Institute for Economic Advancement

Arkansas Home Sales – August 2010

By , September 28, 2010 3:20 PM

The Arkansas Realtors® Association released new information on August home sales this morning.  For the month, the data show total sales of 1897 units, down 14.7 percent from August of 2009.  However, year-over-year comparisons are not necessarily the most informative guage to use under the current circumstances.  A year ago, the first-time home-buyers’ tax credit was helping to boost sales, while the expiration of tax credits in April of this year has contributed to a slump in home sales during the summer of 2010.   As shown in Figure 1, home sales usually follow a distinct seasonal pattern, with the highest sales during the summer months (May through August).  This year, the rush to take advantage of tax credits pushed the peak to earlier in the year.  

Figure 1:
Source:  Arkansas Realtors® Association

Source: Arkansas Realtors® Association

Typically,  the peak sales month is July, but August sales also tend to be relatively high.  On average over the past three years, August sales have been approximately 4 percent lower than July.  In 2010, sales in August were 7.8 percent higher than the previous month.  This uncharacteristic pattern suggests that the post-tax-credit hangover hit hardest in July and the market is starting to recover.   Reinforcing this conclusion, Figure 2 shows data that have been seasonally adjusted.*  The seasonal adjustment procedure smooths out the predictable seasonal fluctuations, leaving only idiosyncratic month-to-month volatility and broad cyclical patterns.

Figure 2:
Sources:  Arkansas Realtors® Association, Institute for Economic Advancement

Sources: Arkansas Realtors® Association, Institute for Economic Advancement

In the adjusted data, it is clear that sales improved steadily over the course of 2009 (presumably with support from the original first-time home buyers’ credit).   After the expiration of the original tax credit program, sales slowed over the winter months before being boosted by the extended and expanded tax-credit program in the first part of 2010.  Both Figure 1 and Figure 2 show that the August sales number represents a slight rebound from the July slump.

Data on the average sales price of Arkansas homes, displayed in Figure 3, show that the slowdown in sales has been accompanied by a rather sharp increase in prices.  The average sales price for August was $152,466, up by over 12 percent compared to February 2010.  It is very unlikely that this increase represents a rise in the general value of Arkansas houses.  Rather, the increase in prices represents a changing mix of homes that are being sold.  The home-buyer tax credits tended to favor buyers in the low- to mid-price range.  Now that they have expired, a larger proportion of total sales are higher-priced homes.  The increase in average sales prices is also supported by a seasonal pattern in which higher-priced homes tend to experience relatively higher sales volume over the summer months. 

Figure 3:
Source:  Arkansas Realtors® Association

Source: Arkansas Realtors® Association

 The headline of the press release from the Arkansas Realtors® Association emphasized that year-to-date home sales in 2010 were approximately equal to the same period in 2009.  Given the recent distortions in the market due to the implementation and expiration of home-buyer tax-credits, this is probably the most reasonable intertemporal comparison to make.  In order for annual home sales in 2010 to exceed those of 2009, however, we will have to see further sales recovery in the remaining months of the year.

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*Seasonally adjusted data are computed by applying the Census X12 ARIMA procedure to monthly data for January 2007 through August 2010.

Arkansas Employment and Unemployment – August 2010

By , September 21, 2010 11:37 AM

The latest information on Arkansas employment and unemployment was released by the U.S. Bureau of Labor Statistics and the Arkansas Department of Workforce Services this morning.  The report showed that the unemployment rate ticked up one-tenth of one percent to 7.5%.   The household survey showed that the number of unemployed persons rose by over 1,800 in August (seasonally adjusted).  

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

Payroll employment data also indicated labor market weakness in August.  Seasonally adjusted data showed a decline of nearly 11,000 jobs.  The losses were most prominent in Education and Health Services, and Government.    Declines in Government jobs were primarily in the category of Federal employees, and most likely represent the layoff of temporary Census workers.  According to the report from the Arkansas Department of workforce services, the losses in Education and Health were primarily in the education category.
Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The information in the employment report for August indicates a slowdown in the the pace of economic recovery in Arkansas.  Nevertheless, there is no reason to believe that it represents anything more than a temporary setback.  Total employment remains above the level of December 2009 and above the level of a year ago.  Several sectors continue to show net job growth over the past several months.  Sectors that have shown positive growth over the first eight months of the year include construction; manufacturing; trade, transportation, and utilities; and education and health services.

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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.

Arkansas Personal Income – 2010:Q2

By , September 20, 2010 9:48 AM

This morning, the Bureau of Economic Analysis (BEA) released new data for state-level personal income.  In the second quarter of 2010, all 50 states (plus D.C.) showed positive income growth, ranging from 2.0 percent in North Dakota to 0.3 percent for Nevada.  Arkansas personal income increased by 0.9 percent, just slightly lower than the national average of 1.0 percent. 

As shown in the chart below, personal income in both Arkansas and the U.S. peaked in the second quarter of 2007, with the data for Arkansas showing a shallower downturn during the recession than the U.S.  The second quarter increase in Arkansas represented the fifth consecutive quarter of positive income growth. 

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

According to the press release from the BEA, Arkansas is one of 27 states where personal income has now climbed above the current-dollar level reached before the recession.  In part, the relatively strong performance of Arkansas reflects newly-revised data.  This morning’s announcement included revised statistics for the period 2001 through 2009.  The chart below shows how the revisions affected data for Arkansas.

