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By Michael Pakko, March 10, 2010 5:33 PM

The payroll employment figures showed some signs of recovery in service-sector employment.  Total nonfarm payrolls increased by 1,700 jobs in January (seasonally adjusted) with increases in the categories of Financial Services, Professional and Business Services, Education and Health Services, Leisure and Hospitality, and Other Services.  We continue to see weakness in the goods-producing sectors.  Manufacturing employment had been up slightly toward the end of 2009, but was down by 1,900 jobs in January.

Source: Bureau of Labor Statistics

The payroll employment figures that were released this morning incorporated new benchmark revisions.  As reported on previous pages of the Arkansas Economist (here, here and here), the annual exercise of reconciling data from the Current Employment Statistics (CES) program with the Quarterly Census of Wages and Employment (QCEW) was expected to show sharply larger job-losses during 2009 than were previously recorded in the data.  This did, in fact, prove to be the case.  As shown in the figure below, the revised data show that payroll employment declined more sharply during 2008 and 2009 than was reported at the time, with previously unrecorded job losses accumulating to 18,200 by the end of the year (as of December). 

Source: Bureau of Labor Statistics

The fact that job losses during 2009 were greater than previously measured is–to some extent–old news.  However, it means that it will take longer to see employment increase to the levels we saw prior to the onset of recession.

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By Michael Pakko, March 9, 2010 9:12 AM

Rising gasoline prices are in the news again.  According to AAA Fuel Gauge Report, the national average price for a gallon of regular grade gasoline has risen to $2.76 per gallon–up six cents in the past week and ten cents from a month ago.   Here in Arkansas we’ve seen similar price increases, with the current average price reported to be $2.66 per gallon.

Price changes play an important role in any market.  Gasoline prices tend receive more attention than other prices–perhaps because gasoline is a commodity that we use on a daily basis, or perhaps just because gasoline prices are prominently posted on every street corner.  But like any other price, understanding movements in the price of gasoline ultimately comes down to considering supply and demand.

About half the cost of gasoline can be traced back to crude oil prices.  In the past month, world oil prices have risen from around $70 to over $80 per barrel.  Specific market factors have been mentioned as playing a part in this increase:  On the supply side, an insurgency in Nigeria (an OPEC member nation) has been causing some production disruptions, and there has been some uncertainty about the prospects for Iranian oil production as well.   Meanwhile, it is anticipated that China will be adding to its strategic petroleum reserves this year, raising demand.  More fundamentally, the world economy is seen as recovering from the deep recession of the past two years, bringing stronger demand for energy overall.

Other factors affect the price of gasoline specifically.  With the warmer weather, refiners are switching to their summer formulations, contributing to a seasonal increase to production costs.  Demand for gasoline also tends to rise in the spring as consumers come out of hibernation to drive more.  This year, strengthening demand is expected to be particularly important.   With the economy emerging from recession and consumer spending showing signs of picking up, it is anticipated that demand for gasoline will be especially strong during the spring and summer months of 2010.

For both crude oil and refined gasoline, rising demand associated with economic recovery is seen as the fundamental factor driving prices upward.  Some industry analysts are predicting gasoline prices as high as $3.00 per gallon by this summer, but the alternative–lower gas prices in the face of weaker-than-expected consumer demand–is not an attractive prospect either.

In current market conditions, higher prices are serving as a signal to producers and distributors to unleash their inventories of oil and gasoline.  The time is now to bring the product to market.  In fact, the Financial Times reports  that the relationship between crude oil prices on the spot and futures markets is in the process of moving from “contango” toward “backwardation.”    The market has been in contango for some time, as weak demand during the recession has kept spot prices low relative to foward prices.  The market appears to be moving to a reversal, known as backwardation, in which forward prices fall below spot prices.  This serves as a signal for prompt delivery of product to market.  A similar process appears to be occuring in the markets for gasoline as well.

So in some sense, higher gasoline prices are serving as an indicator that the economy is strengthening, and should be considered a positive development.    For Arkansans, the other good news is that gasoline prices in our state remain about ten cents below the national average.  In fact, a “top ten list” of the lowest gas prices in the nation (see below) includes Arkansas, along with several of its neighboring states.  If you’re willing to pay one or two cents more for gasoline, Mississippi and Louisiana join the list as well.  So no matter which direction you head on a road trip from Arkansas this spring and summer, you’re likely to find relatively low gas prices.

