Category: Arkansas Economic Forecast Conference

2016 Arkansas Economic Forecast Presentation

By , November 7, 2016 4:31 PM

Dr. Michael Pakko will present his annual forecast for the state’s economy on the morning of Wednesday, November 16 at a Little Rock Regional Economic Briefing, hosted jointly by The Little Rock Branch of the Federal Reserve Bank of St. Louis and the Institute for Economic Advancement at the University of Arkansas at Little Rock

The briefing will include:

  • Kevin Kliesen, St. Louis Fed research officer and business economist, will discuss national conditions.
  • Charles Gascon, St. Louis Fed regional economist, will give an overview of the state of the Arkansas economy.
  • Michael Pakko, chief economist and state economic forecaster with the institute, will provide the Arkansas forecast.
Date:  Wednesday, Nov. 16, 2016
Time:  7:30-8 a.m. | Breakfast
8-9:45 a.m. | Program
Location: Clinton Presidential Center
Great Hall
1200 President Clinton Ave.
Little Rock, Ark. 72201

Registration is free; however, registration is required by Friday November 11.
Register here:  https://www.stlouisfed.org/events/2016/11/LRK-REB1116

Little Rock Regional Economic Briefing

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This Year’s “Forecasting a Revision of History”

By , October 31, 2012 4:32 PM

One of the more upbeat prognostications from the 2012 Arkansas Economic Forecast Conference was the prediction that revisions to the employment data will ultimately show much stronger job growth in Arkansas than reported in the currently-published data.  Due to the nature of the expected revisions, this prediction is also somewhat tricky to interpret.  Hence this more detailed explanatory note is in order.

The monthly statistics on payroll employment–the Current Employment Statistics (CES) — are among the most timely and revealing economic indicators available at the state level.  However, they are based on a sample survey of employers, so they are subject to sampling error.  Moreover, important pieces of missing information involves the rate of new business formation and the closure of failed firms.  The Bureau of Labor Statistics estimates the effect of these changes with a “birth/death model.”  Particularly in times of economic turmoil, even the best modeling can end up being far off the mark.  The CES is also subject to a number of other non-sampling errors.

Once per year, the BLS revises the CES data with the more accurate statistics from the Quarterly Census of Employment and Wages (QCEW).  Based on records from state unemployment insurance offices, the QCEW is very comprehensive, covering 98% of all U.S. jobs.  Because it is so comprehensive, however, it is only available after a fairly long lag.  Data for the first quarter of 2012 only came out at the end of September.  These first quarter data will be used to revise the CES data in the annual “Benchmark Revision” process.

The benchmark revisions will not be completed until after the release of monthly CES data at the end of the year, but there is enough information available at this time to make a fairly accurate estimate of what the revision process will reveal.  In recent years, the revisions have been substantial  (see here and here, for example).  The next benchmark revision is expected to reveal a large upward revision to the total employment count in Arkansas.

The chart below illustrates the magnitude of the expected revision.  The revised data projections diverge from currently-published figures in July 2011, with a net increase of 9,700 jobs.  The largest monthly revision is for October 2011 — amounting to nearly 19,000 jobs.  Because the QCEW data extend only through March 2012, job growth for April through September is unrevised, so monthly changes are simply appended to the revised data.

Sources: Bureau of Labor Statistics, Institute for Economic Advancement

Because of the timing of the revisions, the next benchmark revision will show substantial upward adjustment of job growth in 2011.  As a result, the net increase in employment in 2012 will actually be revised downward.  Nevertheless, this downward revision in growth represents a large upward shift in the number of jobs at any particular point in time.   The revisions are expected to raise 2011 job growth from -3,100 to +9,400, an upward revision of 12,500 jobs.  With employment expected to be so much higher at the end of 2011, job growth data for 2012 will actually be lower than current data are showing.  For example, year-over-year growth through September 2012 is currently reported at +10,800, but is likely to be revised to +10,300.

As of September 2012, the benchmark revisions are expected to raise the level of employment by 13,500 jobs.  Estimating the expected benchmark revisions sector by sector, the new data will show a mix of changes — as detailed in the table below (using quarterly-average data).  Some of the larger upward revisions include Professional & Business Services, Retail Trade, and Construction.  Not all sectors will be revised upward, however.  For example, the revised data are expected to show lower government employment, particularly at the state and local level.

Sources: Bureau of Labor Statistics, Institute for Economic Advancement

The actual benchmark revision process involves far more detail than the rough estimates presented here.  Nevertheless, the simple log-linear regression techniques we have used to estimate the benchmarking have turned out to be quite accurate in the past.  The official revisions will not be available until March 2013.  So in the meantime, data from the CES will need to be interpreted in light of this yet-to-be-incorporated new information.  Although it adds complexity to the interpretation of the data, we’ll be providing that analysis here on the pages of the Arkansas Economist in coming months.  As an illustration of how the expected revisions change the monthly tracking of job growth, the following two tables compare the September jobs report using currently-published data and expected-revised data.

