A forum for information and analysis on the Arkansas economy

Arkansas Personal Income – 2020:Q2

Today’s report from the Bureau of Economic Analysis showed that total personal income increased by 7.0% in Arkansas in the second quarter of 2020 – an annualized growth rate of 31.3%. Arkansas’ growth rate was slightly slower than the 34.2% pace recorded for the United States and ranked #31 among the 50 states.  Growth rates ranged from a low of 15.8% in Tennessee to 76.3% in Massachusetts.

Source: Bureau of Economic Analysis

The increases in personal income were driven entirely by Personal Current Transfer Receipts, with non-transfer income declining in all 50 states.  In Arkansas, non-transfer income declined by 6.5% (an annualized rate of 23.4%), while transfer receipts increased by 51% (a 419% annual rate).  Arkansas declines in wages and salaries (and supplements) were smaller than the U.S. average, while Proprietors’ Income and Dividends, Interest & Rent contracted more sharply than in the national statistics.

Source: Bureau of Economic Analysis

The increase in total personal income was somewhat less than projected in recent forecasts, due to a larger decline in non-transfer income and a smaller increase in transfer payments than had been expected.

Looking at a breakdown of earnings declines by industry, we see that Arkansas endured smaller declines than the U.S. in several industries that were directly affected by COVID-19 shutdowns, including Retail Trade, Health Care, Accommodation and Food Service, as well as Art, Entertainment & Recreation.  The most significant sector of weakness for Arkansas was Farm Income, which fell to below zero for the quarter.

Source: Bureau of Economic Analysis

Revisions to Earlier Data
The statistics released this morning also included revised statistics for 2013:Q1 through 2020:Q1.  The revisions were generally small, shifting Arkansas income levels slightly higher for 2015 through 2017, and slightly lower during 2019.

Source: Bureau of Economic Analysis

The effect of revisions on income growth rates was generally positive for 2015 and 2016, but resulted in slower reported growth for more recent periods.  Through the first quarter of 2020, four-quarter growth was previously reported to be 3.4%.  After revisions it is estimated to have been 3.2%.

Source: Bureau of Economic Analysis

Print Friendly, PDF & Email

Arkansas Employment and Unemployment – August 2020

The state-level employment report for August had mixed news for Arkansas.  The headline was an unexpected increase in the unemployment rate, from 7.1% to 7.4%.  The U.S. unemployment rate had been reported as declining from 10.2% to 8.4% in August, and Arkansas was one of only four states to see a nominal increase for the month (although Arkansas’ increase was not statistically significant).  The states that had the largest declines in unemployment tended to be those with relatively high rates, while those with the lowest rates saw smaller declines or increases.  Even after the slight uptick in August, Arkansas’ unemployment rate remained a full percentage point lower than the national average.

Source: Bureau of Labor Statistics

Under the current circumstances, an increase in unemployment is not unambiguously bad news.  As shown in the figures below, the rise in the unemployment rate was primarily attributable to an increase in the number of unemployed, up 6,456 to nearly 100,000.  But the number of employed also increased by nearly 32,000, driving an increase in labor force participation of 38,219.  As employment opportunities re-emerge after labor market weakness, it is often the case that workers who had previously dropped out of the labor market resume their search for employment, temporarily boosting the unemployment rate.  The sharp increase in labor force participation suggests this might be a factor in Arkansas unemployment uptick.

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

Payroll Employment
Arkansas Nonfarm payroll employment increased by 14,900 in August (seasonally adjusted), an increase of 1.2%.  To put that number into context, average annual employment growth in 2017, 2018 and 2019 was 14,400.  The increase in August continues a recovery that began in May:  After falling 9.3% from February through April, Arkansas employment is now down only 4.1% compared to February.  Although employment in Arkansas did not fall as sharply as the nationwide average, Arkansas’ recovery parallels that of the nation. The February-April decline for the U.S. was 14.6%, and the latest data show national employment still down 7.6% from the February peak.

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

The table below shows payroll employment changes by major sector.  In terms of numbers of jobs, the February-April decline amounted to nearly 120,000, with significant losses in service-providing sectors, particularly Leisure & Hospitality, Education & Health, Retail Trade, and Professional & Business Services.  Each of those sectors has bounced back considerably.  In August, employment was up sharply in Retail Trade and Professional & Business Services – particularly in the category of Administrative & Support Services.  In the case of Retail, statewide employment is now 3,600 higher than in February.  On the other hand, employment in Manufacturing remains weak.  It was up by 600 jobs in August, but remains 16,300 lower than in February.

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

The figures below illustrate how sectors that were hardest-hit by pandemic-related shutdowns have fared relative to the national totals. All series are normalized to February 2020 = 100, so percentage deviations from that baseline can be read directly from the charts.  So, for example, national employment in Retail Trade initially declined by approximately 15% from February to March, while Arkansas employment in that sector fell by about 8%.  The fact that employment in Arkansas retail sector is now higher than pre-pandemic levels is not a feature in the U.S. data.

