Metro Area Employment and Unemployment – July 2012

By , August 29, 2012 12:29 PM

The Bureau of Labor Statistics (BLS) reported this morning that unemployment rates were lower in July than a year earlier in 305 of the nation’s 372 metropolitan areas.  All of Arkansas’ metro areas were included in that total.  Statewide unemployment was down 0.7% from July 2011 (not seasonally adjusted).  As shown in the table below, metro area unemployment rates have fallen between 0.3% and 1.1% over the past year.

Source: Bureau of Labor Statistics

The not-seasonally-adjusted figures showed some sharp increases from the previous month, but these changes were driven by the typical summer upturn associated with students and teachers being off for the summer.  The BLS’s smoothed seasonally adjusted estimates (below) show more modest increases.  Unemployment rates were unchanged in Fayetteville, Little Rock, and Texarkana.  They were up by 0.1% in Hot Springs, Jonesboro, and Pine Bluff.  Fort Smith and Memphis both saw somewhat larger increases (+0.3%).

Source: Bureau of Labor Statistics


Changes in payroll employment in the state’s metro areas covered a rather wide range.  Compared to the previous month, employment was down in Jonesboro (-0.6%), Fort Smith (-0.6%), Pine Bluff (-0.8%) and Fayetteville (-1.0%).   Employment increased in the state’s other metro areas, with changes ranging from +0.1% in Memphis to +1.0% in Texarkana.  Over the past 12 months, employment in Texarkana has increased by over 7%.  According to this morning’s report from the BLS,  this was the third-largest year-over-year percentage increase in the country.

Source: Bureau of Labor Statistics

Employment hit a low point in February 2010 (for both Arkansas and the U.S.).  However, employment in three of the state’s metro areas has shown cumulative net declines since then.  Compared to the month before the recession started (December 2007), employment is still down in most metro areas.  Employment in Jonesboro is slightly above its pre-recession level (+0.4%) and it is considerably higher in Texarkana (4.9%).

FDIC Data: Arkansas Banks Continue to Fare Well

By , August 28, 2012 4:54 PM

The Federal Deposit Insurance Corporation (FDIC) released new statistics on the nation’s banking system this morning.  The FDIC press release quoted acting Chairman Martin J. Gruenberg saying that the report indicated “gradual but steady progress toward recovery.”  In addition to a sharp increase in net earnings, key statistics from the second quarter report included expanding loan balances, lower levels of troubled assets, and improving profitability.

Nationwide, net earnings were up more than 20% compared to the second quarter of 2011.  Earnings of Arkansas banks were up only 3.6% from the previous year, but that comparison is based on relatively stronger earnings among Arkansas banks last year.  Focusing on the most recent quarter-to-quarter change, Arkansas banks saw a 18.4% increase, compared to a slight decline nationwide.

Source: FDIC

Growth in total loans and leases in Arkansas kept pace with the nationwide average:  Compared to a year ago, loans were up 2.7% nationwide and up 2.5% in Arkansas.

One indication of a healthier banking sector is the ongoing decline in troubled assets.  As shown in the figure below, non-current loans and leases (as a share of the total) continued to decline in 2012:Q2.  As noted in a previous post, much of the run-up in non-current loans during 2010 and early 2011 was driven by Arkansas banks absorbing failing out-of-state institutions.  These troubled assets are carried on the books as non-performing, even though arrangements with the FDIC partially indemnify the losses associated with the takeovers.  More recently, the share of non-current loans at Arkansas banks has fallen sharply over the past four quarters, and is nearly a full percentage point lower than the national average.

Source: FDIC

Perhaps the best measure of comparative performance is bank profitability.  As shown in the figure below, the return on assets at Arkansas banks remained positive throughout the recession and early recovery, while average returns nationwide were negative during 2009.  In the most recent quarter, the national average return on assets was 0.99%.  Among Arkansas institutions, the average return was 1.04%.  In four of the past five quarters, Arkansas return-on-assets was above the benchmark level of 1.0%.

