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An Evaluation of the Reliability of State Personal Income

Matthew von KerczekAssociation for University Business

and Economic ResearchIndianapolis, IN

October 9, 2011

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Overview of BEA estimates of State Personal Income

▪ BEA makes annual and quarterly estimates of state personal income.

▪ The annual estimates are published about 9 months after the end of the referenced year and are revised in each of the next two successive years.

▪ The annual estimates are more detailed than the quarterly estimates and are based on more complete source data.

▪ The quarterly estimates are published 3 months after the end of the referenced quarter and are revised three months later.

▪ The quarterly estimates are revised again when annual estimates are published.

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Three Vintages of Estimates of State Quarterly Personal Income

▪ Preliminary Estimates: Current quarter wages based on change in Employment by

NAICS sector from Current Employment Statistics (CES). Farm Proprietors’ Income NIPA controls

▪ Revised Estimates: Wages and Salaries from Quarterly Census of Employment

and Wages (QCEW). Farm Proprietors’ Income Revised NIPA controls

▪ Latest Available Estimates: Revised NIPAs from Annual Comprehensive Revision Revised Annual State Estimates Revised Quarterly Source Data

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How Reliable are BEA’s Preliminary Estimates of State Quarterly Personal

Income ?

▪ For policymakers and businesses to better understand the economy and to formulate appropriate policies, timely and accurate estimates of State Personal Income are essential.

▪ The revised (second) and latest (third) estimates incorporate progressively more complete and more accurate source data as they become available from the Bureau of Labor Statistics, the U.S. Department of Agriculture and other sources.

▪ Successive estimates provide a consistent measure of economic activity over time and across states

▪ While there is always a trade-off between timeliness and accuracy, BEA believes that the preliminary State Quarterly Personal Income estimates have struck an appropriate balance, as the magnitude of the revisions to the preliminary estimates tends to be small.

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Reliability Criteria

▪ Reliability refers to the ability of successive vintages of estimates to present a consistent picture of economic activity within a state.

▪ Mean Revision (MR) = sum of (L-E)/n, where: L is the rate of change in the ‘Latest Available’

estimates E is the rate of change in the earlier vintage n is the number of observations in the sample period

over which the mean is calculated.

▪ Mean Absolute Revision (MAR) = sum of |L-E|/n: Also can be thought of as the mean revision without

regard to sign.

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Periods / Scope of Study▪ Last two complete business cycles (expansion to trough).

1991:II-2001:IV

2002:I-2009:II

▪ Scope of Study:

Total Personal Income

Nonfarm Personal Income

Total Wages and Salaries

▪ The analysis that follows is based on BEA estimates of state personal income as of June 21, 2011.

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Results (Revisions to rates of change)

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  Mean Absolute Revisions, Latest Estimates less Preliminary and Second Estimates 2002:I-2009:II (ranked by MAR to Preliminary Estimates of Personal Income)

 

  Personal Income Nonfarm Personal Income Total Wages and Salaries

  Preliminary Second Preliminary Second Preliminary Second

United States 0.47 0.34 0.48 0.31 0.68 0.37

Mideast 0.64 0.43 0.64 0.43 0.96 0.63

New England 0.62 0.44 0.62 0.44 0.88 0.60

Southeast 0.54 0.50 0.53 0.47 0.61 0.33

Great Lakes 0.52 0.34 0.52 0.32 0.75 0.38

Plains 0.51 0.52 0.41 0.34 0.53 0.44

Southwest 0.51 0.39 0.52 0.39 0.59 0.40

Rocky Mountain 0.48 0.37 0.45 0.39 0.66 0.39

Far West 0.47 0.31 0.48 0.31 0.73 0.38

Mean Absolute Revisions, Latest Estimates less Preliminary and Second Estimates, 1991:II-2001:IV (Ranked by MAR to Preliminary Estimates of Personal Income)

 Personal Income Nonfarm Personal Income Total Wages and Salaries

Preliminary Second Preliminary Second Preliminary Second

United States 0.41 0.42 0.43 0.42 0.56 0.51

Plains 0.91 1.00 0.46 0.47 0.61 0.62

Rocky Mountain 0.79 0.76 0.70 0.61 0.88 0.75

New England 0.63 0.57 0.63 0.57 0.86 0.84

Great Lakes 0.57 0.62 0.54 0.59 0.72 0.77

Southwest 0.56 0.50 0.60 0.47 0.70 0.54

Far West 0.52 0.47 0.53 0.47 0.78 0.55

Mideast 0.50 0.53 0.50 0.53 0.86 0.81

Southeast 0.41 0.47 0.41 0.45 0.48 0.49

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Results (Revisions to rates of change)

