The U.S. Bureau of Economic Analysis (BEA) released preliminary personal income estimates for the fourth quarter of 2017 for the U.S. and states on March 22. The data suggest that Arizona’s personal income growth hit 4.3% in 2017, which beat the national rate of 3.1% (Exhibit 1). Much of the growth in 2017 was driven by net earnings from work (wages and salaries, proprietors’ income, and fringe benefits, net of social insurance taxes), which contributed 2.9 percentage points to the 4.3% rate. Dividends, interest, and rent contributed to growth, adding 0.7 percentage points. Transfer payments (Medicare, Medicaid, Social Security, and welfare payments) also contributed 0.7 percentage points. The relatively large contribution from net earnings is a positive sign for the state economy.
As Exhibit 1 also shows, Arizona’s growth in per capita personal income exceeded the national average last year, but only by 0.3 percentage points. Keep in mind that these data use U.S. Census Bureau population estimates, not those from the Arizona Office of Economic Opportunity.
Arizona’s total wage growth hit 4.7% last year, well above the national rate of 3.3%. Arizona’s growth remains relatively rapid on a per job basis as well, with the state posting 2.3% growth in 2017, compared to 1.7% for the nation. Arizona’s relatively rapid growth reflects, at least in part, the impact of the increase in the state minimum wage from about $8/hour to $10/hour in January 2017.
Exhibit 1: Arizona and U.S. Growth Rates in 2017 for Personal Income, Per Capita Personal Income, Wages, and Wages Per Job
Exhibits 2-5 show annual growth rates for Arizona and U.S. personal income, per capita personal income, total wages and salaries, and wages and salaries per job. The exhibits show that Arizona’s income gains accelerated last year, compared to 2016, but remains relatively slow compared to rates posted in 2014-2015. Overall, according to this preliminary data, the state did a bit better last year, but still not very well.
Note that growth in wages and salaries per job accelerated last year, compared to 2016, but still only matched or slightly exceeded growth during 2014-2015. This is a bit surprising, considering the large increase in the state’s minimum wage. We would expect wages and salaries per job to pick up a significant portion of the impact of the minimum wage increase, unless employers predominantly responded to the change by adjusting worker hours, not overall employment levels.
It is also possible that the preliminary data from BEA have not done a good job of reflecting the increase in the minimum wage. That might happen because BEA creates its latest quarterly estimates without access to the higher quality data from the Quarterly Census of Employment and Wages. Instead, BEA uses Current Employment Survey (CES) job data and econometrically-derived estimates of the wedge between employment growth and wage growth. Keep in mind that all of this data will be revised in September. We will return to these issues at that time.
Exhibit 2: Arizona and U.S. Personal Income Growth Rates: 2011-2017
Exhibit 3: Arizona and U.S. Per Capita Personal Income Growth Rates: 2011-2017
Exhibit 4: Arizona and U.S. Total Wages and Salaries Growth Rates: 2011-2017
Exhibit 5: Arizona and U.S. Growth Rates for Wages Per Job: 2011-2017
