August 01, 2017 | Revenue & Economic Update
In June, the U.S. Bureau of Economic Analysis (BEA) updated the Quarterly State Personal Income series for the first quarter of 2017. The data include personal income and its components, which can be decomposed into net earnings (64% of total), transfer receipts (17%), dividends, interest and rent (19%). Net earnings are wages and salaries less social insurance tax contributions. Transfer receipts include government assistance to individuals such as Social Security and medical benefits.
In the first quarter of 2017, Pennsylvania personal income grew to $52,240 per capita, a 4.0% year-over-year increase. (See table.) The majority of this gain comes from growth in net earnings income, after weak growth in the first quarter of 2016. The weak growth in that quarter may be due to the two major snowstorms that occurred in 2016. Another factor in the recent per capita gain is due to Pennsylvania’s contracting population, which provides a temporary boost, but may restrain future economic growth. Over the last five years, Pennsylvania personal income has grown at an average annual rate of 2.9%, as net earnings (3.0%) offset the lower growth of dividends, interest and rent income (2.5%).
Relative to the country, Pennsylvania’s average annual personal income growth has kept pace with the U.S. average (2.9%). Most states surrounding Pennsylvania show similar trends in personal income. However, Maryland, Virginia and West Virginia had below average personal income growth over the past five years due to lower net earnings growth (2.0%, 2.2% and 1.1%, respectively).
There are several factors that may influence future personal income growth in Pennsylvania. Due to an increasing number of Baby Boomers retiring and a contracting population, it is possible that Pennsylvania’s growth in per capita personal income could moderate. Another factor is the sectors that will realize job gains or losses. Recent data show that most of Pennsylvania’s contracting sectors (e.g., manufacturing and mining) tend to pay a higher annual wage than many expanding sectors, such as healthcare services.
Federal data show that lower-wage workers have realized stronger weekly wage gains than higher-wage workers. Some of those gains are due to the implementation of higher minimum wages in various states. For Pennsylvania, the latest data suggest that average wages grew at an annual rate of roughly 2.7% in the second quarter of 2017. Analysts expect that the tight labor market could provide a further boost to wage growth during the next few quarters.