States Where Incomes Will Soar, and Stagnate

Where you live affects how quickly you'll get ahead.

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The main economic worry these days is jobs—specifically, a lack of them. Still, most Americans who want a job have one, and as the economy gradually improves, workers will focus less on job security and more on boosting their pay, getting ahead, and reclaiming prosperity.

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Workers obviously have some control over how much they earn, since they can work more, get training that makes them more valuable, or simply persuade the boss that they deserve a raise. But a lot depends on where you live. Some areas have a dynamic economy that's able to create jobs briskly, while other places are over-reliant on shrinking industries or simply lack an economic spark. To identify states with the strongest and weakest economic prospects, we analyzed projections for personal income growth provided by forecasting firm IHS Global Insight. While it's just one economic indicator, growth in personal income is a good proxy for rising living standards. It reflects job growth—since a tight labor market is one thing that drives up wages—along with the quality of jobs and other factors that indicate a healthy economy. "Personal income growth translates into increased prosperity," says Mohammad-Qamar Siddiqui, a regional economist with IHS Global Insight. "It clearly shows the purchasing power for residents."

Income-growth variations among states also highlight national trends that might seem surprising. Several Midwestern states that remained relatively stable during the housing bust are poised for the lowest income growth, largely because there's not much to juice the economy. Some of the hardest-hit states, meanwhile, are likely to see a healthy rebound in income growth. Here are the 10 states projected to have the highest and lowest growth in income over the next five years:


Texas (projected average income-growth rate per year, through 2015: 6.1 percent). The Longhorn State is used to booms and busts, but in the latest recession it fared better than the nation as a whole, with a more stable real estate market and an unemployment rate well below the national average. Rising demand for oil and energy-related products will benefit Texas, which in turn should spark growth in other industries.

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Florida (average income-growth rate: 6.1 percent). Yes, there's been an economic hurricane in Florida, thanks largely to the subprime mortgage meltdown and subsequent real estate collapse. But IHS expects the long-term flow of Americans to the Sun Belt—disrupted during the recession—to resume, with the economy recovering along with it. The collapse in house prices might even help. "Many people who were planning to move to Florida can buy house at a cheaper price," says Siddiqui.

Arizona (average income-growth rate: 6 percent). This "sand state" was also hammered during the recession, with a housing bust that was among the worst in the nation. But Arizona will once again become a hot destination for retirees and others seeking warmer climes, with more affordable housing a fresh draw. The state still has a lot of digging out to do, but a few years from now, a robust recovery could take root. Healthcare is a particularly strong sector.

Idaho (average income-growth rate: 5.9 percent). The recession hit hard in this Rocky Mountain state as well, with some lumber, furniture, and technology companies closing down and many others slashing jobs. But compared with higher-cost western states like California, Idaho is still an appealing place for companies to set up shop, and new businesses should help lift the broader economy. Technology has displaced lumber as the biggest private-sector source of jobs in Idaho, which will help soften the impact of a prolonged drought in construction.

Colorado (average income-growth rate: 5.9 percent). A strong energy sector helped Colorado survive the recession better than other states, with an unemployment rate that's about two points lower than the national average. That will help as the economy recovers. Tourism and technology should benefit as consumers start to spend money again, and a highly educated workforce should help Colorado's recovery outpace the nation's.

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Missouri (average income-growth rate: 4.2 percent). With many jobs related to troubled industrial and construction sectors, the Show-Me State could muddle along for years. The Federal Reserve's latest regional update, for example, noted improving trends in many parts of the country, but singled out the St. Louis district for lagging in manufacturing, bank-loan demand, residential real-estate activity, and business services. And St. Louis was the only Fed district where there were more plant closures than openings in the latest quarter.

Arkansas (average income-growth rate: 4.2 percent). The unemployment rate is well below the national average, yet the Arkansas economy seems to have stalled. There's hardly any construction activity, manufacturing and information technology have shed jobs, and a large farm sector isn't like to spur lively growth. Even Wal-Mart, the state's biggest company, could struggle as the economy rebounds and consumers shy away from discounters.

[See why a rising unemployment rate is good news.]

West Virginia (average income-growth rate: 4.2 percent). The mining sector has held up better than others, which has helped keep unemployment in the state below the national average. But West Virginia's economy lacks diversity and its workforce is one of the least-educated in the country, which will limit future growth.

Nebraska (average income-growth rate: 4.1 percent). The Cornhusker State was one of the last places to feel the recession, and its unemployment rate, at just 5 percent, is third-lowest among states. But payrolls are likely to decline throughout the year, even as they pick up elsewhere. Even Warren Buffett's Berkshire Hathaway isn't enough to kick-start growth that has typically lagged the nation's.

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Kansas (average income-growth rate: 4.1 percent). Farms and food-processing plants keep the Kansas economy fairly stable, but there's not much that will drive dynamic growth. Aircraft manufacturing, hurt by the recession, is a big source jobs, and it could take years before demand for business jets and commercial aircraft recovers. And a sizeable defense sector could come under pressure as Washington deals with gaping deficits.