Arkansas’ low personal income growth tempered by the state’s affordability and low-cost, local economist says

Wages and earnings for Arkansas workers are still well below the national average, but the low-cost standard of living and affordability helps to boost the income and spending power of the state’s growing pool of workers, an Arkansas economist said of Thursday’s (July 7) annual personal income report from the U.S. Bureau of Economic Analysis.

According to the annual personal income report for states and the nation’s metropolitan areas, Arkansas saw annual growth of 2.5% in 2014. That amounts to more than $117 million of inflation-adjusted real personal income for the highly-watched economic indicator of net earnings of U.S. workers from all sources.

However, it was the BEA’s “regional price parities,” or RPP ranking, that caught the attention of Dr. Michael Pakko, chief economist at University of Arkansas at Little Rock’s Institute for Economic Advancement. In the RPP category, which measures the differences in the price levels of goods and services across states and metropolitan areas for a given year, Arkansas ranked second in terms of the overall national price level for 2014.

According to the report, Mississippi (86.7), Arkansas (87.5), Alabama (87.8), South Dakota (88), and Kentucky (88.7) had the lowest RPPs among the states. The states with the highest RPPs were Hawaii (116.8), New York (115.7), New Jersey (114.5), and California (112.4).

“The (Labor Department) just started coming out with these statistics two or three years ago, but the main thing is that it always reminds us every year that while Arkansas is a relatively low income state, we also have a very low cost of living,” Pakko said. “In terms of the standard of living and the affordability, that is a lot more positive than the pure income numbers suggest.”

Those “pure income” numbers, however, still show real personal income across all regions rose by an average of 2.9% in 2014, putting Arkansas four percentage points below the national average. This growth rate reflects the year-over-year change in nominal personal income across all regions as adjusted by the change in the national personal consumption expenditures (PCE) price index, the BEA said.

Growth in real state personal income in 2014 ranged from 4.7% in Nevada to 0.4% in South Dakota. After Nevada, the states with the highest growth rates were Colorado (4.5%), Texas (4.2%), Washington and Oregon and 4%.

Following South Dakota, the states with the slowest rates of growth were Kansas (0.5%), West Virginia (0.7%), Illinois (1%), and Vermont (1.3%). States with growth rates close to the national average were Alaska (3.1%), Oklahoma (3.1%), Michigan (2.9%), New Jersey (2.9%), Massachusetts (2.8%), Connecticut (2.8%), and Tennessee (2.8%).

In 2014, the District of Columbia’s RPP (118.1) was higher than that of any state. The states with the highest RPPs were Hawaii (116.8), New York (115.7), New Jersey (114.5), and California (112.4).

Despite being in the bottom 10 states in per capita personal income and disposable income, Pakko said once those numbers are adjusted for the state’s “purchasing power” difference then Arkansas’ historic income woes stand up a lot better in comparison with other states.

Pakko said Arkansas’ current per capita income is listed at 82% of the national average, putting Arkansas at 43rd in the nation. On Wednesday, Talk Business & Politics reported that Arkansas set a new record for per capita disposable income of 84.5% compared to the U.S. average. Disposable income is the amount workers receive from their paychecks after all taxes are deducted from their salaries.

“Once you adjust for that purchasing power difference, and the fact that prices are lower in Arkansas, we are up to 94% of the nation (per capita) income, which ranks us 34th in the nation,” said the UALR economist. “So, that would put us closer to the middle, rather than near the bottom.”

Pakko emphasized that Arkansas’ housing market is what stands out in terms of affordability and low cost compared to other states.

“According to the regional purchasing power index, the rent (prices) for Arkansas – which corresponds roughly to home prices as well – are the lowest in the nation.”

However, Pakko also noted that Arkansas travelers taking vacations to high-cost states like Hawaii, California and New York will also find that Natural State dollars don’t buy as much as they do at home.

According to U.S. Labor Department officials, the regional price parities are calculated using price quotes for a wide array of items from the Consumer Price Index, including expenditure categories such as food, transportation and education. In 2014, the metropolitan area with the highest RPP was Urban Honolulu (123.5). Metropolitan areas with RPPs above 120 included San Jose-Sunnyvale-Santa Clara, Calif. (122.9), New York City area, Santa Cruz-Watsonville, Calif. (121.8), San Francisco-Oakland-Hayward, Calif. (121.3), and Bridgeport-Stamford-Norwalk, Conn. (120.4).

Jonesboro ranked 5th among U.S. cities with the lowest RPP at 82. The other top metropolitan areas with low-cost living were Beckley, Wy. (79.7), followed by Rome, Ga. (80.7), Danville, Ill. (81.1), and Morristown, Tenn. (81.9).