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

Leisure and Hospitality Services suffered smaller employment declines in Arkansas, but have recovered with a trajectory similar to the national data.

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

In Education and Health Services, and in Manufacturing, the magnitude of employment declines in Arkansas matched the national average.  While both sectors have seen some limited recovery since April, Manufacturing employment in Arkansas remains well-below re-pandemic levels.

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

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

# # #

Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

 

 

Print Friendly, PDF & Email

Metro Area Employment and Unemployment – July 2020

The July report on metro area employment and unemployment that came out this morning showed continued improvement in Arkansas labor markets following the pandemic-related downturn in March and April.

Payroll employment increased from June to July in six of Arkansas’ metro areas, with Little Rock unchanged and Pine Bluff down 1.3%.  All eight metro areas have shown employment increases since the April trough, with three-month increases ranging from 2.6% in Pine Bluff to 12.8% in Hot Springs.  Nevertheless, employment in all eight metro areas remains well below cyclical peaks in February and below year-ago levels.

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

Unemployment rates were down in all metro areas except Memphis, where the unemployment rate increased from 11.3% to 12.7%.  Unemployment in Northwest Arkansas declined to 5.4%.  At 6.4% Jonesboro was the only other metro area with an unemployment rate lower than the statewide average of 7.1%.

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

The map below displays a snapshot of unemployment rates by county for July, along with the change from May (not seasonally adjusted data).  Unemployment rates declined from June to July in all 75 of Arkansas’ counties. The uniformity of the declines is all the more remarkable given that seasonal patterns typically add about two-tenths of a percentage point to unemployment rate changes between June and July.  The lowest unemployment rates in the state continue to be in Madison County (4.7%) and Arkansas County (5.0%)  Unemployment rates remain in the double-digits for several counties in the south and east regions of the state, with the highest rates in Chicot County (12.9%) and Mississippi County (11.9%)

Print Friendly, PDF & Email

Unemployment Insurance Claims – Update

The latest weekly data on unemployment insurance claims shows a significant decline in Arkansas jobless claims over the past three weeks.   During the week ending August 22, the preliminary estimate for new claims in Arkansas was 5,225, down from a weekly average of 13,785 during the month of July. Continuing claims for unemployment have also dropped sharply.  Also referred to as “insured unemployment,” continuing claims fell from over 100,000 in early July to 44,500 in the week ended August 15.

Source: U.S. Department of Labor

On the national level, unemployment insurance claims have also been dropping, but not as abruptly as the declines in Arkansas.  Just over one million new unemployment claims were filed in the week ending August 22, down from an average of 1,333,000 in the previous month.  Continuing claims have steadily declined, falling from 17 million in mid-July to 14.5 million for the week ending August 15.  From the week ending July 11 through the week ending August 15, U.S. insured unemployment declined by 10%, compared to the 55% decline in Arkansas.

Source: U.S. Department of Labor

Expressing continuing claims as a percentage of the insured labor force, the “insured unemployment rate” can be used to compare state and national numbers directly.  Arkansas’ rate has fallen sharply over the most recent three weeks, down from 7.9% to 4.4% in the week ending August 8.  Over the same period, the U.S. rate declined from 11.6% to 10.1%.  In the week ending August 15, the U.S. insured unemployment rate dropped to just below 10%.

Source: U.S. Department of Labor

Print Friendly, PDF & Email

Arkansas Employment and Unemployment – July 2020

Arkansas labor market continued to recover in July from the pandemic-related job-losses of March and April; however, the pace of the rebound slowed.  Arkansas’ unemployment rate declined by one full percentage point from 8.1% (revised) in June to 7.1% in July.  The U.S. unemployment rate declined by 0.9% from 11.1% to 10.2%.

Source: Bureau of Labor Statistics

The decline in Arkansas’ unemployment rate reflected a drop of 14,272 in the number of unemployed and an increase of 4,862 in the number of employed.  As a result, the labor force declined by 9,410, and is now down approximately 63,000 from February (-4.6%).

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

Payroll Employment
Nonfarm payroll employment growth slowed significantly in July.  After recovering 49,100 jobs in May and June (including an upward revision of 3,100 jobs in June), payroll employment was up only 1,600 jobs in July (seasonally adjusted data).  As shown in the table below, Goods producing sectors lost jobs in July with Construction down 400 and Manufacturing down 1,500.  Service-providing sectors generally added jobs, particularly in the hard-hit sectors of Education & Health Services and Leisure & Hospitality Services.  Government employment was down 2,100 jobs, with the losses exclusively in on the local government level.  It is typical to see declines in local government employment during the summer school recess, but the July’s decline in the seasonally-adjusted measure indicates declines that go beyond the ordinary seasonal fluctuations.

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

Compared to July 2019, total payroll employment was down 60,500, a decline of 4.7%.  The year over year job-losses are concentrated in Manufacturing and Leisure & Hospitality Services, with notable declined in Education & Health Services and Government.