Source: FDIC

Arkansas Taxable Sales – Final Data for 2012:Q2

By , August 27, 2012 4:40 PM

CORRECTION – 9/6/12:  Due to a data transcription error, the previously-reported final figures for June 2012 (and hence, the second quarter) were incorrect.  The text, tables, chart, and downloadable spreadsheet below have been revised to reflect the corrected data.  The change results in year-over-year increases for ATS and ATSIG that are 0.1% higher than previously reported.

The final pieces of information are now available for calculating second-quarter Arkansas Taxable Sales (ATS).  Due to particularly weak sales and use tax collections in July (corresponding to June sales), ATS declined 0.5% from the first quarter of the year (seasonally adjusted).  The preliminary estimate had shown a decline of only 0.3%.  Gasoline sales were also lower in June than previously estimated, so Arkansas Taxable Sales Including Gasoline (ATSIG) declined even more sharply — down 1.4%.  The quarterly declines represented a slowdown in longer-run growth:  Compared to a year earlier, ATS was up 4.6% and ATSIG was up 3.9%.

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

The figure below illustrates that the second-quarter weakness in sales was primarily concentrated in June.  A single monthly data observation is never enough to establish a trend — it is always possible that the sales decline in June was a statistical anomaly.  Given the concurrent slowdown in national retail sales in the second quarter, however, the latest data on ATS provides some cause for concern about the robustness of Arkansas’ economic growth over the summer months.  We’ll be closely monitoring third quarter data as it emerges.

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

# # #

Arkansas Taxable Sales (ATS) is calculated by the Institute for Economic Advancement to serve as a timely proxy for Arkansas retail sales. The series is derived from sales and use tax data, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.  Arkansas Taxable Sales Including Gasoline (ATSIG) incorporates data on the state motor fuel tax and gasoline prices from the Oil Price Information Service.

A spreadsheet of the data is available here: Arkansas Taxable Sales Data 2012:Q2 (Excel file)

New FHFA House Price Data – A Mixed Bag

By , August 23, 2012 3:08 PM

This morning, the Federal Housing Finance Agency (FHFA) released house price data for the second quarter of 2012.  For Arkansas, the report was a mixed bag of results.  The seasonally-adjusted “Purchase-Only Index” (which uses only sales price data) showed Arkansas house prices up 1.9% for the quarter and up 7.2% from a year earlier.  In comparison, data for the U.S. showed prices up 1.8% for the quarter and up 3.0% from the previous year.  On the other hand, the FHFA’s “All-Transactions Index” (which includes appraisal data from refinancings) showed prices declining.  House prices were down 1.5% in Arkansas, and down 0.7% nationwide.

Source: Federal Housing Finance Agency

Source: Federal Housing Finance Agency

The purchase-only index has the advantage of measuring only market transactions — where true value is revealed.  The all-transactions index has broader coverage and incorporates more individual data observations.  But neither is a perfect measure.  One conclusion on which both methodologies agree:  The house-price crash that has plagued the market since 2006 has not been nearly as severe in Arkansas as in the rest of the nation.

One drawback of both measures is the limited nature of the underlying data, which are restricted to mortgages financed by Fannie Mae and Freddie Mac.  Missing in this sample are transactions for homes financed with nonconforming mortgages, including “jumbo” loans.  In an attempt to broaden coverage, the FHFA introduced a third measure last year, the “Expanded-Data” indexes, which incorporate additional data from the FHA and from county recorder offices.  The Expanded-Data indexes help to bring the FHFA measures into closer correponsdence with the famous Case-Shiller house price index.

As shown in the chart below, the expanded data indexes show larger peak-to-trough declines than either the all-transactions or purchase-only measures, but tend to validate the view that we are past the trough with prices beginning to recover.  For the second quarter, the expanded-data series show Arkansas prices up 2.4% and U.S. prices up 2.0%.  On a year-over-year basis, the Expanded-Data series show prices up 7.8% in Arkansas and up 2.4% for the U.S.

