The latest data released by the US Department of Commerce Bureau of Economic Analysis (BEA) indicates that personal income growth decelerated in the third quarter of 2012 for Hawaii and the US as a whole. Despite slow growth in the most recent quarter, conditions continue to improve both locally and across the nation.
PERSONAL INCOME
Personal income is a key economic indicator that measures the aggregate income received by all residents from all sources. It represents the total income that can be used by residents to purchase goods and services, save and invest, and generate tax revenues.
Annualized personal income in Hawaii was $61.5 billion in the third quarter of 2012, up 0.5% from the second quarter of 2012. Growth in the third quarter slowed markedly compared to 1.8% growth in the previous quarter. Personal income growth also slowed across 33 other states and in the US a whole. In the third quarter personal income grew in 49 of the 50 states with the fastest growth in North Dakota, up 1.4% from the previous quarter. South Dakota was the only state to see a contraction with income falling by 1.6%. For the US as a whole, personal income grew by 0.5%.
Despite the recent sluggishness, personal income in Hawaii grew by a healthy 4.1% compared to the third quarter of 2011. Overall US income grew by only 3.2% during the same period; North Dakota had the strongest growth of 8.5% while South Dakota experienced the slowest growth of only 0.3%.
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Personal income is classified by source into three major categories: labor income, investment income, and transfer payments.
LABOR INCOME
Labor income is a measure of the total compensation received by employees as well as the income collected by sole proprietors and partnerships. Labor income in Hawaii accounted for 73% of personal income in the third quarter of 2012, and growth slowed significantly. Hawaii saw robust growth of 2% in the second quarter of this year compared to the national average of only 0.4%. In contrast, third quarter growth was a paltry 0.4%, compared to 0.5% growth at the national level. Despite slow growth in the most recent quarter, labor income in Hawaii grew 3.8% year-on-year, greater than the national average of 3.1%.
Key industries saw only limited growth in the third quarter. After surging by 9.2% in the second, earnings in the health care industry fell by 3% in the third quarter. Earnings in leisure and hospitality edged up by 0.4% in the third quarter after no growth in the second. Public sector earnings growth was also limited. State and local government as well as federal government earnings each only grew by 0.5% in the third quarter. Health care, leisure and hospitality, and the public sector accounted for almost 55% of all labor income in Hawaii.
A handful of industries did see stronger earnings growth though. Construction earnings grew by 2.7% from the second quarter to the third, marking the industry’s seventh consecutive quarter of positive quarter-on-quarter growth. The utilities sector also saw growth of 2.7%. Other sectors with healthy labor earnings growth included retail trade(+1.7%), transportation and warehousing(+1.8%), and real estate rental and leasing(+1.5%).
INVESTMENT INCOME
Investment income includes dividends, interest income, and rental income. Investment income accounted for 18% of Hawaii personal income in the third quarter of 2012.
Investment income for the US overall was flat in the third quarter after growing by 2% in the second. Hawaii was one of the few states with investment income growth in the third quarter, up 0.5%. Year-on-year, Hawaii had the fastest growth of any state; up 5.4% while the national average was only 3.9%. The BEA does not publish individual components of state investment income in quarterly releases. More complete information on investment income will be available when the bureau releases the full 2012 data release, due out in the first quarter of 2013.
TRANSFER RECEIPTS
The majority of income classified as transfer receipts are funds transferred from various levels of government to individuals. The two largest sources of transfer receipts are Social Security payments and medical benefits paid through Medicare, Medicaid, or military healthcare programs. Transfer payments made up 16% of personal income in Hawaii for the third quarter of 2012.
Transfer payments in Hawaii grew by 0.9% from the second quarter to the third, almost on par with the national average of 1% growth. Transfer payment growth in the third quarter ranged from 1.3% in New Mexico to 0.3% in Alaska. Unemployment insurance benefits, the only component of transfer payments published quarterly by the BEA, fell by 13% in Hawaii from the second quarter to the third while all other transfer payments grew by 1.5%. Year-on-Year transfer payments in Hawaii are up 4.1%, above the national average of 3.2%. As with investment income, more complete information on transfer receipts will be available in the next release with full 2012 data.
SUMMARY
This release confirms that conditions in the state continued to improve through the third quarter of this year. Labor income, property income, and transfer receipts all grew from the second quarter to the third albeit more slowly than in the previous quarter. Even with slow growth in the most recent quarter, all three components of personal income posted moderated year-on-year growth rates that outpaced national averages.
– Jimmy Jones