Regional shifts in personal income by industrial component, 1959-83 Essay

Regional Shifts in Personal Income by Industrial Component, 1959-83 FROM 1959, the earliest peak year of the business cycle for whichBEA’s industrially detailed regional income estimates areavailable, to 1983, the most recent year for which the estimates areavailable, the distribution of U.

S. total personal income (TPI) shiftedtoward the South and West. The share accounted for by each southern andwestern region (Southeast, Southwest, Far West, and Rocky Mountain)increased, and the share accounted for by each northern and centralregion (Plains, New England, Great Lakes, and Mideast) declined.

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Theshare accounted for by the southern and western regions as a groupincreased from 39 to 49 percent. This article discusses shifts in the distribution of TPI in each oftwo timespans included in 1959-83: 1959-79 and 1979-83.1 In bothtimespans, the distribution shifted toward the South and West. In bothtimespans, the share accounted for by each southern and western regionincreased. In 1959-79, the share accounted for by each northern andcentral region declined. In 1979-83, the shares accounted for by thePlains and Great Lakes regions continued to decline, but the sharesaccounted for by New England and the Mideast increased. Industrialdiversification helped, increasingly as the 1970’s and early1980’s progressed, to offset weakness in traditional types ofmanufacturing in New England and the Mideast and, thus, to account forthe turnarounds. 1.

The use of the two timespans permits comparison of longtermshifts in the 1960’s and 1970’s with shifts thus far in the1980’s. Except for 1983, the most recent year for which BEA’sdetailed regional income estimates are available, the choice of yearsfor the two timespans is based on national business cycle peaks in orderto separate trend from cyclical changes. For purposes of shiftanalysis, the division of 1959-79 into two timespans, using the peakyear 1969 as the dividing year, would not significantly change thefindings of this article. Despite the turnarounds in New England and the Mideast, the shiftin the distribution of TPI toward the South and West was larger, on anaverage annual basis, in 1979-83 than in 1959-79. In the southern andwestern regions as a group, a larger average annual increase in shareafter 1979 mainly reflected a substantial acceleration in the Southwest.The large national defense buildup in the 1980’s led to a speedupin durables manufacturing production in the Southwest.

In the northernand central regions as a group, a larger average annual decline in shareafter 1979 mainly reflected substantial decelerations in the Great Lakesand Plains regions. The severe economic recession of 1981-82 led to aslowdown in domestic demand for durable manufactured goods from theGreat Lakes region; even in the recovery year of 1983, the region’sincrease in TPI was smaller than in any other region except the Plains.In the Plains, in 1979-83, slow growth in farming and related industriesretarded the growth of TPI. This article focuses on the detailed industrial composition ofshifts in the distribution of TPI in 1959-79 and 1979-83. The first oftwo major sections, “Interregional Aspects,’ discusses, forall regions together, the relative size and direction of shifts inindustrial components of TPI.

$F2$F The second, “IntraregionalAspects,’ discusses, for each region in turn, the relativecontributions of industrial components to each region’s shifts inTPI. 2. TPI is the sum of wage and salary disbursements, other laborincome, proprietors’ income, personal dividend income, personalinterest income, rental income of persons, and transfer payments, lesspersonal contributions for social insurance. The first three componentsare the industrial components (that is, components for which industrialdetail is available); together, they accounted for about 70 percent ofU.S.

TPI in 1983. Interregional Aspects Table 1 shows, for each of 71 industrial components of TPI in both1959-79 and 1979-83, the percentage-point change in each region’sshare of the U.S. total for the component. This measure permitscomparison, on a consistent basis across all regions, of the relativecontributions of each region to the overall shift. Positive changesindicate gains in the region’s share of the U.S.

total for thecomponent, and negative changes indicate losses in share. Table 2 summarizes the changes by regional group; it shows, foreach component and timespan, the percentage-point change in share of theU.S. total for the component, for the southern and western regions as agroup. The negative of each entry in the table (not shown) is thepercentage-point change in share for the northern and central regions(North) as a group. The entries in table 2 thus can be viewed asmeasures of the shift in the share of the U.S. total for each componentfrom the North to the South and West.

In 1959-79, the South and West gained, and the North lost, sharesin most industrial components. The largest interregional shifts were inmanufacturing, construction, and service industries. In general, largemanufacturing shifts reflected efforts by manufacturers to hold downproduction and distribution costs. Wage rates, energy and land costs,and State and local taxes were lower in the South and West than in theNorth, and improved highways and truck transportation gave the lowercost regions competitive access to national markets.

