Crossing State Borders in U.S. Can Mean More than a 30% Increase—or Savings—in Consumer Spending

Tuesday, August 09, 2016
(photo: Terry Garcia, Getty Images)

 

By Niraj Chokshi, New York Times

 

Spend enough time traveling around the United States and you’re bound to notice a dramatic variation in what a dollar can buy.

 

Everything from the price of a cup of coffee to the cost of a house can fluctuate between, and even within, states.

 

A gallon of regular gas costs $2.74 in Hawaii but just $1.82 in South Carolina.

 

The average Connecticut resident pays twice as much for electricity as the average Tennessee resident.

 

A $7 lager in San Francisco might cost you half as much in Chicago. A $5 hamburger in California may be a dollar cheaper in Nebraska.

 

Tuition at public colleges varies by orders of magnitude.

 

Fortunately, perhaps, for the confused consumer, the federal government now measures these variations.

 

For a few years now, the agency that tracks gross domestic product, personal income and other economic indicators has also produced what it calls Regional Price Parities, measures of price fluctuations across states and metropolitan areas.

 

That data, published in July by the Bureau of Economic Analysis, shows that a dollar can swing more than 30 percent in terms of what it can buy.

 

“Regional price differences are strikingly large; real purchasing power is 36 percent greater in Mississippi than it is in the District of Columbia,” Alan Cole, an economist with the Tax Foundation, a think tank, noted last week in a blog post.

 

To better understand, imagine a store offering a range of goods and services, each for sale at the national-average price for that particular item. Now, imagine a shopping cart filled with $100 worth of items from that store.

 

In Hawaii, $100 buys about 85 percent of the goods in the cart thanks to the high prices there. In other words, $100 in Hawaii feels more like $85.60, compared with the national average.

 

In Mississippi, the opposite is true. With $100, you would be able to buy the cart’s contents and more: the equivalent of $115.30 of goods and services from the national-average store.

 

The “real value” of a dollar is highest in Mississippi, Arkansas ($114.30), Alabama ($113.90), South Dakota ($113.60) and Kentucky ($112.70). It buys the least in the District of Columbia ($84.70), Hawaii, New York ($86.40), New Jersey ($87.30), California ($89) and Maryland ($90.70).

 

The Regional Price Parities are calculated using data collected for another indicator, the Consumer Price Index, which serves as a measure of inflation.

 

For that index, the government tracks prices of more than 200 goods and services, including men’s suits, college textbooks, cereal, electricity and cars and trucks. It also tallies rents, which are particularly variable among states.

 

The “real value” of $100 in rent can range from roughly $63 in Hawaii to $160 in Arkansas.

 

Generally, the prices of goods and services in states correlate with the nominal incomes, according to Cole.

 

“There is a relationship between the two: In places with higher incomes, the prices of finite resources like land get bid up,” he wrote.

 

But, he noted, when prices in a region are high, employers often raise pay to attract and retain talent.

 

The two don’t always correlate, however. Some states are home to high incomes and low prices, a valuable combination for working residents.

 

After adjusting for the purchasing power of a dollar, North Dakota emerges as the state where per capita incomes have the most purchasing power.

 

The “real per capita personal income” there is roughly $56,000. Connecticut is next at $55,000, followed by Washington, D.C., at $54,000, Wyoming at $52,000, Massachusetts at $50,000 and Nebraska at $48,000.

 

The states where incomes fall shortest are Utah, New Mexico, Arizona, Idaho and Hawaii, all of them home to real per capita personal incomes of $36,000, give or take a few hundred dollars.

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