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December 2000-January 2001
Vol. 2, No. 1
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Personal Income Growth Strong in
Second Quarter 2000
Indiana's real personal income grew in the second quarter of 2000 at a 5.6%
annual rate, which was 14th in the nation. The United States as a whole advanced
by 4.7% (see Figure 1).
Click on map below to see larger version with data.
The Great Lakes states of Michigan, Wisconsin and Illinois were also national
leaders, while Ohio and Kentucky trailed Indiana.
As shown in Figure 2, real personal income growth rates have not been very
stable of late. In the first quarter of 2000, Indiana and 19 other states
had a decline in real personal income, although the nation experienced a 3.2%
increase. A similar occurrence can be found in the first quarter of 1999,
but not in the first quarter of 1998, a year when Indiana led the nation most
of the year.
These first-quarter declines in Indiana are particularly noteworthy because
in the immediately preceding quarters—the closing quarters of 1998 and
1999—Indiana outgrew both the nation and the region. What is the cause
of these variations in income growth?
Often the variability of farm income is listed as the cause of changes in
Indiana personal income. That farm income is highly variable can be seen easily
in Figure 3, where the bars show the real value (at annual rates) of farm
income by quarter.
In the first quarter of 1998, farm income in Indiana fell by 55%, then remained
steady, and then jumped in the last quarter of the year before plummeting
again in the first quarter of 1999. Much of that instability is due to the
irregularities of federal farm subsidies.
But it is difficult for the farm sector to be the sole factor in Indiana's
personal income fluctuations. As the line (using the right-hand scale) in
Figure 3 shows, farm income in this period (1997 through the midpoint of 2000)
has not exceeded eight-tenths of one percent of the state's total income.
Simply put, there are not enough peanuts here to power the elephant.
The best way to see what is contributing to change is the change itself.
In Figure 4, the contribution to the change in 2000.2 in total personal income
is shown for each component. Manufacturing contributed $495 million (at an
annual rate) to Indiana's $2.1 billion income advance. This was 24% of the
total gain—the result of a 1.67% increase in manufacturing earnings on
a base that accounted for 20% of total income in the first quarter of the
year. The amount of the contribution is determined not only by the rate of
growth, but by the initial share of the total.
Hence, farming, despite its dramatic 41% gain in the second quarter, added
only $149 million (7.2%) to the total change because its base was less than
1% of that total. However, the second quarter of 2000 was unlike any other
quarter since the start of 1999. It was the only quarter when farming, manufacturing
and the sum of all other sectors made positive contributions to the change
in the state's real personal income (see Figure 5).
Both farming and manufacturing have had three down quarters in the past
year and a half. The dramatic swings in these sectors give the state high
variability in its personal income. When both sectors were in decline (as
in the first quarter of 2000), the growth of other sectors was not sufficient
to offset the downward force of farming and manufacturing. When both were
advancing, Indiana was among the leaders in national growth
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