State personal income, fourth quarter 2012.

Lenze, David G.

Fourth quarter 2012

In the fourth quarter of 2012, average state personal income growth accelerated to 1.9 percent from 0.6 percent in the third quarter, the fastest pace since the first quarter of 2011 (chart 1). (1) Fourth-quarter growth ranged from 1.3 percent in West Virginia to 4.8 percent in South Dakota, the first time in seven quarters that personal income grew in every state. The inflation rate as measured by the national price index for personal consumption expenditures was 0.4 percent in the fourth quarter of 2012, the same as in the third quarter.

Much of the growth in the fourth quarter reflected federal income tax law changes affecting the timing of the receipt of certain components of personal income. In particular, tax rate increases legislated for 2013 induced an acceleration of the receipt of dividends and wage bonuses from 2013 into the fourth quarter of 2012. As will be shown below, these tax law changes also affected the geographic pattern of state personal income growth.

[GRAPHIC 1 OMITTED]

In addition, the Midwest drought and Hurricane Sandy affected the pattern of income receipts, especially earnings, in certain states in the fourth quarter. (2)

Earnings overview

Nationally, earnings grew 1.1 percent in the fourth quarter of 2012, up from 0.6 percent in the third quarter. Earnings grew in all states, with the smallest gains (0.2 percent) in Minnesota and Washington state, and the largest gain (5.0 percent) in South Dakota (table A).

Fourth-quarter earnings growth in Minnesota was slow because of bonuses paid by the durable-goods manufacturing industry in the third quarter. Earnings in that industry grew $1.2 billion in the third quarter and fell $1.3 billion in the fourth quarter. Earnings growth in Minnesota looks stronger when viewed over a full year. Since the fourth quarter of 2011, earnings for all industries in Minnesota have grown 5.3 percent, substantially above the 4.0 percent national growth rate.

Fourth-quarter earnings growth in Washington state was also relatively slow because of special wage payments (such as bonuses and the vesting of stock grants) in the third quarter in the information and management industries.

South Dakota's strong 5.0 percent earnings growth in the fourth quarter reflected a surge in farm earnings. The adverse effects of the Midwest drought were concentrated in the third quarter in that state. In contrast, the adverse effects of the drought worsened in the fourth quarter in Illinois and Indiana. Farm income in those states fell 28 percent and 13 percent, respectively, in the fourth quarter. (3)

Private nonfarm earnings by industry and state

Private nonfarm earnings growth accelerated in the fourth quarter to 1.3 percent at the same time that government-sector earnings growth came to a halt. This pattern of accelerating private nonfarm earnings and slowing government earnings was also observed in most states. In the third quarter, private nonfarm earnings for the nation grew 0.6 percent and government sector earnings grew 0.3 percent.

Nationally, the largest earnings gains in the fourth quarter were in finance, health care, and construction (table B).

Finance earnings grew $31.1 billion in the fourth quarter after falling $5.3 billion in the third quarter. Fourth-quarter earnings in the finance industry were boosted by accelerated bonus payments or other irregular pay in anticipation of individual income tax rate changes in 2013. Half of the national increase was concentrated in just two states: New York, where finance earnings grew $13.9 billion, and Connecticut, where finance earnings grew $1.7 billion. Earnings grew more in finance than any other industry in 20 states.

Health care earnings grew $12.0 billion in the fourth quarter, up from $5.7 billion in the third quarter. Health care earnings grew in all but one state. In 11 states, the largest earnings gain in the fourth quarter was in health care. Even so, the percentage growth in health care has generally not kept pace with that in other industries since the recovery began. In the 3 years since the fourth quarter of 2009, health care earnings have grown at a 3.1 percent annual rate, while earnings in all other industries have grown at a 4.8 percent annual rate.

Construction earnings grew $11.3 billion in the fourth quarter, up from $2.2 billion in the third quarter. Construction earnings growth was strongest in Texas ($2.4 billion) where the industry has set new earnings records for four consecutive quarters. Construction earnings grew more than any other industry in 10 states, including Alaska, Louisiana, and Wyoming.

