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Recession hits Far West and New England hardest.

Personal income statistics released by the Census Bureau in February further illustrate the recession's uneven impact on regions of the country. In what the Southwestern and Rocky Mountain states may consider poetic justice, the regions whose economies grew the fastest during the 1983-1990 economic expansion are now deeply mired in recession.

New England has been hit the hardest. After growing by an average annual rate of 8.2 percent between 1983 and 1990, personal income in New England grew just 0.7 percent in the 12 months ending Sept. 30, 1991. The Mideast states of Delaware, Pennsylvania, Maryland, New York and New Jersey and the District of Columbia were the next hardest hit: Personal income in the region grew at an annual rate of 2 percent in the third quarter of 1991, compared to 7.4 percent during the expansion.

On the other hand, the Rocky Mountain states are weathering the recession well. Personal income grew at an annual rate of 5.1 percent in the third quarter of 1991, only slightly lower than the 5.9 percent annual rate during the expansion. Southwestern and Plains states are also experiencing personal income growth well above the national average of 2.8 percent.

Personal income statistics provide a good barometer of economic performance, but because they include government transfer payments and unearned income they may provide too rosy a picture of state economic conditions. The growing elderly population receives Social Security payments that are indexed to inflation, which accounts for a significant portion of the increase in personal income figures. And although falling interest rates have soured fixed income investments, the stock market has performed well.

The bottom line: Personal income numbers overestimate the growth of taxable wages and salaries, which are critical to state revenues. Wages and salaries have fallen n several regions, despite growth in personal income. In New England construction payrolls fell by 18.4 percent between October 1990 and October 1991, after growing by an average of 8.4 percent during the expansion. Manufacturing transportation and public utilities and wholesale and retail payrolls also fell. The only payroll gains were in finance, the service sector and government. A similar pattern emerges in the Mideast and Far West states.

The Rocky Mountain and Southwest states experienced payroll growth in all major areas except manufacturing of durable goods. Construction payrolls in the Rocky Mountain states, fueled by government construction projects like Denver's new airport, grew by 9.8 percent. Services and non-durables manufacturing also grew at rates well above the national average.

What do these figures mean for state finances?

The taxable portions of personal income have fallen significantly in the Northeastern and West Coast regions, wreaking havoc with state revenue collections. These states enjoyed surprising strength in state revenue collections during the expansion, and now they may be in for a prolonged period of belt-tight-ening. Even major tax increases have not produced the revenues needed to sustain spending trends developed in the late 1980s.

While the rest of the country was enjoying prosperity, the Rocky Mountain and Southwestern states were experiencing slumps in energy, agriculture, real estate and mining. As revenues dried up, these states were forced to cut spending. Although the recession has dug into state revenues a bit, budgets in the Southwestern and Rocky Mountain states are built upon conservative revenue projections that are proving to be on target. As a result, state budgets in the region are holding up well.
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Title Annotation:3rd qtr 1991 personal income statistics among US regions
Publication:State Legislatures
Date:Jun 1, 1992
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