DC’s median home price, 3 times more than median family income in 1991, is now 5 times more

A measure of house affordability developed by the National Association of Realtors (NAR) relates median family income to median house price. (All further mention of home prices and family income refer to their median numbers.) Before looking more closely at this index, however, we first describe what has happened to home prices and family incomes in DC over the past 25 years. (The home price includes both single family and condominium units.)

Home price and family income in DC. DC’s housing market changed fundamentally after the year 2000. During the 1990’s, home price and family income grew at the same pace. Then, from 2000 to 2006 home prices grew much more quickly than income. The median home price rose from $198,550 to $447,850 over those 6 years, a 125.6% gain, while median family income grew only 34.5%. With the Great Recession the home price fell by 25%, but this only brought prices partway back to the growth path of family income. In the recovery period since 2009, housing prices have modestly outpaced the growth in family income (36.8% compared to 26.3%). (For more details, see the table at the end of this post.)

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One way to summarize change in DC’s housing market is the ratio of median home price to median family income. The ratio was close to 3 in the 1990’s, and then shot up to about 7 in 2006.4, just before the onset of the recession. During the recession, the ratio did not fall to its previous low level, but only to about 5, where it has remained during the recovery period.

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The Affordability Index. As noted earlier, the National Association of Realtors’ Affordability Index compares median family income with the income needed to purchase a median-priced home. The income needed to afford the median house is calculated by assuming (1) 20% down, (2) a 30-year mortgage to finance the balance, and (3) household income at 4 times the amount needed to pay the mortgage. An index over 100 means median income exceeds the amount needed to purchase the median-priced single family or condominium home; an index less than 100 means income is less than what is needed. (An index of 110, for example, means that median family income is 110% of the amount needed to afford the median home.)

The Affordability Index for DC is estimated by Moody’s Analytics. The index was 115.1 for DC in 1991 and fell sharply as housing prices rose after 2000. The index has been close to 100 for most the 7 years since the recovery from the US recession began in 2009, and was 105.4 in the last quarter of 2016.

Given that DC’s median home price increased proportionately much more than family income over the past 25 years, it might seem surprising that the 2016 index of 105.5 is not that much lower than the 115.1 index in 1991. The reason these indices are so close is that interest rates for 30 year mortgages have fallen substantially over the past 25 years. In 1991, the rate was 9.3%; in 2016 it was less than half that—3.9%.

The way the Affordability Index works, a rise in mortgage interest rates, should this occur, would lower the Affordability Index. For example, if the interest rate were to rise by a percentage point (to 4.9%), DC’s index in the last quarter of 2016 would drop to about 95 if the median house price and median family income remained the same. It should be noted, however, that housing prices can also be affected by interest rates. Low interest rates also enable families to pay more for houses, helping to drive up prices. If rates rise and people can’t afford to borrow as much, prices cannot be bid up as high.

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Comparison with the US. In the US as a whole, housing prices and incomes were affected by developments that started in 2000, but the changes were less dramatic than in DC. Prices did not rise as sharply before the recession, and the spread between median home price and median family income never got as large. The result is that deterioration of housing affordability seen in DC has not occurred to nearly the same extent in the US.

  • The ratio of median home price to median family income in the US rose only to about 4 before the recession compared to 7 in DC. The ratio in the US has now fallen back to 3.3, compared to 5.1 in DC.
  • Just before the recession, the Affordability Index in the US was about 120, not too far below what it was in 1991, whereas DC’s fell to 58. The current index in the US (184) is more than 50 points above what it was in 1991, whereas DC’s is now about 10 points less than 1991.

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About this data. Data for median housing prices, median family incomes, and the Affordability Indices for DC and the US are from Moody’s Analytics. Quarterly data for the period from the first quarter of 1991 to the last quarter of 2016 have been used to calculate 12-month moving average values for the years 1991 to 2016. Similarly, quarterly data on the interest rates for 30-year fixed-rate mortgages has been used to calculate 12-month average rates. All index numbers have been calculated using the 12-month average value for the 4th quarter of 1991 as the base value of 100. The National Association of Realtors calculates the Affordability Index for the US and regions of the country. The values of the index for DC were calculated by Moody’s Analytics.

