Institute for Economic Advancement

Arkansas Home Sales – June 2016

By , July 28, 2016 4:44 PM

According to the Arkansas Realtors® Association, Arkansas home sales in June were up 7.9% from the previous year.  This represents the 22nd consecutive month of positive year-over-year changes.  The average growth rate over that 22-month period has been 10.2%.  The sales total for June was down slightly from the previous month, but the two-month total was the highest May-June combination since 2006.  Year-to-date sales were up 12.0% from the first six months of the previous year.

Source:  Arkansas Realtors® Association

Source: Arkansas Realtors® Association

Quarterly seasonally-adjusted data smooth out the seasonal fluctuations and some of the month to month volatility.  As shown in the figure below, home sales in 2016 have reached a pace about equal to 2006, prior to the onset of both the collapse of the national real-estate bubble and the onset of recession.

Source:  Arkansas Realtors® Association; Seasonally adjusted by the Arkansas Institute for Economic Advancement

Source: Arkansas Realtors® Association; Seasonally adjusted by the Arkansas Institute for Economic Advancement

 

Arkansas GDP Growth – 2016:Q1

By , July 27, 2016 4:41 PM

The Bureau of Economic Analysis reported this morning that Arkansas GDP expanded in the first quarter at a 3.9% annual rate — the highest growth rate in the nation.  At least in part, today’s report provides additional evidence of a strong Arkansas economy in the first part of 2016.  However, the BEA news release pointed out that Arkansas’ growth rate was boosted by an extraordinarily strong growth in the sector of Agriculture, Forestry, Fishing, and Hunting. “This industry contributed 2.21 percentage points to the 3.9 percent growth in Arkansas.”  In other words, overall growth would have amounted to only 1.7% had it not been for the contribution of agriculture.

Source: Bureau of Economic Analysis, Gross Domestic Product by State

Source: Bureau of Economic Analysis, Gross Domestic Product by State

From the first quarter of 2015 to the first quarter of 2016, Arkansas GDP grew by 3.6% — a notable increase from the trend growth rate of approximately 2% that had prevailed in recent quarters. Agriculture was not as significant a factor in the year-over-year growth rate, contributing only 0.6 percentage points to overall growth.  So in the absence of agriculture, the state’s GDP growth would still have been 3.0%.

Source: Bureau of Economic Analysis, Gross Domestic Product by State

Source: Bureau of Economic Analysis, Gross Domestic Product by State

Besides the agricultural component, several sectors contributed to Arkansas GDP growth.  In general, the strongest sectors in Arkansas were the same as those driving growth on the national level, including Construction, Retail Trade, Information, and Health Care.  Nondurable goods manufacturing also contributed to growth for both the U.S. and Arkansas, while durable goods manufacturing contracted in the first quarter.

Source: Bureau of Economic Analysis, Gross Domestic Product by State

Source: Bureau of Economic Analysis, Gross Domestic Product by State

Arkansas Employment and Unemployment – June 2016

By , July 22, 2016 12:22 PM

The unemployment rate in Arkansas remained unchanged at 3.8% in June.  After declining by a full percentage point in only 6 months, it is not surprising that we see a pause in its rapid descent.  Nationwide, the unemployment rate increased by two-tenths of a percent in June.  So at 4.9%, the U.S. unemployment rate is more than a percentage point higher than Arkansas’ rate.  Over the past 12 months, the Arkansas unemployment rate has fallen by 1.5%, the second largest drop in the nation (surpassed only by Tennessee’s 1.6% decline).

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The changes in employment and unemployment that underlie the unemployment rate calculations were not particularly striking in their magnitude, but do represent a departure from recent trends.  The number of employed declined by more than 3,100 after a string of 29 consecutive months of growth.  The number of unemployed increased by only 344, but it was the first monthly increase in the number of jobless Arkansans since February 2011.

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

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

Payroll Employment
Nonfarm payroll employment increased by 400 in June (seasonally adjusted) and the figure for May was revised upward by 300.  Nevertheless, the level of payroll employment in June was essentially unchanged from December 2015.  The sharp contrast between payroll employment growth over the past 6 months (-100) and the employment gains measured by the household survey (+33,657) is striking.  It is not unusual for the two separate data sources to diverge, but such a large and persistent gap raises questions about measurement problems.  Both employment series are subject to future revision, but the payroll statistics are generally considered to be the more accurate of the two measures.  Combined with the fact that the increases in household employment took place in an unprecedented three consecutive months of 10,000+ increases (January through March), we remain somewhat skeptical of the validity of recent unemployment rate statistics.