Relative to the pre-COVID-19 employment peak in February, payroll employment was down 68,100 jobs, or 5.3% in July. By comparison, total U.S. nonfarm payroll employment was down 8.4% from its February peak.

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

# # #

Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

 

 

 

Print Friendly, PDF & Email

Arkansas Consumer Spending During the Pandemic

Evidence continues to accumulate showing that Arkansas’ economy has not been as hard-hit by the COVID-19 pandemic as other parts of the nation.  Most of the information to-date has been related to employment.  It is clear that declines in payroll employment and spikes in unemployment have not been nearly as large in Arkansas as in the national data.  But it appears that one area of the economy has demonstrated an even greater gravity-defying performance: consumer spending.

The latest state revenue report added an underline to the emerging evidence: The Department of Finance and Administration (DF&A) reported on Tuesday that July revenue from Sales and Use taxes was up 14.9% from a year earlier and 16% above forecast.  The July revenue corresponds roughly to sales activity in June, a month in which U.S. Retail Sales had recovered from a plunge in April but was still only 1% higher than the previous year.  DF&A revenue reports from the two previous months of sales tax receipts had indicated only a small decline in April taxable sales activity and an unexpectedly large increase in May.

The apparent increase in Arkansas taxable sales in June therefore just adds to the evidence that consumer spending in Arkansas has been remarkably resilient to COVID-related shutdowns and the associated economic contraction, relative to both the national averages and expectations.  In this article, we break down available data by county and by sector to seek greater insight into the phenomenon.

County Data
As we reported a month ago, when county and local sales tax receipts corresponding to spending in April were released, the expected decline in consumer spending was notably absent.  Forecasts suggested year-over-year declines on the order of 15%, but an aggregate of taxable sales for Arkansas counties showed little change from a year earlier.  Granted, a zero-percent growth rate represented below-trend growth, but U.S. Retail sales were down 19.9% from a year earlier.  Some individual counties fared better than others with growth rates ranging from -21.9% to +42.4%. But only 19 counties had negative growth rates and only 42 had growth rates below recent trend rates.

Data corresponding to local taxable sales in May were released in late July, further reinforcing the conclusion that consumer spending declines in the national data were not being reflected in Arkansas sales tax collections. U.S. Retail Sales were recovering, but still down 5.6% from the previous year.  Yet only 4 Arkansas counties experienced negative year-over-year growth rates; an aggregate for all 75 counties showed an annual increase of 9.5%; and in over 60 of Arkansas’ 75 counties, taxable sales growth was over 10%.  The interactive map below, Figure 1, shows the extent and magnitude of taxable sales growth in May.

Figure 1:



National Data vs. Arkansas Taxable Sales
In contrast to Arkansas, data on U.S. Retail Sales and Personal Consumption Expenditures (PCE) indicated dramatic declines in consumer spending during the second quarter.  As already mentioned, U.S. Retail Sales and Food Services showed year-over-year declines in March, April and May. By June, Retail Sales had recovered significantly, but were up only 1.1 compared to the previous year.  This weakness in retail spending was also reflected in last week’s GDP report: the Bureau of Economic Analysis released data showing that second-quarter PCE was down 10.7% from a year earlier.

As shown in Table 1 and Figure 2 (below), data for Arkansas indicate only modest spending declines.  On a year-over-year basis, the largest declines for both U.S. and Arkansas data occurred in April, but the declines in Arkansas were significantly smaller than the 20% drop in U.S. Retail Sales.  The first measure for Arkansas, Taxable Sales Including Gasoline (ATSIG), was down only 3.2% in April.  An alternative, the sum of county taxable sales (plus the gasoline component of ATSIG), declined only 4.1% from a year earlier. 

Table 1:

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

But as shown in Figure 2, the year-over-year declines for both Arkansas estimates are assessed relative to April 2019, a month in which both measures showed a sharp spike above trend. The time-series illustrated in Figure 2 show that the sharpest month-to-month decline in the Arkansas data occurred in March, not April — and that decline was far smaller than the decline in U.S. Retail Sales.  Measuring the change from January through March, U.S. Retail Sales were down 8.6%, while the two measures for Arkansas declined only 5.9% (ATSIG) and 2.8% (county data).  U.S. Retail Sales declined another 14.7% from March to April, while the measures for Arkansas showed increases of 4.9% and 1.6%.  And as also illustrated in Figure 2, a preliminary estimate of Arkansas Taxable Sales for June ventures into record-high territory.

Figure 2:

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

One notable feature of Figure 2 is the elevated level of Arkansas taxable sales (by either measure) during the second half of 2019.  This followed the implementation of Act 822, which mandated out-of-state retailers to collect and remit sales and use taxes for online sales.  Using simple linear regression techniques to estimate the trend shift that followed the implementation of Act 822, we estimate the magnitude of the effect to be approximately 3% [an estimate subject to considerable range of uncertainty.]  This increase in the second half of 2019 is not literally an increase in taxable sales, but an effective broadening of the tax base to capture a more complete measure of spending.  But when comparing year-over-year growth rates from the first half of 2019 through the first half of 2020, the intervening regime shift artificially adds about 3% to measured growth rates.  This is part of the explanation for why Arkansas taxable sales have not fallen as sharply as the national retail sales statistics, but it only explains a fraction of the difference.