The following tables show values and percent changes over the 1991 to 2016 period for median home prices, and median family income for DC and the US , along with the Affordability Index and the ratio of median house price to median family income.

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Note: A version of this blog appeared in the May 2017 District of Columbia Economic and Revenue Trends, issued by the D.C. Office of Revenue Analysis.

 

Single-family housing values in the District have risen much more over 25 years than in the metro area or the US

The Federal Housing Finance Agency (FHFA) compiles a quarterly index of single-family house prices for the US, all states (including DC), and metropolitan areas. The index starts in 1991, and is based on how the same properties have changed in value since that time based on sales and refinancing obtained from mortgage and other data sources. (For more detail on the index see “about this data” at the end).

From 1991 to 2016, a 25 year period, DC’s four fold increase is almost twice the increase in the Washington metropolitan area and the US. Over the period, DC’s average annual rate of growth was 5.9%, compared to 3.4% for the metro area and 3.1% for the US.

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Price change patterns were fairly similar from 1991 to 2002, although DC and the metro area initially lagged the US in early 1990’s when DC’s economy was faltering.

When price growth started to pick up after 2002, DC’s increased faster. In the 14 years from 2002 to 2016, DC’s grew 147%, compared to 55% in the metro area and 36% in the US.

DC’s prices also fell less in the recession, and recovery from the recession was much faster. In the 10 years from 2006 (the prior peak) to 2016, DC’s prices gained 37.5%, the US was essentially flat (-1.4%) , and the metro area fell 16.3%.

Why have single-family house prices risen so much faster in DC than in the metropolitan area and the US? The explanation does not lie primarily in changes to general measures of income in the economy. Over the past 25 years DC’s rate of Personal Income growth has been the same as in the US and a bit less than in the metropolitan area. On a per household basis, DC’s income has increased a little faster, but the growth trajectory has still been fairly similar to that in the region and the national economy.

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The major differences between DC and both the region and the US lie in the dynamics of the housing markets that go beyond general measures of income. Since 2002 DC’s housing price index has increased at a much faster pace than average household income. By contrast, recovery in house prices from the recession has not yet been sufficiently strong to catch up with rising average household income in the either the Washington metropolitan area or the US.graph 4 may 1

 

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Housing market dynamics involve both supply and demand factors. Without trying to fully explain these, it should be noted that DC’s household growth since 2002 has been at a pace comparable to that in the Washington metropolitan area and faster than in the US as a whole. DC’s supply of single family housing, however, is relatively fixed. When growing demand from demographic change and rising incomes meets a relatively inelastic supply, prices can be expected to rise.

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The following table shows the changes in house prices and income from 1991 to 2002, and from 2002 to 2016, in DC, the Washington metropolitan area, and the US.

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About the data. The analysis of housing price in DC, the Washington metropolitan area, and the US is from the Expanded-Data Housing Price Index of single family house prices prepared quarterly by the Federal Housing Finance Agency (FHFA). FHFA calculates the index from repeat sales and refinancing of the same single family properties. It is estimated using Enterprise (federal housing finance agencies), FHA, and real property recorder data licensed from DataQuick. Personal Income and average household income for DC, the Washington metropolitan area, and the US is from Moody’s Analytics.  A version of this blog is contained in the Office of Revenue Analysis publication District of Columbia Economic and Revenue Trends: April 2017.

 

 

Revised data show more jobs located in DC in 2016, a slower pace of growth at year end, and a different view of recent trends

As it does each year at this time the US Bureau of Labor Statistics (BLS) revised its labor market data for all of the states and the District of Columbia based on additional information that has become available. For DC, this year’s revisions showed that at the end of last year—the December 2016 quarter—there were 2,267 (0.3%) more wage and salary jobs located in DC, but 4,052 (1.1%) fewer employed DC residents than had been previously estimated. (See below for BLS’s explanation of the basis for the revisions.)

