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 which
BEA’s industrially detailed regional income estimates are
available, to 1983, the most recent year for which the estimates are
available, the distribution of U.S. total personal income (TPI) shifted
toward the South and West. The share accounted for by each southern and
western region (Southeast, Southwest, Far West, and Rocky Mountain)
increased, and the share accounted for by each northern and central
region (Plains, New England, Great Lakes, and Mideast) declined. The
share accounted for by the southern and western regions as a group
increased from 39 to 49 percent.



This article discusses shifts in the distribution of TPI in each of
two timespans included in 1959-83: 1959-79 and 1979-83.1 In both
timespans, the distribution shifted toward the South and West. In both
timespans, the share accounted for by each southern and western region
increased. In 1959-79, the share accounted for by each northern and
central region declined. In 1979-83, the shares accounted for by the
Plains and Great Lakes regions continued to decline, but the shares
accounted for by New England and the Mideast increased. Industrial
diversification helped, increasingly as the 1970’s and early
1980’s progressed, to offset weakness in traditional types of
manufacturing in New England and the Mideast and, thus, to account for
the turnarounds.


1. The use of the two timespans permits comparison of longterm
shifts in the 1960’s and 1970’s with shifts thus far in the
1980’s. Except for 1983, the most recent year for which BEA’s
detailed regional income estimates are available, the choice of years
for the two timespans is based on national business cycle peaks in order
to separate trend from cyclical changes. For purposes of shift
analysis, the division of 1959-79 into two timespans, using the peak
year 1969 as the dividing year, would not significantly change the
findings of this article.



Despite the turnarounds in New England and the Mideast, the shift
in the distribution of TPI toward the South and West was larger, on an
average annual basis, in 1979-83 than in 1959-79. In the southern and
western regions as a group, a larger average annual increase in share
after 1979 mainly reflected a substantial acceleration in the Southwest.
The large national defense buildup in the 1980’s led to a speedup
in durables manufacturing production in the Southwest. In the northern
and central regions as a group, a larger average annual decline in share
after 1979 mainly reflected substantial decelerations in the Great Lakes
and Plains regions. The severe economic recession of 1981-82 led to a
slowdown in domestic demand for durable manufactured goods from the
Great Lakes region; even in the recovery year of 1983, the region’s
increase in TPI was smaller than in any other region except the Plains.
In the Plains, in 1979-83, slow growth in farming and related industries
retarded the growth of TPI.



This article focuses on the detailed industrial composition of
shifts in the distribution of TPI in 1959-79 and 1979-83. The first of
two major sections, “Interregional Aspects,’ discusses, for
all regions together, the relative size and direction of shifts in
industrial components of TPI.$F2$F The second, “Intraregional
Aspects,’ discusses, for each region in turn, the relative
contributions of industrial components to each region’s shifts in
TPI.



2. TPI is the sum of wage and salary disbursements, other labor
income, proprietors’ income, personal dividend income, personal
interest income, rental income of persons, and transfer payments, less
personal contributions for social insurance. The first three components
are the industrial components (that is, components for which industrial
detail is available); together, they accounted for about 70 percent of
U.S. TPI in 1983.


Interregional Aspects



Table 1 shows, for each of 71 industrial components of TPI in both
1959-79 and 1979-83, the percentage-point change in each region’s
share of the U.S. total for the component. This measure permits
comparison, on a consistent basis across all regions, of the relative
contributions of each region to the overall shift. Positive changes
indicate gains in the region’s share of the U.S. total for the
component, and negative changes indicate losses in share.



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



In 1959-79, the South and West gained, and the North lost, shares
in most industrial components. The largest interregional shifts were in
manufacturing, construction, and service industries. In general, large
manufacturing shifts reflected efforts by manufacturers to hold down
production and distribution costs. Wage rates, energy and land costs,
and State and local taxes were lower in the South and West than in the
North, and improved highways and truck transportation gave the lower
cost regions competitive access to national markets. In addition,
manufacturers sought locations nearer rapidly growing southern and
western regional markets.3 Within manufacturing, large shifts in
apparel, textiles, and plastics brought these industries nearer to
suppliers, such as the petrochemicals industry. Machinery industries
that made apparel and textiles equipment also had large shifts. Large
shifts in computing equipment, electronic equipment, and scientific
instruments brought these industries nearer to those that they supply,
such as aircraft and other defense-related industries. Large shifts in
construction, and in the related sand-gravel mining, stone-glass
manufacturing, and real estate industries, in part were responses to
large increases in manufacturers’ demand for new structures, as
well as to strong demand for housing by persons who moved from the North
to the South and West. Within service industries, large shifts in
business services in part were responses to strong demand for
advertising, research and development, consulting, and data processing services by corporate management units that moved from the North to the
South and West. Large shifts in hotels, amusement-recreation services,
and eating-drinking places in part were responses to large increases in
the number of tourists to the South and West.