Another notable feature of Figure 2 is the difference between the two measures for Arkansas in March, the local trough month.  As previously mentioned, the statewide measure declined more sharply than the county-based estimate. A likely explanation for this difference involves automobile sales, which are undercounted in our methodology for constructing the county-based measure (given the non-standard formula used to assess local taxes on automobile purchases).  We’ll return to that issue, but will exclude autos from the analysis for now.

Retail Sales Components of Arkansas Taxable Sales
We can dig deeper by examining the data for county-level tax collections, which are available from DF&A with monthly breakdowns by sector using the North American Industry Classification System (NAICS).  In particular we can examine taxable sales for the specific retail sectors that comprise the U.S. Retail Sales data.  In Figure 3 (and Figures 5.1- 5.13, below) we compare U.S. Retail Sales and its components to aggregates constructed using the six largest six counties in Arkansas.  Together, these six counties — Pulaski, Benton, Washington, Sebastian, Craighead, and Garland — comprise approximately 50% of total taxable sales in Arkansas.  The taxable sales data for this “Arkansas (6)” are seasonally adjusted using implicit seasonal adjustment factors derived from the U.S. Retail Sales data, and gasoline is incorporated into the total by adding 0.5 times the gasoline component of ATSIG. The indexes in the figures are normalized to the first half of 2019, so the scales provide a rough estimate of percent changes from year-ago trend values.

Figure 3 shows total U.S. Retail Trade and Food Services (Excluding Automobiles), along with the six-county aggregate for the corresponding NAICS codes (plus gasoline).  Figure 3 indicates that the retail components of Arkansas Taxable sales did, in fact, show a month-to-month decline in April, although the downturn was not outside the range of normal month-to-month variation in the data.  Compared to the first half of 2019, the U.S. Retail Sales measure was down 16% in April, while the Arkansas data show a decline of less than 5%.

Figure 3:

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

The fact that this retail-based measure showed a distinct downturn in April suggests that the March trough in Figure 2 was the result of a decline in non-retail taxable sales.  This is verified in Figure 4, which shows that a decline in the non-retail component swamped the small increase in the retail component in March, while an increase in non-retail taxable sales April masked the decline in retail spending.  Figure 4 also shows that retail spending recovered more sharply in May than the total taxable sales estimates suggest due to another drop in the non-retail component.

Figure 4:

Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Arkansas Economic Development Institute.


A Sector-By-Sector Analysis

In sectors that have been specifically affected by COVID-related shutdowns, Arkansas taxable sales generally show downturns that are aligned with corresponding components of U.S. retail sales, but the magnitudes of the COVID-related contractions are notably smaller.  Examples include Furniture & Home Furnishings, Clothing & Accessories, and Food Service & Drinking Places.

Clothing & Accessories experienced the sharpest decline of any sector, with national retail sales falling nearly 90% from the levels of a year earlier.  The Arkansas data show a decline of “only” 64%.

Figure 5.1:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Furniture & Home Furnishings declined almost 60% in the national data and dropped about 20% in the Arkansas data.

Figure 5.2:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

One of the most prominently hard-hit sectors has been bars and restaurants.  Anecdotal information suggests that Arkansas restaurants have been remarkably successful at adapting their operations to the pandemic, with delivery, curbside service and drive-through service substituting for full-service operations.  Figure 5.3 demonstrates this in the data:  Although sales at Food Service and Drinking Places were declining prior to the onset of the pandemic, they reached a low point in April that was only 27% below the first half of 2019. In the U.S. Retail Sales data, the low point was down over 50%.

Figure 5.3:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Health & Personal Care is another spending category that matches the general pattern of fluctuations in U.S. data, but shows a somewhat sharper decline in Arkansas than the national average.  In the U.S. Retail Sales data, Health & Personal Care declined in April to a level only 10% below the previous year, while the decline was over 20% in Arkansas.

Figure 5.4:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

(The Health & Personal Care components is one of several that shows a spike in December 2019.  This is likely an artifact of end-of-year remittances that were larger than usual, perhaps due to the mid-year implementation of out-of-state sales tax collections.)

Gasoline sales represent another spending component that declined as much or more in Arkansas as the U.S.  Figure 5.5 combines county data for taxable sales at gasoline stations with the gasoline sales component of ATSIG, showing a decline of 45%.  The U.S. Retail Sales data show a decline of 38%.  Unlike spending declines in several other categories, declining gasoline expenditures reflect both falling prices and slowing sales.  From January through April, the average retail price of gasoline in Arkansas fell from $2.25 to $1.48, a 34% decline.  Meanwhile, the number of gallons of gasoline sold fell by 56%. Although retail sales of gasoline fell sharply through April, the fact that gas is exempt from sales tax in Arkansas means that the decline in this particular spending component had no impact on sales tax receipts by state or local governments.