Other industries with the largest earnings gains reflected a region's economic specialization. Professional services--the dominant private industry in Maryland, Virginia, and the District of Columbia--provided the largest earnings gains in that region. Accommodations, the dominant private industry in Nevada, provided the largest earnings gain in that state.

In Montana and North Dakota, the largest earnings gains were in industries associated with the development of energy resources: mining in North Dakota and transportation (especially railroads) in Montana.

Other income

Special or accelerated dividend payments to persons in anticipation of changes in federal individual income tax rates boosted personal dividend income in the fourth quarter. The gain was largest in Washington, DC, where dividend income rose 26 percent, and it was smallest in South Dakota where dividend income grew 12 percent.

Personal current transfer receipts grew 0.6 percent in the fourth quarter, down from 1.0 percent growth in the third quarter. State unemployment insurance (UI) benefits continued to decline, having peaked in the first quarter of 2010. The net effect of the American Recovery and Reinvestment Act of 2009 on transfer receipts was $7.2 billion in the fourth quarter, down 18 percent from the third quarter and down 82 percent from a year ago (table C).

(1.) Personal income is the sum of net earnings by place of residence, property income, and personal current transfer receipts. Quarterly estimates in dollars are expressed at seasonally adjusted annual rates; quarter-to-quarter percent changes are not annualized.

(2.) For New York and New Jersey, the Bureau of Economic Analysis reduced fourth-quarter wage and salary disbursements (the largest component of earnings) 0.8 percent and 0.7 percent, respectively, to reflect work interruptions caused by Hurricane Sandy that were not accounted for in the primary source data used for preliminary state-level wage and salary estimates. Preliminary estimates are based primarily on quarterly changes in Current Employment Statistics surveys conducted by the Bureau of Labor Statistics.

(3.) For the nation, the drought reduced farm inventories by $25 billion in the fourth quarter. Crop insurance indemnity payments offset $15 billion of the losses.

Table A. Growth of Earnings by State

                                  Dollar change
                   Percent         (millions of
                    change           dollars)

                             2012

                  III     IV      III        IV

Alabama          -1.2    1.0    -1,369      1,146
Alaska            1.2    1.0       348        281
Arizona          -0.6    1.2    -1,003      2,011
Arkansas         -0.1    1.2       -56        811
California        1.6    0.8    19,741     10,549
Colorado          0.4    1.2       646      2,230
Connecticut      -0.6    1.9      -864      2,813
Delaware         -2.3    1.2      -694        343
D.C.             -0.1    0.7       -80        641
Florida           0.8    0.9     3,685      4,430
Georgia           0.1    1.2       155      3,344
Hawaii            0.0    1.3        14        569
Idaho             1.7    1.3       615        487
Illinois          0.0    0.8       141      3,437
Indiana           0.7    0.7     1,203      1,199
Iowa              0.0    1.6       -10      1,535
Kansas            1.1    1.8       942      1,569
Kentucky         -0.3    0.8      -313        881
Louisiana        -1.1    0.8    -1,491      1,080
Maine            -1.1    0.8      -373        277
Maryland          1.3    1.0     2,648      2,181
Massachusetts     0.5    1.1     1,393      3,102
Michigan          0.3    0.8       856      2,157
Minnesota         2.0    0.2     3,666        470
Mississippi      -0.4    1.1      -262        688
Missouri          0.0    1.2        63      2,100
Montana           0.8    1.4       202        353
Nebraska          1.1    2.2       657      1,378
Nevada           -0.1    1.4       -38      1,051
New Hampshire     0.2    1.0        82        430
New Jersey        0.4    0.9     1,253      2,798
New Mexico       -1.6    1.1      -784        571
New York          1.0    1.7     7,492     13,434
North Carolina    1.6    0.9     4,046      2,267
North Dakota      3.5    1.5     1,073        481
Ohio              0.0    1.0        58      3,263
Oklahoma          0.2    1.1       205      1,157
Oregon            0.5    1.0       532      1,093
Pennsylvania      0.5    1.0     1,821      3,743
Rhode Island      0.2    1.0        50        321
South Carolina    0.5    1.0       579      1,141
South Dakota     -3.0    5.0      -775      1,252
Tennessee         0.1    1.1       254      2,022
Texas             1.1    1.4     9,550     11,390
Utah              0.4    1.5       335      1,136
Vermont          -1.4    1.0      -253        179
Virginia,         1.1    0.9     3,240      2,684
Washington        1.5    0.2     3,480        528
West Virginia    -1.5    0.4      -648        163
Wisconsin        -1.0    1.0    -1,689      1,677
Wyoming          -1.2    0.9      -236        176
United States     0.6    1.1    60,086    105,019