 

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These revisions to DC’s final quarter of 2016 seem relatively modest, but there is more to the story. The revisions over the past two years changed the pattern of growth not only for DC but for the Washington metropolitan area as well. These revisions result in a changed picture about how the recent dynamics of DC’s labor market compare to those in the metropolitan area and the US. We look at five such changes.

1. DC job growth at the end of the year was slowing down, not speeding up. The revisions increased job growth over the last half of 2015 and the first part of 2016, but reduced it in the last half of 2016. In the 2015.4 quarter , for example, job growth over the prior year was revised upward from 8,700 to 18,633—more than double. Even though 2,267 jobs were added to the 2016.4 quarter, the year ended with job growth slowing rather than speeding up.

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2.At the end of the year DC’s rate of job growth was below the US average, not above it. Previously, it appeared that an increasing rate of growth in jobs brought DC to the point where its rate of increase in jobs exceed the national rate of 1.6% in the 2016.4 quarter. The revision boosted DC’s rate of growth above the US for most of 2015 and the first half of 2016, but it slowed DC’s rate to well below the US average by the end of the year.

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3. At the end of the year DC private sector jobs were growing at a faster rate than public sector ones, not at a slower rate. The upward revision of 2,267 jobs for the 2016.4 quarter was a net number, resulting from a 4,867 cut in the public sector and an increase of 7,133 in the private sector. The decrease in the public sector was mostly in federal government jobs (down 3,733), but local government ones were also reduced by 1,133. In the private sector there was modest increase in professional and business services (367), but most (6,767) was a 1.8% net increase in all other parts of the private sector.

The revision was enough to change the relationship of DC’s public and private sector job growth over the past two years. Previously, the rate of increase in public sector employment was shown overtaking the private sector in 2016. The revision substantially cut the growth of public sector jobs in 2016, so that they grew more slowly than private sector ones—even though growth in the private sector was slowing.

 

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4. DC’s rate of private sector growth over the past two years has been similar to that in the suburbs, not significantly different.   The revisions to Washington metropolitan area wage and salary employment cut 19,033 jobs from the area total in the 2016.4 quarter, a 0.6% reduction. The net reduction in the metro area total was entirely due to a 21,300 (0.9%) reduction in suburban jobs. Most of the suburban reduction, 16,167, was in the private sector—7,133 of which was shifted to DC and 9,033 was lost to the area. The suburban private sector loss was about equally divided between business and professional services and all other private sector jobs.

A consequence of the change to metropolitan area job growth over the past two years is that the pattern of change in DC’s private sector is now seen to track that of the suburbs fairly closely. Previously, the rate of change in DC’s private sector appeared to be much weaker than in the suburbs over most of the past two years. With the revision, DC’s private sector is now shown to have grown faster over most of that time, just falling below the suburbs at the end of 2016.

 

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5. DC resident employment did not end the year with a sharp increase. The 4,052 (1.1%) downward revision to resident employment in the 2016.4 quarter was notable because it reversed a sharp increase which previously had been reported. This revision mostly results from cuts to the labor force (a 1.2% cut of 4,832), not higher unemployment. (Unemployment was actually reduced by 779, resulting in a 0.1 percentage point reduction in the unemployment rate.) The reduction to the labor force is consistent with slowing population growth which occurred in 2016. DC ended the year with growth rates in the labor force and resident employment similar to those of the Washington area suburbs and the US average.

 

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According to BLS, momentum in DC’s labor market seems now to be slowing at a time when federal spending policies under consideration may weaken the region’s economy. Should such policies materialize, the preceding discussion underscores the difficulty of keeping current with how well DC’s labor market is responding to the new environment. Data can be revised.

What is this data?  All  data is from the US Bureau of Labor Statistics (BLS).  One set  is wage and salary employment (which is determined from surveys of employers) and the other set is labor force and unemployment statistics (determined from surveys of population). Both sets of data are for the District of Columbia, the Washington DC  metropolitan area, and the total US economy, and cover the period from the fourth quarter of 2014 (2014.4) to the fourth quarter of 2016 (2016.4). The data referred to in the text as the “previous estimate” is the data issued in January 2017 for the period up to an including December 2016.  The data referred to in the text as the “revised estimate” was issued in March (February in the case of the US data) for the period up to an including January 2017.

