New Hampshire’s Private Sector . . . 3rd Quarter, 2010

Today the U.S. Department of Commerce’s Bureau of Economic Analysis released new personal income data for the third quarter of 2010.  As shown in Chart 1, New Hampshire’s private sector share of personal income for the third quarter of 2010 tied the all-time low at 75.3 percent–the low was first set in the first quarter of 2010.

Chart 2 shows the major culprit behind this crowding-out of the private sector–the Orwellian American Recovery and Reinvestment Act.  In the third quarter of 2010, the ARRA pumped $140 million into New Hampshire’s economy via personal current transfer receipts.  This is down from the peak spending ($345 3illion) under ARRA in the second quarter of 2009.  As ARRA spending continues to wind-down, New Hampshire’s private sector should rebound from its all-time lows.

However, it remains an open question as to how much of the private sector will be permanently lost.  As I blogged recently elsewhere, it is very likely that the private sector will continue to shrink.

Per Capita versus Per Household Personal Income III

In my previous blog, I showed how per capita and per household income varied between Maine and New Hampshire.  However, some folks may dismiss this as one special case where per household income makes a difference to the analysis that a larger private sector share of personal income means greater economic prosperity in the long-run.

So, the charts below show a scatter-plot of the relationship between the private sector and income under the per capita metric (chart 1) and per household metric (chart 2) for the lower 48 states.  In both charts, Alaska and Hawaii are excluded from the observations.

The first thing to note is that the r-squared is higher under the per household metric (0.52) versus (0.46). The r-squared measures how closely the observations conform to the predicted line as measured in the equation shown.  Even just eye-balling the chart you can see that in chart 2 the observations are more tightly clustered.  And Utah, the state that started this saga, has clearly moved from an outlier in chart 1 to middle-of-the-pack in chart 2.

Secondly, the correlation is steeper under the per household metric which means an even greater increase/decrease in income with a bigger/smaller private sector.  On average, a 1 percentage point increase/decrease in the size of the private sector yields an increase/decrease in household income of $2,617.  That’s a nice chunk of change.

Per Capita versus Per Household Personal Income II

This is the follow-up blog to my previous post on Per Capita versus Per Household Personal Income to illustrate how per household income is a better metric than per capita income when comparing states.  As shown in the first chart, there has been a significant decline in average household size of 35 percent to 2.7 people from 4.13 people in the United States.

Maine and New Hampshire have mirrored the overall trend, but to varying degrees.  Maine’s household size was generally larger than the national average and New Hampshire from 1929 to the 1970s.  By the late 1970s/early 1980s, Maine’s household size had fallen below the national average and below New Hampshire.  After the 1980s, New Hampshire’s household size stabilized just below the national average while Maine’s continued to slide lower.

The next two charts then compares the growth in real, per capita income with that of real, per household income for both Maine and New Hampshire.  With the two charts next to each other, it is easy to see that a larger gap begins to develop in per household income, relative to per capita income, between Maine in New Hampshire beginning in the 1980s–the same time that New Hampshire’s household size overtook Maine’s.

Overall, Maine’s relative economic performance relative to New Hampshire has been boosted, in the short-term, by a falling household size.  However, when adjusting for this effect Maine’s economic performance worsens substantially.  On per capita terms, New Hampshire’s income is 17 percent higher than Maine’s in 2009; while on per household terms it is 26 percent higher.

I will post another blog in the next few days showing how this relationship changes among all 50 states.

Note: The historical data from the Census Bureau on households was only available every ten years during the decennial census.  Intervening years were interpolated.  Since 2000, household size has been reported on a more frequent basis under the new American Community Survey (ACS).  However, for technical reasons, this analysis only uses the 2009 ACS data with the intervening years being interpolated.  This will be replaced by data from the 2010 decennial census when it becomes available.