Source: Federal Housing Finance Agency

Metro Area House Price Data:
Metro area data are available only for the All-Transactions measure.  Consistent with the statewide reading for the second quarter, house prices as measured by this methodology were down across the state.  Price declines ranged from -0.4% in Little Rock and Fort Smith to -5.4% in Hot Springs.  Relative to the second quarter of 2011, however, house prices were measured as being higher in three metro areas — Fayetteville, Jonesboro and Little Rock.  The longer-run record of house prices shows considerable diversity among the states metro areas.  Compared to the second quarter of 2007, price changes range from +6.2% in Texarkana to -18.6% in Fayetteville.

Source: Federal Housing Finance Agency

Arkansas Employment and Unemployment – July 2012

By , August 17, 2012 10:29 AM

The Arkansas unemployment rate ticked up one-tenth of a percent in July to 7.3%.  The national unemployment rate was also up one-tenth for the month, so Arkansas remains 1.0% lower than the U.S. average.  The uptick in unemployment was seen across most of the country:  the news release from the Bureau of Labor Statistics (BLS) reported that Arkansas was one of 44 states to see an increase for the month.  Arkansas was also one of 44 states with a lower unemployment rate than a year earlier.

Source: Bureau of Labor Statistics

Underlying the unemployment rate increase was a 4,800 decline in the number of employed and an increase of nearly 1,400 in the number of unemployed.  The number of unemployed had fallen below 100,000 in June, but the July figures show that it crept back up over that threshold in July.  The decline in employment implied a contraction in the labor force participation rate for the second consecutive month.

Payroll Employment
The independent payroll survey showed a decline of 2,400 jobs (seasonally adjusted).  This is far smaller than the not-seasonally-adjusted figures released by the Arkansas Department of Workforce Services, which showed a decline of 16,800.  The unadjusted numbers were primarily attributable to the common seasonal decline in employment at public schools and universities in July (which shows up in the local government category).

Sectors showing seasonally adjusted declines in July included Construction (-1,800), Transportation and Utilities (-1,000), Leisure and Hospitality services (-1,400).  Manufacturing employment was up by 700, bringing total employment in that sector back up to the same level as a year earlier.  Compared to July of 2011, Construction continues to be the weakest sector, with employment down 4,900 (seasonally adjusted).

Source: Bureau of Labor Statistics

Overall, the July employment report confirms the weakening of labor markets compared to the first part of the year — both nationally and here in Arkansas.

#  #  #

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

Collins vs. Brummett on State Income Taxes: A Comment

By , August 13, 2012 2:12 PM

Over the past few weeks, columnist John Brummett and state Representative Charlie Collins have been engaging in a public debate about Collins’ suggestions for modifying the personal income tax structure in Arkansas.  Collins’ proposal is to eliminate the second-lowest 2.5% tax rate (lowering it to 1%), to eliminate the highest 7% tax rate (lowering it to 6%), and to raise the threshold at which the new highest rate would kick in.  The threshold would be raised in phases for “higher income levels (six-figure earners) … over time.”  (He has been cited as suggesting that the threshold increase by $20,000 per year.)

Collins argues that his proposal represents “a dramatic tax break for low-income workers (60 percent reduction from 2.5 percent to 1 percent), strong relief for middle-class working families (35 percent cut from 7 percent to 4.5 percent), and a modest drop for high-income workers and job creators (14 percent from 7 percent to 6 percent).”

In a recent column, Brummett called these calculations “superficial and misleading.”  He calculates that for a taxpayer making $7,800 in adjusted taxable income per year (after exclusions and deductions) the tax savings from Collins’ plan would be about $60, and for a taxpayer with $252,600 in taxable income per year the tax reduction would be $2,200.  He cites this comparison as being fundamentally “unfair,” and asks the rhetorical question: “What’s the percentage of the better deal the well-off guy gets with $2,200 than the poor guy gets with $60?”

So who is right?  Actually, that’s a complicated question.  Both Collins and Brummett are factually accurate, but neither tells the whole story.  Each picks particular comparisons to support his case, missing some of the more general and subtle implications of the proposed plan.  And more importantly, they are addressing somewhat different questions.   The Arkansas Economist decided to weigh-in on this debate in an effort to provide a common-denominator, in the hope of clarifying some of the issues that underlie the disagreement.

