Austin Chamber

July 14, 2015 – Real Personal Income, Metropolitan Price Parities & Inflation

Posted By Beverly Kerr | Jul 14, 2015
Central Texas Economy in Perspective Print Article Austin Chamber
  • Austin saw relatively strong real, price-adjusted growth in personal income in 2013. Personal income is an important, broad-based measure of the economy.

  • 1.6% real growth in personal income placed Austin 11th among the 50 largest U.S. metros.

  • Austin saw a 1.0% drop in real per capita personal income in 2013, however, Austin is in the top 10 among major metros for growth over the last 5 years.

  • Overall price levels in Austin are 1.3% lower than the U.S. average and also lower than in Dallas-Fort Worth and Houston.

  • U.S. inflation was 1.2% in 2013. Austin’s rate was 1.5% (as was the statewide rate).

Real, price-adjusted estimates of personal income[1] for states and metropolitan areas for 2008-2013 were released by the U.S. Bureau of Economic Analysis on July 1. Austin saw relatively strong real personal income growth in 2013 (1.6%), as did Texas (1.3%). Nationally, real personal income grew 0.8%. Austin’s 1.6% growth places it 11th among the 50 largest U.S. metros. Houston saw faster growth, 2.1% (ranking 5th). Dallas-Fort Worth grew by 1.4% and San Antonio by 1.3%. Among major metros, the greatest gain was 3.4% in San Jose. Eight large metros had negative real personal income growth between 2012 and 2013.

On a per capita basis, 2013 real personal income growth was slight nationally at 0.1%. Texas real per capita personal income declined 0.2%. Each of the major Texas metros also had negative growth. In fact, only 18 of the 50 largest metros had positive real per capita income growth in 2013. Austin’s change was -1.0% (46th among large U.S. metros).

While Austin and the rest of the state appear to have had a lackluster 2013 on the basis of improvements in per capita income, Austin’s gains over the longer run are relatively robust. Real per capita income in Austin in 2013 is 4.6% above what it was in 2008—a rate of growth that ranks 10th among the top 50 metros. Thirty percent of large U.S. metros have yet to regain the level of per capita personal income that they had before the impact of the recession. Nationally, real per capita income is just 2.1% above what it was in 2008. Texas real per capita income is 2.7% above 2008, near the middle of the pack at 22nd—just ahead of New York (2.6%), but trailing California’s growth (4.1%) which ranks 16th.

Houston’s growth of -0.1% in 2013 ranks 22nd, but real per capita personal income in Houston remains 0.4% below what it was in 2008—putting it 38th among large metros. Dallas-Fort Worth declined 0.2% and San Antonio declined 0.6% in 2013. San Antonio is the most improved among Texas large metros compared to 2008—up 4.6% and ranking 9th among the top 50 metros. Dallas real per capita personal income has risen 1.2% since 2008.

This release of real personal income estimates is only the second official release of such statistics for metropolitan areas (an experimental or prototype set of estimates were released in 2013). Something that makes the data particularly innovative and valuable is that the data is not simply inflation-adjusted. The price-adjustments are based on both regional price parities (RPPs) and on BEA’s national Personal Consumption Expenditure (PCE) price index.

RPPs measure geographic differences in the price levels of consumption goods and services relative to the national average[2], while the PCE price index measures national price changes over time. Using the RPPs in combination with the PCE price index allows for comparisons of the purchasing power of personal income across regions and over time.

According to U.S. Secretary of Commerce Penny Pritzker, "For the first time, Americans looking to move or take a job anywhere in the country can compare inflation-adjusted incomes across states and metropolitan areas to better understand how their personal income may be affected by a job change or move. Businesses considering relocating or establishing new plants also now have a comprehensive and consistent measure of differences in the cost of living and the purchasing power of consumers nationwide.”

Austin’s RPP in 2013 is 98.7, meaning that on average prices are 1.3% lower than the U.S. average. Austin’s nominal or current dollar per capita income is $44,760 in 2013 and Santa Cruz’s is $54,970. If you divide Austin’s income by 0.987 and you divide Santa Cruz’s by 1.025 (each metro’s RPP divided by 100), the RPP-adjusted per capita incomes are $45,350 and $45,618 respectively. That is, the purchasing power of the two incomes is nearly equivalent when adjusted by the areas’ differing price levels.