The BLS web site explains the basis for the labor market data revisions as follows:

Nonfarm payroll estimates for states and metropolitan areas have been revised as a result of annual benchmark processing to reflect 2016 employment counts primarily from the BLS Quarterly Census of Employment and Wages (QCEW), as well as updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2015 and seasonally adjusted data beginning with January 2012 were subject to revision.

The civilian labor force and unemployment data for states, the District of Columbia, and modeled sub-state areas were revised to incorporate updated inputs, new population controls, re-estimation of models, and adjustment to new census division and national control totals. Both not seasonally adjusted and seasonally adjusted data were subject to revision from January 2012 forward.

Data for the DC suburbs is calculated by subtracting District of Columbia estimates from those for the entire Washington metropolitan area.

The information here was presented in the District of Columbia Economic and Revenue Trends: March 2017 prepared by the DC Office of Revenue Analysis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resident employment grew four times faster in DC than in the suburbs over the past 4 years

According to the US Bureau of Labor Statistics, the number of employed DC residents rose from 323,823 in April 2012 to 370,204 in April 2016, a 14.3% increase of 46,381. This increase stands out in the context of recent labor market trends in the US and in the Washington metropolitan area:

—The percentage increase was more than twice that in both the US economy (6.6%) and four times the increase in the DC suburbs (3.5%),

—The increase represented almost one-third of the increase in the entire metropolitan area, although DC’s regional resident employment share is just under 12%.

—The percentage change in DC’s resident employment was more than twice the increase in jobs located in DC. (14.3% v. 6.2%). For the US and the rest of the metropolitan area, resident employment actually grew a little less rapidly than wage and salary employment.

—The increase, averaging 11,595 per year, is about equal to the growth in DC’s population over that period.

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Three places to look in helping to explain this remarkable increase in employed DC residents are: (1) growth of wage and salary jobs in DC, (2) unemployed persons returning to work, and (3) labor force growth. As noted below, all of these have contributed, but the most important explanation lies with labor force growth and related dynamics, particularly population growth.

Wage and salary employment located in DC. DC employers added 45,467 wage and salary jobs from April 2012 to April 2016, about the same number of jobs as the increase in resident employment. These new jobs could certainly be a source of employment for additional DC residents. Although DC’s jobs grew a little faster than those in the suburbs, there was, however, nothing very unusual about this increase. DC’s share of the new jobs in the metropolitan area over the past four years (26.6%) was close to its recent average share of all metropolitan area jobs (about 24%).

 

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A growing job base no doubt helps to attract workers to the District of Columbia, but job growth in DC cannot explain why employed residents grew by 14.3% while jobs grew 6.2%. It should be noted that from April 2012 to April 2016 the percentage increase in resident employment (6.6%) in the US economy was actually a little less than the 7.5% wage and salary job growth, and the Washington metropolitan area growth pattern was similar, albeit a little slower—4.6% for resident employment and 5.6% jobs.

 

Unemployment. DC unemployment declined by 8,481 from April 2012 to April 2016, which represents about 18% of the increase in resident employment. However, falling unemployment cannot explain why resident employment increased so much faster in DC than elsewhere. DC’s percentage decline in unemployment was less than in the Washington metropolitan area suburbs and the US.

Looked at another way, over the past four years, it took an increase of 5.5 DC employed residents to reduce unemployment by one (46,381 increase in resident employment divided by 8,481 decline in unemployment). In the US the ratio was 2.1 new employed resident for every decline of one in unemployment, and in the suburbs the ratio was 1.9 new employed resident for every reduction of one in unemployment.

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Labor force dynamics. By definition, the increase in resident employment must be equal to the sum of the reduction in unemployment plus the increase in the labor force. Consequently, over 80% of the growth in resident employment is accounted for by labor force growth.

 

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Along with resident employment, the increase in DC’s labor market represents another unusual change over the past four years. The 10.6% increase in DC’s labor force was 3.7 times greater than in the US (2.9%) and more than 7 times greater than in the suburbs (1.5%). With about 12 percent of the region’s labor force, DC accounted for 46.5% of the region’s increase over the past four years.

