Maine personal income increases by 5.9 percent Economist says report shows growth rate slowing

AUGUSTA – Maine economists are scratching their heads. The latest federal data indicate personal income continued to grow in the state through June 30 – while there were indications that Maine’s economy was slowing.

“Yeah, I am surprised. Very surprised,” said Laurie LaChance, state economist. “I would have expected to see worse figures than this.”

The U.S. Commerce Department’s Bureau of Economic Analysis measures personal income. For the year ending June 30, Maine personal income rose at an annual rate of 5.9 percent, above the national average of 5.3 percent. Maine ranked fifth of the six New England states, well below the 7.1 percent growth in first-ranked Massachusetts.

“Massachusetts has really been on a roll, economically, so I am not surprised it led the region,” LaChance said. “But with the layoffs, the bankruptcies and all of the other bad economic news we have been seeing, I would have thought we would have been way below where the those figures put us.”

Jim Breece, an economics professor at the University of Maine in Orono, agreed with LaChance. He said while the continued income growth is a puzzle, a close look at the data shows a slowing of that growth in the last three months covered by the report.

“While income was above the national average over the yearlong period, it was below the national average for that last quarter,” he said. “In fact, when you compare the first quarter [of 2001] to the second quarter, you see a slowing across New England and the country.”

The data indicated personal income in Maine increased only by six-tenths of a percent in the second quarter of 2001. That was well below the 3.3 percent growth in the first quarter.

Breece said Maine is seeing a slowing of income growth, but not as sharp as in some areas of the country. He said a look at income figures over many years can show Maine often lags behind the national economy both when income rises and when it declines.

“We may be seeing some of that in these figures,” he said.

Jim Hughes, chairman of the economics department at Bates College in Lewiston, said he shares the surprise of other economists who watch Maine’s economy. He said he hopes the income growth continues to surprise with continued growth, although he doubts that will happen.

“With everything else we read about layoffs, which has been going on for some time, I am surprised we had much growth during that year,” he said. “Maybe the figures are just wrong and when the final figures are in we will see a different picture.”

The Commerce Department figures are preliminary and will not be finalized until some time next year. Figures have been adjusted in past years, but errors have been on the low side as well too high.

“This is a real head-scratcher,” he said. “We may have to wait and look back on this one to figure out what was happening.”

LaChance said even if the figures are accurate, all of the usual economic measuring devices were “thrown out the window” with the terrorist attacks last month. She said while it was clear the economy was softening before the attacks, the direction of the economy is anything but clear since Sept. 11.

“There are so many different factors since then,” she said, “and there are going to be even more factors we don’t yet know about. Congress passed one bill for $40 billion for security, and more is going to be appropriated, and we do not yet know the makeup of the stimulus package.”

LaChance said there will likely be a positive impact in Maine from increased defense spending as well as from homeland security spending. She said there are other economic stimulus factors that may affect the overall picture as well. For example, the lower interest rates ordered by the Federal Reserve has had a positive effect, but no one has yet been able to measure how much of an impact.

“I think we will see that the efforts from Washington, both those already passed and those under consideration, will soften any impact of the worsening economy,” she said. “How much of an effect, I just can’t predict. I don’t think anyone can.”