By Mark Edwards
Personal income rises 6% mainly due to government transfer payments - Total personal income for Alaska was $39.3 billion in the third quarter of 2014, according to data released by the U.S. Department of Commerce Bureau of Economic Analysis. This is an increase of $2.2 billion compared to one year ago, or a growth rate of 6%. That equates to per capita income of $53,434 in Alaska. This is an improvement from the 2.3% growth rate the prior year.
The largest contributor to income growth over the prior 12 months was from wages and benefits of $1.1 billion. Another $200 million was from gains in dividends, interest and rent.
The surprising change was a $900 million gain in “personal transfer receipts”. This component of personal income is payments to persons for which no current services are performed. It consists of payments to individuals and to nonprofit institutions by Federal, state, and local governments and by businesses. Government payments to individuals includes retirement and disability insurance benefits, medical payments (mainly Medicare and Medicaid), income maintenance benefits, unemployment insurance compensation, veterans benefits, and Federal grants and loans to students. The transfer receipt category declined by $82 million between 2012 and 2013. There is no further detail in the report to determine where the significant increase came from last year. Over $500 million of this growth likely came from the doubling of the size of the permanent fund dividend from $900 to $1,884 in 2014.
Longer term interest rates are falling – You can see in the graph below that over the last year interest rates have been falling for the 10 and 30 year maturities, while shorter terms have risen. The 30 year bond is highlighted. It fell 1.15 % to 2.51% over the last 12 months. Many factors are considered in this trend. First, some analysts think the supply of bonds is not keeping up with demand as the US Treasury deficit is shrinking. In the last two auctions $13 billion in 30 year treasuries were offered and bids exceeded $30 billion both times. This pushes prices higher and yields lower. Like the US, long term yields are also falling in Germany and Japan. This is mainly due to a combination of lower inflation, which improves real rates of return and lower global growth expectations. Several European bonds are offering negative yields and there are real fears of deflation. This makes the US relatively more attractive to investors. Much of the excess demand noted above is from foreign buyers. Low long term rates are significantly helping the rebound of the US housing market.
Join us for our final post on the Alaska Economic Update. We will outline home lending, refinance activity, housing statistics and building permits.