More than five years after the recession, America's bouncing back.
U.S. GDP picked up by an annual rate of more than 4% in the second quarter after a contraction in the first quarter, and unemployment continues to fall nationwide. But as the country struggles back from the blow of 2008's financial crisis, the recovery's not so even across the 50 states. Some areas of the country are still wading back toward economic normalcy, while a few regions of the country have thrived.
But in which states have Americans most outperformed their peers economically? Using the Bureau of Economic Analysis' revised 2013 state-by-state personal income data adjusted for per-capita figures, let's take a look at the five states with the country's highest average earnings -- and see just whether or not these chart-toppers are worth their riches.
5: New York: $54,461 personal income per capita
The Empire State kicks off the list, with New Yorkers on average raking in more than $54,000 from all sources in 2013. New York has held on to its spot despite slow growth in the recent past: According to the BEA's data, the state's real GDP grew by just over 3% between 2009 and 2013 and expanded by just 0.7% in 2013 -- the fifth-slowest-growing state economy nationwide last year. Even worse, New Yorkers experienced the lowest average earnings growth in the nation in the second quarter of this year.
The finance sector, New York City's flagship industry, hasn't helped that sluggishness since the recession lifted. With many big banks on Wall Street downsizing, letting workers go, and tightening compensation costs in order to lift profits, the financial and insurance sector has taken some of the shine off the Big Apple. According to the BEA figures, average New Yorkers' earnings in the financial and insurance sector fell by nearly 1.5% in the second quarter of 2014.
Meanwhile, retail, agriculture, construction, and other industries have assumed the burden of driving the state's growth in both earnings and GDP. Construction in particular has powered a new wave of employment and growth in New York City: Last year, the New York Building Congress estimated that NYC construction activity will grow more than 34% between 2012 and 2015, hitting $37 billion in spending next year.
New York residents might earn more on average than residents of most states, but there's one major caveat: the state's high cost of living. CNBC ranked the Empire State as the fourth-most-expensive state to live in last year, and with residential prices still on the rise in NYC -- coupled with one of the highest average state and regional income tax burdens in the country -- New York's high income doesn't look so glamorous.
4: New Jersey: $55,385 personal income per capita
New York City has benefited neighboring New Jersey's own economy over the years, but the Garden State has struggled to rebound from the recession. Still, the state's GDP expanded by 1.1% last year after picking up by a strong 2.6% in 2012, outpacing New York as the latter's economic growth has slowed in each of the last four years. Even better for New Jersey residents, net personal income growth picked up by 1.2% in this year's second quarter.
Despite those promising signs, however, the state's economy isn't on entirely solid footing. Construction employment has fallen in New Jersey despite rises in New York and other surrounding states. It's part of the state's larger employment woes in the post-recession period; New Jersey has ranked among the worst states in the country for private-sector job growth since 2010, according to data compiled by The New Jersey Star-Ledger. That's despite some of America's top corporations calling New Jersey home, such as healthcare giants Johnson & Johnson and Merck.
While New Jersey's government has pushed tax incentives to boost employment, the state's unemployment rate still ranks among the bottom half of the country at 6.5% as of July -- and, like New York, the Garden State also boasts a high cost of living.
3: Massachusetts: $57,248 personal income per capita
In comparison to New Jersey and New York, Massachusetts looks like a growth haven. The Bay State's GDP has grown by at least 1.6% in each of the last four years, according to the BEA, with greater than 2% growth every year between 2010 and 2012. The state's average personal income jumped by more than 6% between 2011 and 2013, with income from corporate management, retail, technical services, and entertainment showing strong growth this year. Unemployment ticked up to 5.8% in the state in August, but that figure still beat out the national average.
But can Massachusetts residents count on the state's success to continue? The Bay State's home to a thriving private sector that has kept up optimism for economic growth and high wages, with companies from defense contractor Raytheon and firearms manufacturer Smith & Wesson to fast-growing corporations such as booming biotechs Biogen Idec and Cubist Pharmaceuticals headquartered in the state. These companies have taken advantage of a well-educated population, as more than 54% of Massachusetts's population aged 25-34 had a college degree as of 2010 -- good enough for the No. 1 rank among all fifty states. This trend bodes well for the future income growth of the Bay State.
While Massachusetts still has work to do in areas such as child poverty, which grew to 16% in 2013 -- a gain of more than 39% over 2008's figure -- this state's combination of strong businesses and one of the country's best educational systems should keep it one of America's richest regions for years to come.
2: Connecticut: $60,658 personal income per capita
While Massachusetts is looking up, its next-door neighbor hasn't experienced such strong growth lately. Connecticut's GDP growth ranked No. 39 in the country last year and hasn't grown by more than 1% between 2010 and 2013. Personal earnings have jumped by 5.6% between 2011 and last year, but 2014 hasn't been so kind to the Constitution State: Connecticut's income growth in the second quarter ranked last in New England at less than 0.8%.
Connecticut residents have borne the brunt of high taxes over the past few years: The Tax Foundation rated the state's tax burden as the nation's third-worst, behind only New York and New Jersey and far worse than Massachusetts's No. 11 rank. CNBC further ranked Connecticut as the fifth-worse state for doing business this year, the second-worst state on the East Coast behind only last-place Rhode Island. Add in a high cost of living, and Connecticut's high average personal income doesn't go as far as first glances would indicate.
Still, the state's home to several strong businesses, including biotech star Alexion Pharmaceuticals (NASDAQ:ALXN). Sports network ESPN also calls Connecticut home.
Despite those and other strong businesses headquartered in the state, Connecticut's high tax burden and sluggish economic growth puts this state's average earnings in danger of being surpassed by more business-friendly Massachusetts in the near future.
1: Washington, D.C.: $75,329 personal income per capita
While Washington, D.C. isn't technically a state, perhaps no region in the country has thrived like the nation's capital in the post-recession era. Yet even D.C. has shown signs of vulnerability lately, with the district's GDP contracting by 0.5% in both 2012 and 2013 after two straight years of 2%-plus annual economic growth. Personal income growth has continued to climb, jumping by more than 1% in the second quarter of 2014, but as The Washington Post points out, shaky federal funding allocations have led to slowing employment gains in the capital recently.
That's a sobering trend for a region as dependent on federal funds as D.C. The district's unemployment rate grew to 7.6% in August, according to the Bureau of Labor Statistics -- a full 1.5 percentage points above the national average for the month. While high-income jobs from government contractors and lobbyists remain widespread in the capital, government cutbacks are threatening some of the district's wealth. According to the Post, Department of Defense contracts declined by 16% last year, with overall government contracts to D.C.-region contractors -- such as top defense corporations like Raytheon and Lockheed-Martin -- down by 10%.
While average personal earnings remain high, a shift toward lower-wage jobs in the capital -- D.C.'s median income declined by more than $4,000 between 2012 and 2013 -- and a focus on paring the federal budget are threatening Washington's post-recession wealth boom.
Will new money replace the old guard?
The biggest takeaway from America's five richest states? Wealth isn't keeping these chart-toppers going -- particularly in states like New York and Connecticut, where slowing economic expansion and high costs of living are threatening personal income growth. Other states are on the verge of breaking into this list, too: North Dakota and Wyoming, which both ranked in the top 10 for per-capita personal income, ranked first and second, respectively, in GDP growth last year. With America's energy boom in full swing and wealth and population growth shifting away from traditional high-income states, this list might look a lot different by the end of the decade.
Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals, Johnson & Johnson, and Walt Disney. The Motley Fool owns shares of Cubist Pharmaceuticals, Johnson & Johnson, Lockheed Martin, Raytheon Company, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.