Although job losses and unemployment have captured public attention during the current recession, another key indicator of state economic performance -- personal income -- is the weakest since modern records have been kept.

State personal income is not closely watched as a measure of the current health of a state's economy because quarterly data are only available some months after the end of the quarter. Changes in state and national employment are released monthly and therefore provide a more timely assessment of conditions.

But first half figures are now available on state personal income, and the news is sobering: 48 of the 50 states recorded decreases compared to the first half of last year. Without a significant surge in the factors that make up personal income -- wages, dividends and interest, proprietor profits, and transfer payments such as pensions -- it appears that many states, and the nation as a whole, could see annual personal income contract for 2009.

The collapse in personal income growth provides yet more evidence that this particular downturn is a contraction worthy of the label The Great Recession. Unemployment benefits are simply not large enough to offset massive losses in wages from layoffs, furloughs, and reductions in worker hours.

Quarterly declines widespread

In the first quarter of 2009, personal income declined or showed zero growth in every state in the nation. In the second quarter, personal income was down again in 12 states, and the gains in the remaining 38 states were not great enough to bring positive personal income growth in the first half.

This weakness of personal income is remarkable, since no state has experienced an annual decrease in personal income since 1997 (when North Dakota had a decline of 2.1 percent). In the four decades that reliable state personal income estimates have been available, only 6 states have ever recorded annual declines: Alaska, Louisiana, North Dakota, Oklahoma, South Dakota, and Wyoming.

Similarly, national personal income has not decreased on an annual basis since 1949, some 60 years ago. The current consensus among economy-watchers is that U.S. personal income could decrease by 2 percent or more this year, as job losses mount. For the first half, U.S. personal income is down 2.1 percent compared to last year (see table at Economy@W. P. Carey).

The weakness in personal income portends continuing budget problems for the states. In those states with income taxes, falling personal income means reduced revenues. Moreover, falling incomes force consumers to postpone or forego spending, which in turn affects states and cities that depend on retail sales taxes.

Among the Western states, all experienced a decrease in personal income in the first half, along with the rest of the nation. First half personal income was down by more than 5 percent in Nevada and by just over 3 percent in Idaho.

It is likely that Western Blue Chip forecasters will be looking closely at their projections for personal income for the rest of 2009 and into 2010. As of this month, the consensus forecasts call for 2009 personal income declines in Arizona, California, Idaho, Oregon, and Washington.

The consensus outlook is for some modest improvement in the Western states in 2010. But no state is expected to show personal income growth anywhere near the level of average annual growth over the past 10 years.

For example, Arizona is projected to record the first ever annual decrease in personal income in the Grand Canyon State in 2009. The consensus for personal income change in 2010 is 2.2 percent this month, only one third of the 6.8 percent average posted during the past 10 years. California, Nevada and Wyoming are expected to have personal income growth below 2.0 percent next year.