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Population growth is the principal reason why DC’s labor force is rising so significantly. Over the past four years DC’s population grew 7.5%, compared to 4.8% in the suburbs and 3.2% in the US. If DC’s labor force had grown at the same rate as population, the labor force would have grown by 26,617. This growth in labor force due strictly to population would account for about 70% of the 37,901 labor force increase, and 57% of the 4 year increase in DC resident employment. About 30% of the labor force increase, however, is related to factors other than population growth. These factors cannot be explained by this data. For example, DC’s rising population may have an unusually large share of people in the labor force. Or the entire population may be changing so that the proportion persons in the labor force is rising. Or rising employment opportunities may be pulling more of the people who have left the labor force into DC’s labor market, although it is not obvious why this should be more true in DC than elsewhere.

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Where do the additional DC employed residents work? The BLS data used in this survey do not indicate the place of employment for DC residents. The increase in DC resident employment from April 2012 to April 2016 is the result of some combination of (1) a portion of the increase in new wage and salary jobs added in DC, (2) DC residents filling jobs formerly held by commuters who retired or otherwise left their positions, (3) additional DC residents commuting to the suburbs, and (4) additional DC workers who report they are working but are not as wage and salary employees.

The importance of commuting patterns is underscored by trends in suburban jobs and resident employment over the April 2012 to April 2016 period. During those four years suburban resident employment growth was far below the percentage change in jobs located in the suburbs (3.5% v 5.4%), and the increase in wage and salary jobs exceeded the growth of resident employment by more than 30,000. This difference between job growth and resident employment growth in the suburbs would appear to provide employment opportunities for DC residents commuting to the suburbs—and employment opportunities as well for persons commuting from outside of the Washington DC metropolitan area. In addition, the relatively slow growth in the suburban labor force could indicate a slowing of interest in commuting to the District of Columbia.

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What is this data?

This analysis of labor market trends in the US and the DC area covers the period from April 2012 to April 2016, a time that includes the most recent four years of recovery from the Great Recession. (Recovery from the recession officially began in June 2009.) The analysis uses data from two Bureau of Labor Statistics surveys that are conducted each month: (1) wage and salary employment data by place of work and (2) labor market data by place of residence, which includes labor force, resident employment, and unemployment. The data for April 2012 and April 2016 are three month averages for February, March, and April. Population data for the first quarters of 2012 and 2016 are from Moody’s Analytics.

It should be noted that the data presented here can be revised as Census and BLS sort through additional information that becomes available to them.

 

 

 

Apartments growing more rapidly than population, while new office space lags employment growth

Over the past three years population and jobs in DC have grown steadily and at about the same rate. From the first quarter of 2013.1 to 2016.1. DC’s population grew a little over 34,000 or 5.3%. This percent increase is just a little bit faster than wage and salary employment. DC added almost 33,000 jobs over the period, a 4.4% percentage increase.

People need to live somewhere and they need to work somewhere, so it would be expected that both the number of apartments and the amount of office space would increase as well. The impact is much greater for apartments, however, than for office space. According to CoStar, from 2013.1 to 2016.1 the number of apartment units increased by 12,805 (7.8%), well over the percent gain in population. By contrast, the net increase of 1.22 million square feet of commercial office space represents an increase of only 0.8% over the three years, a percentage change far less than the gain in employment.

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What accounts for these different relationships? The short answer is that most of the new population lives in apartments, but the connection between commercial office space and jobs is much looser.

Apartments tracked by CoStar represent about 55% of all housing units in DC. The other units are mostly in single family or other small structures whose numbers have not increased much over the past 3 years, although some have been reconfigured for more units. The housing supply for a growing population is thus mostly in larger multi-family buildings, principally apartments.

By contrast, many of the jobs added to the District’s economy do not need office space. For example, retail and food services accounted for more than one-third of all new jobs in DC over the past three years. In addition, other jobs are located in schools, hospitals, government office buildings and other locations that are not commercial offices. The relationship between job gains and commercial office space is further weakened by the well-documented decline in the number of square feet of space needed by many office workers, reflecting factors such as telecommuting, open office layouts, and reduced need for libraries in law firms.

