Arkansas Economic Development Institute

Arkansas Personal Income – 2010:Q3

By , December 17, 2010 7:21 PM
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While a great deal of attention today was focused on the state employment/unemployment report, another key set of economic statistics also came out:  The Bureau of Economic Analysis reported that Arkansas personal income increased by 1.0% in the third quarter (seasonally adjusted).  For the U.S. as a whole, the growth rate was 0.7%.   Arkansas’ above-average growth ranked among the ten states with the fastest growing incomes in the nation. 

spiq310

For U.S., the third quarter increase represents the fourth consecutive quarter of growth. For Arkansas, the run of positive growth had now gone for five quarters.  The chart below compares the pattern of personal income growth for both the U.S. and Arkansas, relative to their common cyclical peak in 2008:Q2.   Total personal income in Arkansas didn’t decline as sharply as the U.S. during the recession, and it has increased slightly faster during the recovery.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

As discussed in a previous article, the BEA definition of personal income includes transfer receipts (social security payments, unemployment insurance, etc.).  During recessions transfers tend to rise, serving as a buffer that protects total income from sharp declines.  A better measure of the underlying strength of the economy omits transfers: Personal Income less Transfer Receipts.  By this measure, incomes peaked in the third quarter of 2008 and declined sharply through the second quarter.  U.S. income less transfers declined for another quarter, while in Arkansas the recovery in income growth began rising and has outpaced U.S. growth since then.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

In the third quarter, Personal Income less Transfer Receipts rose by 0.7% in Arkansas and 0.5% for the nation as a whole.   Transfer Receipts increased by 1.5% in Arkansas and by 1.3% nationwide.  Hence, part of Arkansas relatively high growth rate was due to an relatively larger expansion of transfer payments.  But even after accounting for this factor, Arkansas personal income grew at a faster rate than the total for the U.S.

The third quarter personal income report suggests that the economic recovery is ongoing, and that Arkansas continues to emerge slightly ahead of the rest of the the nation.

Arkansas Employment and Unemployment – November 2010

By , December 17, 2010 12:39 PM

Data on employment and unemployment were released this morning by the U.S. Bureau of Labor Statistics and Arkansas Department of Workforce Services.   The headline news is that the unemployment rate increased by yet another 0.1 percent to 7.9 percent.   The number of unemployed workers rose by 1,678  and the number of employed increased by 4,671.  Hence the labor force expanded by 6,309.   The labor force has been expanding quite rapidly since September, suggesting that unemployed workers who had previously been dropped from the statistics as “discouraged workers” are now returning to the labor market.  This tends to result in higher measured unemployment rates, even as employment is expanding.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

After a substantial increase in October, the report for November shows that nonfarm payroll employment continued to rise, albeit at a slower pace.  Revised figures for October show an increase of 14,100 jobs rather than 17,400 as originally reported.  On net, total payroll employment rose by another 100 jobs from October to November.  

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Seasonally adjusted increases were reported for Manufacturing; Trade, Transportation and Utilities; and Education and Health Services.  Together, these three super-sectors account for nearly half of the state’s total employment.  Seeing job growth in these sectors is particularly encouraging.  Gains were also recorded in Mining and Logging; Information Services; Other Services; and Government.  Over the past 12 months, approximately 11,000 jobs have been added to the Arkansas economy.

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*Seasonally adjusted data for nonfarm payroll employment, reported in a format compatible with the monthly press release from the Arkansas Department of Workforce Services, are available here
Table – Seasonally Adjusted NFPE.

Metro Area Employment and Unemployment – October 2010

By , December 7, 2010 7:20 PM

This morning, the Bureau of Labor Statistics released the latest information (for October) on employment and unemployment in Metropolitan Statical Areas (MSAs) around the nation.  The report suggests that labor markets in Arkansas’ metro areas are slowly improving.

Household Suvey:
Unemployment in three of Arkansas’ MSAs  fell in October (seasonally adjusted data*).  Rates in both Hot Springs and Texarkana were down 0.1% while Pine Bluff fell 0.3%.   Rates in Fort Smith and Little Rock were unchanged.  Only two MSAs saw higher unemployment:  Rates in Fayetteville and Jonesboro both rose by 0.2%.

Sources:  Bureau of Labor Statisics, UALR Institute for Economic Advancement

Sources: Bureau of Labor Statisics, UALR Institute for Economic Advancement

It might appear that unemployment rates around the state are following a rising trend.  But if we take a step back and look at the pattern that rates have followed over the course of 2010 it looks more like a mini-double dip employment recession.