Source:  Bureau of Labor Statistics

Source: Bureau of Labor Statistics

A breakdown by sectors shows that payroll employment shows gains in most sectors, particularly the service-providing sectors.  A prominent exception was Education & Health services, which declined by 1,300 jobs after expanding 7,400 in the previous 12-month period.  Retail Trade was another sector showing a setback from previous growth trends.  Professional & Business Services continues to be the fastest growing sector, increasing by over 28,000 since the employment trough of February 2010.  Growth in Professional & Business Services has accounted for over one-third of all job growth during this economic expansion.

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

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

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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, can be found hereTable-Seasonally Adjusted NFPE.

Arkansas Taxable Sales – 2016:Q1

By , July 20, 2016 4:22 PM

Arkansas Taxable Sales Including Gasoline (ATSIG) declined by 1.0% from 2015:Q4 to 2016:Q1, following a decline of 0.5% in the previous quarter.  Compared to a year earlier, ATSIG increased by only 1.0%.  Much of the weakness in the growth rate of ATSIG is attributable to low gasoline prices.  The average price of gasoline in Arkansas in the first quarter was $1.66, down from $1.94.  As a result, spending on gasoline declined by 12.1% (seasonally adjusted).

Not all the slow growth in sales can be attributed to low gas prices, however.  Excluding gasoline, Arkansas Taxable Sales (ATS) declined by 0.5% in the first quarter, following a nearly flat fourth quarter.  From 2015:Q1 to 2016:Q1, ATS rose by only 1.8%.  After adjusting for inflation (as measured by the price index for personal consumption expenditures), real ATS was up only 0.8% over the four-quarter period.

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

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

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

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

Given the state’s low unemployment and relatively healthy income growth, it is surprising that the growth rate of Arkansas Taxable Sales has been so sluggish.  Since the trough of the “great recession” in 2009:Q2, ATS has increased at an annual rate of only 3.0%.  Over the same period, U.S. Retail Sales have been growing at a 4.4% pace.  Although the national figures are not completely comparable to ATS, the discrepancy between the growth rates of consumer spending on the national and state levels is notable.  The growing share of internet shopping (which is included in U.S. Retail Sales but not necessarily in ATS) might account for a portion of the discrepancy, but is unlikely explain the difference completely.

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

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

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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 monthly and quarterly data is available here: Arkansas Taxable Sales 2016:Q1 (Excel file).

Real Personal Income – 2014

By , July 8, 2016 4:22 PM

The Bureau of Economic Analysis released new figures on real personal income for states and metropolitan areas yesterday.  The data contain a wealth of information on incomes, prices and standards-of-living.  They are based on a relatively new dataset calculating “regional price parities,” (RPPs) which measure differences in the prices levels of goods and services across states and metropolitan areas.  Essentially, RPPs serve as a measure of relative price levels among states and metro areas.

The newest data, which apply to 2014, show that the cost of living in Arkansas is the second-lowest in the nation.   The RPP for Arkansas was 87.5, down from 87.7 in 2013.  This number can be interpreted as saying that the cost of living was 12.5% below the national average in 2014.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Because prices in Arkansas are among the lowest in the nation, the purchasing power of incomes in Arkansas is far closer to the national average than nominal (dollar-denominated) incomes would suggest.  In 2014, per capita personal income in Arkansas was only 82% of the national average–ranking the state #43 among the 50 states plus D.C.  After adjusting for differences in the cost of living, however, real per capita income in Arkansas was 93.9% of the national average–implying a ranking of #34.

The slight down-tick in the RPP for Arkansas (from 87.7 in 2013 to 87.5 in 2014) can be interpreted as indicating a lower rate of inflation in Arkansas than the national average.  The U.S. inflation rate in 2014 (as measured by the Personal Consumption Expenditures Price Index) was 1.4%.  The implied regional price deflator for Arkansas increased by only 1.2%.  Hence, the state’s 3.7% growth rate of nominal personal income translates to a real (inflation-adjusted) growth rate of 2.5%.  For the U.S., the nominal growth rate of 4.4% implied a real growth rate of 2.9%.