Source: AAA Fuel Gauge Report, March 9, 2010

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By Michael Pakko, March 3, 2010 10:23 AM

The Commerce Department yesterday outlined plans for a new methodology for measuring the poverty rate ["Census Bureau to Develop Supplemental Poverty Measure"].  The new measure will not replace the existing poverty-rate calculation, but serve as a supplement:  “the supplemental measure will not be the measure used to estimate eligibility for government programs. Instead, it will be an additional macroeconomic statistic, providing further understanding of economic conditions and trends.”

As reported in a previous article on the Arkansas Economist, intensive research on new measures of poverty has been underway for many years.  The new measure will incorporate many of the changes that have been recommended by researchers, including the adjustment of poverty measures for differences in the cost of living across geographic areas. 

Final details about the new measure are still being worked out — it will not be available until the fall of 2011 (when the poverty statistics for 2010 are released). 

To see how differences in cost-of-living affect Arkansas’ rankings in the poverty statistics, see my previous post on the topic:  “The Poverty Rate and the Cost of Living.”

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By Michael Pakko, February 26, 2010 11:45 AM

Data covering the end of 2009 continue to roll in.  This week, we received new information about home prices from two independent sources. 

First, the  celebrated S&P/Case-Shiller index was released on February 23,  showing that home prices nationwide were up 1.1 percent in the fourth quarter (seasonally adjusted), following a 3.3 percent decline in the third quarter.  Over the past four quarters, the Case-Shiller nationwide index registered a decline of 2.5 percent. 

While the Case-Shiller index is a good measure of home values nationwide and particularly in the nation’s largest metropolitan areas, its component indices contain no specific information about Arkansas.  An alternative is the similarly-constructed set of house price indices produced by the Federal Housing Finance Agency (FHFA).  The latest set of estimates from this source was released yesterday (February 25).  The FHFA’s sales-only index (comparable Case-Shiller) showed that  house prices nationwide were basically flat in the second half of 2009 (up 0.1 percent in the third quarter and down 0.1 percent in the fourth).  For the year, this measure showed house prices down 1.2 percent.

For Arkansas, the FHFA sales only index showed an increase of 0.5 percent in the fourth quarter, and realtive to a year earlier, house prices were up by 1.5 percent.  As shown in the chart below, this continues a clear pattern: During the period of rapid price appreciation in the first half of the decade, Arkansas home prices grew more slowly than the nationwide average.  Since 2007,  price changes in Arkansas have been similarly muted – we haven’t seen the sharp declines that have been evident in other parts of the country. 

Source: Federal Housing Finance Agency

The FHFA also produces an alternative “all-transactions” index that includes appraisals from refinancings in addition to sales-price data.  By this measure, house prices have recently shown more weakness, with prices down 1.9 percent in Arkansas and down 4.7 percent nationwide (from 2008Q4 to 2009Q4).   Note that Arkansas home prices have remained more stable than those in the rest of the country, using either measure.

Whether the sales-only or all-transactions index is a better measure of home values in general is an open question.  [See Comment:  Differences Among Home-Price Indices]  But by adding data observations from refinancing appraisals, the FHFA is able to construct indexes for smaller geographic areas, including all of the nations Metropolitan Statistical Areas (MSAs).  The table below shows how  home prices in Arkansas’ MSAs fared during 2009, in comparison to recent years.

Source: Federal Housing Finance Agency

Home prices fell in most of Arkansas MSAs in 2009, but the declines were generally smaller than the U.S. average.  The only exception was in the Northwest Arkansas, where prices have followed a pattern similar to the nationwide average over the past few years.  Home prices were also down sharply in Hot Springs in 2009, but that figure represents the first annual decline after a series of fairly large increases.  Falling house prices in Little Rock and Pine Bluff also represented the first annual declines in the past five years.   Jonesboro and Texarkana both experienced modest house-price increases in 2009, and the data show continued strong appreciation in Fort Smith.

In some metro areas around the country–including many of those included in the Case-Shiller index–home prices have fallen sharply over the past two to three years following a period of exorbitant price increases.  The FHFA data show considerably more stability in Arkansas, with price declines in 2009 representing only a modest departure from the trend of steady appreciation over time.