3. From 1959 to 1979, the share of U.S. population accounted for
by each southern and western region increased, and the share accounted
for by each northern and central region declined. The share accounted
for by the southern and western regions as a group increased from 43 to
49 percent.



In 1979-83, the South and West continued to gain, and the North
continued to lose, shares in most industrial components of TPI. On an
average annual basis, the interregional shifts in most components were
as large as in 1959-79 or larger.



In 1979-83, nearly all of the components with large shifts in
1959-79 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 more
desirable in view of the large national defense buildup in the
1980’s. Construction and the related sand-gravel mining and
stoneglass manufacturing industries shifted at accelerating or
equivalent average annual rates; demand for housing in the South and
West continued to be strong, as population migration from the North
accelerated.4 In contrast, apparel and textiles shifted at decelerating
rates, in part reflecting a narrowing of regional wage rate
differentials and a reduced level of production in the North as a base
from which to shift. Business services shifted at a decelerating rate
as 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 northern
metroplitan areas strengthened, as the areas redeveloped their urban
commercial centers.



4. From 1979 to 1983, the share of U.S. population accounted for
by each southern and western region increased at an accelerating average
annual rate, and the share accounted for by each northern and central
region except the Plains declined at an accelerating rate. The share
accounted for by the southern and western regions as a group increased
from 49 to 51 percent.



Intraregional Aspects



Table 3 shows, for each industrial component of TPI in each region
and timespan, the percentage-point difference between (1) the percent
change in regional TPI, including the component, and (2) the percent
change in regional TPI, excluding the component. This measure permits
comparison, on a consistent basis within each region, of the relative
contributions of each component to the percent change in TPI. A
positive difference indicates that a component has a stimulating effect
on the change in TPI; that is, the change in TPI is larger with the
component than without it. A negative difference indicates that a
component has a retarding effect on the change in TPI; that is, the
change in TPI is smaller with the component than without it. In this
article, an industrial component is referred to as a “major
factor’ in the change in TPI if it has either (1) a stimulating
effect in a region that gains a share of U.S. TPI, or (2) a retarding
effect in a region that loses a share of U.S. TPI. Discussions of the
major factors for each region and timespan follow. The regions are
discussed in descending order, based on the percentage-point change in
share of U.S. TPI, 1959-79.



Southeast



In 1959-79, durables manufacturing industries were major factors
that stimulated TPI growth; by 1979, the share of the region’s
total manufacturing income that was accounted for by durables
manufacturing was nearly as large as the historically large share
attributable to nondurables manufacturing. Among durables manufacturing
industries, machinery and instruments were major factors; these
industries supplied capital equipment to the region’s textiles,
apparel, food processing, and paper industries. Machinery and
instruments also supplied inputs to defense-related industries, which
grew rapidly in the Southeast. The motor vehicles industry, along with
related industries, such as rubber tires and fabricated metal
forgings-stampings, was a major factor, as some motor vehicles
manufacturers from the Great Lakes region chose lower cost locations in
nearby Southeast States. Among nonmanufacturing industries,
truckingwarehousing and transportation services were major factors,
reflecting substantial improvement in both the region’s interstate
highway network and its relative market size. In addition,
eating-drinking places, amusement-recreation services, hotels, and
museums were major factors, in part reflecting a large increase in the
number of tourists to the Southeast. The health services industry also
was a major factor, reflecting rapid growth in the region’s
population, in particular, in the number of retirees who migrated to
Florida.



In 1979-83, nonmanufacturing industries continued to be major
factors that stimulated TPI growth. Reflecting the region’s
continuing attractiveness to tourists, eating-drinking places,
amusement-recreation services, and museums again were major factors, and
air transportation became a major factor. The health services industry
again was a major factor, reflecting the region’s continuing rapid
population growth.