Source:  Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Arkansas Home Sales – July Update

By , September 9, 2010 12:29 PM

This morning, the Arkansas Realtors® Association (ARA) released home sales statistics for the month of July.  As anticipated (see previous post), sales were down sharply from the previous month and were substantially lower than the previous year.  Compared to July 2009, Arkansas home sales were down 31.6 percent.  As shown in the chart below, home sales during 2010 have followed an unusual seasonal pattern. 

ara0710

Typically, sales peak during the mid-summer months (usually in July), then taper off over the remainder of the year.  This year, the peak came early.  The reason, of course, was the availability of tax credit for home buyers, which expired at the end of April.  To qualify for the credit, a contract needed to be in place before May 1, but the actual closing date could be later.  Hence, sales figures for May and June  were supported by the lingering effects of the credits.   The steep decline in July reported this morning mirrors the pattern we saw in the national data for new and existing home sales, and reflects the fact that most of the contracts that were eligible for tax credits have already been closed.

The big question is how the rest of the year will develop.  Temporary subsidies and incentives tend to shift demand from one time period to another.  Many of the home sales that took place in the first half of 2010 would have probably occurred later in the year were it not for the tax credit deadline.  The key issue is whether there is substantial demand remaining to support the market after the hangover ends.  In this regard, forecasts are necessarily uncertain. 

Some specific fundamentals suggest that there may be some limited recovery of the market during the fall months:  House prices remain somewhat weak and mortgage rates are at historic lows — it’s still a buyer’s market.  There will continue to be routine demand for homes associated with relocations.  On the other hand, the slow recovery of employment has sapped some strength out of consumer confidence, so there is apprehension about making the kind of long-term commitment that is entailed in buying a house.  Since Arkansas has not suffered the magnitude of job losses seen in other parts of the country, and is showing some signs of recovery, we can be hopeful that this will not be a significant damper on housing demand during the remaining months of 2010.

The full report from the ARA (Excel spreadsheet) can be downloaded here.

Arkansas Taxable Sales – Revised Data for 2010:Q2

By , September 1, 2010 8:00 AM

“Sales rose by 3.0 percent, rather than the 4.0 percent previously reported.”   

The reason:  “Grocery sales, as a percent of total sales, dropped sharply in June.  This could actually be a positive development.”

The preliminary estimate for second quarter growth of Arkansas Taxable Sales (ATS), announced in a previous post, was based on information from the July 2010 General Revenue Report from the Arkansas Department of Finance and Administration (DFA).  With the recent release of more detailed information in the DFA publication Arkansas Fiscal Notes, a revised estimate of ATS shows a somewhat smaller increase in the second quarter of 2010:  Sales rose by 3.0 percent, rather than the 4.0 percent previously reported.

The downward revision is disappointing.  But as shown in the chart below, it doesn’t really change the qualitative interpretation of second quarter data:  Sales accelerated in 2010:Q2 and have risen significantly since the apparent trough of 2009:Q3. 

Source:  Arkansas Department of Finance and Administration, and author's calculations.

Sources: Arkansas Department of Finance and Administration and author's calculations.

Investigation of the reason for the downward revision in ATS reveals an interesting observation:  Grocery sales, as a percent of total sales, dropped sharply in the June.  This could actually be a positive development.  

Preliminary estimates of ATS are based on gross receipts, which primarily reflect total sales tax collections.  But total sales taxes represent a mix of taxes on groceries (at a current tax rate of 2 percent) and taxes on non-groceries (at a tax rate of 6 percent).  Changes in the mix of these two categories alter the effective tax rate on total sales.

The revised figures for ATS are based on data on receipts from the Arkansas Conservation Tax.  Because it is written into the Arkansas constitution, the Conservation Tax was not altered by reductions in the tax rate on groceries in July 2007 (from 6 percent to 3 percent) and in July 2009 (from 3 percent to 2 percent).  Instead, the lower sales tax on groceries is reflected in proportional reductions in the other three components of Arkansas’ Sales and Use Tax (the General Sales Tax , the Educational Adequacy Tax, and the Property Tax Relief Tax).

When groceries decline as a fraction of total sales, these three taxes show a disproportionate increase in overall tax receipts (because a larger share of sales are taxed at a higher rate).  The preliminary ATS estimates (which are implicitly based on the assumption of a constant share of grocery sales) would therefore overstate the increase in total taxable sales if this were the case.

This appears to be exactly what happened in June.  By comparing changes in tax receipts from the conservation tax with receipts from the other sales tax components, it is possible to estimate the share of grocery sales as a proportion of total sales (see technical note).  The results of this estimation are shown in the chart below.  Before the national recession began at the end of 2007, groceries constituted about 6 percent of total sales.  This proportion rose during the early stages of the recession in 2008, and increased sharply at the end of the year when the financial crisis intensified the economic downturn.  Estimates for June 2010 show a sharp decline, from about 12 percent to just over 8 percent.

Sources:  Arkansas Department of Finance and Administration, and author's calculations.

Sources: Arkansas Department of Finance and Administration, and author's calculations.

Economic theory distinguishes goods by the responsiveness of their demand to changes in income.  Some basic grocery items are considered “inferior goods,” reflecting the fact that fewer are purchased as income increases (in favor of higher-quality goods).  In general, groceries are considered “normal goods,” for which demand increases when income rises, but typically less than one-for-one.   In contrast, some  goods are considered “superior goods” or “luxury goods,” for which demand increases in greater proportion to income.

The observation that grocery sales increased as a percent of total sales during 2008 and into 2009 is therefore consistent with a downturn in household income during the recession.  The recent decline in the grocery sales suggests that households are increasing their purchases of superior goods relative to normal and inferior goods.  This provides indirect evidence of higher household incomes (or at least expected incomes).

This observation is supported by data for only one month, so it should be taken as conjectural.  However, it suggests that the downward revision in ATS for the second quarter is not unambiguously bad news.

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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)

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