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By Michael Pakko, February 22, 2010 8:04 PM

As described in a previous article on Arkansas Economist, realtors’ associations provide  two independent measure of Arkansas home sales.  The National Association of Realtors® (NAR) conducts nationwide surveys to estimate total U.S. home sales, and provides quarterly estimates of sales at the state level.  Locally, the Arkansas Realtors® Association (ARA) publishes monthly totals of Homes Sold in Arkansas by Realtors®, which represents a compilation of data from participating multiple listing services around the state. 

Despite their differing methodology and coverage, the two sources of information about the Arkansas real estate market reveal the same pattern:  Sales volumes declined steadily during 2007 and 2008, reaching a low point in the fourth quarter of 2008.  During 2009, however, sales showed steady improvement.

The chart below illustrates these patterns.  It shows both the NAR and ARA measures of home sales  expressed in directly comparable forms — as indexes normalized to equal one in 2007.*  The chart shows that in sales in the fourth quarter of 2008 had fallen by nearly one-third from the average volume of 2007.  After steady increases during 2009 (seasonally adjusted), sales in the fourth quarter of 2009 were back up to well over 80 percent of their 2007 pace.

The outlook for Arkansas’ housing market is generally good.  There may be brief sales downturns associated with the expiration of home-buyer tax incentives later this year and with inevitable increases in mortgage rates as economic expansion picks up pace.  Nevertheless, the steady increase in sales during 2009 suggests that the residential real estate market in Arkansas is well on its way to recovery.  

Sources: National Association of Realtors®, Arkansas Realtors® Association, Moody's Economy.com, Institute for Economic Advancement.

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By Michael Pakko, February 11, 2010 12:50 PM

Last week, the Bureau of Labor Statistics (BLS) announced its estimates for employment and unemployment in the nation’s Metropolitan Statistical Areas (MSAs) for December 2009. 

Unemployment rates for Arkansas MSAs were changed little from the previous month (seasonally adjusted).   As shown in the table below, the unemployment rate declined slightly in Fort Smith, rose slightly in Little Rock and Texarkana, and was unchanged in the state’s other MSAs.

Sources: Bureau of Labor Statistics, Institute for Economic Advancement.

Compared to a year earlier, unemployment rates across the state were up sharply, with increases ranging from 1.1 percentage points (Fayetteville) to 1.9 percentage points (Fort Smith).

The December payroll employment statistics–compiled from a separate suvey–indicate a similar pattern.  From the previous month, job losses were recorded in all MSAs except Fort Smith (where employment was unchanged).  Over the last six months of 2009, employment declines ranged from 0.1 percent (Fort Smith and Texarkana) to 3.7 percent (Hot Springs).

Sources: Bureau of Labor Statistics, Institute for Economic Advancement.

The next BLS release of payroll employment data will incorporate annual benchmark revisions.  As described in a previous article, these revisions are expected to show sharper job losses during the second quarter of 2009 than shown in the current data.  The table below illustrates the expected magnitude of the downward revisions for Arkansas’ MSAs, expressed as cumulative employment declines since the onset of the recession in December 2007.

Sources: Bureau of Labor Statistics, Institute for Economic Advancement.

For most of Arkansas’ MSAs, the revisions are expected to be substantial.  Larger job losses are likely to be recorded for all MSAs except Pine Bluff, and in many cases the revised employment declines will be more than twice as large as the currently published statistics suggest.    In some sense, the data revisions reflect “old news:” the changes primarily reflect the evaluation of labor market conditions in the spring of 2009.  Nevertheless, the new data will change our perspective on where we presently stand and will have implications for the employment outlook in Arkansas’ MSAs as the economic recovery proceeds.

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By Michael Pakko, January 22, 2010 4:08 PM

The December 2009 report on Arkansas employment and unemployment was released this morning by the Bureau of Labor Statistics.  

The household survey showed a record number of unemployed in Arkansas — 105,408.  That represents about 3500 more unemployed Arkansans in December than there were in November.  The survey also showed that the number of employed declined by 10,550 from November to December (although this decline follows an increase of 10,175 in November).   The unemployment rate rose from 7.4 percent to 7.7 percent.  This is the highest unemployment rate for Arkansas since June 1988.

