A forum for information and analysis on the Arkansas economy
Metro Area Employment and Unemployment – April 2023
Arkansas’ unemployment rate fell to a new all-time low of 2.9% in April. Unemployment rates in the state’s metropolitan areas generally followed suit. Using the Smoothed Seasonally-Adjusted Metropolitan Area Estimates (which date back to January 1990), new series lows were recorded in Northwest Arkansas, Fort Smith, Little Rock and Pine Bluff. Jonesboro tied a record established in the data for March, and Hot Springs matched a record established in early (pre-pandemic) 2020. Texarkana’s April unemployment rate was only 0.1 percentage points higher than its record low from early 2020. Memphis’ unemployment rate was 0.4 percentage points higher than the series low in 1999.
Source: Bureau of Labor Statistics, Smoothed Seasonally-Adjusted Metropolitan Area Estimates.
Recent declines have been remarkable not only for their extent, but also their pace. Over the past six months, unemployment rates have dropped by magnitudes ranging from 0.3 percentage points (Fayetteville and Memphis) to 1.1 percentage points (Pine Bluff).
Source: Bureau of Labor Statistics, Smoothed Seasonally-Adjusted Metropolitan Area Estimates.
Payroll Employment
Changes in nonfarm payroll employment were mixed in April. Robust increases were recorded for Fayetteville, Fort Smith and Little Rock (with a proportionately smaller increase in Jonesboro). In Hot Springs, Memphis, and Pine Bluff employment contracted (to varying degrees). Texarkana was unchanged for the month.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Longer-term growth measures are consistent with a clear difference in growth trends. Northwest Arkansas is the most rapidly expanding metro-area job market, with Jonesboro and Fort Smith also showing strong growth. Employment in Hot Springs continues to rebound from the disproportionate hit it took during the Covid-contraction. Little Rock, Memphis, Pine Bluff and Texarkana are showing more modest, but positive, growth trends. Only Pine Bluff and Texarkana remain below pre-pandemic employment levels.
Arkansas Employment and Unemployment – April 2023
April was another record-setting month for Arkansas labor markets. The unemployment rate dropped 0.2 percentage points to 2.8%—the lowest unemployment rate on record. Arkansas was one of ten states seeing new record-low unemployment rates. The national unemployment rate was previously reported to have fallen 0.1 percentage points to 3.4% in April.
Source: Bureau of Labor Statistics
Underlying the drop in the unemployment rate was a sharp increase in the number of employed (+4,831) and a decline in the number of unemployed (-1,886). On net, the labor force expanded by 2,945. These changes represent a continuation of trends we’ve seen emerging since mid-2022, with something of an acceleration over the first months of 2023. In the most recent six months alone, household employment has increase by nearly 16,000, while the number of unemployed workers has declined by 9,000.
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
Payroll Employment
Nonfarm payroll employment increased by 3,700 in April (seasonally adjusted data). Compared to a year earlier, employment has increased by 33,600, or about 2.5%. Prominent in the March-to-April expansion were increases in Construction Employment (+1,100) and Leisure & Hospitality Services (+2,900). Sectors declining in April included Manufacturing, Retail Trade, and Professional & Business Services. In the later, the declines were mostly in the Administrative & Support Services component.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Over the past 12 months, we’ve seen growth in nearly every sector. One prominent exception is Retail Trade, which peaked early in 2022 but has roughly plateaued in recent months. Other sectors continue to expand robustly, including Leisure & Hospitality, Education & Health, Wholesale Trade, and Construction.
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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.
Metro Area Employment and Unemployment – March 2023
New data for metro area employment and unemployment came out this week, including newly revised data from the household survey. The revisions had minor effects on unemployment rates. As shown in the first two columns of the table below, unemployment rates were revised lower in all of Arkansas’ metro areas except for Texarkana (which was unchanged), with revisions ranging in size from 0.1 percentage points to 0.6 percentage points in Pine Bluff.
Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates
Over the first three months of 2023, unemployment rates have trended lower across the state. As of March, the unemployment rate was less than 3.0% (the statewide average) in four metro areas, with Northwest Arkansas registering a rate of only 2.1%. The largest declines in unemployment were recorded for Pine Bluff, where the unemployment rate has declined by 0.8 percent from the revised December rate of 5.0%.
Although the revisions to unemployment rates were generally minor, changes to the underlying data were, in some cases, substantial. The figures below illustrate the nature of the revisions for the numbers of employed in each metro area. Generally speaking, employment levels were revised lower for the two years leading up to the Covid-19 pandemic, with post-pandemic growth revised higher. Exceptions to this pattern include Memphis, Pine Bluff, and Texarkana, which now show slower post-Covid employment growth than originally estimated.
Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates
Payroll Employment
Nonfarm payroll employment showed mixed changes for the month of March. Payrolls expanded in Northwest Arkansas, Hot Springs, Jonesboro and Pine Bluff. Declines were registered for Fort Smith, Little Rock and Memphis. Texarkana was unchanged.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Employment in the Fayetteville-Springdale-Rogers metro area continues to expand at over twice the statewide pace, increasing by 5.25 over the past 12 months and by 11.0% since the pre-pandemic peak of February 2020. Jonesboro and Fort Smith continue to maintain a healthy growth rates and Hot Springs has rebounded sharply from its particularly large downturn in 2020. Pine Bluff and Texarkana continue to lag behind the pace of the rest of the state, with both metro areas still showing net job losses relative to February 2020.
Arkansas Employment and Unemployment – March 2023
It has been widely anticipated that the recent increases in interest rates would result in weaker labor markets. In Arkansas, at least, there is little sign of deteriorating conditions—quite the opposite, in fact. Today’s report from the Bureau of Labor Statistics shows a decline in the unemployment rate from 3.2% in February to 3.0% in March. Arkansas was one of seven states that set new record lows for unemployment (since the series began in 1976). The national unemployment rate was previously reported to have declined by 0.1 percent to 3.5% in March.
Source: Bureau of Labor Statistics
The decline in Arkansas’ unemployment rate was underpinned by a sharp decline in the number of unemployed (-2,833) and an increase in the number employed (+4,661). Consequently, the labor force (the denominator of the unemployment rate) increased by 1,828.
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
Payroll Employment
Nonfarm payroll employment increased by 400 jobs from February to March (seasonally adjusted). Compared to March 2022, employment has increased by 32,400 (about 2.5%). Since the previous peak in February 2020, payroll employment has expanded by 58,700 jobs or 4.6%. In comparison, total U.S. payroll employment has shown a net increase of 2.1% over the same period.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
A breakdown of employment growth by sector shows that the March increase included expansions in Construction, Retail Trade, and Other Services. Sectors with employment declines included Wholesale Trade, Transportation & Utilities, and Professional & Business Services (entirely in the Administrative & Support Services category).
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Year-over-year employment gains are especially prominent in service-providing sectors—particularly in Education & Health Services and Leisure & Hospitality services (which were among the hardest-hit sectors during the Covid contraction). Other prominent gains include Construction; Wholesale Trade; and Transportation & Utilities.
JOLTS Data from February
Earlier this week, new state-level data from the Job Openings and Labor Turnover Survey (JOLTS) were released. The data for Arkansas reinforce the view that the state’s labor markets remain robust. For example, while there has been some indication of a lower ratio of job openings to unemployed workers in the nationwide data, the ratio has recently increased in Arkansas and was at 2.4 in February (the U.S. ratio was 1.7 in February).
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS)
Similarly, the dynamism of Arkansas’ labor markets remains historically robust. The Quit Rate (voluntary job-separations per number of employed) has been trending downward nationwide, but remains well above 3% in Arkansas, with increases in recent months. Sometimes referred to as the “great resignation,” this statistic suggests that workers continue to perceive opportunities for job-changes.
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS)
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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.
Arkansas GDP – 2022:Q4
The latest data from the Bureau of Economic Analysis reports that real GDP growth in Arkansas proceeded at a 3.2% annual rate in the fourth quarter. U.S. GDP growth rate for the quarter was 2.6% for the quarter. Growth over the four quarters of 2022 totaled 1.9% in Arkansas, compared to 0.9% for the U.S.
Source: Bureau of Economic Analysis
Growth in the fourth quarter adds to the gap between GDP growth in Arkansas and the U.S. that has emerged since the onset of the COVID-19 pandemic. Cumulative growth since the fourth quarter of 2019 has been 7.7% in Arkansas and 5.0% for the U.S.
Source: Bureau of Economic Analysis
Breaking down the sources of GDP growth by sector, we see that Agriculture was an important contributor to Arkansas’ growth in the fourth quarter (as we also see in the nominal personal income statistics). Also contributing to Arkansas’ growth were Durable Goods Manufacturing and the collection of sectors referred to as Trade, Transportation and Utilities. Growth in other service sectors was mixed.
Source: Bureau of Economic Analysis
Note: The Bureau of Economic Analysis released data on both Personal Income and Gross Domestic Product by State on Friday, March 31: Gross Domestic Product by State and Personal Income by State, 4th Quarter 2022 and Year 2022. The Personal Income data are discussed in a separate post.