The composition of Arkansas’ low RPP is typical of other low cost-of-living states:  Prices for goods are near the national average, but the prices of services — especially rents — are far below the norm.  This is not surprising, of course.  Goods can be transported and sold with little marginal expense.  Services are not so transportable.  In fact, in the jargon of international trade, services are often classified as “non-tradables.”  Statewide, the RPP for goods in Arkansas was 95.1%, implying that prices of goods were only 4.9% below the national average.  The RPP for non-rent services was 93.5, while the RPP for rents (which also proxy for home prices) was only 62.5.

As shown in the table below, there is considerable variation among RPPs in Arkansas metropolitan areas.  Overall RPPs range from 91.9 in Memphis to a low of 82.0 in Jonesboro.  The cost of living in Jonesboro–18% below the national average–is the fifth-lowest in the nation.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

While there is variation in RPP price-levels around the state, all RPPs in Arkansas are below 100, implying below-average costs.  This also translates to higher purchasing power.  As shown in the table below, the Fayetteville-Springdale-Rogers metro area is the only part of the state where dollar-incomes are above the national average, with incomes in Pine Bluff at less than two-thirds of the norm.  After RPP adjustment, incomes in all parts of the state (other than Northwest Arkansas) are closer to the national average.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Changes in RPPs for different metro and nonmetro areas around the state also differ, implying variation in inflation rates.  In economic terms, it is the real inflation-adjusted growth rates of income that matters.  The table below shows both nominal and real income growth for the metro and nonmetro areas of Arkansas.  Note that the differences between total income growth and per capita income growth reflects changes in population.  Much of the total income growth in Northwest Arkansas represents population growth that has accompanied general economic expansion.  On the other hand, total real income growth in Pine Bluff was negative, but the losses in income reflected declining population.  In per capita terms, real income in Pine Bluff remained approximately unchanged from the previous year (+0.1%).

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Sales Taxes Across the Nation

By , July 6, 2016 4:40 PM

The Tax Foundation has released an updated list of state and local sales tax rates across the nation, accounting for changes in tax rates that took effect July 1 (the beginning of the fiscal year for most states).  Including both statewide and local sales taxes, Arkansas ranks near the top of the list for the highest rates in the nation.  Compared to the other 49 states plus the District of Columbia, the updated report shows Arkansas’ ranking dropping from #2 to #3 — not because of changes in Arkansas tax rates, but because a statewide tax increase in Louisiana catapulted that state from #3 to #1.

The statistics from the Tax Foundation are based on the sum of statewide tax rates plus a population-weighted measure of local tax rates.  In Arkansas, the state sales tax is 6.5% — tied for the 9th highest in the nation.*  The average local tax rate (weighted by population) is 2.8% — making the combined state/local tax rate 9.3%.  Only Louisiana (9.98%) and  Tennessee (9.45%) have higher combined sales tax rates.

Sales Taxes

The Tax Foundation figures do not incorporate exemptions for some categories of goods.  For example, in Arkansas and in other states the sales tax on groceries is lower than on other items.  The statistics also do not include additional sales taxes that are imposed on specific goods and services.  For example, several cities impose special taxes on prepared foods (the “hamburger tax”).  Moreover, the Tax Foundation statistics do not include excise taxes that are imposed at the wholesale level and therefore incorporated into retail prices.

Although the aggregate state/local sales tax rate for Arkansas did not change in the latest report from the Tax Foundation, tax rates in several local jurisdictions changed as of July 1.  The list of changes and resulting local tax rates is as follows:

  • Big Flat:  1.00%, newly enacted
  • Danville: 1.00%, decreased from 1.50%
  • Oak Grove Heights 1.00%, newly enacted
  • Ozark:  2.00%, increased from 1.00%
  • Rudy: 0.50%, newly enacted
  • Drew County:  2.25%, reduced from 2.50%
  • Marion County: 1.25%, increased from 1.00%

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*Note:  The 6.5% statewide sales tax rate is actually an aggregate of 5 individual taxes.  The general sales tax rate is 4.5%, with additional taxes earmarked for special purposes:  Educational Adequacy 0.875%, Property Tax Relief 0.5%, Arkansas Highways 0.5%, and Conservation Tax 0.125%.

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