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Construction dynamics

Looking back over the past decade, construction trends for apartments and commercial offices reflect the business cycle as well as responses to growth in people and jobs and other market forces. As the Great Recession approached in 2007, construction of apartment units and commercial office space, measured as percent of inventory, was increasing. As shown in the following chart, construction as a percent of inventory was over 3% for apartments and about 5% for offices in early 2008. Construction fell sharply with the recession, reaching about 1% of inventory in 2010 for both apartments and offices.

With the recovery, apartment construction ramped up sharply starting in 2011, reaching 6.9% in the third quarter of 2015. Commercial office construction, however, was a very different story. It increased slowly, never getting close to the pre-recession pace. Furthermore, the majority of the office construction did not result in a net increase in office space. The primary effect of the new office construction seems to have been directed to meeting demand for improved amenities or better location. As shown in tables on the next page, over the past three years, more than 92% of the new apartments delivered to the market resulted in a net increase in inventory. For commercial office space, net inventory rose less than one-third of the newly delivered office space.

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Local government, food services, and retail contributed more to 2015 job growth in DC according to revised estimates; business services and health contributed much less

Every year in March the US Bureau of Labor Statistics (BLS) revises state employment data, in this case from March 2014, based on more complete information. This year’s result is a net reduction of 3,066 jobs in DC—0.4% of all jobs in the city—for the December quarter of 2015 compared to the previous estimate that had been made in January.

This reduction was the consequence of changes in the various sectors of the economy. Private sector jobs were decreased by 5,566 jobs (1.0%), for example, while public sector ones were marked up by 2,500 (1.1%).

Revisions to some individual sectors were of sufficient magnitude to change how important they were in the District of Columbia labor market in 2015. Higher estimates for local government, food service, and retail gave these sectors leading roles in DC’s job growth last year. Conversely, health and business services were found to have played much smaller roles.

For the economy as a whole, the BLS revision reduced the rate of job growth from the December quarter of 2014 to the December quarter of 2015 from 1.3% to 1.1%. The revision reduced private sector growth from 1.8% to 1.3%, while the public sector went from virtually no growth to 0.9%.

In terms of employment, the revision makes DC a 30.9% government town rather than a 30.4% one.

Gaining sectors

The upward revision in public sector jobs is entirely attributable to local government—an increase of 2,767 (7.5%). (The federal government was trimmed by 267.) In the previous estimate local government jobs declined from 2014 to 2015; with the revision they go up by 1,433, equivalent to 16% of all job gains in DC for the year. The revision seems consistent with recent DC budget increases.

Food service was previously estimated to have added 367 jobs over the past year, 4% of all city job growth. The newly estimated yearly increase is 2,600—30% of all DC job growth, second only to professional and technical services. Similarly, the retail sector’s share of all one-year DC job growth has been raised to 19% from the previous estimate of 3%.

Although education got 1,400 more jobs in the revision, this was not enough to increase jobs in the sector over the prior year. The new level in 2015 is still estimated to be 1,900 (2.9%) less than a year earlier.

Losing sectors

Four sectors drove the downward revision of private sector jobs—health, business services, non-profit organizations, and finance. Together they lost 12,301 jobs. Business services declined 7.9%, health, 6.3%.  In the previous estimate, these two sectors, with 16% of all DC jobs, added 7,200 jobs in the past year, accounting for 75% of then estimated one year job growth in the city. The new estimate shows one year growth of only 900 jobs for the two sectors, a modest 10% of all DC job growth.

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What exactly is this data? Each month the US Bureau of Labor Statistics compiles wage and salary data by industry for states and metropolitan areas.  In March of each year BLS revises the information for at least the previous year.  This blog compares the previous estimates through December 2015 that were issued in January 2016 with the revised ones issued in March 2016.  The December quarter is the average of October, November, and December.  The data are not seasonally adjusted.

