Arkansas Economic Development Institute

Arkansas Employment and Unemployment – May 2013

By , June 21, 2013 12:02 PM

The pattern of sluggish labor market performance in Arkansas in recent months continued into May.  According to new data from the Bureau of Labor Statistics and the Arkansas Department of Workforce Services, the unemployment rate ticked up one-tenth of a percent to 7.3% from a revised 7.2% in April.  (The revision to the unemployment rate for April amounted to only 0.00004%, but that was enough to tip the rounding error upward.) The national unemployment rate also rose by one-tenth in May, to 7.6%.  As shown in the chart below, the gap between the state and national unemployment rates has continued to narrow over time.

Source: Bureau of Labor Statistics

There were a couple of positive tidbits in the report from the household survey:  The number of employed and the size of the total labor force were up for the second consecutive month.  Both of these indicators had been declining precipitously since early 2012.  However, the number of unemployed was up by over 1700, bringing the total number of unemployed back up to a level comparable to last October.

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

Payroll Survey
Data from the survey of employers was no more encouraging than the household survey:  Nonfarm payroll employment declined by 5,900 (seasonally adjusted*).  Many of the service sectors that have been supporting employment growth during the slow recovery were down in May.  For example, Professional & Business Services fell by 2,300 and employment in Leisure & Hospitality Services was down 1,100.  Even employment in Education & Health Services fell by 900.

Source: Bureau of Labor Statistics

Two bright spots in the payroll survey:  Although it remains lower than a year ago, construction employment was up 700 from April to May (seasonally adjusted*).  Jobs in retail trade also increased — up by 1,100.  Retail sector employment is now nearly 13,700 higher than at the employment trough of February 2010, and up 6,700 from pre-recession levels.  Although several service sectors showed employment declines for the month, overall employment in services is generally  higher than before the recession.  But with employment in goods-producing sectors down by over 41,000 since December 2007,  the overall recovery of jobs since February 2010 has been only 32,600 (compared to 57,100 job losses between December 2007 and February 2010).

Mixed Signals
Neither the household survey nor the payroll survey provided much in the way of good news this month.  But more disturbing is the conflicting employment trends indicated by the two reports.  Over the past 12 months, payroll employment has increase by around 3,000 jobs — not very strong growth, but positive.  Over the same period, however, the household survey is showing a decline of more than 23,000 jobs.  It is not unusual for the two surveys to give conflicting signals in the short-run, but rarely do they diverge this significantly over a longer period of time.

Source: Bureau of Labor Statistics

Generally speaking, economists consider the payroll survey to be more accurate, but it is also subject to considerable future revision as more detailed information becomes available.  It is quite likely, therefore, that the divergence between household and payroll reports will be reconciled by a downward revision to the payroll data.  Annual revisions will not be officially published until next March, however, so we’ll be monitoring incoming data closely in an effort to sort through the differences we’re seeing between the two surveys.

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*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.

Real Personal Income and Purchasing Power, 2007-2011

By , June 13, 2013 9:10 AM

The Bureau of Economic Analysis (BEA) released a brand new set of data yesterday:  Real Personal Income for States and Metropolitan Areas, 2007-2011 (Prototype Estimates).  The data are not as timely as those we usually cover here on the Arkansas Economist, but they are rich in detail.

When economist refer to “real” magnitudes, it means that the data have been adjusted to reflect price differences.  Typically this involves adjusting “nominal” growth rates to account for changes in the price level over time — i.e., inflation.  What is truly novel about the prototype estimates that came out yesterday is that they are also adjusted to reflect differences in relative price levels from one region to another.

As described in a previous post, the BEA’s new set of Regional Price Parities (RPPs) are intended to measure differences in the cost of living across states and metro areas.  Hence, the “real” personal income statistics released yesterday convert dollar-denominated figures into units of current local purchasing power.

As shown in Figure 1 below, the cost of living varies considerably among the states.  In 2011, the RPP for Arkansas was 89.2, meaning that prices in Arkansas are more than 10% below the national average (which is equal to 100, by definition).  The highest prices in the nation are in Hawaii (116.0) and the lowest are in South Dakota (87.0).  In the 2011 data, Arkansas ranked as having the 5th lowest prices in the nation.

Figure 1:

Source: Bureau of Economic Analysis

As shown in Figure 2, RPPs do not vary much over time, but they do differ even among areas within the state.  As of 2011, the average RPP for metropolitan areas in Arkansas was 90.9, while the non-metro RPP was only 85.5.

Figure 2:

Source: Bureau of Economic Analysis

To the extent that RPPs do vary over time, increases or decreases can be interpreted (roughly) as indicating a higher or lower rate of inflation than the national average.  Typically, nominal growth rates are converted to real values by simply adjusting for the nationwide inflation rate.  By using the RPP adjustments, the real income calculations reflect a more accurate and nuanced measure of income that better reflects purchasing power at the local level.  Figure 3 shows changes in personal income in Arkansas — and for its metro and non-metro areas — from 2008 through 2011.  The recession of 2008-09 is reflected in the negative growth rates in 2009.  Statewide, real income declined by 2.5%, but the downturn was sharper (-3.3%) in the non-metro areas of the state than in the metro areas (-2.1%).  During the recovery in 2010 and 2011, total metro-area income has grown faster than non-metro income.

Figure 3:

Source: Bureau of Economic Analysis

However, there is one additional adjustment that is necessary to evaluate how incomes support real purchasing power:  population growth.  If real income in an area is rising simply because there are more people earning the same amount per person, then living standards have not really improved.  Consequently, the best measure of overall economic welfare is “real per capita personal income,” displayed in Figure 4.