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

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

In actuality, the patterns in the data are related to the hiring and subsequent layoffs of temporary Census workers.   Arkansas’ MSA’s have followed the same pattern seen in statewide and national data:  rates falling from around April until July, then rising until September or October, leaving unemployment rates about where they were in April.  This matches the timing of the surge in the employment of temporary Census workers.  Netting out this effect, unemployment has been approximately flat for most of 2010.

Payroll Survey:
Changes in nonfarm payroll employment provide encouraging signs:  October employment growth was zero or positive in each of the state’s MSAs.  This is not surprising, given the state-level data showing that Arkansas’ employment growth was the fastest in the nation in October.  Since the end of 2009, payroll growth has been positive in three of the seven MSAs.  Relative to a last October, growth has been positive in four MSAs.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

In terms of recovering the jobs that were lost during the recession, the figure below shows the cumulative change in employment since the start of the recession (December 2007).  Employment in the MSA’s of Hot Springs, Jonesboro, Texarkana — and more recently, Pine Bluff — have begun to increase from their low points earlier in year.  In fact, Jonesboro has experienced positive net employment growth since the start of the recession.  The other metro areas have a long way to go.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Although the effects of temporary Census workers have distorted the statistics, unemployment rates appears to be stabilizing.  And payroll employment figures are showing signs of real improvement (particularly in some areas of the state).  Employment statistics are lagging indicators (especially the unemployment rate), so even though we are nearly 1 – 1/2  years into the recovery it is likely to take considerably more time before the employment situation returns to a healthy state.

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*Seasonally adjusted data for MSA Payroll Employment are available from the Bureau of Labor Statistics.  However, data for unemployment rates are not.  In order to facilitate comparisons over different months of the year, unemployment rates are seasonally adjusted by the Institute for Economic Advancement using the conventional Census-X12 ARIMA procedure.

Arkansas Employment and Unemployment – October 2010

By , November 23, 2010 4:50 PM

Today’s employment reports from the U.S. Bureau of Labor Statistics and Arkansas Department of Workforce Services included both good news and bad news.  The bad news was another uptick in the unemployment rate, up to 7.8% from 7.7% in September.    The household survey that underlies the unemployment report indicated an increase of over 2,000 newly unemployed in October.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The survey of employers, on the other hand, showed a sharp increase in employment in October, following very disappointing jobs numbers from the previous two months.  After declining by 11,100 in August and 5,000 in September, October employment was up by 17,400 thousand jobs (seasonally adjusted).  In percentage terms this was the largest increase among the 50 states (+1.5%).

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The job gains were particularly notable in service providing sectors.  Professional and Business Services were up by 5,900 jobs, Leisure and Hospitality was up by 4,800, and Educational and Health Services were up by 1,700.  Since December of 2009, total employment in Arkansas has risen by nearly 19 thousand.  This represents considerable progress toward recovering the 49 thousand jobs that were lost over the previous two years. 

For the remainder of this year and through next year, employment growth should continue steadily, but somewhat slowly.  The unemployment rate, which tends to be a lagging indicator, may climb a bit higher before declining in the second half of 2011.

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*Seasonally adjusted data for nonfarm payroll employment, reported in a format compatible with the monthly press release from the Arkansas Department of Workforce Services, are available here
Table – Seasonally Adjusted NFPE.

Forecast Focus: Personal Income and Transfer Receipts

By , November 19, 2010 3:57 PM

One of the topics discussed at the UALR Arkansas Economic Forecast Conference last week was the importance of government transfer payments for assessing personal income growth at this stage in the business cycle. 

During a recession, transfer payments tend to increase for two reasons:  First, payments associated with economic hardship increase directly in response to the downturn in the economy.  For example, unemployment insurance payments and other income support payments rise as displaced workers become eligible.  This is sometimes referred to as part of the “automatic stablizer” mechanisms of fiscal policy.  In addition, the government typically adopts special measures to boost aggregate demand during recessions.  In this recession, the main vehicle for this type of support has been the American Recovery and Reinvestment Act (ARRA) — sometimes referred to as the “Obama stimulus” program.

Figure 1 compares data on total personal income (including transfer payments) for Arkansas and the U.S., using indexes based on the second quarter of 2008 (when both series reached their cyclical peaks).

Sources:  Bureau of Economic Analysis, Institute for Economic Advancement.

Sources: Bureau of Economic Analysis, Institute for Economic Advancement.

Personal income in both Arkansas and the U.S. declined modestly over the two quarters following the peak.  U.S. income took another sharp downward turn in the first quarter of 2009, before beginning a period of uneven recovery.  In Arkansas, income stabilized in the first quarter of 2009, and was basically flat until the end of the year.   This comparison suggests that income in Arkansas suffered a more modest downturn than the rest of the country, and has been recovering along with the rest of the nation since the fourth quarter of 2009.