Mean Absolute Revisions, Latest Estimates less Preliminary estimates

(Ranked by MAR to Preliminary Estimates of Personal Income)

  2002:I-2009:II

  Personal Income

Nonfarm PI Wages Largest revisions

Louisiana 4.62 4.64 0.73

North Dakota 1.41 0.48 0.67

South Dakota 1.23 0.55 0.77

Wyoming 1.12 0.99 0.98

Iowa 1.00 0.50 0.62

Nevada 0.97 0.97 1.17

New York 0.96 0.96 1.63

Nebraska 0.89 0.51 0.67

Mississippi 0.85 0.72 0.68

   

United States 0.47 0.48 0.68

   

Smallest revisions  

Virginia 0.49 0.49 0.75

Ohio 0.48 0.50 0.79

West Virginia 0.47 0.46 0.56

Oregon 0.47 0.46 0.78

Maryland 0.46 0.46 0.74

Pennsylvania 0.46 0.46 0.72

Kentucky 0.45 0.46 0.66

Alabama 0.45 0.41 0.61

South Carolina 0.44 0.40 0.65

Mean Absolute Revisions, Latest Estimates less Second estimates(Ranked by MAR to Second Estimates of Personal Income)

  2002:I-2009:II

  Personal Income

Nonfarm PI WagesLargest Revisions

Louisiana 5.51 5.52 0.40

North Dakota 1.40 0.35 0.54

South Dakota 1.19 0.41 0.35

Mississippi 0.99 0.90 0.50

Nebraska 0.89 0.37 0.40

Iowa 0.89 0.40 0.51

Wyoming 0.84 0.73 0.40

   

United States 0.34 0.31 0.37

   

Smallest Revisions  

Illinois 0.36 0.32 0.46

South Carolina 0.35 0.32 0.42

Ohio 0.34 0.34 0.41

Pennsylvania 0.34 0.35 0.43

Maryland 0.34 0.33 0.38

California 0.34 0.33 0.44

Tennessee 0.33 0.33 0.43

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Aggregate Average Revisions (to rates of change) by Quarter

Mean Absolute Revisions, Latest Estimates less Preliminary and Second Estimates, 2002:I-2009:II

[Percentage Points]

Personal Income Nonfarm Personal Income Total Wages

YR QTR Preliminary Second Preliminary Second Preliminary Second

2002 1 0.91 1.00 0.73 0.74 0.93 0.86

2002 2 0.50 0.42 0.50 0.42 0.58 0.60

2002 3 0.62 0.41 0.63 0.39 0.71 0.32

2002 4 0.32 0.25 0.35 0.25 0.56 0.32

2003 1 0.58 0.66 0.50 0.55 0.61 0.64

2003 2 0.39 0.39 0.38 0.32 0.61 0.58

2003 3 0.46 0.32 0.39 0.29 0.59 0.31

2003 4 0.63 0.39 0.61 0.35 1.02 0.50

2004 1 0.89 0.68 0.79 0.59 0.77 0.42

2004 2 0.46 0.46 0.47 0.43 0.91 0.58

2004 3 0.63 0.48 0.66 0.49 0.77 0.48

2004 4 0.49 0.92 0.46 0.86 0.56 1.39

2005 1 1.03 0.90 1.00 0.77 1.02 0.55

2005 2 0.39 0.50 0.37 0.33 0.45 0.38

2005 3 1.34 1.72 1.31 1.65 0.71 0.39

2005 4 2.61 2.79 2.50 2.75 1.02 0.56

2006 1 1.40 0.76 1.31 0.61 1.54 0.59

2006 2 0.45 0.95 0.34 0.73 1.11 0.51

2006 3 0.51 0.39 0.46 0.34 0.67 0.45

2006 4 0.48 0.31 0.48 0.28 0.90 0.45

2007 1 0.76 0.75 0.58 0.66 0.54 0.59

2007 2 0.60 0.47 0.53 0.43 0.71 0.38

2007 3 0.53 0.46 0.46 0.35 0.64 0.39

2007 4 0.78 0.42 0.71 0.34 0.98 0.32

2008 1 1.09 1.04 0.77 0.65 0.71 0.47

2008 2 0.76 0.65 0.52 0.37 1.00 0.48

2008 3 0.39 0.32 0.33 0.35 0.79 0.87

2008 4 0.58 0.42 0.46 0.30 0.87 0.69

2009 1 1.31 0.68 1.31 0.56 2.19 0.34

2009 2 0.62 0.21 0.65 0.21 1.40 0.40

2009 3 0.55 0.23 0.59 0.15 0.59 0.58

2009 4 0.49 0.22 0.38 0.16 0.41 0.48

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Range of Revisions (to rates of change)

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Measuring Direction of Change & Acceleration / Deceleration

