Real Personal Income and Regional Price Parities Bettina Aten, Eric Figueroa, and Bryan Vengelen October 25, 2016

Outline Overview Methodology Results and Applications

Outline Overview Methodology Results and Applications

Real Personal Income (PI) Adjusted for price level differences: Across regions Over time Price adjustment uses: Regional Price Parities US Personal Consumption Expenditure (PCE) price index

Regional Price Parities (RPPs) Multilateral spatial price indexes measuring price level differences across regions for a specified period. Useful for comparing economic data such as consumption expenditures and income levels, e.g. BEA’s Personal Income series.

2014 Regional Price Parities Results: State RPPs in 2014 RPPs show percent difference in price levels: Across regions and expenditure categories For one specified time period Price level across all regions and expenditures equals 100. Selected States 2014 Regional Price Parities All Items Goods Services Rents Other Arkansas 87.5 95.1 62.5 93.5 California 112.4 103.0 147.7 105.6 Hawaii 116.8 108.9 158.4 103.6 Mississippi 86.7 94.4 63.2 93.4 New York 115.7 108.2 136.6 112.5 All States* 100.0 99.4 101.1 100.1 * Includes the District of Columbia

2014 Regional Price Parities Results: State RPPs in 2014 RPPs show percent difference in price levels: Price level in Arkansas is 12.5% lower than the national average. Price level in New York is 32.2% higher than in Arkansas. 87.5 / 100 = 0.875 115.7 / 87.5 = 1.322 Selected States 2014 Regional Price Parities All Items Goods Services Rents Other Arkansas 87.5 95.1 62.5 93.5 California 112.4 103.0 147.7 105.6 Hawaii 116.8 108.9 158.4 103.6 Mississippi 86.7 94.4 63.2 93.4 New York 115.7 108.2 136.6 112.5 All States* 100.0 99.4 101.1 100.1 * Includes the District of Columbia

Price Adjustments Arkansas, 2014 Personal Income (billions) $111.5 Regional Price Parity 87.5 PCE Price Index (2009 = 100) 109.2 𝐏𝐈 𝐚𝐭 𝐑𝐏𝐏𝐬 = PI RPP ∗Balancing Factor = $111.5 0.875 ∗0.998 =$𝟏𝟐𝟕.𝟕 𝐑𝐞𝐚𝐥 𝐏𝐈 = PI at RPPs PCE Price Index = $127.7 1.092 = $𝟏𝟏𝟕.𝟎 𝐈𝐦𝐩𝐥𝐢𝐜𝐢𝐭 𝐑𝐞𝐠𝐢𝐨𝐧𝐚𝐥 𝐏𝐫𝐢𝐜𝐞 𝐃𝐞𝐟𝐥𝐚𝐭𝐨𝐫 (𝐈𝐑𝐏𝐃) = PI Real PI = $111.5 $117.0 = 𝟗𝟓.𝟑

Outline Overview Methodology Results and Applications

Data Sources Bureau of Labor Statistics (BLS), Consumer Price Index program. Detailed expenditure categories Large sample : 200,000+ price observations per year Census Bureau’s, American Community Survey (ACS). Detailed rent price levels 500,000+ price observations per year

Stage 1 Estimate price levels for BLS areas Methods: 38 urban areas 16 expenditure classes Methods: Hedonics and outlier review Multilateral aggregation

Urban: 3 Nonmetro (by Region) Urban: 4 Small Metro (by Region) 4 Rural Regions Urban: 3 Nonmetro (by Region) Urban: 4 Small Metro (by Region) CPI Areas: 38 Urban, 4 Rural Urban: 31 Large Metro Areas d

Expenditure classes 16 Expenditure classes Later controlled to National PCE shares

Stage 2 Estimate RPPs for Method: States, state portions, metro areas All items, goods, rents, and other services Method: Allocate price levels and weights to counties Replace CPI rents weights with ACS based estimates Aggregated to states and metropolitan areas Replace CPI rents price levels with ACS based rents 2nd Multilateral Aggregation

Outline Overview Methodology Results and Applications

Southeast Region Plains Region Mideast Region State detailed RPPs State rent and other services RPPs State rent RPPs State all items RPPs

Real per capita personal income Plains real per capita personal income Southeast real per capita personal income Mideast real per capita personal income Real per capita personal income

Real personal income for Metro Areas

Applications Analysis of real regional income Adjustment of other consumption related data PCE-by-State Supplemental Poverty Measures In collaboration with Census Bureau (2013-14) Outside Research

Summary RPPs measures price level differences across regions Combine with US PCE price index to estimate differences across time Application allows estimation of real income levels and change Data Available: www.bea.gov

Contact Information RPP Program: rpp@bea.gov (301) 278-9320 Bryan Vengelen Regional Prices Branch Bureau of Economic Analysis Bryan.Vengelen@bea.gov (301) 278-9213