Price-Adjusted Reality

When we compare state economies by raw GDP, we’re implicitly assuming a dollar is worth the same everywhere. It isn’t. The Bureau of Economic Analysis publishes Regional Price Parities (RPP) that measure how prices in each state compare to the national average of 100.

In 2024, New York has the highest RPP at 104.07, meaning prices are 4% above the national average. North Dakota has the lowest at 91.16, meaning prices are 9% below average. That 13-point gap means a $70,000 salary in North Dakota has the purchasing power of roughly $80,000 when adjusted for local prices.

The most expensive states form a familiar list: New York (104.07), New Hampshire (103.88), Washington (103.87), New Jersey (103.53), and Maine (103.19). The coastal and northeastern pattern is clear, though Arizona (102.81) is a notable Sun Belt entry that reflects its recent housing boom.

The cheapest states are concentrated in the Great Plains and Deep South: North Dakota (91.16), South Dakota (91.90), Iowa (92.93), Nebraska (92.98), and Kansas (93.82). These states benefit from low housing costs, low population density, and agricultural land that keeps property prices anchored.

The overall spread is surprisingly modest. The most expensive state (NY at 104.07) is only 14% more expensive than the cheapest (ND at 91.16). But this overall figure masks the dramatic story hiding in the components.

Breaking RPP into its components reveals a striking fact: goods prices are nearly identical across America. The goods RPP ranges from about 92 (Arkansas, Louisiana) to 108 (California, Arizona). National retail chains, e-commerce, and efficient logistics have flattened goods prices to within a 16-point band.

Rents are another world entirely. Washington DC’s rent index is 168.54 — meaning rents are 69% above the national average. California follows at 157.84, then New Jersey (134.10), Massachusetts (130.13), and Colorado (130.53). At the bottom: Mississippi (54.90), West Virginia (56.13), Arkansas (56.67), and Alabama (61.56).

The rent-to-goods ratio tells the real story of American price divergence. In California, goods are 8% above average but rents are 58% above average. In Mississippi, goods are 5% below average but rents are 45% below average. Housing is the single reason why some states are expensive and others are cheap.

Utilities are the other wild card. Hawaii leads at an extraordinary 191.33 — nearly double the national average — because the islands import virtually all their fuel for electricity generation. Massachusetts (166.30) and Connecticut (152.46) also pay steep utility premiums. At the bottom, Idaho (68.14) and Montana (72.86) benefit from cheap hydroelectric power.

The “Other Services” category — healthcare, education, personal services — is remarkably uniform, ranging from about 90 to 106. This suggests that service-sector wages, while varying, don’t create the extreme geographic divergence that housing costs do.

When we adjust per capita personal income by RPP, the rankings shift meaningfully. Connecticut leads at $95,067 nominal but drops to roughly $91,900 adjusted. Wyoming ($86,477 nominal) adjusts to about $86,100 — essentially unchanged because its prices are near the national average.

The biggest winners from price adjustment are low-cost states with surprisingly strong incomes. South Dakota goes from $75,699 nominal to roughly $82,400 adjusted (a 9% boost) thanks to its RPP of 91.90. North Dakota jumps from $71,749 to about $78,700 adjusted. These Great Plains states look far more prosperous when you account for their low prices.

The biggest losers are high-cost states. California drops from $86,232 nominal to about $84,050 adjusted. New York falls from $85,552 to roughly $82,200. The high incomes in these states are partly consumed by higher prices, particularly housing.

Perhaps the most interesting RPP finding is how stable these price differences are. New York has been 9–11% above the national average for the entire period since 2008. Texas has been 2–3% below. North Dakota has been 7–12% below. The relative price structure of American states barely moves from year to year.

California shows the most movement: it ranged from 109–112 through most of the 2010s, then dropped to 103–104 in 2022–2024. This may reflect the pandemic-era migration that eased some housing pressure, or methodology changes in the BEA’s measurement.