Reliability of Quarterly Estimates of State Personal Income, 2002:I - 2009:II

    Percent with Correct Indication

   

Direction of ChangeAcceleration or

Deceleration From the Previous Quarter

    Preliminary Second Preliminary Second

United States 97% 97% 63% 77%

           

New England 90% 90% 67% 73%

  Connecticut 83% 80% 63% 57%

  Maine 93% 93% 70% 83%

  Massachusetts 87% 87% 70% 83%

  New Hampshire 83% 83% 70% 80%

  Rhode Island 83% 93% 73% 87%

  Vermont 93% 93% 77% 83%

Mideast 93% 90% 73% 87%

  Delaware 90% 87% 73% 70%

 District of Columbia

93% 93% 87% 87%

  Maryland 93% 97% 87% 93%

  New Jersey 93% 93% 63% 63%

  New York 83% 80% 70% 77%

  Pennsylvania 90% 90% 70% 80%

Great Lakes 93% 90% 77% 83%

  Illinois 93% 97% 70% 73%

  Indiana 93% 93% 77% 77%

  Michigan 87% 97% 80% 77%

  Ohio 93% 93% 73% 90%

  Wisconsin 93% 93% 53% 70%

Plains   93% 93% 57% 70%

  Iowa 87% 87% 47% 60%

  Kansas 93% 90% 67% 63%

  Minnesota 97% 90% 77% 87%

  Missouri 93% 97% 67% 73%

  Nebraska 83% 83% 60% 57%

  North Dakota 83% 83% 63% 70%

  South Dakota 80% 83% 60% 60%

Reliability of Quarterly Estimates of State Personal Income, 2002:I - 2009:II

    Percent with Correct Indication

   

Direction of ChangeAcceleration or

Deceleration From the Previous Quarter

    Preliminary Second Preliminary Second

Southeast 97% 97% 60% 73%

  Alabama 97% 100% 80% 87%

  Arkansas 93% 90% 53% 43%

  Florida 97% 100% 83% 90%

  Georgia 97% 100% 67% 70%

  Kentucky 97% 97% 67% 77%

  Louisiana 90% 90% 50% 67%

  Mississippi 87% 90% 67% 73%

  North Carolina 97% 97% 63% 63%

  South Carolina 97% 100% 73% 83%

  Tennessee 97% 100% 60% 63%

  Virginia 93% 100% 70% 73%

  West Virginia 93% 97% 50% 57%

Southwest 97% 93% 47% 60%

  Arizona 97% 100% 93% 97%

  New Mexico 90% 93% 63% 70%

  Oklahoma 87% 93% 53% 63%

  Texas 97% 90% 53% 57%

Rocky Mountain 97% 97% 70% 83%

  Colorado 93% 87% 83% 80%

  Idaho 93% 90% 70% 83%

  Montana 93% 97% 57% 67%

  Utah 93% 100% 73% 77%

  Wyoming 90% 93% 63% 77%

Far West 97% 100% 70% 90%

  Alaska 97% 97% 77% 77%

  California 97% 97% 67% 87%

  Hawaii 93% 100% 70% 70%

  Nevada 87% 93% 77% 90%

  Oregon 100% 100% 70% 77%

  Washington St 97% 97% 67% 77%

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Recent Developments

▪ In 2002 BEA began incorporating QCEW wages into the quarterly NIPA estimates of wages and salaries (private) on a concurrent basis.

▪ In 2004 BEA accelerated the release of State Quarterly Personal Income.

▪ In 2009 BEA substantially redefined the treatment of uninsured property losses in the NIPAs.

▪ Improvements in Farm Income

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Preliminary Observations▪ Overall, the preliminary and second estimates of quarterly estimates of State

Personal Income are reliable in predicting direction of change (97 percent of the time) and whether the change is accelerating or decelerating (about 70 percent of the time).

▪ Overall, the revisions to the preliminary estimates of personal income, nonfarm personal income, and total wages were slightly higher in the 2002-2009 period.

▪ However, the revisions to the second estimates of personal income, nonfarm personal income, and total wages were considerably lower in the 2002-2009 period.

▪ Revisions to Farm Income continue to cause outsized revisions to states where farming is important, but even among farm states revisions were lower in the second period. Revisions to farm income were significantly smaller in the later time period.

▪ Aside from the revisions in states where farming is important, most of the revisions to personal income were driven by revisions to wages and salaries.

▪ Unpredictability of lump-sum payments (bonus, stock etc.) affecting reliability of preliminary wage estimates.

▪ Conceptual definition changes to the treatment of uninsured losses from natural

disasters affected the reliability measures in Louisiana and Mississippi.

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Contact information

Matthew A. von KerczekEconomistRegional Income Division(202) 606-9250Matthew.vonkerczek@bea.gov

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