But because transfer payments tend to rise during recessions, “Personal Income less Transfer Receipts” is considered to be a better measure of the economy’s underlying strength.1  Indeed, this is the measure of income monitored by the Business Cycle Dating Committee — the official arbiters of business cycles turning points.   Figure 2 compares Arkansas to the U.S. using this measure of income.

Sources:  Bureau of Economic Analysis, Institute for Economic Advancement.

Sources: Bureau of Economic Analysis, Institute for Economic Advancement.

Excluding transfer payments, the peak in income took place in the third quarter of 2008, instead of the second quarter.2  The U.S. still shows a sharper decline than Arkansas in the first quarter of 2009, but income in Arkansas began to recover by the second quarter of 2009–one quarter earlier than the U.S.

Figure 3 illustrates how non-transfer income and transfer income contributed to changes in Arkansas personal income in 2009 and 2010.   It also shows the specific contribution of ARRA transfer income to the total.3

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

The increase in transfer income during the recession clearly helped to smooth total personal income in Arkansas.  This is particularly evident for ARRA-related transfers, even though they constituted a small fraction of the total (averaging 0.9 percent from 2009Q2 through 2010Q2).  Figure 3 also shows how income from transfer payments tended to mask the underlying turning point in non-transfer income in 2009Q2.

To show the relative magnitude of recent changes in transfer and non-transfer income, Figure 4 presents personal current transfer receipts as a share of total personal income.  This measure rose sharply during the recession, and has continued to increase during the economic recovery.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

For the U.S., transfers rose from 14.5 percent of personal income in 2007Q4 to 18.3 percent in 2010Q2.   Over the same period, transfer payments in Arkansas rose from 19.7 percent to 24.5 percent of total income.  Transfers associated with ARRA accounted for less than one percent of these increases.

Rising transfer reciepts have supported personal incomes during the recession and early stages of the recovery, but their contributions to growth are temporary.   Transfer receipts contribute positively to income growth when they are increasing, but looking forward as unemployment declines and ARRA programs reach their completion, declining transfer reciepts will produce a drag on total personal income growth.

The table below illustrates this point, decomposing quarter-to-quarter growth rates of personal income into non-transfer income, transfers less ARRA, and ARRA components.

Sources:  Bureau of Economic Analysis and author's calculations.

Sources: Bureau of Economic Analysis and author's calculations.

On a quarter-to-quarter basis, ARRA-related transfer receipts contributed significantly to income growth only in the second quarter of 2009, when the programs initially ramped-up.  Quarterly ups-and-downs in ARRA transfers since then have contributed little to total personal income growth.  Non-ARRA transfer receipts have risen in each quarter, but the “automatic stabilizer” mechanism that drives these increases will dissipate as unemployment gradually declines.

In the forecasts for 2011 and 2012, persistently high unemployment is expected to keep transfer payments growing slightly, but contributing little to total personal income growth in Arkansas:  For 2011, growth in transfers contribute 0.8 percentage points to the total personal income growth forecast of 4.1 percent (Q4/Q4 growth).  In 2012, the contribution is only 0.4 percentage points to the 6.0 percent forecast for total personal income growth.  Transfer payments should begin to decline as a proportion of total personal income during 2012, and are expected to decline in absolute terms after that.

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Notes:

1 Personal Current Transfer Receipts include social security payments and veterans benefits, as well as unemployment insurance benefits and other general assistance programs.

2 The prior peak in Arkansas personal income, in 2007Q4, reflects payments associated with the buyout of Alltel–a one-time special factor.

3 ARRA data are from a special BEA report: Net Effect of ARRA on Personal Current Transfer Receipts.  Links to additional information from the BEA Survey of Current Business are available here.

Arkansas Gross Domestic Product – 2009

By , November 18, 2010 1:30 PM

Data for Gross Domestic Product by State were released this morning by the Bureau of Economic Analysis.  The numbers for Arkansas were something of a surprise.  Our state was one of only 10 that experienced positive growth in total output.  Arkansas’ growth rate of 0.6 percent (compared to the previous year) ranked 8th among the 50 states.  Overall, the United States experienced a decline of 2.1 percent.

GDP by State

A natural question that arises is this:  How can we reconcile relatively strong output growth with weak performance of labor markets?  After all, payroll employment in 2009 was down by more than 37 thousand jobs compared to the previous year.

