In most Midwestern states, income growth is outpacing the nation’s

Stateline Midwest ~ June 2012

Fueled in part by strong earnings growth in the farm and manufacturing sectors, most states in the Midwest are outpacing the rest of the nation on a key economic indicator — the change in per capita personal income.

Between 2010 and 2011, it increased in each of the region’s 11 states at a rate higher than inflation; Kansas was the only state in the region where the rise in per capita income trailed the national average of 4.3 percent (see map). The data, released this spring by the U.S. Bureau of Economic Analysis, also highlight the performance of various sectors of state economies.

Most striking is the continued growth in North Dakota’s mining industry (including oil and gas extraction): Personal income in this sector increased by 70 percent from 2010 to 2011. Mining accounted for close to one-third of the state’s total increases in personal income, which grew at the highest rate in the nation. Over the past 10 years, per capita income in North Dakota has risen by 72.1 percent, compared to the U.S. average of 33.7 percent.

For every Midwestern state, per capita income is now higher than pre-recession levels. Between 2007 and 2009, it had nearly flatlined in Kansas and Wisconsin and actually dropped in Illinois, Indiana, Michigan, Minnesota and Ohio. One big reason why was a decline in earnings over that time in manufacturing, the leading private industry in seven Midwestern states: Indiana, Iowa, Kansas, Michigan, Minnesota, Ohio and Wisconsin. (It is also the second-largest industry in Illinois and Nebraska.)

Though manufacturing earnings have not yet returned to pre-recession levels in most Midwestern states, they are on the upswing and, thus, contributing to an overall increase in per capita income. States such as Iowa, Nebraska and South Dakota, meanwhile, are getting a major boost from the farm sector of their economies (see data below).

One sector where income is not growing is state and local governments. Nationally, earnings fell 0.3 percent between 2010 and 2011 — a reflection of the budget cuts made in response to a slump in state and local revenues. Illinois, Indiana, Michigan, Minnesota and Ohio are among the U.S. states where this drop in earnings occurred.

The decline is not insignificant considering this fact: In every Midwestern state, the government sector (state, local and federal) ranks first or second in terms of total earnings by industry.