Real Personal Income for States and Metropolitan Areas, 2008-2012
Today, the U.S. Bureau of Economic Analysis released real, price-adjusted estimates of personal income for states and metropolitan areas for 2008-2012.
"For the first time, Americans looking to move or take a job anywhere in the country can compare inflation-adjusted incomes across states and metropolitan areas to better understand how their personal income may be affected by a job change or move. Businesses considering relocating or establishing new plants also now have a comprehensive and consistent measure of differences in the cost of living and the purchasing power of consumers nationwide. The Commerce Department’s 'Open for Business Agenda' prioritizes making our data more accessible and understandable so that it can continue powering both small and large businesses nationwide," said U.S. Secretary of Commerce Penny Pritzker.
The price-adjustments are based on regional price parities (RPPs) and on BEA’s national Personal Consumption Expenditure (PCE) price index. The RPPs measure geographic differences in the price levels of consumption goods and services relative to the national average, and the PCE price index measures national price changes over time (see Technical Note). Using the RPPs in combination with the PCE price index allows for comparisons of the purchasing power of personal income across regions and over time. These estimates are being released for the first time as official statistics1.
Real Personal Income for States and Metropolitan Areas
Real personal income across all regions rose by an average of 2.3% in 2012. This growth rate reflects the year-over-year change in nominal personal income across all regions adjusted by the change in the national PCE price index. On a nominal basis, personal income across all regions grew an average of 4.2% in 2012. In 2012, the U.S. PCE price index grew 1.8%.
Growth in real state personal income from 2011 to 2012 ranged from a decline of 1.2% in South Dakota to an increase of 15.1% in North Dakota. These growth rates reflect the year-over-year change in the state’s nominal personal income, the change in the national PCE price index, and the change in the regional price parity for that state. After North Dakota, the states with the largest growth rates were Montana (3.7%), Indiana (3.7%), California (3.4%), and Mississippi (3.4%). South Dakota was the only state with a decline in real personal income. The states with the smallest growth rates were Maine (0.3%), Alaska (0.7%), and Alabama (0.8%). The District of Columbia’s growth rate was 0.4%. States with growth rates close to the national average were Delaware (2.4%), Georgia (2.2%), Illinois (2.4%), Minnesota (2.2%), and Oregon (2.4%).
Growth in real metropolitan area personal income from 2011 to 2012 ranged from a decline of 3.8% in Kennewick-Richland, WA to an increase of 10.2% in Odessa, TX. After Odessa, TX, the metropolitan areas with the largest growth rates were Midland, TX (9.6%), Greenville, NC (9.0%), Jackson, TN (8.1%), and Columbus, IN (7.6%). After Kennewick-Richland, WA, the metropolitan areas with the largest declines were Watertown-Fort Drum, NY (-2.5%), State College, PA (-2.4%), Hanford-Corcoran, CA (-2.3%), and Sierra Vista-Douglas, AZ (-1.7%).
Regional Price Parities
Regional Price Parities (RPPs) measure the differences in the price levels of goods and services across states and metropolitan areas for a given year. RPPs are expressed as a percentage of the overall national price level for each year, which is equal to 100.0.
In 2012, the District of Columbia’s RPP (118.2) was higher than that of any state. The states with the highest RPPs were Hawaii (117.2), New York (115.4), New Jersey (114.1), and California (112.9). Mississippi (86.4), Arkansas (87.6), Alabama (88.1), Missouri (88.1), and South Dakota (88.2) had the lowest RPPs among the States. States with high (low) RPPs typically have relatively high (low) price levels for rents. States with RPPs closest to the national average price level were Florida (98.8), Oregon (98.8), Illinois (100.6), and Vermont (100.9).
In 2012, the metropolitan area with the highest RPP was Urban Honolulu, HI (122.9). Metropolitan areas with RPPs above 120.0 also include New York-Newark-Jersey City, NY-NJ-PA (122.2), San Jose-Sunnyvale-Santa Clara, CA (122.0), Bridgeport-Stamford-Norwalk, CT (121.5), Santa Cruz-Watsonville, CA (121.4), San Francisco-Oakland-Hayward, CA (121.3), and Washington-Arlington-Alexandria, DC-VA-MD-WV (120.4). The metropolitan area with lowest RPP was Danville, IL (79.4), followed by Jefferson City, MO (80.8), Jackson, TN (81.5), Jonesboro, AR (81.7), and Rome, GA (82.2).
Price indexes commonly measure price changes over time. The BEA’s Personal Consumption Expenditure price index and the BLS’ Consumer Price Index (CPI) are two examples. Spatial price indexes measure price level differences across regions for one time period. An example of these type of indexes are purchasing power parities (PPPs), which measure differences in price levels across countries for a given period, and can be used to convert estimates of per capita GDP into comparable levels in a common currency. The regional price parities (RPPs) that BEA has developed compare regions within the United States, but without the need for currency conversion. An implicit regional price deflator (IRPD) can be derived by combining the RPPs and the PCE price index.