Figure 5.5:

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

One other area of spending that showed low sales in April (albeit not a sharp monthly decline) was at Electronics and Appliance stores.  The Arkansas data show relatively weak sales toward the end of 2019, with a low point in April that was down 18% from early 2019 levels.  Meanwhile, the corresponding component of U.S. Retail Sales was down more than 50%.

Figure 5.6:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Some sectors experienced increases in sales, particularly in the early phase of the pandemic and during the initial economic shutdowns.  In both the U.S. and Arkansas data, Food & Beverage store sales surged by approximately 30% in March, and have remained elevated — moreso in Arkansas than the U.S.

Figure 5.7:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Similarly, General Merchandise Stores showed a March spike in both the U.S. and Arkansas data.  The subsequent downturn in April and recovery in May still left Arkansas sales well above levels of a year earlier.

Figure 5.8:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Another sector that appears to have benefited from more time spent at home is Building Materials and Garden Equipment & Supplies. In Arkansas, sales in this sector surged to 17% above previous-year levels in March and over 22% in April.  In the U.S. data, sales did not rise until May, but had risen to 15% above previous-year levels in May and June.

Figure 5.9:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

As a group, Sporting Goods, Hobby, Musical Instrument and Book Stores also seem to have fared relatively well in Arkansas.  In the U.S. data April sales were down 45%, but Arkansas showed no significant decline. For both the U.S. and Arkansas measures, pent-up demand appears to be driving a surge in the post-April data.

Figure 5.10:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

Another relatively small sector that seems to have thrived in Arkansas during COVID-related shutdowns is Miscellaneous Store Retailers, which has remained above year-ago levels throughout the pandemic and was up 20% as of May.  Meanwhile, the national counterpart to this measure dropped 30% in April and is gradually recovering through June.

Figure 5.11:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

The sector that shows the largest impact out-of-state sales tax collections is Non-Store Retailers, which includes NAICS sector 4541: Electronic Shopping and Mail-order Houses.  As shown in Figure 5.12, Arkansas sales in this sector doubled from the first half of 2019 to the second half of the year (attributable to Act 822) and has shown an increase of similar magnitude during 2020.  The increased popularity of online shopping during the pandemic is evident in the U.S. data as well, but it appears that the substitution of internet sales for brick-and-mortar shopping has been more significant in Arkansas than elsewhere.

Figure 5.12:

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

One final sector to consider is automobile sales — an important component of consumer spending. Sales at Motor Vehicle and Parts Dealers account for about 20% of total U.S. Retail Sales. But because of the quirky way county and local sales taxes are assessed on auto sales in Arkansas ($25 per 1% sales tax rate, regardless of the value of the transaction), the county NAICS data from the Department of Finance and Administration cannot be used to construct a taxable sales measure.  And for that matter, used car sales are subject to Arkansas sales tax but are not included in U.S. Retail Sales.

In an effort to approximate the role of auto sales in Arkansas consumer spending, Figure 5.13 compares the U.S. Retail Sales data for Motor Vehicle and Parts Dealers to indexes of two relevant measures that are available using DF&A data.  The first measure represents taxable sales at Motor Vehicle and Parts Dealers, excluding the sale of automobiles.  It represents a proxy measure for general activity in the automotive sales sector.  The second measure, perhaps more relevant, is an index of auto sales that is constructed from the county-level data.  It can best be interpreted as an index of the number of vehicles sold (new and used).  Both measures show something of a low-point in March, with increases in April and May.

Figure 5.13

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Arkansas Economic Development Institute.

The increases in April and May are consistent with the monthly revenue reports from DF&A, which noted the motor vehicle portion of sales tax receipts was up 25% in June (corresponding to May sales).  The latest report noted that motor vehicle sales were up another 12.5% the following month. The low point in March suggests that auto sales were a factor contributing to the drop in total taxable sales in that month, and in the subsequent recovery that masked declines in other spending components.  Indeed, In Figure 4 (above) the “non-retail” component technically includes this important motor vehicle sales component.

Conclusions and Explanations
So it turns out that retail spending in Arkansas did, in fact, decline in April — particularly in sectors directly affected by Covid-related shutdowns.  But the declines were far smaller than indicated in the U.S. data, and spending growth since April has outpaced the national spending recovery.

Several factor are likely to have contributed to this pattern.  First, the COVID-related shutdowns that were implemented in Arkansas were not as restrictive as in many other states, facilitating a somewhat more normal continuation of commerce.  Second, the implementation of Act 822 in 2019 increased sales tax receipts for state and local governments, independent of any actual change in consumer spending.  But this explains only a portion of the measured year-over-year growth comparisons.

An undeniably important factor has been the role of government support and stimulus payments helping to maintain income and spending.  Last week’s U.S. GDP report revealed that personal income from transfer receipts increased by 75% in the second quarter, driving an increase in total personal income of 7.3%.  Transfer payments account for a larger share of Arkansas income, so the increase in transfers in the second quarter has likely had an even larger impact here.  Forecasts indicate that total personal income in Arkansas (including transfers) increased by 12.5% in the second quarter.

