Stapleford
Guest Columnist
WHAT’S HAPPENING?
The annual growth rate in Delaware personal income has risen from a low of 1.1% in the first quarter of 2014 (2014Q1), hit a peak of 5.1% in 2014Q3 and steadily dropped to 4.0% through 2015Q3.
WHY IS IT HAPPENING?
As is clear from the chart, except for 2008 and 2009 when unemployment insurance payments soared, Delaware personal income is highly correlated to the growth in Delaware earnings by place of residence (primarily wages with some proprietors income). Although average wages have not advanced, a gain of over 12,000 jobs in Delaware during 2014 caused total earnings to surge.
In 2015 the annual year over year gains in Delaware employment have fallen steadily back to the long run average of 5,000 jobs per year. This is the annual rate of gain projected by the Delaware Department of Labor through 2022.
The Annual Growth Rate in Delaware Personal Income
THE IMPLICATIONS FOR BUSINESS?
Prior to the 2007 recession Delaware personal income was growing at an annual rate of 7% to 8% a year. After adjusting for inflation, this translated into real income (purchasing power) growth of about 4%. Today real Delaware personal income is growing at a rate of around 2%. In other words, household purchasing power is growing more slowly.
On top of this, higher taxes translate into even lower household disposable income. In addition, an aging population (the baby boomers) has increased the share of Delaware personal income coming from transfer payments (e.g., Social Security, Medicare) to almost 20%. By formula, transfer payment annual gains are capped by inflation (e.g., the 2016 increase in Social Security benefits is expected to be close to zero).
There have been stock market gains, but these benefit primarily the higher income households. The Delaware unemployment rate is down, but so is the percent of adults age 19 to 64 who are in the labor force.
The bottom line is that the majority of Delaware consumers will remain very price conscious. They will continue to search for discounts, shop at the larger warehouse stores, and use the Internet to look for bargains. After peaking in late 2014, nationally consumer expectations and sentiment are once again falling.
Except for luxury items, retailers will have to sustain income by selling higher volumes at lower prices. Car dealers will depend upon maintenance services more than new vehicle sales for income. And all business will continue to search for ways to substitute technology for labor.
John E. Stapleford, most recently is the director of the Center for Economic Policy and Analysis for the Caesar Rodney Institute and works as an associate director and senior economist with Moody’s Economy.com He is Director of the Bureau of Economic Research at the University of Delaware and the co-founder of the Delaware Small Business Development Center. Following graduate school he was a research economist in the office of the Governor of New Jersey He has served as a member of a number of public service organizations He can be reached at johnstapleford@caesarrodney.org