Regional Price Parities. The RPPs are calculated using price quotes for a wide array of items from the CPI, which are aggregated into broader expenditure categories (such as food, transportation, or education). Data on rents are obtained separately from the Census Bureau’s American Community Survey (ACS). The expenditure weights for each category are constructed using the BLS’ Consumer Expenditure Survey and BEA’s Personal Consumption Expenditures2.
The broader categories and the data on rents are combined with the expenditure weights using a multilateral aggregation method that expresses a region’s price level relative to the US3.
For example, if the RPP for area A is 120 and for area B is 90, then on average, prices are 20% higher and 10% lower than the US average for A and B respectively. If the Personal Income for area A is $12,000 and for area B is $9,000, then RPP-adjusted incomes are $10,000 ($12,000/1.20) and $10,000 ($9,000/0.90) respectively. In other words, the purchasing power of the two incomes is equivalent when adjusted by their respective RPPs.
Implicit Regional Price Deflator. The IRPD is a regional price index derived as the product of two terms: the regional price parity and the US PCE price index.
Implicit regional price deflator for region i: P_i = P_i,us * P_us
The first term on the right-hand side of the equation is P_i,us, which is the regional price parity for region i (using the US as the reference region4). The second term is P_us, the national PCE price index.
The implicit regional price deflator will equal current dollar personal income divided by real personal income in chained dollars. The growth rate or year-to-year change in the IRPDs is a measure of regional inflation5.
Detailed information on the methodology used to estimate the RPPs may be found in the article, "Real personal income and Regional Price Parities for States and Metropolitan Areas, 2007-2011", in the August 2013 issue of the Survey of Current Business.
Personal income is the income received by all persons from all sources. Personal income is the sum of net earnings by place of residence, property income, and personal current transfer receipts. These are current dollar estimates. Comparisons for different regions and time periods reflect changes in both the price and quantity components of regional personal income.
Estimates of personal income in the United States are derived as the sum of the regional estimates. These differ from the estimates of personal income in the national income and product account (NIPAs) because of differences in coverage, in the methodologies used to prepare the estimates, and in the timing of the availability of source data.
Regional price parities (RPPs) are regional price levels expressed as a percentage of the overall national price level for a given year. The price level is determined by the average prices paid by consumers for the mix of goods and services consumed in each region.
Detailed CPI price data are adjusted to obtain average price levels for BLS-defined areas6. These are allocated to counties in combination with direct price and expenditure data on rents from the ACS. County data are then aggregated to states and metropolitan areas.
Personal income at RPPs is current-dollar personal income divided by the price parity7 for a given year and region. A balancing factor is applied so that the sum of personal income at RPPs across regions equals the current dollar sum.
Real personal income is personal income at RPPs divided by the national PCE chain-type price index. The result is real personal income in chained dollars (using 2008 as the reference year)8. Using Colorado in 2012 as an example:
Estimates of real personal income in the United States are derived as the sum of the regional estimates divided by the U.S. PCE Price Index.
Implicit Regional Price Deflator (IRPD) is the product of the RPP times the national PCE price index9. It is equal to personal income divided by real personal income. See also the Technical Note.
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The tables in this press release are also available on the BEA website. Additional tables showing estimates of real income and regional price parities can also be found there for state metropolitan and nonmetropolitan portions, and metropolitan areas.
BEA’s national, international, regional, and industry statistics; the Survey of Current Business; and BEA news releases are available without charge on BEA’s web site at www.bea.gov. By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.
Next real personal income release – April 2015 for states, state metropolitan and nonmetropolitan portions, and metropolitan areas.
1 Prototype statistics were released for evaluation and comment by users on June 12, 2013.
2 To estimate RPPs, CPI price quotes are quality adjusted and pooled over 5 years. The ACS rents are also quality adjusted, and in the case of the metropolitan areas, pooled over 3 years. The expenditure weights are specific to each year.
3 The multilateral system that is used is the Geary additive method. Any region or combination of regions may be used as the base or reference region without loss of consistency.
4 A different reference region could be used as the base, as long as the time-to-time price index was consistent with the new base.
5 The growth rate of the implicit regional price deflators will not necessarily equal the region or metro area price deflators published by the BLS. This is because the CPI deflators are calculated directly while the IRPDs are indirect estimates, and because of differences in the source data and the methodology. For a complete description see the BEA working paper titled "Note on estimating the Multi-year regional price parities by 16 expenditure categories: 2005-2009"
6 The CPI represents about 87% of the total U.S. population, including almost all residents of urban or metropolitan areas. Rural area prices (exclusive of Rents) are assumed to be the same as those in the urban, non-metropolitan areas of the CPI.
7 RPP should first be divided by 100.
8 Real personal income estimates are in 2008 dollars, the first year of the series in this release.
9 The IRPDs will equal the RPPs in the reference year, 2008.