Figure 6:

Sources: U.S. Bureau of Economic Analysis, IHS Markit, Arkansas Economic Development Institute

Generally speaking, economists have found that temporary gains in income, like those associated with the stimulus payments and other temporary income support programs, do not lead to one-for-one increases in consumer spending.  Rather, some of the windfall is saved or, equivalently, used to pay down household debt.  Under the current economic conditions, it appears that the propensity to consume by Arkansas households is high enough that the temporary income gains due to government stimulus programs has been significant enough to not only sustain consumer spending during the shutdowns, but to boost expenditures during the partial re-opening phase.

Looking forward, the prospects for continued strength in consumer spending depend one two factors:  First and foremost, the economic outlook overall is dependent on the course of the COVID-19 pandemic and efforts to control it.  As noted by Federal Reserve Chair Jerome Powell said last week, “the path of the economy will depend significantly on the course of the virus.”  More specifically with regard to consumer spending, the income support provided by government stimulus and support payments has been a crucial factor thus far, and in the absence of a full reopening of a post-pandemic economy, it is likely to be remain an important factor over the next several months.  As shown in Figure 6, the recent expiration of some of these programs implies a sharp drop in transfer payments and personal income over the second half of 2020.  Congress is presently considering extensions and additional stimulus measures, but the timing and magnitude of those actions are, as yet, unclear.

# # #

A PDF file of this article is available HERE.

 

Print Friendly, PDF & Email

Metro Area Employment and Unemployment – June 2020

The June employment report for metropolitan areas showed a continuing rebound from the job losses of March and April.  The table below showed revisions to the nonfarm payroll employment data for May, along with the new numbers for June.  The May revisions showed larger employment gains than originally reported in Fort Smith, Hot Springs, and Memphis.  Other metro areas saw downward revisions.  The employment gains continued into June, with increases ranging from 0.7% in Jonesboro to 3.1% in Hot Springs.  Since the Pre-COVID-19 peak in February, employment is down in all of Arkansas’ metro areas, with the magnitude of the declines ranging from -7.2% in Memphis to -2.8% in Pine Bluff.

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

Unemployment rates generally continued their declines from the previous month, although Memphis saw a slight uptick.  The largest decline was in Fort Smith, where the unemployment rate dropped from 11.9% to 7.4%.  Hot Springs dropped from 13.8% to 10.6%. Northwest Arkansas continues to have the lowest unemployment rate in the state, dropping to 6.3% in June.

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

The map below displays a snapshot of unemployment rates by county for June, along with the change from May (not seasonally adjusted data).  Unemployment rates were higher in eight counties and unchanged in one.  Rates were down in the remaining 66 counties, with 26 counties experiencing declines of more than 1.0% and eight counties seeing declines of more than 2.0%.  The highest unemployment rates continue to be generally located in the Delta region, with Chicot County setting the statewide high of 13.6%.  Even after an increase of 0.5 percentage points, Arkansas County continues to have one of the lowest unemployment rates in the state at 5.7%.  However, after a decline of 0.5 percentage points in June, the lowest rate in the state is now in Madison County (5.2%).

Print Friendly, PDF & Email

Forecast Update: Impact of Covid-19 on the Arkansas Economic Outlook (July)

Since our last forecast update six week ago (June 10), incoming data have continued to show a more rapid recovery from the COVID-19 shutdowns than previously expected.  Nonfarm payroll employment bounced back with increases of 1.9% and 2.0% in May and June, respectively, leaving total employment down only 5.7% from February.  The unemployment rate declined from its April peak of 10.8% to a rate of 8.0% in June.  Meanwhile, the pace of government stimulus payments has further boosted personal incomes, and data on local sales tax collections indicates somewhat smaller declines in consumer spending than earlier projected.

In this updated forecast report, we present new projections for the Arkansas economy in light of recent developments, incorporating newly-published data. The forecast is based on the latest update to the national outlook from IHS Markit, dated July 8.  The July IHS forecast projects second-quarter GDP growth falling at an annual rate of 35.5% – a somewhat smaller drop than expected the previous month.  The national unemployment rate peaked at 13.4% in the second quarter, and is expected to decline gradually over the next several quarters, reaching single-digits by the end of this year and down to 6% by the end of 2021.

As with our previous forecasts for the Arkansas economy, we have applied the recent IHS national forecast changes to the model for Arkansas, adjusting the components of each aggregate separately in order to capture some of the unique characteristics of the Arkansas economy. Our forecast is also informed by updates to the IHS Arkansas model published in June and July.

The following sections present our latest post-COVID-19 forecasts for Arkansas, comparing the latest projections to previous forecasts.  The figures presented here compare the current (July) and previous (June) forecasts, relative to the pre-COVID-19 baseline from February.

