Morton Marcus: Slow and slower income growth for Hoosiers
Monday, December 26, 2011 8:06 AM
INDIANAPOLIS - The latest data on the Indiana economy were released last week by the federal Bureau of Economic Analysis (BEA). If any news outlets carried the story, I missed it.
In case you are not interested, the short-term news was bad for the nation and the state. Personal income for Americans rose by only 0.1 percent in the third quarter of 2011, according to the BEA’s news release. Indiana’s personal income fell by 0.05 percent.
That, however, is just half the story. After adjusting for inflation, real personal income fell by 0.4 percent. Instead of 37 states seeing increases in personal income, only the state of Washington realized a miniscule real gain. Indiana ranked 9th from the bottom among the states with a -0.6 percent decline in real income. Not only is our growth negative, it lags the nation as a whole.
Now, if you can bear with me, let’s look at the longer term. Over the past year, personal income grew nationwide by 1.2 percent after adjustment for inflation. Oil rich North Dakota led the pack at 4.7 percent, followed by drought-stricken Texas, flood-stricken Oklahoma, and dysfunctional California. Where was Indiana? We grew by only 0.8 percent.
If we use our telescope on a more distant point (third quarter 2007 before the crash), we find that the nation is basically back at the pre-crash level of real personal income. In the third quarter of 2011, the U.S. managed to be just 0.3 percent beyond where we stood 4 years earlier. Indiana (-0.3 percent) was one of 15 states that declined in real personal income over that period.
Why does this matter? Personal income is one of the most widely used indicators of economic well-being. Gov. Daniels, very early in his first term, identified improving Indiana’s per capita personal income (PCPI) relative to the nation as one of his economic goals for the state.
When that goal was set, the latest data we had was 2002. Now the latest data are from 2010. How have we fared over that period? Indiana ranked fourth from the bottom in growth of PCPI over those EIGHT years. We have seen our PCPI drop from 90 percent of the national average to 85 percent of that average. Where, in 2002, we ranked 33rd in the nation, our PCPI was 41st in 2010.
How did this happen? That’s always a complex issue because we are dealing with a ratio and most of us were uncomfortable with fractions in elementary school and later. Here the numerator (the number on top of the fraction) is personal income and the denominator (on the bottom) is population.
In 2002 we had 1.94 percent of the nation’s personal income; by 2010 that figure was 1.79 percent. The difference was a fall of 0.15 percentage points in our share of the country’s personal income.
Compare that 0.15 points with the mere 0.04 point decline in our share of the nation’s population and you begin to see it is not lack of population growth that is keeping our relative PCPI down, but a deficiency of income.
What Indiana needs is not just jobs. If we are to see our general welfare improve, we require higher paying jobs to generate more income. How do we get that? Our companies must produce goods and services valued highly by the rest of the world so they can pay their workers more. That is the responsibility of private sector management.
Do we have the managers to do this job?
Mr. Marcus is an independent economist, speaker, and writer formerly with IU’s Kelley School of Business.