Source: Bureau of Labor Statistics

The payroll survey provided similarly disapointing news.  The number of workers on nonfarm payrolls declined by 3400 in December (seasonally adjusted).  Losses were largest in Trade, Transportation and Utilities (-2200) and Profesional and Business Services (-1900).  Some sectors experienced increases in employment:  for example, Manufacturing employment increased by 1000, jobs in Financial Services were up by 900, and the number of Education and Health workers rose by 800.  The table below summarizes employment changes by sector over the past six months. 

Source: Bureau of Labor Statistics

As described in a previous post, the next release of payroll data will include annual benchmark revisions, reflecting more complete information collected in the BLS’s Quarterly Census of Employment and Wages (QCEW).  Based on the most recent information available, the benchmark revisions will show much larger job losses in Arkansas than were previously reported (particularly in 2009Q2).  The table below reports projected revisions to the payroll data, extended through the end of 2009:

Source: Bureau of Labor Statistics. Projected revisions estimated by the Institute for Economic Advancement

Repeating a cationary note from the previous post :  The actual benchmark revisions to be released by the BLS on March 10 will be calculated using far more detailed methods and more up-to-date information.   Nevertheless, the revisions are likely to be of the general magnitude presented here.

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By Michael Pakko, January 15, 2010 10:05 AM

  “The bottom line:  Arkansas has lost 18,000 more jobs since the start of the recession than were previously recorded.”

In the business of monitoring and forecasting economic conditions, data revisions sometimes require tedious attention to detail and usually lead to only subtle changes in perspective.  At other times, revised data can dramatically alter our view of the world.  New data released by the Bureau of Labor Statistics (BLS) earlier this week fall into the latter category.  They  indicate that upcoming revisions to Arkansas employment statistics will reveal significant changes:  The employment situation in our state  is far worse than recent data have been leading us to believe. 

Month-to-month changes in payroll employment—as regularly reported in the media and here on the pages of the Arkansas Economist—come from the BLS’s Current Employment Statistics (CES) program.  According the the BLS, the CES surveys “about 150,000 businesses and government agencies, representing approximately 390,000 individual worksites.”  This sample is used to produce employment estimates for the nation, the states, and metropolitan statistical areas.  It is one of the most timely and accurate measure of economic activity that is available—especially on the regional and local levels.  Nevertheless, it is a survey—subject to sampling error and unmeasured changes in the structure of of the labor market.  Specifically, the CES must use estimates of the number of establishments in a given state or metro area.  During times when there are many business entrances or exits from the market, these estimates can be off the mark.

To improve the accuracy of the statistics compiled by the CES program, the BLS also calculates a Quarterly Census of Employment and Wages (QCEW).  This is the report that came out earlier this week. 

The QCEW is a comrehensive and detailed account of employment, disaggregated by sectors and by counties.  It is constructed from state unemployment insurance records, so it constitutes a full accounting of all covered jobs in the nation.  Because of it’s comprehensive coverage, the QCEW provides a more accurate picture of employment than the CES. 

However, data for the QCEW take longer to compile.   This week’s “new” data cover the period April-June 2009.  Old news.  But this more comprehensive measure will soon be used to “benchmark” the data from the CES.  On March 10, the BLS will release revisions to the CES payroll employment figures, based on the new data from the QCEW.  

For Arkansas, the QCEW showed that employment declined sharply during the first six months of 2009–down by approximately 33 thousand jobs.  In contrast, the monthly payroll employment reports from the CES have been suggesting that Arkansas employment began to stabilize in March (as reported in the Arkansas Economist here and here, for example).  We can be confident that the revisions will show sharply larger job-losses in early 2009 than are presently shown in the CES payroll data.

Rather than wait until March 10th, I have calculated  estimates for benchmarked CES payroll employment data—an exercise in forecasting an upcoming revision of history.  The results of this exercise are summarized in the figure below:

Sources: Bureau of Labor Statistics and Institute for Economic Advancement

The projected benchmark series is calculated using some simple statistical procedures to estimate the  correspondence between the two measures in the past (Jan. 2001-Dec. 2007) and to forecast that relationship in the more recent past (Jan. 2008-June 2009).  For July 2009 through November 2009 (the most recent month availabile for the CES payroll data), month-to-month percent changes are used to extrapolate these estimates [see technical notes].

The projected revised data far sharply below current CES estimates during the first half of 2009, lowering the estimated level of employment in Arkansas for the second half of the year.  The bottom line:  Arkansas has lost 18,000 more jobs since the start of the recession than were previously recorded.