Currently-Published Data

Source: Bureau of Labor Statistics

With Expected Revisions:

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

The most recent month-to-month changes are unaffected by the revision.  The year-over-year figures for total employment growth are revised downward, as described earlier.  Perhaps the most striking difference between the two tables is the column showing cumulative growth since the employment trough-date of February 2010.  The unrevised data show total growth of 15,700 jobs — about one-quarter of the total number of jobs lost during the recession.  After revision, however, the new cumulative job growth total is 29,200 — an increase that represents over half of the recessionary job losses.  Given the projected employment growth embodied in the forecast for 2013 and 2014, this revision makes it likely that we will reach the point of total employment equal to the pre-recession peak by sometime in early 2014, rather than at the end of 2014 as projected using the unrevised data.

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Updated Forecasts for 2012 and 2013

By , March 29, 2012 1:00 PM

At the Arkansas State University Economic Outlook Conference today, we presented revised and updated forecasts for some key economic indicators for the Arkansas economy.  At the time that the original forecasts were complied in late October 2011, data for some series were available only through the first half of the year (e.g., personal income).  Some of the statistics that were available through the third quarter have subsequently been revised (particularly employment data).  Hence, the original projections for 2012 and 2013 incorporated forecast estimates of how 2011 would turn out.  Now that we have at least preliminary data for all of 2011, it seems a propitious time to revisit the forecasts.

In general, the data have confirmed our expectations that 2011 would show a slowdown in the pace of  the economic recovery overall, but with clear signs of improvement in the final months of the year.  In some cases, our expectations for improvement in the waning months of 2011 were exceeded — in other cases our outlook was overly optimistic.  Accordingly, the forecast revisions are mixed. And the outlook — in broad strokes — continues to be one of steady but unremarkable growth as we slowly emerge from the aftermath of the 2008-09 recession.

Personal Income
Yesterday’s data-release from the Bureau of Economic Analysis showed that total Personal Income in Arkansas grew by 3.7 percent in 2011 (Q4/Q4).  This fell closely in line with our forecast of 3.6% growth for the year.  Hence revisions to the outlook are minor.  Due, in part, to lower-than-expected transfer payments in the second half of 2011, the forecast for personal income growth in 2012 has been revised down from 5.1% to 5.0%.  The forecast for 2013 is unchanged at 3.9%.

Personal Income

Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Arkansas Taxable Sales Including Gasoline
Our proxy for state retail sales, Arkansas Taxable Sales Including Gasoline (ATSIG), finished 2011 with a Q4/Q4 growth rate of 5.0% — slightly higher than the 4.4% rate in the forecast.  Some of this strength is expected to continue into 2012, prompting a slight upward growth revision from 3.2% to 3.3%.  (The slowdown from 2011 reflects, in part, the expectation of slightly lower inflation rate.)  Our original forecast included a (somewhat anomalous) slowdown in growth for 2013 (2.0%).  Such a slowdown now appears less likely, and we are now forecasting 2013 growth of 3.9%.

Arkansas Taxable Sales Including Gasoline

Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

Home Sales
Arkansas home sales had been steadily improving during 2011 (on a seasonally-adjusted basis), but after having been supported by home-buyer tax credit programs in the previous two years, 2011 was still expected to be have the lowest total annual sales volume in recent memory.  Sales in the last three months of the year were fairly strong, but were somewhat below our expectations.  Compared to the previous year, total sales volume was down slightly more than forecasted: down 2.5% from the previous year’s (revised) sales figures.  Carrying this weakness forward into the projected sales trajectory, the forecasts for 2012 and 2013 have been revised downward.  Expectations of a double-digit growth rate in 2012 have given way to a revised forecast of +7.5%.  Sales are still expected to improve by 4.3% in 2013, but end the year with a lower sales volume than previously forecasted.

Home Sales

Sources: Arkansas Realtors Association, Institute for Economic Advancement

Payroll Employment
At the UALR Arkansas Economic Forecast Conference, we predicted that downward revisions to the payroll employment data would show that the year would end with a lower level of employment than the previous year — in sharp contrast to data that was available at the time.  The actual data revision was slightly larger than anticipated, showing a Q4/Q4 employment loss of 0.4%, rather than the 0.2% that had been forecasted.  Nevertheless, relatively strong job growth did materialize in the fourth quarter of 2011, as anticipated.  Accordingly, the growth path for employment has not been revised (+1.3% in 2012 and +1.5% in 2013), but the path has been benchmarked to a slightly lower starting point.

