Viewpoints: June 2024

State real GDP growth rates in 2024:1 ranged from Idaho’s 5.0% to South Dakota’s -4.2%. Growth tended to be high in the mountain West and the Southeast. Many highly agricultural states in the Plains saw declines, but Illinois, Ohio, Oregon, and Louisiana also saw drops. Pennsylvania is on the verge of becoming the sixth state with current-dollar GDP exceeding one trillion dollars. The five currently above that threshold are California, Texas, New York, Florida, and Illinois; Pennsylvania’s 2024:1 figure was $998 billion, at an annual rate. No other state exceeds $900 billion.

The distribution of personal income growth was comparable to real GDP. South Carolina first with a 9.5% growth rate, while North Dakota’s .6 % was the lowest. It appears that weakness in farm income held down net earnings in the agricultural regions. As always, the distribution of the growth of transfer payments was erratic and influenced the rankings of total personal income growth, but in this instance, generally slower transfer growth in the Plains merely tended to accentuate the effect of weakness in net earnings. with Nevada again on top with a 6.7% growth rate, while Iowa and North Dakota tied for last with each having a growth rate of 0.8%. Over the last few years, the extension and withdrawal of federal transfers connected to the pandemic often grossly distorted movements in state personal income, and the ranking of states. This has become less evident in recent quarters, though the range of annual growth rates for transfers in 2023:4 did run from 8,1% in Mississippi to -5.0% in Arizona. The large drop in Arizona certainly had a visible effect on its overall income growth; Mississippi’s large gain was less meaningful, since other income components there also grew substantially.

The Federal Reserve Bank of Philadelphia’s state coincident indexes in May continued to be mixed, but a touch improved from the initial April results. Idaho and Arizona led with fairly moderate increases of .6 percent from April, while Arizona, West Virginia, and New Hampshire also had gains above.5 percent, but a full ten states, scattered across the nation, saw declines, with Rhode Island down .4 percent. Over the three months since February, 11 states had increases of more than 1 percent, with Montana up 2.4 percent. 15 states had gains under .5 percent, with 3 of those experiencing declines. Over the last 12 months, Arizona was on top with a 4.1 percent increase. There were six other states with increases higher than 3 percent. On the down side, four states (none large) had declines, with West Virginia off 1.8 percent (Montana was off 1.4 percent, despite its strong April), and 9 others had increases of less than 1 percent.

The independently estimated national figures of growth over the last 3 (.7 percent) and 12 (2.8 percent) months appear to be roughly in line with the state numbers.

State labor markets were again mixed to moderate in May. Seven states (counting DC here) had statistically significant gains in payrolls , with the most impressive gain Idaho’s .9 percent increase, while both California and Texas had increases over 40,000 The other states, had changes deemed to be insignificant, including New York’s increase of more than 20,000.

Four states had statistically significant declines in their unemployment rates in April, and three had increases. None were larger than .2 percentage point. The highest unemployment rates were in DC (5.3%), California (5.2%), DC (5.2%) and Nevada (5.1%). No other state had rates as much as a point higher than the national 4.0%. Alabama, Hawaii, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, North Dakota, South Dakota, Tennessee, Utah, Vermont, Virginia, Wisconsin, and Wyoming had rates of 3.0% or lower, with both Dakotas at 2.0%.

Puerto Rico’s unemployment rate was unchanged at 5.8%, while the island’s job count edged up by 700.

The owner's equivalent rent (OER) index has received a lot of press lately because it's primarily responsible for keeping reported inflation well above the Fed's 2% target. Yet, if asked, many analysts and even policymakers probably need to learn why OER exists.

OER is a concept unique to how housing units are accounted for in GDP statistics. In GDP, rental units and owner-occupied units are considered the same. To maintain this equivalence, an imputed estimate shows how much money owner-occupied units would have spent if they were renting to match the money tenants paid for housing. This process, which creates an artificial expenditure in consumer spending, necessitates the creation of a price measure or a deflator. That's because the government needs to estimate the imputed 'real' value of money owners spend for rent when calculating Real GDP.

OER is a 'fake price, a unique concept involving zero transactions. No one actually pays OER, and as a result, it does not generate any economic activity such as sales, income, or jobs. Therefore, official rate increases do not affect the demand associated with OER. However, despite its unique nature, it has accounted for a significant part of the increase in consumer price inflation in the last three years. For instance, the increase in shelter costs contributed to more than a third of the 3.4% rise in consumer prices in the past twelve months.

OER is suitable for GDP accounting, but why does the CPI use OER to measure housing costs? It's political because if housing costs were calculated based on house prices and borrowing costs, reported inflation would be much higher nowadays and would have run markedly higher for the past fifty years.

BLS and the Fed should be humble enough to admit that, but they won't.