A version of this blog appeared in the February 2016 District of Columbia Economic and Revenue Trends report. The Trend report also compares revisions for DC with those of the Washington Metropolitan area as a whole, and has a table showing revisions for all sectors of the economy.

 

BEA’s sharp revisions to commuter income earned in the District reveal the challenges of tracking the city’s changing income flows

In its September comprehensive revisions to all states’ Personal Income, the US Bureau of Economic Analysis (BEA) reduced its estimate of District’s 2014 Personal Income by $4.2 billion to $46.0 billion, down 8.5 percent. The reductions go back ten years, telling us that the District residents have been earning less than we thought they did for almost a decade.

BEA’s revised estimates do not change the basic story that income earned by DC residents has grown over the past decade as population and jobs have grown.  But the new numbers dial back considerably the proportion of the growing income earned in DC that stayed in the city.

The Personal Income calculation

To calculate Personal Income, BEA starts with income earned in the District by everybody working in the city.  Earned income is wages and salaries, benefits, and proprietor’s income. BEA then makes what is called a “net resident adjustment” to obtain income earned by DC residents.  The net resident adjustment involves (1) subtracting income earned in DC by non-residents (mostly commuters), and (2) adding income earned outside of DC by DC residents.

BEA 2014 revision increased by $1.7 billion the amount earned in DC, but also took $5.8 billion more away for the net resident adjustment using a new analysis of Census Bureau journey-to-work data and IRS tax filings.  Revisions to the non-earnings portion of Personal Income were relatively minor.

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Before the revision, income earned by the District residents (in D.C. or elsewhere) appeared to be 46.1 percent of the income earned in the District in 2014 (by residents and commuters), up from 39 percent in 2004.  The revision puts the 2004 share to 38.2 percent, and 2014 share to 39.9 percent. Here is another way to look at it: before the revision, we thought that the District residents accounted for 62 percent of the increase in all income earned in the District between 2004 and 2014. With this revision, this share is now closer to 44 percent.

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With these revisions, the increases in the proportion of income earned in DC staying in the city become more modest than what one might expect just by looking at the jobs numbers.  From 2004 to 2014, resident employment grew 21.0 percent while wage and salary jobs located in DC increased just 11.8 percent.  We have written about this before, considering explanations such as more DC residents working in higher paying jobs outside the District and more DC residents taking jobs vacated by commuters.  New data gives us pause since it shows that the growth in the resident employment seems not to have been not accompanied by a similar measure of growth in incomes. We do not know why.

The difficulty of tracking income flows in DC’s changing economy.

There is nothing unusual about BEA revising its estimates as more information becomes available, but the scale of the September 30, 2015 revisions to DC’s Personal Income is unusual. The percentage revisions to DC’s Personal Income were far greater than for any state data. Over the past three years there were only 5 instances of state changes of more than 3 percent in any one year, the biggest being a 4.8% increase for Alaska in 2012. Why was DC so different? The reason is the net resident adjustment factor. Tracking the in-and out-flows among jurisdictions is one of the more difficult tasks in compiling earnings estimates, and those flows proportionately are much larger in DC than for any state. They also can be influenced heavily by the changes in job or residence location by a relatively small number of high income households.

In its latest revisions, BEA turned to the most recent American Community Survey (ACS) data available for all US counties (the average for the years 2006 through 2010), along with the most recently available IRS tax data. Accurately tracking DC’s Personal Income is likely, however, to continue to be a challenge for BEA because DC’s population and economy keep changing—and the key data sources used to determine Personal Income are available only with a considerable lag.

Revised DC Personal Income compared to the US

The new data still show that DC Personal Income grew faster than the US average from 2004 to 2014 (DC 59%, US 46%). Over the past four years, however, DC increases have been quite close to the US average, and in 2014 the 4.4% growth in the US exceeded DC by more than a percentage point.

DC’s per capita income, now estimated at $69,828 in 2014, is 52% above the US average and is still the highest in the nation (compared to states). With higher population growth, however, DC’s per capita income has also grown more slowly than the national average over the past four years.image012

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What exactly is this data?

The Data is from BEA’s Regional Economic Accounts.  The latest data are available here.