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Last updated: August 29. 2014 4:01PM - 356 Views
By John Hood John Locke Foundation



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The Obama administration has been implementing new ways to measure economic activity in the United States. Although not exactly front-page news, this initiative deserves praise from anyone, regardless of political party or economic views, who believes policymakers are more likely to make wise decisions if they are provided timely, valid, and informative data on economic performance in their states and regions.


In April, for example, the U.S. Bureau of Economic Analysis produced a new set ofpurchasing-price parities for states and regions. While everyone recognizes the need to adjust time-series data for inflation and international comparisons for differences in monetary value and relative prices, we often talk about state and local issues as if no such differences exist — even though it should be obvious that a $40,000 annual income in Manhattan and a $40,000 annual income in Fayetteville are not equivalent in any real sense.


The new BEA statistics will allow state policymakers, researchers, journalists, and others make such adjustments with authoritative data (rather than having to rely on less-formal data from chambers of commerce). How much of a difference will it truly make? Let’s consider the case of per-capita income.


According to the raw data for 2012, per-capita income averaged $53,241 in New York, $37,910 in North Carolina, and $43,735 for the nation as a whole. That is, New Yorkers’ average income was 22 percent higher than the national average and 40 percent higher than the average income of North Carolinians. But after adjusting the data with the new BEA price indexes, New York’s real per-capita income in 2012 ($46,603) was only 19 percent above North Carolina’s ($39,103).


Does that change your perspective? It ought to. Lots of other statistics derive from measured income. The real poverty rate in North Carolina, for example, is lower than the standard measure suggests. For the same reason, the real poverty rate in New York is higher than commonly understood, because it takes more dollars to buy the sample bundle of goods and services there than it does in the average state.


BEA is doing a lot more than just offering new ways of making statistical comparisons. It’s also producing new statistics to compare. It released two of those prototype statistics earlier this month. One of them, personal consumption expenditures, is an alternative means of measuring the level and change of living standards. Reported income has never been a particularly useful way of doing that. Not everyone reports their income accurately, for obvious reasons. And even when the income number is correct, it may not tell you what you really want to know. Millions of people spend more than they receive in reported income because they are retired and living partially off of savings, or are going to school and receiving income from their relatives. What they spend is a better gauge of their current standard of living than what they report in current income.


For the first time, BEA is experimenting with producing personal consumption data by state. These data are adjusted for price differences, as well. For the most recent year, 2012, they show that consumption expenditures grew faster in North Carolina than in any other Southeastern state, regardless of whether the metric is total expenditures or expenditures per capita.


Finally, BEA has produced a prototype statistic for quarterly GDP by state. Until now, the bureau has produced only annual measures at the regional and state levels. The quarterly series ought to come in handy when evaluating shorter-term trends. For the most recent period of the new series, the fourth quarter of 2013, North Carolina’s GDP grew by an inflation-adjusted annualized rate of 4.1 percent, faster than the national (2.8 percent) and regional (3.5 percent) averages. In the Southeast, only the mining-heavy economy of West Virginia (7.5 percent) and the oil-heavy economy of Louisiana (5.4 percent) experienced stronger growth.


As I have noted before, it is impossible to have meaningful discussions about policy issues until we first have a common frame of reference. The new measures from the Bureau of Economic Analysis are helping to build just that.


*John Hood is the president of the John Locke Foundation


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