In part, the answer involves rising productivity.  Businesses managed to produce more goods and services with fewer labor resources.  More important is the composition of growth.   GDP growth was concentrated in industries that are important for the Arkansas economy, but not necessarily the largest employers in the state.  The largest contributors to output growth included mining (+22.3%), Information Services (+20.8%), and Management services (+10.8%).  These three sectors together account for less than 5 percent of total employment in Arkansas.  On the other hand, some of the sectors that employ the most workers in Arkansas experienced contractions in 2009.   For example, output was lower in Manufacturing (-8.1%), and Transportation and Warehousing (-6.3%).   Manufacturing alone accounts for over 14 percent of Arkansas total employment.

Available data for 2010 suggest that output growth is spreading more broadly across the economy.  Sales, income, and employment are all showing signs of recovery.  When the GDP data for 2010 become available (a year from now), they should show more rapid and broad-based growth.

2010 UALR Arkansas Economic Forecast Conference

By , November 10, 2010 9:00 PM
Nov. 10, 2010

The UALR Arkansas Economic Forecast conference took place today.  Thanks to all who attended, and special thanks to the program participants:  Phillip Baldwin, Michael Dueker, Vic Hiryak, Richard Plotkin, and Randy Zook.

A copy of the Charts and Tables from the Arkansas Outlook presentation are available here.

– Michael Pakko

PS:  A post-conference interview with Roby Brock of Talk Business can be seen on the Arkansas Economist Media Page.

Arkansas Taxable Sales Up 0.9% in the Third Quarter

By , November 10, 2010 9:30 AM

Recent data on sales tax collections from the Arkansas Department of Finance and Administration show that taxable sales continued to expand in recent months.  After adjusting for the timing of tax collections, changes in tax law, and recurring seasonal fluctuations, recent sales tax growth suggests that Arkansas Taxable Sales increased by 0.9 percent in the third quarter of 2010.* 

This is the fourth consecutive quarterly increase, confirming that sales growth in Arkansas is continuing to recover substantially from the 2007-09 recession.  Over the past four quarters, Arkansas Taxable Sales have risen by 7.2 percent.

Sources:  Department of Finance and Administration, Institute for Economic Advancement

Sources: Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement

The third quarter gain is smaller than the previous two quarters.  As shown in the chart below, this deceleration is consistent with the pattern of national retail sales, which slowed from a 1.1 percent growth rate in the second quarter to a 0.6 percent rate in the third quarter.  But Arkansas continues to outpace the rest of the country:  Over the past four quarters, U.S. retail sales have grown at a rate of 5.6%, compared to the 7.2 percent rate for Arkansas Taxable Sales.  The recovery in sales growth in Arkansas may have lagged behind the rest of the nation, but the most recent data continue to indicate that Arkansas is rebounding more quickly.
Sources:  Department of Finance and Administration, Institute for Economic Advancement

Sources: Arkansas Department of Finance and Administration, U.S. Census Bureau, UALR Institute for Economic Advancement

The third-quarter increase is likely to be characteristic of sales growth over the next several quarters.  Rapid growth in the first half of the year reflected pent-up demand from the recession, and sales are now likely to settle into a more sustainable long-run pace.  Over the next two years, Arkansas Taxable Sales are forecast to grow in the range of 3 to 4 percent annually.

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*In early November, we would typically be reporting preliminary figures for the third quarter based on information from the DFA General Revenue Report for October and Arkansas Fiscal Notes for September.  Thanks to Dr. George Foy at DFA for providing the data needed to calculate final figures for the third quarter in advance of the usual publication schedule.

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The Arkansas Taxable Sales series is calculated by IEA to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the most recent data is available here:  Arkansas Taxable Sales data (Excel file)

Arkansas Home Sales – September 2010

By , October 28, 2010 12:38 PM

The Arkansas Realtors® Association (ARA) released their report on September home sales this morning.  The report notes that “home sales in September 2010 remained 21 percent below the state’s September 2009 pace when home-buyers were ramping up in advance of the initial deadline for the tax credit last November.”

Earlier in the week, the National Association of Realtors® (NAR) released data on existing home sales nationwide.  The NAR report noted that sales “remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.”  However, the headline on the NAR report, “September Existing-Home Sales Show Another Strong Gain,” emphasized the change from the previous month.   The report highlighted the fact that sales were up 10.0 percent (seasonally adjusted) compared to August.

In comparison to September 2009, the national report and the Arkansas report tell the same story.   Sales in 2010 are much lower than they were when a first-time home-buyer’s tax credit was in place.  However, when assessing the current state of the market and the near-term outlook, the NAR’s month-to-month comparison provides more timely information. 