Payroll Employment

Source: U.S. Bureau of Labor Statistics, Institute for Economic Advancement

Unemployment Rate
Unemployment rate data for 2011 were also recently revised.  The updated statistics showed that unemployment was not quite as high in mid-2011 as previously estimated.  Moreover, the rate dropped over the last three months of the year much more rapidly than expected.  Consequently, our unemployment rate forecasts have been revised downward significantly.  2011 ended with a rate of 7.9%, instead of the expected 8.2% rate.  The downward trajectory of unemployment has been adjusted downward from this lower starting point.  We now expect the unemployment rate to average 7.4% in the fourth quarter of 2012 (instead of 7.9%) and to fall to 7.0% by the fourth quarter of 2013 (instead of 7.6%).  These would be welcome developments, if realized.  The risk to this revised forecast is that new entrants and re-entrants to the labor force might put upward pressure on the unemployment rate as the labor market continues to improve.

Unemployment Rate

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

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Methodological Note:  The original forecasts of November 2011 were produced using the Moody’s Economy.com Arkansas model, benchmarked to a composite of national economic forecasts.  The revised projections presented here represent adjustments to the original forecasts in light of new and revised data.   Underlying forecast assumptions and model estimates were not generally re-evaluated as a part of this exercise, but updated model forecasts for the unemployment rate and retail sales were factored into the analysis.

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Expected Employment Revisions – 2011

By , November 8, 2011 1:25 PM

News coverage of the Arkansas Economic Forecast Conference featured the forecast of an “expected future revision of history.”  Just as in 2009, it appears likely that the annual benchmark revision of payroll employment data will include sharply lower estimates for Arkansas employment in 2011.  Compared to currently-published estimates, the revised data will show about 11,000 fewer jobs.

The monthly payroll employment data 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.”  Each year, however, the CES data are revised to match the more-comprehensive Quarterly Census of Employment and Wages (QCEW).  The QCEW is a 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.  But it also takes longer to compile —  data for the first quarter of 2011 were published just last month.  When the revised CES payroll employment data are released next March, it is this 2011:Q1 QCEW data that will be used as a benchmark.  The benchmark revision process is a detailed exercise that affects data for each individual sector and each state and metro area in the U.S. — that’s why we won’t find out the results until March 2012. 

But it is possible to estimate the approximate magnitude of the revisions for Arkansas using simple linear regression techniques.*  Based on this analysis, we forecast that the CES data for Arkansas will be revised sharply downward in the first quarter of 2011 — down approximately 11,000 jobs.  The lower employment in 2011:Q1 will carry through for the rest of the year, resulting in a permanently lower level of employment estimates for 2011.

Source:  Bureau of Labor Statistics; calculations by the Institute for Economic Advancement.

Source: Bureau of Labor Statistics; calculations by the Institute for Economic Advancement.

The revision is not entirely negative.  Revised data for 2010 will show slightly higher employment than the currently-published numbers.  But this tends to exacerbate the negative impact of the revisions on job growth for 2011.  Currently-published data show job growth of 8,000 (0.7%) for the four quarters ending 2011:Q3.  The revised data are expected to show a net decline of 3,200 jobs (-0.3%).

The magnitude of the data revisions also vary by sector.  As shown in the table below, some sectors are likely to show positive net revisions:  Manufacturing and Government, in particular, are expected to be revised upward — each by more than 3,000 jobs.  Downward revisions are concentrated in private-sector service-providing sectors, with Business & Professional Services and Leisure & Hospitality Services registering the largest declines.  Note that the sum of the estimated component-revisions do not add to the total.  Taking the estimated revisions sector-by-sector, the total downard revision is 9,400.

Source:  Bureau of Labor Statistics; caluclations by the Institute for Economic Advancement

Source: Bureau of Labor Statistics; caluclations by the Institute for Economic Advancement

Whether the total downward revision is 11,000 (as estimated for the total) or 9,400 (as estimated for the sum of super-sector components), the general magnitude of the downward revision is clear.  After all the data are in, it looks like employment growth during 2011 will be close to zero.  In terms of the slow jobs-recovery from the 2008-09 recession, 2011 is shaping up to be a “lost year” for Arkansas. 

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*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. 2009) and to forecast that relationship in the more recent past (Jan. 2010-March 2011).  For April 2011 through September 2011 (the most recent month availabile for the CES payroll data), month-to-month percent changes are used to extrapolate these estimates forward.  Quarterly estimates are then calculated as the average of monthly figures.

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Arkansas Economic Forecast Conference – November 2

By , October 25, 2011 3:34 PM

The 2011 Arkansas Economic Forecast Conference is only one week away.  This year’s conference features the national outlook from Ken Simonson, Chief Economist for the Associated General Contractors of America.  A panel of speakers will address specific areas of the Arkansas Economy, including Roby Brock of Talk Business, Ray Dillon of Deltic Timber, Lane Kidd of the Arkansas Trucking Association, and J. French Hill of Delta Trust.  Jon Harrison, former GM of Caterpillar in North Little Rock will be the luncheon speaker.  And of course, the conference will also include forecasts for the Arkansas Economy presented by Dr. Michael Pakko, State Economic Forecaster.

Registrations are being taken online or by contacting Tonya Hass by phone at (501) 683-7407 or by email at tghass@ualr.edu.

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