To begin with, there is an important distinction between marginal tax rates and average tax rates.  In a progressive income tax scheme, marginal tax rates increase in steps.  Under current Arkansas law (2011 tax year), the tax is 1% on the first $3,999 of income, 2.5% on the next $4,000, 3.5% on the next $3,900, 4.5% on the next $8,000, 6% on the next $13,300, and 7% for any adjusted taxable income above $33,200.   The average tax rate (taxes paid as a percentage of income) is therefore a composite of marginal tax rates paid on cumulative levels of income.

Figure 1, below, illustrates marginal and average tax rates for current law, and for three alternative scenarios corresponding to the components of Collins’ plan.  Panel A illustrates current Arkansas tax law, with marginal and average tax rates plotted against adjusted taxable income.  Because the higher levels of income are taxed at progressively higher rates, the average tax rate is lower than the marginal tax rate for all income levels above the lowest bracket.   Average tax rates increase with income in a fairly smooth relationship, converging gradually to the highest marginal rate.  Panel A shows that taxpayers with adjusted taxable income below $4,000 currently pay an average tax rate of 1% (the same as the marginal rate), while those with incomes of $250,000 pay an average tax rate of about 6.6%.

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

Panel B shows the effect of eliminating the 2.5% and 7% marginal tax brackets, without adjusting the threshold levels of income.  This lowers average tax rates for all taxpayers with incomes over $4,000, reducing the “steepness” of the average tax rate curve. Taxpayers with incomes of $250,000 now pay an average tax of 5.75%.  Panel C shows an estimate of the first phase-in of Collins’ increase in the threshold at which the 6% rate kicks in — an increase from 19,899 to 39,999.  This change lowers average tax rates for all incomes above $19,899, particularly for those with incomes between $20,000 and $40,000.  The average tax rate for an income of $250,000 falls from 5.75% in Panel B to 5.63% in Panel C.  Similarly, Panel D — which shows an increase in the highest tax-bracket threshold to the “six-digit” figure of $100,000 — shows a further flattening of the average tax curve (particularly for adjusted taxable incomes between $40,000 and $100,000), with the average tax rate for $250,000 incomes declining to 5.27%.

Having made the distinction between marginal tax rates and average tax rates, which one matters?  Collins’ main argument is that lowering tax rates will boost economic growth, and in this regard his focus on marginal rates is appropriate.  Economists generally consider decisions are made on the margin:  when considering an action that would change a taxpayer’s income, the question is “how will taxes affect my net income from one additional dollar earned in gross income?”

But for comparing the magnitude of tax cuts for different income levels, the average tax rate is a more appropriate measure. Collins’ calculations using marginal tax rate changes amount to making comparisons at very specific points along the income distribution, with the changes in marginal tax rates serving as an approximation of the impact on taxes paid (since the total tax bill is actually a composite of marginal rates).

Brummett is even more explicit about comparing a limited number of cases.  In particular, he considers two extremes:  One taxpayer with income of $7,800 and another with an income of just over $250,000.  Figure 2, below, generalizes Brummett’s argument.  Figure 2 shows the total tax reduction (in dollars) as a function of taxable income.  At the lowest income levels, the tax reduction amounts to $60 (as Brummett calculates).  This figure applies to all incomes in a range from $8,000 up to $19,900, the current 3.5% and 4.5% marginal tax brackets.  These marginal tax rates are unchanged by Collins’ proposal, but the elimination of the 2.5% tax bracket lowers total (and average) taxes.  Brummett’s other extreme is a taxpayer making over $250,000 in adjusted taxable income.  After the elimination of the two tax brackets, a taxpayer with this income receives a tax cut of about $2,200.  Note that by ignoring the proposed increase in tax-rate thresholds, Brummett actually underestimates the savings for these taxpayers would enjoy under Collins’ complete plan.  After the threshold for the new highest rate has reached six figures, the total tax savings for a taxpayer with $250,000 in taxable income is about $3,400.

Source: Author’s calculations.