Employment
The most significant revision to the forecast is, once again, the outlook for employment. In June we had expected employment declines to moderate, with job losses continuing into the third quarter.  The sharp rebounds that we saw in May and June are now baked into the forecast for the third quarter, implying employment growth of 4.1% relative to the second quarter.  Employment is expected to recover to pre-pandemic levels by mid-2021.

Figure 1:

Sources: IHS Markit, Arkansas Economic Development Institute

Unemployment
The monthly household survey on which the unemployment rate is based continues to encounter logistical difficulties and is also plagued by problems with categorizing workers who have been temporarily idled by COVID-19 shutdowns.  Since March, the BLS has noted that many workers affected by COVID-19 shutdowns were incorrectly classified as “employed but absent from work” instead of “unemployed on temporary layoff.”  The magnitude of this misclassification appears to be diminishing over time, but there is still greater-than-usual uncertainty about the unemployment statistics.

Measurement problems notwithstanding, Figure 2 shows the latest outlook for Arkansas unemployment.  Just a month ago, the forecast indicated unemployment would average over 10% in both the second and third quarters.  The preliminary data indicate that the unemployment rate peaked at 9.5% in the second quarter and is now expected to decline gradually over time.  The unemployment rate should drop below 6% sometime in 2021, but is unlikely to return to full-employment levels until sometime the following year.

Figure 2:

Sources: IHS Markit, Arkansas Economic Development Institute

Personal Income
Estimates of income from government stimulus payments continue to raise personal income estimates for the second quarter.  It is now estimated that second-quarter transfer payments (which include special tax rebates, expanded unemployment insurance benefits, and other social safety-net programs) will be 66% higher than in the first quarter.  The higher estimates for transfer payments reflect both the magnitude and speed with which payments are being sent out.  Congress is currently considering legislation to extend some of the programs established by the CARES Act, but the current forecast assumes that programs will expire as scheduled.  Consequently, while it is likely that elevated transfer payments will continue to raise incomes in the second half of 2020, the current forecast maintains the assumption that transfer payments will drop sharply in the third quarter.

For total personal income, the current forecast estimates that Arkansas Personal Income in the second quarter was 14.6% higher than a year earlier.  With transfer payments expected to drop off in the third quarter, income will still be up 4% on a year-over-year basis.

Figure 3:

Sources: IHS Markit, Arkansas Economic Development Institute

Figures 3a and 3b show how the total income forecast is reflected in expectations for transfer income and non-transfer income.  Net of transfer payments, personal income is now expected to show a decline of 4.3% in the second quarter—and improvement over the 7.8% decline in the June forecast.  The July forecast also reflects newly available data for the first quarter, showing that non-transfer income dropped 0.2% instead of the 0.4% increase that was expected.

Figure 3a:

Sources: IHS Markit, Arkansas Economic Development Institute

Figure 3b:

Sources: IHS Markit, Arkansas Economic Development Institute

Consumer Spending
Despite the boost to incomes from expected transfer payments, we are still anticipating that the data will show a sharp decline in Personal Consumption Expenditures (PCE) in the second quarter. Nevertheless, recent data on sales tax collections suggest that the decline in consumer spending may be overstated.  If federal stimulus programs are extended beyond current-law deadlines, recovery in the third quarter might be more pronounced.

The July forecast indicates that PCE declined 10.9% in the second quarter, compared to the 12.2% decline expected in the June forecast.

Figure 4:

Sources: IHS Markit, Arkansas Economic Development Institute

Table 1 compares the July forecast relative to the May and June forecasts for PCE, focusing on the two-quarter impact (2019:Q4-2020:Q2) of the COVID-19-related shutdowns. Projections for many of the components have changed little since last month, while others reflect specific sectoral information collected by IHS forecasters.

The largest revisions are in Durable Goods, for which data on both the national and state level indicate stronger-than-expected demand.  This is particularly true for Motor Vehicles and Parts, for which early projections turned out to be far too pessimistic. The decline in nondurable goods is now expected to be somewhat smaller than the June forecast, while the estimate of spending on services is now slightly lower than in the June forecast.

Table 1:

Sources: IHS Markit, Arkansas Economic Development Institute

Figure 5 shows index values (relative to 2019:Q4=100), illustrating the relative paths for total PCE, Durable Goods, Nondurable Goods (less Gasoline & Other Energy) and Services. When gasoline expenditures are excluded, nondurable goods purchases are expected to remain relatively stable and increasing over time. Subtracting Food and Beverages Purchased for Off-Premises Consumption, the remaining components are now expected to decline by 7%. Spending on services is expected to decline by 15%.  In the June forecast, durable goods purchase were expected to show the largest decline of any component, over 19%.  The initial decline is now only expected to be only 10%, but growth is likely to remain relatively sluggish in coming quarters. In the current outlook, it is services spending—particularly in those sectors directly related to COVID-19 shutdowns—that show the most significant decline.

Figure 5:

Sources: IHS Markit, Arkansas Economic Development Institute

Implications for Local Sales Tax Collections
One of the practical applications of the consumer spending forecast is evaluation of how sales tax receipts by city and county governments might be affected. To assess the sales tax implications, we have been tracking a composite measure that is intended to mimic the taxable sales base. This taxable sales proxy—shown in Figure 6—includes all Durable and Nondurable goods less Gasoline, plus Recreation Services and Food Services & Accommodation.

