Wednesday, March 9, 2016

Inflation-adjusted median incomes in Colorado have moved little over the past decade

Now that median household income data is available for 2014, let's take a new look at how incomes are doing in Colorado.

There are numerous measures of median incomes, but two of the easiest to find and most widely used  are the 5-year estimates from the American Community Survey (ACS) and the data from the Annual Social and Economic Supplement (CPS ASEC) from the Census Bureau.

Let's begin with the ACS data.

Using 5-year estimates in current dollars from the ACS, we get the following values for median household income:

According to the ACS, the 5-year estimate for median household income in 2014 was $59,448. That was up 1.7 percent from the year before:

Overall, however, we can see that over the past four years, the median income has been rather stable.

If we adjust for inflation, however, we find that the median incomes have been declining slightly:

There are numerous implications to this, of course. If median incomes are basically flat, but home prices are increasing at a rate of five to ten percent, this will certainly impact the affordability of housing. We'll look at this in future posts.

Other Census Data 

Using the 1-year median income measure from the Annual Social and Economic Supplement (CPS ASEC), we get the following:

Here we find a bit more volatility in the numbers, although, like the ACS data, they tend to hover around $60,000.

Measured in terms of year-over-year changes, we find that 2014 saw an decrease of 3.8 percent in its median income, which followed a very large increase for 2013 over 2012:

Overall, we can conclude that median income hasn't really moved much since 2007 when it peaked toward the end of the last economic expansion. In 2013, median incomes hit a new peak, but then fell below 2007 levels again in 2014.

The picture sours a bit more when we adjust these values for inflation. In 2014 dollars:

In this case, it's more clear that Colorado's median income has not returned to where it was in 2007. More or less, Colorado's median income is today where it was a decade ago.

Regardless of which measure we use here, it's likely safe to say that the median income in Colorado is somewhere around $60,000. Since the end of the last recession in 2009, nominal incomes have increased somewhat, although it is unclear if, once we adjust for inflation, whether or not households have made much headway relative to where we were at the peak of the last economic expansion.

*To adjust for inflation, I've used the Denver-Boulder-Greeley CPI. All graphs in this article are for Colorado statewide.

Colorado's Coincident Index at lowest growth rate recorded in 44 months

Each Month, the Philadelphia Fed releases its Coincident Index, which is designed to summarize the economy in a single statistic. According to the Philly Fed, the index number combines:

nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
During December 2015, Colorado's index grew by 3.27 percent, year over year. This was identical to November's YOY growth rate, and was down from December 2014's growth rate of 5.53 percent.

With November 2015, December's growth rate was tied for the lowest growth rate reported in 44 months. The last time we saw growth at a lower rate was during March 2012 when the index grew 3.20 percent:

Compared to the nation overall, Colorado growth has generally outpaced the nation. During December 2015, the nationwide index growth, year over year, was 3.19 percent. during November 2015, the growth rate was 3.23 percent, and it was 3.82 percent during December 2014. In recent months, Colorado, which had been outpacing the US by a healthy margin, has fallen to growth rate more in line with what we're seeing nationally:

Some of this trend can be attributable to declines in oil extraction activity. If we look at growth on a state by state basis, we do see that the two states with the most negative growth are Wyoming and North Dakota, where oil extraction has been a major part of the economy. Oil does not dominate Colorado's economy like it does some states, but it will have an impact in the statewide numbers, and that is likely a factor here.

FHFA's Colorado Home Price Index up 9.5 Percent at end of 2015

According to the Federal Housing Finance Agency's "Expanded-Data" index, house prices were up 9.5 percent, year over year, during the fourth quarter of 2015 in Colorado. It was the lowest growth rate in four quarters, but still showed robust growth for what continues to be an upward trend in home prices for much of Colorado:

Overall, Colorado has seen growth rates of 8 to 10 percent for the past 13 quarters, although this doesn't quite match the growth experienced toward the end of the dot-com boom of the late 1990s. The YOY growth rate was 107. percent during the third quarter of 2015, and it was 9.4 percent during the fourth quarter of 2014.

Most of this was driven by growth in the metro Denver area and northern Colorado. Using the same index, we see that growth in the Denver-Aurora-Lakewood area showed a very similar pattern:

In this case, we see the pattern is the same although the growth rates are slightly stronger in metro Denver than for the state overall. This suggests less robust growth in the state outside the metro Denver area.

During the fourth quarter of 2015, the YOY growth rate was 11.8 percent. The growth rate was 13.2 percent during the third quarter of 2015, and 9.4 percent during the last quarter of 2014.

For now, there is no evidence of any significant softening in the market as of the end of last year. The most recent Case-Shiller home price data, for December 2015, showed little drop off from the 15-year highs that we've seen in that index in recent years.

 In a future post, we can look at FHFA index numbers for the smaller markets. For more information on the FHFA index, see here.