So does this mean that Brummett is correct about the innate unfairness of the plan?  No, not really.  His comparison of two extreme cases, generalized in Figure 2, amounts to nothing more than an observation that any across-the-board tax cut results in larger tax reductions (in absolute dollar terms) for those who pay the most taxes in the first place.

Typically, those who emphasize “fairness” in the tax structure are focusing on progressivity.  For example, no one expects that Warren Buffet has a lower total tax bill than his secretary, but the controversy about fairness focuses on whether or not he pays a lower average tax rate (there’s that average tax rate again!).  An across-the-board tax cut proposal like Collins’ could conceivably result in a universally more progressive tax structure, but it would still display the pattern shown in Figure 2.

Economists have no special insight on whether a tax structure is “fair” or not, but we can describe objectively whether one tax structure is more progressive than another.  To do so, we need to consider the pattern of tax reductions in percentage terms.  This is precisely equivalent to looking at the percentage change in average tax rates.  One tax regime is considered more progressive than another if larger proportionate tax cuts go to lower income tax payers and vice versa.

Figure 3 shows how these percentage changes work out under the Collins plan.  Under each of the modified scenarios, the largest tax cuts in percentage terms are for taxpayers with adjusted taxable incomes of around $8,000.  So, Brummet’s hypothetical low-income taxpayer with his $60 tax cut receives the largest proportionate reduction of any income category — around 42%.  Note that this is somewhat less than the 60% reduction calculated by Collins using changes in marginal tax rates.

Source: Author’s calculations.

Without any change in the threshold level for the highest marginal tax rate, the proportionate tax saving falls off sharply over the income range of $8,000 to $33,000.  The smallest tax cut, 4.2%,  goes to a taxpayer with adjusted taxable income of $33,200 (the current level at which the 7% rate kicks in).   From that point, the proportionate tax savings is increasing in income.

Over the range from $8000 to $33,200, we can state unambiguously that the elimination of the two tax brackets increases the progressivity of the tax structure.  More generally, one can select any two or three points along the income distribution to show that progressivity has increased or decreased.  The important point is that such comparisons are specific to the particular points chosen.  A tax reform plan is universally more (less) progressive if the percentage tax savings are decreasing (increasing) in income over all income ranges.

Note that increasing the threshold where the maximum tax rate takes effect introduces a much different pattern of progressivity over higher income levels.  With no change in the threshold, the tax cuts become proportionately larger for higher incomes.  But increasing the threshold leads to a boost for those with incomes between $19,900 and the new higher cut-off level.  Raising the threshold to $40,000 increases the percentage tax cut for someone at that level of income by 22.5%.  Raising it to $100,000 implies a tax cut of 31.6% for taxpayers with adjusted taxable income of $100,000.  In either case, the percentage change in taxes is decreasing for incomes above the new threshold.  That is, raising the threshold has the effect of introducing greater progressivity into the upper end of the tax structure.

Of course, the issue of fairness and progressivity reflects only one dimension of a complex issue.  Collins emphasizes the positive effect his proposal would have for economic growth.  Brummett points out that lower income tax revenues for the state have to be made up for by increasing other taxes or cutting government spending.  Both points are valid, but the key question in each case is “how much?”  In the end, these questions are arguably more important than the progressivity issue — but are beyond the scope of this brief comment on the recent debate.

Arkansas Taxable Sales – 2012:Q2 (Preliminary*)

By , August 6, 2012 4:13 PM

Weakness in sales and use tax collections in July suggests a downturn in Arkansas Taxable Sales (ATS) in the second quarter.  According to the data from the July general revenue report — which roughly correspond to sales during the month of June — sales tax receipts were down 0.6% from the same month a year earlier.  On a quarterly average basis, this implies that ATS declined by 0.3 from the first quarter to the second quarter of 2012.

Declining gasoline prices drove a sharp decline in gasoline sales as well.  The average price of gallon of regular unleaded gasoline in Arkansas was $3.22 in June, down from a peak of $3.74 in April.  Total sales of gasoline are estimated to have fallen 9.9% in the second quarter.  Consequently, Arkansas Taxable Sales Including Gasoline (ATSIG) fell even more sharply than ATS:  down 1.2% for the quarter.