To create real, price-adjusted incomes for a region, current dollar income is divided by the region’s RPP and by the national PCE chain-type price index. The implicit regional price deflator (IRPD) will equal current dollar personal income divided by real personal income in chained dollars.

Thus, the new BEA release combines RPPs with the national PCE price index to create unique regional price indexes—IRPDs—for each metropolitan area. The growth rate or year-to-year change in the IRPDs is a measure of regional inflation.[3]

U.S. inflation was 1.2% in 2013. Among large metros, inflation ranged from -0.1% in San Diego to 1.7% in Denver. Austin’s rate was 1.5%, and the statewide rate was the same. Austin’s 1.5% increase in prices ranked 7th highest among the 50 largest metros. San Antonio and Dallas were also in the top 10, while Houston’s 1.2% increase put it 25th.

Over 2008-2013, prices increased a total of 6.5% in Austin, less than the national increase of 7.3%. Austin’s increase ranked 28th highest among large metros. For 2008-2013 inflation, Denver tops the ranking with 11.2% and Phoenix ranks 50th with a 2.6% increase. While Houston had the least price inflation among the major Texas metros in 2013, it has the greatest, 7.7%, for 2008-2013.

Austin’s nominal or current dollar per capita personal income is $44,760 in 2013, which is 100% of national per capita income ($44,765). In the real, price-adjusted series, Austin’s per capita personal income in chained 2009 dollars is $42,415, which is 101% of the national figure ($41,706). Among major metros, San Francisco and San Jose have the nation’s highest per capita income, both nominal and real. The current dollar per capita personal income for San Jose in 2013 is $69,205 (155% of the U.S. current dollar per capita income). However, in real, price-adjusted chained 2009 dollars, San Jose’s per capita income is $53,322 and only 128% of real U.S. per capita income.

The RPP data made available by the BEA includes separate RPPs for consumption goods and for services, with services broken out into rents and other. Weighting is said to vary by year and is not included with the data, however the BEA notes that states with high (low) RPPs typically have high (low) price levels for rents. A BEA working paper cited in the release indicates goods account for about one third and services for about two thirds of household expenditures, and that rents account for 29.5%.

Among large metropolitan areas, the All Items RPP ranges from 89.5 (Cleveland) to 122.3 (New York). Austin’s RPP of 98.7 is in the middle of the distribution of the 50 largest U.S. metros.

  • Goods RPPs have a relatively narrow range of 92.3 (St. Louis) to 108.8 (New York). Austin’s RPP for goods is 97.6, below both the nation (99.4) and Texas metros (98.1).
  • Rents RPPs range from 70.3 (Birmingham) to 194.4 (San Jose). Austin’s RPP for rents is 110.1, above both the nation (101.1) and Texas metros (93.8).
  • Other Services RPPs range from 88.5 (Cleveland) to 118.9 (New York). Austin’s RPP for other services is 94.3, below both the nation (100.1) and Texas metros (100.3).

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Footnotes:

[1] Personal income is the income received by all persons from all sources. Personal income is the sum of net earnings by place of residence, property income, and personal current transfer receipts.

[2] RPPs are calculated using price quotes for a wide array of items provided by the Bureau of Labor Statistics Consumer Price Index program, combined with data on rents from the Census Bureau's American Community Survey, with expenditure weighting constructed from the BLS Consumer Expenditure Survey and the BEA's Personal Consumption Expenditures.

[3] The U.S. Bureau of Labor Statistics produces metro area price deflators for a small number of large metros including Dallas and Houston, however, Austin has never been one of these.

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Beverly Kerr

Vice President of Research, Beverly Kerr, joined the Chamber’s Economic Development Department in 2004, following 10 years in a similar role with the Kansas City Area Development Council. Beverly earned an M.A. in economics at the University of Missouri-Kansas City.