Where’s the Real Growth in State Personal Income?

By at 23 June, 2022, 4:16 pm

Once inflation is factored in, gains turned into declines.

by Raymond J. Keating –

The U.S. Bureau of Economic Analysis has served up its latest report on state personal income, with annualized percent changes in the first quarter ranging from 8.5 percent in South Dakota down to 1.3 percent in Hawaii.

Unfortunately, these numbers are not adjusted for inflation, and since inflation, of course, is running red hot, our take on the growth rates in this analysis must be adjusted … considerably.

For example, if we consider that the GDP price deflator – a broad inflation gauge – ran at 8.1 percent in the first quarter, then suddenly the number of states that actually experienced real growth in personal income dwindles to two perhaps three states.

That is, personal income grew by 8.5 percent in South Dakota, as noted, by 8.2 percent in North Dakota, and by 8.1 percent in Iowa during the first quarter.

Again, here is the perniciousness of the inflation tax on full display. At first glance, it seems like many states experienced strong personal income growth in the first quarter, but once inflation is factored in, it nearly all disappears, with gains turned into declines.

Nobel Prize-winning economist Milton Friedman correctly pointed out, “Inflation is taxation without legislation.”

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.  His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.



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