year. Between January and March 2021, one-time payments of up to $ 600 and $ 1,400 per eligible person, made respectively from two federal economic assistance programs, along with enhanced unemployment benefits, helped millions of Americans overcome the crisis. With the additional assistance, revenues derived primarily from several sources of government assistance, including Social Security, Medicare and Medicaid, welfare programs, and state unemployment insurance, saw their decline. second strongest quarterly growth on record.

The federal aid injection will only provide a temporary boost, however, as aid related to the pandemic is expected to decline significantly in the second quarter. More recent national estimates from the US Bureau of Economic Analysis show that US personal income declined significantly in the second quarter of 2021, compared to the first quarter.

The multiple rounds of federal support to individuals and businesses have so far led to very different results from those seen during the Great Recession, when total personal income fell nationally, including in every state. Thanks to unprecedented temporary government assistance, states largely avoided a sharp decline in personal income in 2020 after COVID-19 left millions unemployed. In the first quarter of 2021, less than a year after the last recession officially ended, each state’s total personal income exceeded, at least temporarily, its pre-pandemic level, after accounting for inflation. In contrast, it took five years from the end of the Great Recession for the last state, Nevada, to return to its pre-recession personal income level.

Profits soared in most states

The share of personal income from earnings, which includes labor wages, additional pay such as employer-sponsored health benefits and corporate profits, has also increased, although by far less than government assistance. total. Revenue increased $ 177 billion in the first quarter of 2021 from a year earlier, after adjusting for inflation, compared to a $ 2.8 trillion increase in income from all sources government assistance. Profits rose for the third quarter in a row and are above pre-pandemic levels after falling in the first few months of 2020. All but 10 states saw year-over-year gains.

Utah stands out because it not only enjoyed the largest increase in government assistance compared to the first quarter of 2020 (120.4%), but also the strongest overall profit growth (8.2% ) of all states. As a result, it was one of 31 states where total personal income would have increased during the year, even without public assistance. The major contributions to state revenue earnings came from jobs in finance and insurance, retail, and professional and technical services, such as lawyers, accountants, and engineers. Likewise, South Dakota, where earnings rose 6.3% from the previous year, saw strong growth in health care and social assistance. By comparison, Hawaii experienced the largest drop in revenue (-6.8%), largely due to revenue losses in accommodation and food services as the state’s tourism sector did not shrink. yet restored.

State personal income, a measure used to assess economic trends, is important to state governments because tax revenues and expense claims may rise or fall with the incomes of residents. It sums up all the money residents receive from work, some investments, income from owning a business and property, and government assistance, including additional federal assistance provided in response to the pandemic, as well as employer or government benefits. Other measures should be used to assess the growth of individual income, such as personal income per capita or household income..

Several issues influence the state’s personal income, many of which are beyond the immediate control of policy makers. Some of the most critical factors include national and global economic conditions, the business cycles of a state’s major industries, demographic trends, and investments made over decades.

Highlights of the state over the past year

Temporary government assistance skyrocketed in 2021 after the passage of two additional federal relief bills. A comparison of the state’s estimated inflation-adjusted personal income in the first quarter of 2021 with the first quarter of 2020, which included the first month of the COVID-19 recession, shows:

  • All states saw increases in total personal income, but 27 saw their strongest year-over-year growth on record.
  • After Utah, Idaho and West Virginia, the largest overall gains were recorded in Michigan and Mississippi (19.1% each), while the smallest increases were recorded in Wyoming (9.4%), Connecticut and New York (both 9.5%).
  • States would not have enjoyed such growth without government aid, which has exploded thanks to the influx of federal aid in the event of a pandemic. In fact, 19 states would have experienced declines in total personal income had all sources of government assistance been excluded, although more than half of them would have experienced only small declines of less than 1%.
  • Excluding government assistance, the highest personal income growth, based on income, plus dividends, interest, and rent, occurred in Utah (4.9%), the South Dakota (3.4%), as well as Arizona and Idaho (3.1% each).
  • On a year-over-year basis, increases in all sources of government assistance to state residents ranged from 65% in West Virginia to about 120% in Hawaii and Utah.
  • Most states have also enjoyed earnings gains from work, topping Utah (8.2%), South Dakota (6.3%), Idaho (5.7%) , Montana (5.4%) and Arizona (5.3%).
  • However, revenues fell further in 10 states: Hawaii (-6.8%), Wyoming (-3.7%), Nevada (-3.3%), New Mexico (-3.2%), New York (-2.3%), Oklahoma (-2.2%), North Dakota (-1.9%), New Jersey (-0.9%), Alaska (-0.6% ) and Louisiana (-0.2%).

Fourth quarter 2021 results are based on estimates and are subject to revision, as are Pew’s rankings of the state’s personal income growth rates.

Download the data to see state growth rates for total earnings and government transfer payments.

States have recovered unevenly from the Great Recession

States entered the new recession from very different starting points in terms of personal income growth than they experienced during the longest economic recovery in U.S. history. After the Great Recession, inflation-adjusted personal income eventually rebounded in all states, but at different rates. From late 2007 (when the economy peaked before the Great Recession) until the fourth quarter of 2019 – the last quarter before the pandemic began to derail the economy – Utah and North Dakota all dominated states with equivalent long-term compound annual growth rates. at 3.4% and 3.3%, respectively, followed by a group of mostly Western states. Connecticut and Mississippi lagged behind all other states with pre-pandemic growth rates equivalent to 0.9% per year, less than half the U.S. rate of 2%. These compound annual growth rates represent how much each state’s personal income would have increased if it had grown at a sustained rate. While personal income doesn’t actually change at a constant rate, instead decreasing in some quarters and increasing in others, the measure provides a consistent way to compare states and track their economic trends.

Download the data.

What is personal income?

Personal income summarizes residents’ paychecks, social security benefits, employer contributions to pensions and health insurance, income from rent and other property, and benefits from public assistance programs such as as Medicare and Medicaid, among others. Personal income excludes realized or unrealized capital gains, such as those from stock market investments.

Federal officials use state personal income to determine how to allocate state support for certain programs, including Medicaid. State governments use personal income statistics to project tax revenues for budget planning, set spending limits, and estimate public service needs.

Growth in personal income should not be interpreted only as growth in wages; wages and salaries represent about half of American personal income. Likewise, the growth of the state’s total personal income should not be viewed as a measure of changes in the income of average residents.

Examining a state’s gross domestic product, which measures the value of all goods and services produced within a state, would yield different information about state economies.

Download the data to see state-by-state personal income growth rates from 2007 to Q1 2021. Visit Pew Fiscal 50: State Trends and Analysis interactive resource to sort and analyze data for other fiscal health indicators of State.

Analysis by Barb Rosewicz, Mike Maciag and Joe Fleming.

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