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New York’s Economy and Finances in the COVID-19 Era (July 1, 2021)

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New York’s Economy and Finances in the COVID-19 Era

July 1, 2021 Edition

Have Personal Income and Earnings Returned to Pre-Pandemic Levels in New York?

Recently released data from the U.S. Bureau of Economic Analysis show personal income in New York State has surpassed pre-pandemic levels by 12.8 percent. Personal income, which is comprised of wages, income earned by business owners or members of a partnership (“proprietors’ income”), dividends, interest and rent, and transfer receipts to individuals, totaled nearly $1.6 trillion in the first quarter of 2021, an increase of 51.9 percent from the fourth quarter of 2020 on a seasonally adjusted annual basis. While this is a positive development, there are two causes for concern:

  1. The growth is primarily due to transfer receipts, which account for more than 20 percent of personal income, well above the pre-pandemic share, and account for most of the quarter-over-quarter increase in personal income.
  2. Earnings in seven industrial sectors, including the leisure and hospitality sector that was hardest hit during the pandemic, have not yet returned to pre-2020 levels.

Transfer Receipts Bolster Personal Income

Figure 1 shows the changing composition of personal income from the pre-pandemic fourth quarter of 2019 to the first quarter of 2021. Total personal income continued to grow despite the pandemic, rising from $1.4 trillion in the fourth quarter of 2019 to $1.5 trillion in the second quarter of 2020. While proprietors’ income declined by 14.4 percent and wages declined by 9.0 percent from the first quarter to the second quarter, transfer receipts surged by almost 80 percent to $430 billion. Transfer receipts consist of government payments such as Social Security, Medicare, and unemployment benefits. In the second quarter of 2020, they also included economic impact payments (commonly referred to as “stimulus checks”) and enhanced federal unemployment benefits. As a result, transfer receipts paid to New Yorkers grew from 16.4 percent ($235 billion) to 28.0 percent ($430 billion) of total personal income.

FIGURE 1 – New York State Quarterly Personal Income by Component, Seasonally Adjusted

Source: U.S. Bureau of Economic Analysis

Personal income declined in the third and fourth quarters of 2020 before growing to $1.6 trillion in the first quarter of 2021. The primary driver of this decline was lower transfer receipts due to the absence of economic impact payments, as well as lower enhanced unemployment benefits. However, as the economy reopened more fully in the second half of the year, lower government payments were partially offset by increases in wages and salaries. With two more rounds of economic impact payments enacted by the federal government at the end of December 2020 and in March 2021, transfer receipts increased by 52.4 percent in the first quarter of 2021, accounting for over one-quarter of the personal income in New York.

Mixed Rebound of Earnings by Sector

Earnings, a subset of personal income, consist of wages and salaries, proprietors’ income and contributions by employers for pension and insurance costs of their workers. Earnings in New York in the first quarter of 2021 totaled almost $1.1 trillion, just slightly below the high in the first quarter of 2020. Three industries — professional services, financial activities, and government — accounted for over half of total earnings in New York, as shown in Figure 2.

FIGURE 2 – Earnings in New York by Industry, First Quarter 2021

Source: U.S. Bureau of Economic Analysis

Earnings in all industries decreased in the second quarter of 2020, and remain below pre-pandemic levels in seven of thirteen sectors, as shown in Figure 3. Earnings in the leisure and hospitality sector had the earliest and most severe decline: they began to decline in the first quarter of 2020 and by the second quarter of 2020 had fallen 56 percent. The sector continues to be the slowest to recover, with earnings almost 32 percent lower than what they were at the fourth quarter of 2019. Government earnings are also down more than 5 percent from that time; the other lagging sectors are down about 1 percent or less. The six remaining sectors — financial activities, professional services, information, health care and social assistance, education, and trade — surpassed pre-pandemic earnings in the first quarter of 2021.

FIGURE 3 – Pre- and Post-Pandemic Earnings in New York by Industry, Seasonally Adjusted

Source: U.S. Bureau of Economic Analysis

Implications

The Division of the Budget (DOB) projects personal income in New York State will decline by 0.6 percent over the course of State Fiscal Year 2021-22. This is due to the absence of federal economic impact payments, which DOB estimates will contribute to an 18.8 percent decrease in transfer payments to New Yorkers; however, DOB projects wages will increase 5.2 percent to offset a portion of these losses. Enhanced unemployment benefits are also expected to lapse in September.

While transfer receipts boost consumer spending, which translates into sales tax collections, most transfer receipts are not subject to the personal income tax, the State’s largest tax source. The other components of personal income have larger economic and revenue implications; monitoring the growth in earnings will be an important indicator of the progress of New York’s post-pandemic recovery. 

Prior Editions

Thomas P. DiNapoli

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