Southwest



In 1959-79, manufacturing industries that supplied capital
equipment for the mining, refining, and transportation of oil and gas,
as well as manufacturing industries that used refined oil and gas
products as inputs, were major factors that stimulated TPI growth. The
machinery and instruments industries were major factors, as they
responded to strong demand for oil field, oil refining, and pipeline
equipment. The fabricated metals industry, which supplied pipes and
valves for oil refining, also was a major factor. In addition, the
petrochemicals industry was a major factor; it benefited from the
accessibility of large supplies of refined oil and gas products. Among
nonmanufacturing industries, both business and legal services were major
factors, in part reflecting strong demand for these services by
corporate management units that moved to the Southwest from the Mideast.



In 1979-83, the machinery and instruments industries continued to
be major factors that stimulated TPI growth. These industries responded
to the capital equipment needs of the national defense buildup. In
addition, early in the timespan, these industries continued to respond
to strong demand for oil field equipment; later in the timespan,
however, demand weakened, as oil exploration declined in the face of
falling 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 technological
equipment, as well as related nonmanufacturing industries, were major
factors that stimulated TPI growth. The scientific instruments,
computing equipment, electronic equipment, and plastics industries were
major factors; these industries supplied inputs to the aircraft and
aerospace industries, which had grown rapidly in the Far West during and
after World War II. In turn, the educational services industry, which
was a source of innovation and know-how for the advanced technological
industries, was a major factor; major universities, such as the
California Institute of Technology and Stanford, provided educational
services. The business services industry was a major factor; it
supplied data processing and consulting services to the advanced
technological 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. The
health services industry also was a major factor, supplying services to
the region’s rapidly growing population, in particular, the large
number of retirees who migrated to California.



In 1979-83, reflecting the national defense buildup, scientific
instruments and electronic equipment, as well as the related educational
and business services industries, continued to be major factors that
stimulated TPI growth. Also reflecting the buildup, the Federal
military became a major factor. Petroleum refining became a major
factor; the region’s refineries gained access to large supplies of
Alaskan 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 in
the Nation’s demand for domestically produced sources of energy
were major factors that stimulated TPI growth, especially after 1973.
Oil-gas mining and coal mining were major factors. Machinery and
instruments were major factors, in part reflecting the production of oil
field and other mining equipment. Among other industries, heavy
construction, along with industries that supply it, such as sand-gravel
mining and stone-glass manufacturing, was a major factor, as highway
construction spurted in the region. In addition, both business and
legal services, banking, and other credit agencies were major factors,
reflecting the increasing role of the Denver metropolitan area as a
supplier of these services to the Rocky Mountain region.



In 1979-83, oil-gas mining and the manufacturing of oil field
machinery and instruments continued to be major factors that stimulated
TPI growth. Most of the stimulus occurred early in the timespan; later,
oil exploration declined in the face of falling oil prices. The
manufacturing of other advanced technological machinery and instruments
also became a major factor, as the region continued its rapid
industrialization. In part reflecting the national defense buildup,
transportation equipment (except motor vehicles) and the Federal
military became major factors.



Plains



In 1959-79, as large-scale mechanization continued to reduce
opportunities for farm employment, farming and related nondurables
manufacturing industries and nonmanufacturing industries were major
factors that retarded TPI growth. Within nondurables manufacturing, the
food processing, leather, and agricultural chemicals industries were
major factors. Among nonmanufacturing industries, general building and
related sandgravel mining were major factors, in part reflecting reduced
demand for farm structures. Brokerage services for farm commodities, as
well as the retailing and repairing of farm equipment, also were major
factors.



In 1979-83, farming and related industries continued to be major
factors that retarded TPI growth. In manufacturing, food processing,
leather, and agricultural chemicals continued to be major factors, and
the production of farm equipment became a major factor. Outside
manufacturing, the wholesaling and trucking of agricultural commodities
became major factors, and the retailing and repairing of farm equipment
continued 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 TPI
growth. The textiles, leather, and apparel industries were major
factors; responding, in part, to increased foreign competition, these
industries developed production processes that required larger
production sites and a larger supply of unskilled labor than New England
could provide. The nonelectrical machinery industry, which supplied
capital equipment to the nondurable consumer goods industries, also was
a major factor. Among nonmanufacturing industries, domestic services
provided to private households were a major factor. The Federal
military also was a major factor, in part reflecting large reductions in
naval operations in Rhode Island in the 1970’s.