Investigating in more detail, I also estimated revisions to major sectoral categories of the data.  The results of this exercise, summarized in the table below, reveal that some sectors fared better according to the revised statistics (especially in the earlier stages of the recession, during 2008), but most fared worse (especially during 2009).   Overall, Arkansas lost slightly fewer jobs in 2008 than previously recorded, but lost far more in 2009. 

Sources: Bureau of Labor Statistics, Institute for Economic Advancement

The estimates presented here may not line up precisely with the benchmarked data to be released on March 10.  The BLS will use more detailed methods and up-to-date information to perform the actual benchmarking procedure.  Nevertheless, given the size of the discrepancy between current CES survey data and the available QCEW population data, the revisions are likely to be of this general magnitude.

Although the revisions will reveal a sharply larger employment decline in Arkansas, it remains true that the state has fared better than the nation as a whole.  The benchmarking process is expected to lower employment estimates for the total U.S. , leaving Arkansas in roughly the same relative position. 

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By Michael Pakko, January 11, 2010 4:51 PM

Governor Beebe announced another round of state budget cuts this morning.  The cutbacks total $106 million of spending, amounting to about 2.4% of the state’s budget.  Today’s announcment followed last week’s report from the Department of Finance and Administration (DF&A) that showed state revenues continuing to fall short of expectations.

For the first six months of the 2010 fiscal year (July-December 2009),  gross general revenues were down $80 million– about 3 percent–from the previous year.  More important, gross revenues were 1.9 percent below DF&A’s forecast.  As shown in the chart below, gross revenue has shown some signs of a comeback in recent months.  However, the rebound is not as large as was anticipated in the state’s revenue forcast (as revised in October 2009).

Source: Arkansas Deparment of Finance and Administration. Seasonal adjustment by the Institute for Economic Advancement

Gross General Revenues measure the total income for the state.  A more important measure for the budget is known as Net Available Revenues, which is equal to gross revenues minus some specific budgetary obligations (including tax refunds, bond payments, earmarked education funds, etc.).   Net available revenues measure the resources that are available for funding ongoing state government operations.  According to the DF&A report last week, net revenues for the first half of FY2010 were $37.7 million (1.7 percent) lower than in the previous year, and were 2.4 percent lower than the DF&A revised forecast. 

This second round of budget cuts for FY2010 should be sufficient to keep the state’s finances in balance.  As is clear in the chart above, however, a large share of the state’s revenues arrive in the second calendar quarter of the year (the last quarter of the fiscal year).   Consequently, we should have a much clearer picture of the state’s budget situation for FY2010 after income tax returns are filed in April.

Selected news coverage about the budget cuts:

• Arkansas News:  UPDATE: Beebe says no layoffs from new budget cuts
• Arkansas Online:  Beebe announces $106 million budget cut
• Arkansas Times:  Beebe cuts $106 million from budget

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By Michael Pakko, December 18, 2009 6:53 PM

Data on employment and unemployment in Arkansas were released this morning by the Bureau of Labor Statistics.  Overall, the report indicates a continuation of the trends we’ve seen in recent months.   There is no clear inidication of an upturn in employment, but neither is there evidence that the employment situation is deteriorating.  However, buried among the details of the report are some encouraging tidbits.

The household survey showed a decline in the unemployment rate, from 7.6 percent in October to 7.4 percent in November.  More important, the raw numbers that underlie the unemployment rate showed an increase of more than 10,000 in the number of people employed and a decrease of almost 2500 in the number of people unemployed.

The payroll survey showed an increase in jobs for November as well, although the data for October were revised downward to more than offset those gains.  Nevertheless, since March of 2009 nonfarm payrolls have shed only 2,500 jobs —  a decline of about 0.2%.

The sectoral composition of job gains and losses in November showed some interesting features:   Increases were registered in Construction (+1000), Manufacturing (+300), and Transportation (+1100)–three sectors that have been hard-hit during the recession.   In contrast, employment in Education and Health services declined by 1800 jobs in November.  Health services has added 13,000 jobs to the Arkansas economy since the beginning of the recession, but recent budgetary constraints at major hospitals has evidently stalled further expansion in this sector — for now.

Recovery in employment is likely to be a long, slow process.  At this point, the data suggest that we’re still in a period of stabilization.