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The convergence of income across U.S. states

Do poor areas tend to “catch up” to richer ones? After much analysis in the economics literature, the evidence is still mixed. But what do the data in FRED show us?

These two graphs trace the evolution of per capita personal income of several U.S. states over almost a century. Here, we choose the 24 most-populated states in 1930 and rank them by their initial level of per capita income. We divide the state’s per capita income by the U.S. average: A value above 1 means the state’s per capita income is above the national average, and a value below 1 means the state’s income is below average. The top graph shows the “poor” states, and the bottom graph shows the “rich” states in this sample. The graphs suggest that state incomes have gradually converged from 1929 to the early 1980s. However, this convergence seems to have stopped since then. In fact, in some cases, state incomes seem to be diverging again.

A possible explanation for this lack of convergence could be differences in the cost of living. It’s more expensive to live in, say, California and New York; so differences in real income could be more compressed than the differences in nominal income, which these graphs show.

How these graphs were created: From the FRED Release view, search through the “State Personal Income Per Capita” release for the states you want and click “Add to Graph.” Then modify each line as follows: From the “Edit Graph” section, under the “Edit Line” tab, type “Personal Income Per Capita” in the search box in the “Customize Data” section. Select the annual series and add that series to the line; then type a/b in the formula section. To remove the many (many) series titles above the graph, go to the “Format” tab and deselect “Title.”

Suggested by Maximiliano Dvorkin and Hannah Shell.

View on FRED, series used in this post: A792RC0A052NBEA, ALPCPI, AZPCPI, CAPCPI, COPCPI, FLPCPI, GAPCPI, ILPCPI, INPCPI, MAPCPI, MDPCPI, MIPCPI, MNPCPI, MOPCPI, NCPCPI, NJPCPI, NYPCPI, OHPCPI, PAPCPI, SCPCPI, TNPCPI, TXPCPI, VAPCPI, WAPCPI, WIPCPI

The continuous rise of the stock market

We often hear that, over the long term, the stock market expands continuously. And, truly, market capitalization (the market value of all tradable stock shares) is at an all-time high. In fact, it continually breaks its own records. Why? (1) This valuation is nominal, and inflation increases the value without any change in the fundamentals. (2) The economy is growing and along with it grows the value of traded companies. (3) The share of the economy’s output produced by these publicly traded companies is increasing. The first two points seem pretty obvious, but the third one is illuminated by the graph above.

The blue line shows the ratio of market capitalization to nominal GDP, so the effects of (1) and (2) are isolated. That leaves (3), the increasing contributions of traded companies, that must account for this persistent rise in the stock market.

The red line shows the ratio of the value of all shares traded during a year to yearly GDP—that is, all the output during that year. The traded value is increasing more than proportionally. In fact, a share is traded on average more than once per year since 1999, the point when the two lines cross.

How this graph was created: Search for “stock market GDP United States” and the first two choices should be the series you want. Select them and click on “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: DDDM01USA156NWDB, DDDM02USA156NWDB

Local economic conditions at election time

It’s election time, and the outcomes at all levels are often influenced by recent economic conditions. One particularly important economic indicator is the unemployment rate. While this is certainly not the only factor, it’s been an important one for this election cycle.

The map shows how this rate has changed, county by county, over the past twelve months. There’s no doubt that regions vary quite a bit. The national average is fairly stable, but the rate in some counties increased by more than a percentage point and in others decreased by more than a percentage point.

FRED and GeoFRED have a plethora of regional information for the United States, in particular at the level of states, counties, and MSAs (metropolitan statistical areas). You can explore your region by searching for its name or by browsing the regional data category. We also offer several handy PDFs with a poster of the economic conditions in various states. There’s plenty to look at. And, as always, more is on the way…

How this map was created: The latest map of unemployment rate by county is on the front page of GeoFRED. For this map, open the tools side bar and modify the units to “Change from Year Ago.”

Suggested by Christian Zimmermann.



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