Colorado among states least dependent on federal spending

The Pew Charitable Trusts last week released its updated survey of federal spending in the states. According to the survey's 2014 data (the most recent available), federal spending in Colorado was equal to 17 percent of the state's GDP, putting it at 15th lowest in the nation: 

In total, $51.1 billion in federal dollars were spent in Colorado in 2014. If we compare to Colorado's total GDP of approximately $295 billion it does indeed match up with Pew's number of 17 percent of GDP. 

Mapped out, the states look like this.  The states where federal spending is more central to the local economies are generally found in the southeastern US and in the mid-Atlantic region.  New Mexico also, however, is consistently a state that tends to rely heavily on federal spending: 

So what's driving the federal spending? Is it welfare, military spending, social security payments or something else? 

Last week, we looked at military spending by state and found that Colorado was 18th in the nation for military spending as a percentage of state GDP. 

This chart breaks out the components. Military spending will show up under "salaries and wages," "grants" and "contracts."   

In Colorado, the $51 billion spent in Colorado breaks out like this: 

As with most states, Colorado's largest piece of federal spending is found in retirement benefits such as Social Security payments. That is followed by non-retirement benefits. The Pew survey classifies Medicare as a non-retirement benefit, and it's likely that health care spending is a major component of non-retirement benefit spending. Colorado has a fairly large number of both military and non-military federal employees, and salaries and wages make up 13 percent of federal spending the state. 

To compare, here is the 2013 data from last year

How does Federal Spending Compare to Federal Taxes Paid by Coloradans? 

The Pew data by itself gives us a sense of how essential federal spending is to a local economy, but that's only one side of the federal tax equation. Coloradans also pay federal taxes. 

If we compare the Pew data to IRS tax revenue, we can examine how much federal tax revenue is flowing out of Colorado to Washington, DC, and how much of that comes back. 

It turns out that Colorado is more or a less a "break even" state in the sense that the federal government spends around one dollar of federal money for every dollar of federal tax revenue collected from Colorado. 

This can vary over time, but if we compare Pew's 2014 spending data to the IRS tax revenue data (gross receipts minus refunds) we find that for every dollar collected in federal taxes from Colorado, the state received $1.11 in federal spending. That means Colorado receives the 17th-smallest amount of federal spending for per dollar spent in taxes:

At $1.11, Colorado also falls below the nationwide number for spending vs. tax revenue since (by this measure) nationwide, the US government spends $1.21 per dollar in tax revenue. This is made possible by deficit spending.

There are thus three types of states: "net tax payer" states that tend to pay in more than they receive back in federal spending; "break even" states that tend to come in near one dollar  in spending for each dollar paid  in; "net tax receiver" states that receive considerably more in federal spending than they pay in.

If we map out the states based on how much states receive compared to taxes paid, we can put Colorado among the "break even" states. In the map, the "break even" states receive 75 cents to $1.25 per dollar paid in federal taxes.  The "net tax payer" states are Nebraska, Minnesota, New Jersey, and Delaware. These states tend to pay in considerably more in tax revenue than they receive back. 

Numerous factors can affect whether or not a state is a net tax payer state or not. Areas that are more rural and reliant on agriculture will tend to be net tax receiver areas both because farmers and ranchers receive federal subsidies in many cases, and also because agricultural work tends to have lower productivity (in the technical sense) than urban work.

Urban areas, in contrast, produce higher incomes, and therefore most of the tax revenue. So, highly metropolitan states (which includes Colorado) will tend to more often be "break even" or "net tax payer" states.

States that receive large amounts of military spending will also tend to show up as net tax receiver states, such as Virginia and South Carolina.

Monday, March 7, 2016

'USNews and World Report' ranks Denver and Colorado Springs among best cities

USNews and World Report launched its Best Places to Live Rankings, and Denver came in at number one. Colorado Springs also ranked in the top ten at number five:

WASHINGTON, March 2, 2016 /PRNewswire-USNewswire/ -- U.S. News & World Report today unveiled the 2016 Best Places to Live in the United States. The new list ranks the country's 100 largest metropolitan areas based on affordability, job prospects and quality of life. Denver, Colorado, is named the No. 1 place to live on the inaugural list, followed by Austin, Texas, at No. 2. Fayetteville, Arkansas, and Raleigh-Durham, North Carolina, take the No. 3 and No. 4 spots, respectively. A second Colorado city, Colorado Springs, rounds out the top five. 
With a close proximity to Denver and the Rocky Mountains, Colorado Springs ranks in the top 10 because it is viewed as a desirable place to live. Fayetteville, Arkansas, makes the list for being the most affordable, while Boise, Idaho, scores high due to a low rate of crime and high quality of life. Boise also has one of the lowest unemployment rates out of the top 10. The full rankings are available here.

The top ten:

  • 1. Denver, CO 
  • 2. Austin, TX
  • 3. Fayetteville, AR
  • 4. Raleigh-Durham, NC
  • 5. Colorado Springs, CO
  • 6. Boise, ID
  • 7. Seattle, WA
  • 8. Washington, DC
  • 9. San Francisco, CA
  • 10. San Jose, CA

This isn't exactly the most scientific survey ever, although you can be sure that local chambers of commerce will be adding the ranking to their marketing materials.