In addition,manufacturers sought locations nearer rapidly growing southern andwestern regional markets.3 Within manufacturing, large shifts inapparel, textiles, and plastics brought these industries nearer tosuppliers, such as the petrochemicals industry. Machinery industriesthat made apparel and textiles equipment also had large shifts. Largeshifts in computing equipment, electronic equipment, and scientificinstruments brought these industries nearer to those that they supply,such as aircraft and other defense-related industries. Large shifts inconstruction, and in the related sand-gravel mining, stone-glassmanufacturing, and real estate industries, in part were responses tolarge increases in manufacturers’ demand for new structures, aswell as to strong demand for housing by persons who moved from the Northto the South and West. Within service industries, large shifts inbusiness services in part were responses to strong demand foradvertising, research and development, consulting, and data processing services by corporate management units that moved from the North to theSouth and West. Large shifts in hotels, amusement-recreation services,and eating-drinking places in part were responses to large increases inthe number of tourists to the South and West.

3. From 1959 to 1979, the share of U.S. population accounted forby each southern and western region increased, and the share accountedfor by each northern and central region declined. The share accountedfor by the southern and western regions as a group increased from 43 to49 percent. In 1979-83, the South and West continued to gain, and the Northcontinued to lose, shares in most industrial components of TPI. On anaverage annual basis, the interregional shifts in most components wereas large as in 1959-79 or larger.

In 1979-83, nearly all of the components with large shifts in1959-79 continued to shift. Computing equipment, electronic equipment,and scientific instruments shifted at accelerating average annual rates;locations near the aircraft and related industries became even moredesirable in view of the large national defense buildup in the1980’s. Construction and the related sand-gravel mining andstoneglass manufacturing industries shifted at accelerating orequivalent average annual rates; demand for housing in the South andWest continued to be strong, as population migration from the Northaccelerated.4 In contrast, apparel and textiles shifted at deceleratingrates, in part reflecting a narrowing of regional wage ratedifferentials and a reduced level of production in the North as a basefrom which to shift. Business services shifted at a decelerating rateas well, as some corporate management units chose northern locations.

Hotels and amusement-recreation services shifted at decelerating rates;demand for these services by tourists and business groups in northernmetroplitan areas strengthened, as the areas redeveloped their urbancommercial centers. 4. From 1979 to 1983, the share of U.S. population accounted forby each southern and western region increased at an accelerating averageannual rate, and the share accounted for by each northern and centralregion except the Plains declined at an accelerating rate. The shareaccounted for by the southern and western regions as a group increasedfrom 49 to 51 percent. Intraregional Aspects Table 3 shows, for each industrial component of TPI in each regionand timespan, the percentage-point difference between (1) the percentchange in regional TPI, including the component, and (2) the percentchange in regional TPI, excluding the component. This measure permitscomparison, on a consistent basis within each region, of the relativecontributions of each component to the percent change in TPI.

Apositive difference indicates that a component has a stimulating effecton the change in TPI; that is, the change in TPI is larger with thecomponent than without it. A negative difference indicates that acomponent has a retarding effect on the change in TPI; that is, thechange in TPI is smaller with the component than without it. In thisarticle, an industrial component is referred to as a “majorfactor’ in the change in TPI if it has either (1) a stimulatingeffect in a region that gains a share of U.S. TPI, or (2) a retardingeffect in a region that loses a share of U.

S. TPI. Discussions of themajor factors for each region and timespan follow.

The regions arediscussed in descending order, based on the percentage-point change inshare of U.S. TPI, 1959-79.

Southeast In 1959-79, durables manufacturing industries were major factorsthat stimulated TPI growth; by 1979, the share of the region’stotal manufacturing income that was accounted for by durablesmanufacturing was nearly as large as the historically large shareattributable to nondurables manufacturing. Among durables manufacturingindustries, machinery and instruments were major factors; theseindustries supplied capital equipment to the region’s textiles,apparel, food processing, and paper industries. Machinery andinstruments also supplied inputs to defense-related industries, whichgrew rapidly in the Southeast. The motor vehicles industry, along withrelated industries, such as rubber tires and fabricated metalforgings-stampings, was a major factor, as some motor vehiclesmanufacturers from the Great Lakes region chose lower cost locations innearby Southeast States. Among nonmanufacturing industries,truckingwarehousing and transportation services were major factors,reflecting substantial improvement in both the region’s interstatehighway network and its relative market size.