Arkansas Personal Income – 2022:Q4
In the final quarter of 2022, personal income increased at an annualized rate of 7.3%—keeping pace with the national growth rate of 7.4%. Compared to a year earlier, incomes were up 7.7% in Arkansas and 5.7% for the U.S.
Source: Bureau of Economic Analysis
A breakdown by major components shows that Net Earnings provided a larger share of income growth in Arkansas than in the rest of the nation, with Transfer Receipts accounting for a smaller share of growth.
Source: Bureau of Economic Analysis
Netting out Transfer receipts, the major components of earnings all showed increases in the fourth quarter: The largest component, Wages and Salaries, increased at a rate of 6.9% in the fourth quarter and was up 9.0% from a year earlier. Dividends, Interest, & Rent increased at a 6.6% rate for the quarter and was up 4.6% from the fourth quarter of 2021. Proprietors’ Income surged at a 19.9% rate for the quarter and was up 35.0% over the year.
Source: Bureau of Economic Analysis
As shown in the figure below, most of the recent growth in proprietors income has been from the Farm component. In fact, total Farm Income accounted for over one-quarter of Arkansas personal income growth over the four quarters of 2022.
Source: Bureau of Economic Analysis
The importance of farm income is also highlighted in the breakdown of total earnings by industry for the fourth quarter. Growth in farm income contributed contributed 1.43 percentage points to the total earnings growth of 5.2% in Arkansas. In the U.S. data, Farm income comprised a much smaller share of growth. In other respects, the patterns of earnings contributions by industry were similar for Arkansas and the U.S.
Source: Bureau of Economic Analysis
Note: The Bureau of Economic Analysis released data on both Personal Income and Gross Domestic Product by State on Friday, March 31: Gross Domestic Product by State and Personal Income by State, 4th Quarter 2022 and Year 2022. The GDP data are discussed in a separate post.
The 2023 Income Tax Cut Proposal
As this year’s legislative session winds down, a new tax cut proposal is on the agenda of the state legislature this week. The proposal would reduce the top marginal tax rate from 4.9% to 4.7%. This essay considers some of the features of the proposal.
Arkansas has a unique multi-tier system of tax tables, first established in the context of tax cuts in 2015. Accordingly, the newly proposed legislation, Senate Bill 549, adjusts two tax tables separately. The Low Income tax tables are adjusted as shown in Table 1:
Table 1:
Tax cuts for income-earners in this range are affected primarily by adjusting the tax brackets; for example, by increasing the threshold for zero taxes from $5,000 to $5,100. Toward the upper end of the scale, threshold incomes are increased and the top marginal tax rate is reduced from 4.9% to 4.7%.
The effects of these changes on average and marginal tax rates for incomes up to $84,500 are shown in Figure 1:
Figure 1:
The changes in tax-bracket thresholds results in lower taxes for all earners within the income range considered. The tax savings are fairly small: for example, for a taxable income of $32,000, the tax burden is lowered by $32.50—a reduction of 0.10%. At the higher end of the scale, a taxpayer with an income of $84,500 would receive a tax cut of $137.50 (about 0.16%).
The high-income tax tables are adjusted as shown in Table 2. As in Table 1, the thresholds for the tax brackets are revised, along with a reduction in the top marginal tax rate from 4.9% to 4.7%. The breakdown of statutory marginal tax rates into income brackets in this case is completely fictional. The tax obligations in Table 2 could be equivalently stated as “$250 plus 4.9% of all income over $8,500” under existing law, or in the case of the proposed changes, “$260 plus 4.7% of all income over $8,800.”
Table 2:
But here’s where it gets complicated: Under either tax regime, existing or proposed, the two tax scheduled don’t align. Consider the proposed bill: for an income of $87,000 the tax burden from Table 1 is $3,509. If we turn to Table 2 to calculate the tax obligation for an individual with an income of $87,001, it turns out to be $3,939, a tax increase of $430 for an income increase of $1. That’s an enormous effective marginal tax rate! This is an example of what is known as a “tax cliff.”
The legislative “fix” to this problem has been to append an adjustment ladder. In the proposed legislation, for example, an adjustment table reduces the tax burden for individuals with incomes in the range of $87,001 through $87,100 by $460. This assures a smoother transition at the $87,000 income threshold. The adjustment amount is reduced by $10 for every $100 until it reaches zero at an income level of $91,300. In effect, this turns one enormous tax cliff into 46 mini tax cliffs as shown in Figure 2, expressed in terms of average tax rates.