NOTE. Earnings by place of work.

Table B. Growth of U.S. Earnings by Industry

                                    Percent change     Dollar change
                                                       (millions of
                                                         dollars)

                                                 2012

                                      III     IV       III        IV

AII industries                        0.6     1.1    60,086    105,019
  Private sector                      0.7     1.3    54,334    104,434
    Farm                              7.1     2.8     6,720      2,803
    Forestry, fishing, and
      related activities              2.4    -2.0       763       -647
    Mining                            0.9     0.3     1,083        310
    Utilities                         1.5     1.4     1,304      1,170
    Construction                      0.4     2.2     2,180     11,289
    Durable-goods manufacturing       0.2    -0.2     1,502     -1,550
    Nondurable-goods
      manufacturing                   0.5     0.5     1,673      1,724
    Wholesale trade                   0.8     1.5     4,115      7,554
    Retail trade                      0.6     1.3     3,499      7,868
    Transportation and
      warehousing                     0.3     1.5       831      4,710
    Information                       1.6     0.6     5,157      1,916
    Finance and insurance            -0.8     4.5    -5,329     31,081
    Real estate and rental and
      leasing                         1.2     1.9     1,904      3,149
    Professional, scientific,
      and technical services          0.7     1.0     7,282      9,606
    Management of companies and
      enterprises                     4.0     1.4     9,887      3,562
    Administrative and waste
      management services             0.3     1.2     1,245      4,548
    Educational services              0.8     0.1     1,317        148
    Health care and social
      assistance                      0.5     1.1     5,674     12,003
    Arts, entertainment, and
      recreation                      0.1    -0.8       123       -861
    Accommodation and food
      services                        0.3     0.6       810      1,754
    Other services, except
      public administration           0.7     0.6     2,595      2,297
  Government sector                   0.3     0.0     5,752        585
    Federal government, civilian      0.1     0.2       214        663
    Military                          0.0    -0.5        36       -898
    State and local government        0.5     0.1     5,502        820

Table C. Special Factors in State Personal Income
[Millions of dollars, annual rate]

                                                         2011

                                       2011     2012      IV

Homeowner assistance payments in
  dividends, interest, and rent
Louisiana                               200        0      200
Mississippi                             200        0      200
United States                           400        0      400

Current transfer receipts of
  individuals from the BP oil
  spill
Alabama                                  84       14       49
Florida                                 253       43      189
Louisiana                               138       30      126
Mississippi                              65       11       45
Texas                                    31       11       23
United States                           571      109      432

Net effect of ARRA on personal
  current transfer receipts (1)
Alabama                                 986      182      931
Alaska                                   78       21       72
Arizona                                 973      199      904
Arkansas                                515       88      488
California                            4,690      843    4,317
Colorado                                506       94      474
Connecticut                             327       79      298
Delaware                                117       25      109
D.C.                                     95       26       88
Florida                               3,316      644    3,061
Georgia                               1,929      355    1,819
Hawaii                                  189       49      173
Idaho                                   215       43      202
Illinois                              1,725      366    1,584
Indiana                                 860      166      809
Iowa                                    326       69      301
Kansas                                  325       56      307
Kentucky                                676      148      634
Louisiana                               959      169      909
Maine                                   162       44      148
Maryland                                613      124      575
Massachusetts                           620      156      558
Michigan                              1,502      372    1,349
Minnesota                               469       86      442
Mississippi                             732      115      698
Missouri                                855      172      800
Montana                                 119       23      112
Nebraska                                194       32      184
Nevada                                  361       62      340
New Hampshire                           100       19       95
New Jersey                              847      155      786
New Mexico                              371       76      347
New York                              2,780      636    2,555
North Carolina                        1,528      289    1,422
North Dakota                             61       11       58
Ohio                                  1,612      353    1,497
Oklahoma                                581      113      546
Oregon                                  495      139      446
Pennsylvania                          1,468      324    1,346
Rhode Island                            135       32      124
South Carolina                          854      163      799
South Dakota                             98       19       92
Tennessee                             1,135      240    1,062
Texas                                 4,487      752    4,224
Utah                                    297       50      283
Vermont                                  63       16       58
Virginia                                897      162      850
Washington                              788      194      679
West Virginia                           261       58      244
Wisconsin                               610      135      559
Wyoming                                  49        7       47
United States                        43,950    8,750   40,800

