Institute for Economic Advancement

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)

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