In order to compare the more recent pattern of Arkansas home sales with the recent national statistics, it is necessary to explicitly take account of seasonal factors.  As noted in last month’s post on this topic, home sales follow a highly seasonal pattern.  This year, the typical pattern has been distorted by the expiration of the second round of home-buyer tax credits at the end of April.  Sales remained relatively strong in May and June as qualifying contracts continue to close, but dropped sharply in July.  The report from the NAR highlights recovery from that low point.

The chart below shows seasonally-adjusted home sales for Arkansas.  Two methods of seasonal adjustment are illustrated.  First, the “Direct” method applies the standard Census X-12 ARIMA procedure to the ARA data for the period January 2007 through December 2009, extrapolating the 2009 seasonal factors forward into 2010.  The second method applies the implicit seasonal factors from the NAR data:  Specifically, we use the most recent seasonal factors for the NAR’s “South” region, applying them to previous years’ data for Arkansas.

Sources:  Arkansas Realtors® Association, National Association of Realtors®, Institute for Economic Advancement

Sources: Arkansas Realtors® Association, National Association of Realtors®, Institute for Economic Advancement

The two methods of seasonal adjustment yeild similar results.  Seasonally adjusted sales were declining steadily during 2007 and 2008.  They recovered during 2009, but then dropped off after the expiration of the first round of tax credits near the end of the year.  Sales surged in March and April, as home-buyers rushed to take advantage of the second round of tax credits, then dropped off sharply to reach a low point in July.  This is the same pattern that is evident in the national sales statistics as well.

After hitting a low-point in July of this year, home sales in Arkansas have shown two months of increase.  The NAR report touted a 10% increase in September.  The corresponding figure for Arkansas is in the range of 15 to 18 percent (depending on the method of seasonal adjustment).  Compared to the low point in July, Arkansas home sales were up about 22 percent (using either method of seasonal adjustment).  The corresponding figure for nationwide home sales is 17.8 percent.

After making the adjustments necessary to legitimately compare month-to-month sales, the report on Arkansas home sales in September could carry the same headline as the NAR’s national report:   September Home Sales Show Another Strong Gain.

Arkansas Employment and Unemployment – September 2010

By , October 22, 2010 11:10 AM

This morning’s employment report from the U.S. Bureau of Labor Statistics and the Arkansas Department of Workforce Services showed that the labor market weakness recently evident in the national economic statistics is affecting Arkansas as well.   The new report showed that the number of unemployed Arkansans increased by nearly 1,900 in September.   As a result, the unemployment rate rose by two-tenths of one percent to 7.7%.  

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Once again this month, it is important to consider seasonal patterns when evaluating the data on payroll employment.  Without seasonal adjustment, the number of jobs counted in the payroll survey rose by more than 10,000.  However, as shown in the chart below, September is typically a month where employment expands sharply.   After adjusting for this recurring seasonal pattern, employment declined by 4,900.  When it comes to evaluating month-to-month job growth, the seasonally-adjusted data provide a more meaningful basis for comparison.  In fact, the inconsistency between comparing seasonally-adjusted household unemployment with not-seasonally-adjusted payroll employment is particularly evident in the data for September.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Some of the job losses over the past two months have been attributable to the lay-off of temporary Census workers.  As shown in the table below, Government employment declined by 2,400 in September.   Other important sectors showing job losses in September include Trade, Transportation, and Utilities; Construction; and Manufacturing.   Growth in manufacturing employment earlier in the year had been an encouraging sign.  But after six consecutive months of increase, employment in manufacturing has now declined in both August (-1,200) and September (-1,300).

Employment in service-providing sectors fared somewhat better in September.  Professional and Business services, Leisure and Hospitality Services, and Other Services showed seasonally-adjusted increases in September.  The Leisure and Hospitality category is another example where seasonal adjustment matters.  Typically, firms in this sector scale back after Labor Day.  Consequently, not-seasonally-adjusted employment in this sector actually declined by 1,200 jobs.  But this is a smaller decline that would usually be expected for the month.  Hence, after seasonal adjustment, employment rose by 300.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Sluggish job growth has been distinct characteristic of the current economic recovery–both in Arkansas and nationwide.  Recent data show increasing weakness in job growth.  Two factors are relevant:  First, the inventory correction that helped to boost production-related jobs earlier in the year appears to have largely run its course.  In addition, the direct effects of Federal stimulus programs have dissipated somewhat.  We are now in a period in which the economy is transitioning toward a lasting, self-sustaining recovery.  Employment growth is sure to pick up when these transitions are complete.  The key question is how long they will take.

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*Seasonally adjusted data for nonfarm payroll employment, reported in a format compatible with the monthly press release from the Arkansas Department of Workforce Services, are available here
Table – Seasonally Adjusted NFPE.

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