The State of America’s Private Sector 25: Second Quarter 2011

Last week the U.S. Department of Commerce’s Bureau of Economic Analysis released new personal income data for the second quarter of 2011 by state (pdf) and revisions for the past couple of years. As shown in Chart 1, the U.S. private sector share of personal income for the second quarter of 2011 was at 69.2 percent and has been trending downward since 1990.

Chart Showing Private Sector 2nd Quarter 2011

Note that the private sector is significantly higher than last reported for the first quarter, 2011. The reason is due to the Orwellian American Recovery and Reinvestment Act (ARRA). According to new BEA revisions, “net” ARRA payments are lower than reported previously because “some ARRA funding, such as for Medicaid, replaced state funding and had no net effect on personal current transfer receipts.” As a result, the rebound in the private sector is better than previously reported.

As such, Chart 2 shows that, in the second quarter of 2011, the modified ARRA calculations show that $42.3 billion was pumped into the U.S. economy via personal current transfer receipts (pdf).  This is down from the peak spending ($82.1 billion) under ARRA in the second quarter of 2009.  As ARRA spending continues to wind-down, this will continue to help the U.S. private sector rebound from its all-time lows though it puts a drag on overall personal income growth.

Chart Showing ARRA 2nd Quarter 2011

The State of America’s Private Sector XIV

Today the U.S. Department of Commerce’s Bureau of Economic Analysis released new personal income data for the third quarter of 2010 and revisions for the past couple of years.  As shown in Chart 1, The U.S. private sector share of personal income for the third quarter of 2010 was at  68.7 percent–just edging above the previous quarter of 68.65 percent.  The private sector has essentially been moving sideways in 2010.

Private Sector 3rd Quarter 2010

Chart 2 shows the major culprit behind this crowding-out of the private sector–the Orwellian American Recovery and Reinvestment Act (ARRA).  In the third quarter of 2010, the ARRA pumped $59.8 billion into the U.S. economy via personal current transfer receipts.  This is down from the peak spending ($104.9 billion) under ARRA in the first quarter of 2010.  As ARRA spending continues to wind-down, the U.S. private sector should rebound from its all-time lows.

American Recovery and Reinvestment Act 3rd Quarter 2010

However, it remains an open question as to how much of the private sector will be permanently lost . . . as I blogged recently, in the longer-term the private sector is likely to keep shrinking.

The State of America’s Private Sector VII

Today the U.S. Department of Commerce’s Bureau of Economic Analysis released new personal income data for the second quarter of 2010 and revisions for the past couple of years.  As shown in Chart 1, The U.S. private sector share of personal income for the second quarter of 2010 was at a new all-time low of 68.49 percent–just edging out the previous low of 68.63 percent set in the last first quarter of 2010.

Private Sector Share of Personal Income for 2nd Quarter 2010

Chart 2 shows the major culprit behind this crowding-out of the private sector–the Orwellian American Recovery and Reinvestment Act.  In the second quarter of 2010, the ARRA pumped $61.5 billion into the U.S. economy via personal current transfer receipts.  This is down from the peak spending ($102.6 billion) under ARRA in the first quarter of 2010.  As ARRA spending continues to wind-down, the U.S. private sector should rebound from its all-time lows.

American Recover and Reinvestment Act Spending for 2nd Quarter 2010

However, it remains an open question as to how much of the private sector will be permanently lost.  For example, some of the temporary spending under ARRA will simply be transferred to state and local governments for funding resulting in higher state and local taxes.

Fiscal Federalism II

As I pointed out in the first installment of this series, fiscal federalism today is dominated by money flowing from the federal government to state and local governments.  There are many side-effects of this inversion of fiscal federalism that I believe are detrimental to the American Republic.

A new study by Professor Russell S. Sobel and George R. Crowley sheds light on a particularly disturbing aspect of federal spending–the inducement of higher state and local taxes.  How?  Many grants to state and local governments are “temporary” in nature, yet when the federal funding dries up the recipient government feels political pressure to keep up the new spending.

For example, consider the U.S. Department of Justice’s Community Oriented Policing Services (COPS) hiring grants, whose purpose is to fund new officers to town police departments.  However, the catch is that towns that receive such grants must pick up the tab in the fourth year and beyond.  Here is an article summarizing the plight of a small town in Delaware facing such a challenge with the COPS grant.

In the end, the author’s conclusions are rather startling:

Most importantly, our results suggest that the recent large increase in federal grants to state and local governments that has occurred as part of the American Recovery and Reinvestment Act (ARRA) will have significant future tax implications at the state and local level as these governments raise revenue to continue these newly funded programs into the future. Federal grants to state and local governments have risen from $461 billion in 2008 to $654 billion in 2010. Based on our estimates, future state taxes will rise by between 33 and 42 cents for every dollar in federal grants states received today, while local revenues will rise by between 23 and 46 cents for every dollar in federal (or state) grants received today. Using our estimates, this increase of $200 billion in federal grants will eventually result in roughly $80 billion in future state and local tax and own source revenue increases. This suggests the true cost of fiscal stimulus is underestimated when the costs of future state and local tax increases are overlooked.

The State of America’s Private Sector VI

Today the U.S. Department of Commerce’s Bureau of Economic Analysis released their monthly personal income data for July 2010.  The chart below shows the private sector share of personal income from January 1959 to July 2010.

The private sector is up ever so slightly from June 2010 to July 2010.  However, the private sector is essentially moving side-ways in 2010 at its lowest point since 1929.

Hopefully, these new private sector lows will, at least partially, be temporary.  Usually after a recession the private sector rebounds.  According to BEA estimates of the effects of the American Recovery and Reinvestment Act (ARRA), the ARRA effects are already starting to wear off.

Note: “Supplements to Wages and Salaries” in the BEA data are not broken down into “private” sector” versus “government” components.  I used the ratio of private wages and salaries to total wages and salaries in order to break down supplements to wages and salaries.

Private Sector Share of Personal Income for Months Between January 1959 and July 2010