In addition,eating-drinking places, amusement-recreation services, hotels, andmuseums were major factors, in part reflecting a large increase in thenumber of tourists to the Southeast. The health services industry alsowas a major factor, reflecting rapid growth in the region’spopulation, in particular, in the number of retirees who migrated toFlorida. In 1979-83, nonmanufacturing industries continued to be majorfactors that stimulated TPI growth. Reflecting the region’scontinuing attractiveness to tourists, eating-drinking places,amusement-recreation services, and museums again were major factors, andair transportation became a major factor. The health services industryagain was a major factor, reflecting the region’s continuing rapidpopulation growth. Southwest In 1959-79, manufacturing industries that supplied capitalequipment for the mining, refining, and transportation of oil and gas,as well as manufacturing industries that used refined oil and gasproducts as inputs, were major factors that stimulated TPI growth. Themachinery and instruments industries were major factors, as theyresponded to strong demand for oil field, oil refining, and pipelineequipment.

The fabricated metals industry, which supplied pipes andvalves for oil refining, also was a major factor. In addition, thepetrochemicals industry was a major factor; it benefited from theaccessibility of large supplies of refined oil and gas products. Amongnonmanufacturing industries, both business and legal services were majorfactors, in part reflecting strong demand for these services bycorporate management units that moved to the Southwest from the Mideast. In 1979-83, the machinery and instruments industries continued tobe major factors that stimulated TPI growth. These industries respondedto the capital equipment needs of the national defense buildup.

Inaddition, early in the timespan, these industries continued to respondto strong demand for oil field equipment; later in the timespan,however, demand weakened, as oil exploration declined in the face offalling oil prices. In 1979-83, among nonmanufacturing industries,hotels, amusement-recreation services, and museums became major factors,in part reflecting a large increase in the number of tourists. Far West In 1959-79, industries that manufactured advanced technologicalequipment, as well as related nonmanufacturing industries, were majorfactors that stimulated TPI growth. The scientific instruments,computing equipment, electronic equipment, and plastics industries weremajor factors; these industries supplied inputs to the aircraft andaerospace industries, which had grown rapidly in the Far West during andafter World War II. In turn, the educational services industry, whichwas a source of innovation and know-how for the advanced technologicalindustries, was a major factor; major universities, such as theCalifornia Institute of Technology and Stanford, provided educationalservices.

The business services industry was a major factor; itsupplied data processing and consulting services to the advancedtechnological industries. Among other industries, air transportation,hotels, amusement-recreation services, and museums were major factors,in part reflecting a large increase in the number of tourists. Thehealth services industry also was a major factor, supplying services tothe region’s rapidly growing population, in particular, the largenumber of retirees who migrated to California. In 1979-83, reflecting the national defense buildup, scientificinstruments and electronic equipment, as well as the related educationaland business services industries, continued to be major factors thatstimulated TPI growth. Also reflecting the buildup, the Federalmilitary became a major factor. Petroleum refining became a majorfactor; the region’s refineries gained access to large supplies ofAlaskan oil. The health services industry again was a major factor,reflecting the region’s continuing rapid population growth.

Rocky Mountain In 1959-79, industries that expanded in response to an increase inthe Nation’s demand for domestically produced sources of energywere major factors that stimulated TPI growth, especially after 1973.Oil-gas mining and coal mining were major factors. Machinery andinstruments were major factors, in part reflecting the production of oilfield and other mining equipment. Among other industries, heavyconstruction, along with industries that supply it, such as sand-gravelmining and stone-glass manufacturing, was a major factor, as highwayconstruction spurted in the region. In addition, both business andlegal services, banking, and other credit agencies were major factors,reflecting the increasing role of the Denver metropolitan area as asupplier of these services to the Rocky Mountain region.

In 1979-83, oil-gas mining and the manufacturing of oil fieldmachinery and instruments continued to be major factors that stimulatedTPI growth. Most of the stimulus occurred early in the timespan; later,oil exploration declined in the face of falling oil prices. Themanufacturing of other advanced technological machinery and instrumentsalso became a major factor, as the region continued its rapidindustrialization. In part reflecting the national defense buildup,transportation equipment (except motor vehicles) and the Federalmilitary became major factors. Plains In 1959-79, as large-scale mechanization continued to reduceopportunities for farm employment, farming and related nondurablesmanufacturing industries and nonmanufacturing industries were majorfactors that retarded TPI growth. Within nondurables manufacturing, thefood processing, leather, and agricultural chemicals industries weremajor factors. Among nonmanufacturing industries, general building andrelated sandgravel mining were major factors, in part reflecting reduceddemand for farm structures.

Brokerage services for farm commodities, aswell as the retailing and repairing of farm equipment, also were majorfactors. In 1979-83, farming and related industries continued to be majorfactors that retarded TPI growth. In manufacturing, food processing,leather, and agricultural chemicals continued to be major factors, andthe production of farm equipment became a major factor. Outsidemanufacturing, the wholesaling and trucking of agricultural commoditiesbecame major factors, and the retailing and repairing of farm equipmentcontinued to be major factors.

