Goshen News, Goshen, IN

December 4, 2013

MORTON MARCUS: The Devil is in the denominator


Goshen News

---- — While most folks have heard of the Terminator, many have forgotten the denominator. That’s the number below the line in a fraction.

Fractions seem to have scared lots of folks even though they are all around us. Miles per gallon (MPG) is certainly well-known: miles driven divided by gallons of fuel used. The more miles your drive on a given amount of gas, the higher your MPG. The more gas you use for a given number of miles, the lower your MPG.

Why then is another fraction such a mystery? Per capita personal income (PCPI) is simply total personal income (PI) divided by population (POP). The higher the PI for a given POP, the greater the per capita figure (PCPI). The more people (POP) you have for a given PI, the lower your PCPI.

Local and state economic development folks like good news, even if it is the result of negative news. When the PCPI figures for 2012 were released the week before Thanksgiving, Indiana as a state was in the envious position of having the third highest growth rate in the nation.

How did this happen? Our personal income growth was a stunning fifth fastest in the country for the year. That was teamed with a 0.3 percent population growth, 37th among the states, and less than half as fast as the United States. The slower the growth in population, the faster the growth in PCPI.

How did this play out on the county level? Well, a press release from Wabash County was ecstatic with the news the county’s PCPI grew 6.6 percent, faster than the nation (3.4 percent) and faster than the state (4.9 percent).

Neglected in the Wabash chest pounding was the population of the county declined by 0.6 percent. If your population declines, your PCPI is boosted. A total of 54 of Indiana’s 92 counties saw population decreases in 2012 according to the Census Bureau’s input to the PCPI numbers issued by the Bureau of Economic Analysis.

PCPI has been recognized by our political leadership as an important, if not vital, measure of economic well-being. However, population decline is hardly the route to a more vital community.

Lagrange County demonstrates healthy growth. In 2012, this northern county, which depends heavily on manufacturing jobs in Elkhart County, ranked second in both PCPI and PI growth, with slow population growth. Jennings County ranked first among the state’s counties in both PCPI and PI growth, but saw its population drop during the year.

Fast population growth has a depressing effect on a PCPI increase. Johnson County, for example, had its 6.0 percent growth in PI become 4.7 percent growth in PCPI because of its 1.2 percent POP growth.

Ideally, a community wants to see its PCPI grow because its personal income is growing faster than its population. Indiana’s favorable PCPI growth must be evaluated recognizing that 60 percent of our counties are losing population and that growth of personal income, like the growth of population, is becoming more and more concentrated.

Morton Marcus is an independent economist, writer and speaker. Contact him at mortonjmarcus@yahoo.com.