The outlook for taxable sales has improved in this month’s forecast, for the third consecutive month. The June forecast had shown a decline of 16.1% (from 2019:Q4 to 2020:Q2). The latest forecast shaves that loss down to 12.9%.  Reflecting the more rapid and robust recovery of employment and income that is now projected, the taxable sales base is now expected to rebound more sharply than in either the April or May forecast.

Figure 6:

Sources: IHS Markit, Arkansas Economic Development Institute

# # #

A PDF file of this report can be downloaded HERE.

 

Print Friendly, PDF & Email

Arkansas Employment and Unemployment – June 2020

The state employment report for June showed continued recovery from the sharp job losses registered in April during the peak of pandemic-related economic shutdowns.  The Arkansas unemployment rate dropped from a revised 9.6% in May to 8.0% in June.  The national unemployment rate declined from 13.3% to 11.1%. The household survey indicated a decline in the number of unemployed Arkansans of nearly 24,000 to 105,338.  The number of employed declined as well (down 9,300), resulting in a sharp downturn in the measured labor force.  The Arkansas labor force participation rate has dropped 2.4 percentage points from 58.2% in January and February to 55.8% in June.   The U.S. labor force participation rate declined 1.9 percentage points (from 63.4% to 61.5%) over the same period.

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

Payroll Employment
Arkansas nonfarm payroll employment rose by 23,700 in June, an increase of 2.0%.  The June increase was proportionately not quite as large as the national total, which showed an increase of 3.6%.  From February through June, the net decline in Arkansas payroll employment was 5.7%, while the U.S. total showed a decline of 9.6%.

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

Employment gains continued to be concentrated in the sectors that were most effected by pandemic-related shutdowns.  Employment in Retail Trade increased by 10,300 in May and June, almost completely offsetting the April decline.  Leisure and Hospitality Services added 8,500 jobs in June, but remains far below levels of a year ago.  Significant gains were also registered in June for Professional and Business Services (particularly in Administrative and Support Services) and in Other Services.

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

# # #

Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

 

Print Friendly, PDF & Email

Arkansas GDP – 2020:Q1

In the latest report on state-level GDP, the U.S. Bureau of Economic Analysis reported that Arkansas’ economy contracted at a 5.0% annual rate in the first quarter, the same rate as the U.S.  That was also the median growth rate among states.  GDP declined in all 50 states, with growth rates ranging from -1.3% in Nebraska to -8.2% in New York and Nevada.

Source: Bureau of Economic Analysis

Over the course of 2018 and 2019, Arkansas GDP growth averaged 1.9% compared to the U.S. average growth rate of 2.4%.  Arkansas growth rate had exceeded that of the U.S. in the second half of 2019.  Accordingly, year-over-year increase for Arkansas is slightly higher than the U.S.: +0.5% versus +0.3%.

Source: Bureau of Economic Analysis

The breakdown of GDP by sector shows that although Arkansas contracted at the same rate as the U.S., the composition of the decline was somewhat different.  Arkansas benefited from relatively strong growth in Construction and Management of Companies and Enterprises.  Manufacturing contributed more to Arkansas decline than to the U.S. for two reasons:  Manufacturing represents a larger share of the state’s output and both durable goods and nondurable goods manufacturing declined more sharply in Arkansas.  In sectors considered most-affected by pandemic-related shutdowns (e.g. Retail Trade, Health Care, Accommodation & Food Services, etc.), Arkansas’ declines tended to be smaller than the national average.

Source: Bureau of Economic Analysis

 

Print Friendly, PDF & Email

Special Reports: Impact of Covid-19 on the Arkansas Economy

Arkansas Consumer Spending During the Pandemic
Sales tax data for Arkansas indicate robust consumer spending in the midst of the pandemic. In this article, we break down available data by county and by sector to seek greater insight into the phenomenon.
Read more…

Forecast Update (July)
“Incoming data have continued to show a more rapid recovery from the COVID-19 shutdowns than previously expected.”
Read more…

Forecast Update (June)
Information since May has suggested that Arkansas has not been as severely impacted as other parts of the country, and that the sharp declines in national employment have abated.
Read more…

Forecast Update (May)
“The economic impact of the COVID-19 pandemic continues to be more rapid and more severe than initially expected… In this updated report we present new projections for the Arkansas economy.”
Read more…

Forecast Update (April)
“In this note we update that forecast with new estimates of the magnitude of the downturn. We also update and extend our previous guidance on how the forecast is likely to impact sales tax receipts of local governments.”
Read more …

Implications for Local Government Sales Tax Collections
“In this note, we focus on consumer spending and the outlook for sales tax collections by county and municipal governments.” Read more…

Arkansas Economic Outlook (March)
“It appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and for Arkansas.”  Read more…

 

Print Friendly, PDF & Email
AWSOM Powered