After declining in 1959-79, the share of U.S. TPI accounted for by
New England increased in 1979-83. Industries that manufactured advanced
technological equipment were major factors that stimulated TPI growth.
The electronic equipment and scientific instruments industries benefited
from scientific innovations developed at major universities, such as the
Massachusetts Institute of Technology and Harvard. Business services,
which provided data processing and consulting services to the advanced
technological industries, also was a major factor. Among other
industries, insurance was a major factor, reflecting a resurgence in New
England’s longstanding role of providing this service to other
regions.



Great Lakes



In 1959-79, durables manufacturing industries relating to the
production of transportation equipment were major factors that retarded
TPI growth. The primary metals, fabricated metals, and machinery
industries were major factors; these industries supplied inputs to the
motor vehicles industry, which grew less rapidly in the Great Lakes than
in most other regions. The railroad equipment increasingly, airplanes
and trucks were meeting the Nation’s demand for public passenger
and freight transportation, respectively. Among nonmanufacturing
industries, construction and related sand-gravel mining were major
factors; demand for industrial and residential structures weakened, as
both manufacturing firms and workers relocated to the South and West.
Retail trade industries also were major factors, in part reflecting slow
growth in personal consumption expenditures as a result of population
outmigration.



In 1979-83, as domestic motor vehicle production declined in the
face of strong foreign competition, high interest rates, and economic
recession, transportation equipment and supplier industries continued to
be major factors that retarded TPI growth. Among supplier industries,
primary metals, fabricated metals, and machinery continued to be major
factors, and rubber tire manufacturing became a major factor. Among
other industries, construction and retail trade continued to be major
factors, as a decline in Great Lakes population dampened the demand for
housing and consumer goods. No other region had a population decline.



Mideast



In 1959-79, mining and related manufacturing industries were major
factors that retarded TPI growth. Coal mining was a major factor,
reflecting the continued displacement of coal by oil as an energy
source. The nonelectrical machinery industry, which manufactured coal
mining equipment, was a major factor. The primary metals industry was a
major factor; new steel producers tended to locate
“minimills,’ which use production processes that are scrap
metal-intensive and coal-saving, near rapidly growing markets in the
South and West, at the expense of traditional production sites in the
Mideast. The chemicals industry also was a major factor; the use of oil
instead of coal as an input encouraged manufacturers of industrial
chemicals to locate petrochemicals plants near Southwest oil and gas
fields. The apparel industry was a major factor, in part because the
increased use of synthetic fibers encouraged apparel manufacturers to
choose sites near petrochemicals suppliers, and in part because the
manufacturers chose sites with lower labor and distribution costs.
Among nonmanufacturing industries, railroad transportation was a major
factor, in part reflecting a decline in the volume of coal traffic.
Wholesale trade was a major factor, in part reflecting the decline of
the New York metropolitan area, relative to southern and western areas
like Miami and Los Angeles, as a center for international trade.



After declining in 1959-79, the share of U.S. TPI accounted for by
the Mideast increased in 1979-83. Financial, business, and other
services were major factors that stimulated TPI growth; rapid increases
in service industries tended to offset slow growth or declines in the
production of many types of manufactured goods. Banking,
security-commodity brokers, and insurance were major factors, reflecting
the revitalized role of the New York metropolitan area as a supplier of
these services to other regions. Business and legal services were major
factors; these industries met a strong demand for advertising,
consulting, and related services by corporate management units, some of
which located in the Mideast in 1979-83. Hotels, amusement-recreation
services, and museums were major factors; the redevelopment of urban
commercial centers in New York, Philadelphia, and Baltimore, as well as
the construction of casinos in Atlantic City, encouraged increased
tourism and business travel.



Table: 1.–Percentage-Point Change in Share of U.S. Total, for
Total Personal Income by Industrial Component, 1959-79 and 1979-83, BEA
Regions



Table: 2.–Percentage-Point Change in Share of U.S. Total, for
Total Personal Income by Industrial Component, 1959-79 and 1979-83,
Southern and Western Regions



Table: 3.–Percent Change in Total Personal Income (TPI), by
Industrial Component, 1959-79 and 1979-83, BEA Regions