Addendum: Price index for personal
  consumption expenditures
  (2005=100)

United States                         113.8    115.8    114.6

                                                     2012

                                         I        II      III       IV

Homeowner assistance payments in
  dividends, interest, and rent
Louisiana                                 0        0        0        0
Mississippi                               0        0        0        0
United States                             0        0        0        0

Current transfer receipts of
  individuals from the BP oil
  spill
Alabama                                  16       20       12        8
Florida                                  44       60       32       34
Louisiana                                32       44       24       20
Mississippi                              12       16        8        8
Texas                                    12       16        8        8
United States                           116      156       84       78

Net effect of ARRA on personal
  current transfer receipts (1)
Alabama                                 198      198      184      151
Alaska                                   22       22       21       17
Arizona                                 216      216      201      164
Arkansas                                 96       96       89       73
California                              917      917      842      695
Colorado                                102      102       95       78
Connecticut                              85       85       79       64
Delaware                                 27       27       25       20
D.C.                                     29       29       27       21
Florida                                 700      700      646      530
Georgia                                 385      385      358      293
Hawaii                                   53       53       49       40
Idaho                                    47       47       44       36
Illinois                                398      398      368      301
Indiana                                 180      180      168      137
Iowa                                     75       75       69       56
Kansas                                   60       60       56       46
Kentucky                                160      160      149      121
Louisiana                               183      183      170      140
Maine                                    47       47       44       36
Maryland                                134      134      125      102
Massachusetts                           170      170      156      127
Michigan                                405      405      373      304
Minnesota                                93       93       87       71
Mississippi                             124      124      116       96
Missouri                                187      187      174      142
Montana                                  25       25       23       19
Nebraska                                 34       34       32       26
Nevada                                   68       68       63       52
New Hampshire                            21       21       19       16
New Jersey                              168      168      155      128
New Mexico                               83       83       77       63
New York                                691      691      640      521
North Carolina                          314      314      291      238
North Dakota                             12       12       11        9
Ohio                                    383      383      356      290
Oklahoma                                122      122      114       93
Oregon                                  151      151      140      113
Pennsylvania                            352      352      325      266
Rhode Island                             35       35       32       26
South Carolina                          177      177      164      134
South Dakota                             21       21       19       16
Tennessee                               261      261      243      198
Texas                                   815      815      756      623
Utah                                     54       54       50       41
Vermont                                  17       17       16       13
Virginia                                175      175      163      133
Washington                              212      212      195      159
West Virginia                            63       63       58       47
Wisconsin                               147      147      136      111
Wyoming                                   7        7        7        6
United States                         9,500    9,500    8,800    7,200

Addendum: Price index for personal
  consumption expenditures
  (2005=100)

United States                         115.3    115.5    116.0    116.4

ARRA American Recovery and Reinvestment Act of 2009

(1.) Some ARRA funding, such as for Medicaid, replaced state funding
and had no net effect on personal current transfer receipts. In 2011,
ARRA consisted mostly of refundable tax credits and Supplemental
Nutrition Assistance Program benefits, some unemployment compensation,
student financial assistance and other benefits. In 2012, ARRA
consisted mostly of Supplemental Nutrition Assistance Program
benefits, some unemployment compensa tion and refundable tax credits.