- Austin saw strong real, price-adjusted growth in personal income in 2014. Personal income is an important, broad-based measure of the economy.
- Austin’s 4.8% real growth in personal income in 2014 ranks it 3rd among the 50 largest U.S. metros.
- Austin’s 1.7% real per capita personal income growth in 2014 lagged most major metros, however, growth since 2008 is 5.0% and only a dozen large metros have seen larger growth.
- Overall price levels in Austin are 1.0% lower than the U.S. average and also lower than Dallas-Ft. Worth and Houston.
- U.S. inflation was 1.4% in 2014. Austin’s rate was 1.8%, just exceeding the statewide rate of 1.7%.
Real, price-adjusted estimates of personal income[i] for states and metropolitan areas for 2008-2014 were released by the U.S. Bureau of Economic Analysis earlier this month. Austin saw relatively strong real personal income growth in 2014 (4.8%), as did Texas (4.2%). Nationally, real personal income grew 2.9%. Austin’s 4.8% growth places it 3rd among the 50 largest U.S. metros. Houston saw faster growth, 5.0% (ranking 2nd). Dallas-Fort Worth grew by 4.3% and San Antonio by 4.0%. Among major metros, the greatest gain was 5.1% in Las Vegas. No large metros had negative real personal income growth between 2013 and 2014.
On a per capita basis, 2014 real personal income growth was 2.2% nationally. Texas real per capita personal income increased 2.5%. All of the 50 largest U.S. metros saw positive growth in 2014, ranging from 1.1% in Raleigh to 3.3% in San Francisco.
Among Texas major metros, Houston and Dallas-Ft. Worth did best in 2014—2.5% (16th) and 2.4% (21st) respectively, while the gain in San Antonio was 1.9% (31st) and Austin’s real per capita income increased 1.7% (38th).
While Austin and the rest of the state appear to have had a lackluster 2014 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 2014 is 5.0% above what it was in 2008—a rate of growth that ranks 13th among the top 50 metros. A dozen, or about a quarter, 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 2.8% above what it was in 2008. Texas real per capita income is 4.6% above 2008, ranking 15th among the states—ahead of New York (3.3% at 22nd), but trailing California’s growth (5.1% at 13th).
This release of real personal income estimates is only the third 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,[ii] 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, "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 2014 is 99.0, meaning that on average prices are 1.0% lower than the U.S. average. Austin’s nominal or current dollar per capita income is $47,026 in 2014 and Chicago’s is $50,690. If you divide Austin’s income by 0.990 and you divide Chicago’s by 1.060 (each metro’s RPP divided by 100), the RPP-adjusted per capita incomes are $47,501 and $47,821 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 BEA 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.[iii]
U.S. inflation was 1.4% in 2014. Among large metros, inflation ranged from 0.6% in San Diego to 2.0% in Denver. Austin’s rate was 1.8%, and the statewide rate was 1.7%. Austin’s 1.8% increase in prices ranked 4th highest among the 50 largest metros. San Antonio (1.7%), Houston (1.6%), Dallas-Ft. Worth (1.6%) also ranked high in 2014 (8th, 10th, and 11th respectively).
Over 2008-2014, prices increased a total of 8.7% in Austin, less than the national increase of 9.0%. Austin’s increase ranked 24th highest among large metros. Houston and San Antonio had greater inflation than Austin, 9.2% and 9.1% respectively, while Dallas saw a 7.6% increase. For 2008-2014 inflation, Pittsburgh tops the ranking with 13.2% and Phoenix ranks 50th with a 3.3% increase.
Austin’s nominal or current dollar per capita personal income is $47,029 in 2014, which is 102% of the national per capita income ($46,049). In the real, price-adjusted series, Austin’s per capita personal income in chained 2009 dollars is $43,715, which is 104% of the national figure ($42,207). Among major metros, San Jose has the nation’s highest per capita income, both nominal and real. The current dollar per capita personal income for San Jose in 2014 is $73,887, which is 160% 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 131% 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 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 89.1 (Cleveland) to 122.9 (San Jose). Austin’s RPP of 99.0 is in the middle of the distribution of the 50 largest U.S. metros.
- Goods RPPs have a relatively narrow range of 92.6 (Cleveland) to 109.2 (New York). Austin’s RPP for goods is 97.6, the same as all Texas metros, and below the nation (99.4).
- Rents RPPs range from 70.3 (Birmingham) to 200.7 (San Jose). Austin’s RPP for rents is 112.2, above both the nation (101.1) and Texas metros (94.5).
- Other Services RPPs range from 88.6 (Cleveland) to 118.4 (New York). Austin’s RPP for other services is 94.3, below both the nation (100.1) and Texas metros (100.1).
[i] 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.
[ii] 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.
[iii] 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.
Related Categories: Central Texas Economy in Perspective