Figure 4:

Source: Bureau of Economic Analysis

In general, the metro areas of the state have been growing in population, while the non-metro regions have experienced slower growth — or even outright population declines (see Arkansas Population Estimates for 2012).  Figure 4 shows that these changes in population are important.  In real per capita terms, the recession hit metro and non-metro areas about equally, and the recovery has been slower in metro areas.  In fact, metro area per capita real income declined in 2011, pulling the statewide average negative.  Non-metro areas displayed a small but positive growth rate.

The most significant implication of using RPPs to adjust nominal incomes is how it affects comparisons of the relative purchasing-power of incomes.  It is often noted that Arkansas is far below the national average of per capita income.  However, when regional differences in prices are taken into account, the standard of living in Arkansas is much closer to the national norm.  In nominal terms, Arkansas per capita income was only 81% of the U.S. average in 2011.  But after adjusting for price differences, real per capita income (RPP-adjusted) was 91.2% of the national average.  The adjustment for relative prices moves Arkansas up in the rankings among the 50 states plus D.C. from #46 to #41.

Figure 5:

Source: Bureau of Economic Analysis, with calculations by IEA.

Although the adjustment of per capita income using RPPs brings the statewide standard of living closer to the U.S. average, there remain significant differences between the metro and non-metro areas of the state.  As of 2011, real per capita personal income in Arkansas’ metro areas was 95.7% of the U.S. average, while the corresponding figure for the state’s non-metro areas was only 84.5%.

Metropolitan Areas
The RPP data in yesterday’s report are also broken down by individual Metropolitan Statistical Areas (MSAs).  Even among the various MSAs, Relative Price Parities differ considerably (Figure 6).  Prices are higher in the larger MSAs of Memphis, Little Rock, and Fayetteville.  The smaller metro areas have prices that are comparable to the non-metro areas of the state.

Figure 6:

Source: Bureau of Economic Analysis

Real per capita income growth rates in Figure 7, below, reveal an uneven pace of recovery among the state’s metro areas during 2010 and 2011.  In 2010, the negative growth in total metro area income (shown in Figure 4) was concentrated entirely in three MSAs:  Fort Smith, Little Rock, and Jonesboro. Growth was positive in Arkansas’ other metro areas.   In 2011, however, growth rates were positive for all areas of the state.

Figure 7:

Source: Bureau of Economic Analysis

Finally, how do the state’s MSAs stack up in terms of real per capita personal income, adjusted for purchasing power?  Figure 8 shows that even though prices tend to be higher in larger metropolitan areas, higher incomes tend to compensate for the differences.  In dollar terms, incomes in Arkansas MSAs range from 74.3% of the national average in Pine Bluff to 96% in Little Rock.  After adjusting for relative prices, the real per capita income figures show that Little Rock has a standard-of-living slightly above the national average.  Pine Bluff remains the MSA with the lowest relative income level, but the standard of living is nearly 11 percentage points higher than the nominal, dollar-denominated figures suggest.

Figure 8:

Source: Bureau of Economic Analysis, with calculations by IEA

The new RPP data have now moved from the experimental phase to prototype.  There are likely to be further refinement in the methodology and coverage of the data, but it is extremely useful to now have an official set of measurements for geographic relative price differences.  As detailed here and in yesterday’s report from the BEA, the new data bring a novel perspective to the examination of income differences across the nation and within the state of Arkansas.

Arkansas GDP Growth in 2012

By , June 6, 2013 3:15 PM

Arkansas GDP grew only 1.3% in 2012, but revisions to prior years raised estimates by an additional 1.3%.

Preliminary statistics on state-level GDP show that Arkansas grew at a 1.3% rate last year.  According to the report from the Bureau of Economic Analysis, Arkansas’ growth rate was more than a percentage point lower than the national growth rate of 2.5%.  Among the 50 states plus D.C., Arkansas’ growth ranked #38. 

The table below shows the breakdown of GDP growth by sector, comparing Arkansas to the U.S. total.  A number of sectors in Arkansas grew faster than the national average, including Agriculture, forestry, fishing, and hunting; Utilities; and Management of companies and enterprises.  However, several of Arkansas sectors contracted, including Mining and several service-providing sectors.

Source: Bureau of Economic Analysis

In addition to individual-sector growth rates, the table also shows the contribution of each sector to total GDP growth.  The size of the contribution depends not only on its growth rate, but also on the relative importance of the sector in the overall economy.  So, for example, even though Mining contracted at a rate of 8.65%, it is a relatively small sector of the Arkansas economy (about 2%) so its contribution to lower total GDP growth by only 0.19%.

Manufacturing — amounting to over 14% of total GDP — is a far more important sector to the Arkansas economy.  Consequently, even though both durable and nondurable-goods manufacturing expanded last year, the fact that growth was lower than the national average accounted for much of the relatively slow growth in Arkansas’ economy.  If Manufacturing growth in Arkansas matched the national average, total Arkansas GDP growth would have been nearly one-half percentage point higher.

It is important to note that today’s data for 2012 are preliminary “advance statistics,” subject to future revision.  In fact, the revisions of data for 2009-2011 that were released today illustrate the importance of new information that becomes available over time.  As shown in the figure below, Arkansas growth rates were revised upward for each of the previous three years.  For example, growth in 2011 was originally reported at 0.34% but is now estimated to be nearly twice that rate (0.66%).  Even more significantly, the magnitude of the recessionary contraction in 2009 is now estimated to be much smaller than previously-published data suggested.

Source: Bureau of Economic Analysis

The cumulative effect of today’s revisions was to raise the estimated total of Arkansas real GDP by 1.3% as of 2011.  The 1.3% growth for 2012 comes on top of that upwardly-revised measure of economic activity in 2011.

Source: Bureau of Economic Analysis

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