Despite the weakness in the most recent data, relatively strong growth in the previous three quarters imply that both ATS and ATSIG are well above their year-ago levels.  From 2011:Q2 through 2012:Q2, ATS expanded by 4.8% and ATSIG was up by 4.2%.

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

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

The second quarter weakness in taxable sales was due entirely to an apparent downturn in sales during the final month of the quarter.  Hence, it would be premature to be concerned about ongoing weakness.  Nevertheless, the second quarter downturn parallels a similar slowdown in national retail sales, suggesting that the Arkansas data may not simply be a statistical anomaly.  Preliminary data from the Census Bureau shows that U.S. Retail Sales were down nearly 0.4% in the second quarter, matching the approximate timing and magnitude of the weakness in Arkansas Taxable Sales.

Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, U.S. Census Bureau, Institute for Economic Advancement

At this point, the second quarter data are preliminary.  Final figures on sales and use tax collections in July are not yet available, nor are the data for gasoline sales in June (the gasoline component of ATSIG in this preliminary report is includes June figures that are derived from model-based estimates).   The data will be updated here on the pages of the Arkansas Economist when final information is available.

# # #

Arkansas Taxable Sales (ATS) is calculated by the Institute for Economic Advancement to serve as a timely proxy for Arkansas retail sales. The series is derived from sales and use tax data, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.  Arkansas Taxable Sales Including Gasoline (ATSIG) incorporates data on the state motor fuel tax and gasoline prices from the Oil Price Information Service.

A spreadsheet of the data is available here: Arkansas Taxable Sales Data 2012:Q2 (Excel file)

* Data are preliminary until the release of the DFA report, Arkansas Fiscal Notes for July 2012, and will be updated when information becomes available.

Metro Area Employment & Unemployment – June 2012

By , August 1, 2012 3:25 PM

The Bureau of Labor Statistics reported today that unemployment rates in June were lower than a year earlier in 328 of the nation’s 372 metropolitan areas.  In Arkansas, unemployment rates were down sharply in every metro area.  The smallest decline was for Little Rock, down 0.9%.  The unemployment rate in Pine Bluff was down 1.7% from June 2011.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Typically, month-to-month changes in the not-seasonally-adjusted unemployment rate data are dominated by predictable seasonal movements.  But the May-June seasonal effect is rather small, so the smoothed seasonally adjusted estimates for metro area unemployment rates this month are very close to the unadjusted data.  As shown in the table below, unemployment rates declined in 6 of the 8 metro areas.  Unemployment in Fort Smith was unchanged, and the rate ticked up one-tenth in Memphis.

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Payroll Employment

Statewide data released on July 20 showed a monthly decline for Arkansas, down 4,300 jobs (-0.4%), but today’s data showed employment increase in all 8 of the state’s metro areas.  Employment in the Little Rock metro area was essentially unchanged, but for some MSAs the increases were substantial:  Jonesboro, Texarkana, and Pine Bluff all saw monthly increases exceeding one full percentage point.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

The apparent disconnect between metro-area employment gains and statewide employment losses in June has several possible explanations.  It may be the case that most of the job losses took place in the non-metro area of the state, offsetting the metro-area gains.  Another possibility is that metro area job increases are taking place largely in the non-Arkansas counties within those areas, with counties on the Arkansas side of the border lagging.   Then again, it could just be a statistical anomaly due to sampling error or some other data discrepancy.  Unless the divergence between metro and state employment trends persists, however, it should not be a cause for great concern.

With the June payroll numbers now available, we can take a step back and consider the the longer-run trends using quarterly-average data.  The chart below shows quarterly payroll employment for Arkansas metro areas, using the peak of the previous economic expansion (2007:Q4) as a common starting point.  Texarkana, Jonesboro and Fayetteville now have higher levels of employment than before the recession.  Little Rock remains about 3% below the previous cyclical peak, with the other metro areas in the state lagging further behind.  Fort Smith, where employment has experienced a cumulative decline of about 13%, saw a welcome upturn in employment during the second quarter.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

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