The first quarter of 2021 saw almost all states record their highest ever year-over-year increases in personal income, with national personal income rising an almost unheard of inflation-adjusted 14.4%.
That data came courtesy of a new analysis by The Pew Charitable Trusts. State personal income matters to state governments because tax revenue and spending demands may rise or fall in accordance with residents’ incomes, and represents all the money residents receive from work, investments, income from owning a business or property, government assistance and employee benefits, the report explained.
The spike in personal income has largely been driven by pandemic-related federal aid, as the two one-time payments of $600 and $1,400, in addition to expanded unemployment benefits assisted millions of Americans in weathering the crisis.
All 50 states recorded increases in total personal income, but 27 states in particular recorded their highest ever year-over-year growth, highlighted by the largest increases in Utah (19.8%), Idaho (19.4%), West Virginia (19.2%), Michigan and Mississippi (both 19.1%).
The sharp increase in personal income is unique during this crisis because of the level of federal aid not exhibited during the Global Financial Crisis (GFC), which, as a result, caused income levels to bounce back faster, and more evenly than they did a decade ago. For example, all 50 states have, at least temporarily, exceeded their pre-pandemic personal income levels, whereas it took the last state, Nevada, five years to return to pre-recession levels after the GFC.
The smallest increases in personal income were exhibited in Wyoming (9.4%), as well as Connecticut and New York (both 9.5%), which, without federal aid, wouldn’t have posted such positive increases. 19 states would have experienced declines in total personal income, albeit small dips (less than 1%) had it not been for the federal stimulus.
But the federal aid won’t sustain personal income levels in the long-term, as more recent forecasts by the U.S. Bureau of Economic Analysis shows these heights dropped off significantly in Q2 2021.
Additionally, earnings levels increased steadily during Q1 2021, increasing $177 billion, far less than the total $2.8 trillion in government assistance states received. Earnings now sit above pre-pandemic levels, with all but 10 states experiencing year-over-year spikes.