New England In 1959-79, industries that manufactured nondurable consumer goods,as well as related industries, were major factors that retarded TPIgrowth. The textiles, leather, and apparel industries were majorfactors; responding, in part, to increased foreign competition, theseindustries developed production processes that required largerproduction sites and a larger supply of unskilled labor than New Englandcould provide. The nonelectrical machinery industry, which suppliedcapital equipment to the nondurable consumer goods industries, also wasa major factor. Among nonmanufacturing industries, domestic servicesprovided to private households were a major factor.

The Federalmilitary also was a major factor, in part reflecting large reductions innaval operations in Rhode Island in the 1970’s. After declining in 1959-79, the share of U.S. TPI accounted for byNew England increased in 1979-83. Industries that manufactured advancedtechnological equipment were major factors that stimulated TPI growth.The electronic equipment and scientific instruments industries benefitedfrom scientific innovations developed at major universities, such as theMassachusetts Institute of Technology and Harvard. Business services,which provided data processing and consulting services to the advancedtechnological industries, also was a major factor. Among otherindustries, insurance was a major factor, reflecting a resurgence in NewEngland’s longstanding role of providing this service to otherregions.

Great Lakes In 1959-79, durables manufacturing industries relating to theproduction of transportation equipment were major factors that retardedTPI growth. The primary metals, fabricated metals, and machineryindustries were major factors; these industries supplied inputs to themotor vehicles industry, which grew less rapidly in the Great Lakes thanin most other regions. The railroad equipment increasingly, airplanesand trucks were meeting the Nation’s demand for public passengerand freight transportation, respectively. Among nonmanufacturingindustries, construction and related sand-gravel mining were majorfactors; demand for industrial and residential structures weakened, asboth manufacturing firms and workers relocated to the South and West.

Retail trade industries also were major factors, in part reflecting slowgrowth in personal consumption expenditures as a result of populationoutmigration. In 1979-83, as domestic motor vehicle production declined in theface of strong foreign competition, high interest rates, and economicrecession, transportation equipment and supplier industries continued tobe major factors that retarded TPI growth. Among supplier industries,primary metals, fabricated metals, and machinery continued to be majorfactors, and rubber tire manufacturing became a major factor. Amongother industries, construction and retail trade continued to be majorfactors, as a decline in Great Lakes population dampened the demand forhousing and consumer goods. No other region had a population decline. Mideast In 1959-79, mining and related manufacturing industries were majorfactors that retarded TPI growth. Coal mining was a major factor,reflecting the continued displacement of coal by oil as an energysource.

The nonelectrical machinery industry, which manufactured coalmining equipment, was a major factor. The primary metals industry was amajor factor; new steel producers tended to locate”minimills,’ which use production processes that are scrapmetal-intensive and coal-saving, near rapidly growing markets in theSouth and West, at the expense of traditional production sites in theMideast. The chemicals industry also was a major factor; the use of oilinstead of coal as an input encouraged manufacturers of industrialchemicals to locate petrochemicals plants near Southwest oil and gasfields. The apparel industry was a major factor, in part because theincreased use of synthetic fibers encouraged apparel manufacturers tochoose sites near petrochemicals suppliers, and in part because themanufacturers chose sites with lower labor and distribution costs.Among nonmanufacturing industries, railroad transportation was a majorfactor, in part reflecting a decline in the volume of coal traffic.Wholesale trade was a major factor, in part reflecting the decline ofthe New York metropolitan area, relative to southern and western areaslike Miami and Los Angeles, as a center for international trade. After declining in 1959-79, the share of U.

S. TPI accounted for bythe Mideast increased in 1979-83. Financial, business, and otherservices were major factors that stimulated TPI growth; rapid increasesin service industries tended to offset slow growth or declines in theproduction of many types of manufactured goods.

Banking,security-commodity brokers, and insurance were major factors, reflectingthe revitalized role of the New York metropolitan area as a supplier ofthese services to other regions. Business and legal services were majorfactors; these industries met a strong demand for advertising,consulting, and related services by corporate management units, some ofwhich located in the Mideast in 1979-83. Hotels, amusement-recreationservices, and museums were major factors; the redevelopment of urbancommercial centers in New York, Philadelphia, and Baltimore, as well asthe construction of casinos in Atlantic City, encouraged increasedtourism and business travel. Table: 1.–Percentage-Point Change in Share of U.S. Total, forTotal Personal Income by Industrial Component, 1959-79 and 1979-83, BEARegions Table: 2.

–Percentage-Point Change in Share of U.S. Total, forTotal Personal Income by Industrial Component, 1959-79 and 1979-83,Southern and Western Regions Table: 3.–Percent Change in Total Personal Income (TPI), byIndustrial Component, 1959-79 and 1979-83, BEA Regions

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