By David G. Lenze  |  Volume 99, Number 10  |  October 16, 2019

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State personal income for 2018

State personal income grew 5.6 percent on average in 2018, up from 4.7 percent in 2017 (table A). Personal income growth accelerated in 43 states.¹ Inflation, as measured by the national price index for personal consumption expenditures, accelerated to 2.1 percent in 2018 from 1.8 percent in 2017. Personal income growth rates in 2018 ranged from 3.9 percent in Kentucky and Mississippi to 7.5 percent in Washington. Growth rates of per capita personal income, which adjusts for differential population growth, ranged from 3.6 percent in Kentucky to 7.1 percent in Wyoming.

Compensation of employees, the largest component of personal income, grew 4.9 percent on average in 2018, up from 4.5 percent in 2017, reflecting an acceleration in wage and salary employment growth to 1.7 percent from 1.3 percent.² Compensation growth was fastest in the state of Washington (8.2 percent) and slowest in Connecticut (2.4 percent), where employment grew 2.5 percent and 0.3 percent, respectively. Compensation growth was also relatively slow in Mississippi (2.9 percent) and Kentucky (3.3 percent).

Compensation of employees in Alaska grew 3.4 percent in 2018, following 2 years of decline (primarily in mining, construction, and professional services). Over the last 5 years (2013–2018), compensation has grown 5.5 percent in Alaska (compared to 23.7 percent for the United States). Only Wyoming has grown slower over that period (5.2 percent). Washington, the fastest growing of all states, grew 36.5 percent over the last 5 years (chart 1).

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Proprietors’ income, which represents the income earned from current production by unincorporated businesses that is received by persons, grew 4.9 percent for the United States in 2018, down from 6.7 percent growth in 2017. U.S. farm proprietors’ income fell 14.5 percent ($6.3 billion) in 2018 after increasing 10.7 percent ($4.2 billion) in 2017. Almost all the decline in 2018 was outside the farm belt; inside the farm belt (Iowa, Kansas, Minnesota, Nebraska, North Dakota, and South Dakota), farm proprietors’ income increased 22.4 percent ($1.6 billion). Nonfarm proprietors’ income grew 5.5 percent in 2018, down from 6.6 percent growth in 2017. Among states, nonfarm proprietors’ income growth was fastest in Oklahoma (15.7 percent) and slowest in Idaho (2.5 percent).³

Dividends, interest, and rent increased 8.4 percent in 2018, up from 6.2 percent in 2017. Personal dividend income rose 8.6 percent, personal interest income rose 9.8 percent, and the rental income of persons increased 5.3 percent. In Arkansas, Connecticut, and Wyoming, dividends, interest, and rent contributed more to personal income growth in 2018 than any other component, including compensation of employees (table B).

Personal current transfer receipts, which consist primarily of Social Security, Medicare, and Medicaid benefits, grew 4.3 percent on average in 2018, up from 2.7 percent. Transfer receipts increased in all states except New York, where declines in medical benefits, income maintenance benefits, and unemployment insurance compensation offset the increases in retirement and other transfer receipts. Growth was fastest in Iowa (8.8 percent), where medical benefits increased 14.8 percent.

Retirement and disability insurance benefits grew 6.6 percent in Alaska, faster than every other state. Over the last 5 years, retirement and disability payments ranged from 30.0 percent in Alaska to 13.3 percent in North Dakota. By comparison, such payments grew 21.0 percent for the United States.

Contributions for government social insurance, a subtraction in the derivation of personal income, grew 4.4 percent in 2018, down from 4.8 percent growth in 2017. The largest increase in contributions for government social insurance in 2018 was 6.5 percent in Arizona. The smallest increase was 1.6 percent in North Dakota.

Because state personal income is a place-of-residence concept, the compensation of employees and contributions for government social insurance, which are measured by place of work, must be adjusted to place of residence. The residence adjustment reduced personal income growth in the District of Columbia $2.5 billion in 2018 (table B). At the same time, the residence adjustment contributed $2.1 billion to Maryland’s personal income growth and $0.5 billion to Virginia’s.

Updates to previously released estimates

Each September, the Bureau of Economic Analysis (BEA) typically revises the preliminary estimates of annual state personal income released in March in order to incorporate the results of the annual update of the National Income and Product Accounts (NIPAs),⁴ to incorporate state source data that are more complete and more detailed than those previously available (table C), and to update the seasonal factors used for the quarterly estimates. In general, the estimates were revised from the first quarter of 2014 to the first quarter of 2019. In addition, personal interest income was revised from the first quarter of 1998 to the fourth quarter of 2013. The revisions to personal interest income result from an improvement in the estimation methodology and data sources.

The NIPA estimate of U.S. personal income for 2018, after adjustment for differences in geographic coverage and the timing of the availability of source data, was revised up 1.4 percent ($240 billion).⁵ This national estimate controls the state estimates.⁶ U.S. property income was revised up 0.9 percent ($161 billion), and wages and salaries were revised up 0.3 percent ($51 billion). Although the percent revisions to farm proprietors’ income (–12.4 percent) and to the adjustment for residence (11.8 percent) were larger than the percent revisions to other components of personal income, they contributed only –$5 billion and $0.3 billion to the total revision.

The unweighted average revision to 2018 personal income in the 50 states and the District of Columbia was 1.4 percent (table D). The average absolute revision was 1.5 percent.

The largest upward revision for 2018 was for South Dakota (4.1 percent). As for the United States, property income contributed the most (1.1 percentage points) to the revision of personal income in South Dakota. In addition, farm proprietors’ income and nonfarm proprietors’ income each contributed 0.9 percentage point. These revisions are mostly due to the incorporation of new source data from the Internal Revenue Service for dividends, interest, and the income of nonfarm sole proprietorships and partnerships reported on 2017 income tax returns (table E). The revisions to farm proprietors’ income were primarily due to the incorporation of 2018 state-level crop production data from the U.S. Department of Agriculture.

Improvements in estimation methodology and data sources

Personal interest income includes an imputation for depositors’ services furnished without payment by financial intermediaries. Commercial banks, savings institutions, and credit unions often do not charge depositors an explicit fee for services such as check clearing and recordkeeping. These services are a type of interest income in kind. Previously, the imputation for savings institutions and credit unions was based on the property income method. Imputed interest (that is, the implicit services provided) was measured by taking the difference between the interest earned on loans and the interest paid on deposits, using data from the Federal Deposit Insurance Corporation and the National Credit Union Administration. The new methodology will measure the implicit services of savings institutions and credit unions using the reference rate approach that was introduced for commercial banks in the regional economic accounts last year.⁷ This change brings the regional data sources and methodology into closer alignment with those used by the NIPAs.⁸ The effect on state personal income was less than 1.0 percent in most cases. There were only nine instances of a revision larger than 1.0 percent (in absolute value) from 1998 to 2013, the largest of which was a 1.5 percent downward revision to New Hampshire in 2012.