Figure 2:
At each one of these mini-cliffs, the marginal tax rate spikes: a $1 increase in income increases an individual’s tax burden by $10.047 (one dollar for the ladder-adjustment plus 4.7% for the one-dollar increment).
The standardized tax tables are set up in increments of $100, so if we use that as our basic unit, a $100 increase in income results in a $10 increase due to the ladder-adjustment plus $4.70 due to the marginal tax rate–a total marginal tax increase of 14.7%. Figure 3 illustrates how this feature results in an effective marginal tax rate of 14.7% over the adjustment range, along with how the proposed 2023 tax cut affects marginal tax rates.
Figure 3:
*Marginal Tax Rate calculated in $100 increments.
So, although the proposed tax cut plan does reduce the maximum statutory marginal tax rate from 4.9% to 4.7%, the maximum effective marginal tax rate is 14.7% (down from 14.9%) through the adjustment-ladder income range (which itself is shifted by the proposal).
Economic theory and evidence tells us that the effective marginal tax rate is the relevant measure to consider when it comes to to evaluating economic incentives. The tax system introduces economic inefficiencies by discouraging the incentive to seek a higher income when marginal tax rates are high. By this measure, the 14.7% marginal tax rate over the income range of $87,000 to $92,000 is a clear disincentive.
The stated intent of income tax cuts is generally two-fold, to reduce the economic inefficiencies induced by taxation and to reduce the burden on individuals and households. The proposed tax-cut legislation leaves in place the oddity of a very high marginal tax rate over a specific income range, but how much does it satisfy the second objective: lowering taxpayers’ burden?
Figure 4 shows the tax savings under the proposed changes. For a net taxable income of $20,000, the tax cut would yield tax savings of $6.60. The savings jumps to $17.70 for an income level of $23,600 and rises to $128.50 for incomes of approximately $80,000.
Figure 4:
For a range of incomes from $84,500 to $91,900 the tax cut represents more substantial savings, peaking at $385 for incomes just over $85,100. The magnitude of the tax cut drops to $170 at an income level of just over $91,450.
In dollar-value, the value of the tax cuts cannot be dismissed, but in terms of percent-of-income they are relatively small. Figure 5 converts the tax-cut savings into changes in average tax rates. For incomes below $24,000 the tax cuts amount to about 0.05% of taxable income. The percentage rises to 0.16% for incomes above 80,000. At higher incomes (above $92,000), the percentage tax savings converge toward the 0.2% change in the statutory maximum marginal tax rate.
Figure 5:
Taxpayers with incomes in the range of $84,500 to $91,900 receive the largest tax reductions, both in absolute dollar terms and as a percent of income. For this segment of taxpayers, the incentive effects of tax cuts are most likely to have an impact. Those who face the highest marginal tax rates are those who benefit the most from tax-rate reductions.
The ongoing presence of an effective marginal tax rate of nearly 15% over a range of incomes is a significant potential source of economic distortions. Arkansas is the only state in the U.S. with this kind of two-tiered tax table—a remnant of past political compromise that has become a fixture of our tax system. Tax reform to increase the efficiency of our tax system should address this built-in artifact of our tax code as much as it addresses the issue of lowering the statutory marginal tax rate.
Arkansas Employment and Unemployment – February 2023
State-level data on employment and unemployment in February were mixed for Arkansas. Information from the household survey showed a sharp drop in the number of employed, and hence a drop in the unemployment rate from 3.4% to 3.2% (in contrast to the 0.2 percentage point increase previously reported for the U.S.). On the other hand, seasonally adjusted payroll data showed a slight decline for the month. Nevertheless, following the data revisions reported earlier this month, Arkansas’ labor markets appear to remain relatively robust.
Source: Bureau of Labor Statistics
The decline in the unemployment rate was driven by a sharp drop in the number of unemployed, down 2,964 for the month and down over 4,000 since October. The number of employed was up by 3,051 for a fifth consecutive month of growth. As a result, the labor force was higher in February as well.
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
Payroll Employment
Nonfarm payroll employment edged slightly lower for the month (seasonally adjusted), falling by 1,700. Declining sectors included Durable Goods Manufacturing, Transportation & Utilities, and several other service-providing sectors. Sectors adding jobs included Nondurables Manufacturing, Wholesale, and Retail Trade.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Following the upward revisions to recent payroll growth, the slight decline in February does not represent much of a set-back. Employment growth over the past twelve months has totaled 32,500 jobs, nearly 2.5% growth. Since the previous employment peak of February 2020 Arkansas has added 62,100 jobs, a cumulative increase of 4.7%. By comparison, U.S. employment in February 2023 was up only 2.0% since February 2020.
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 consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE.
Metro Area Employment and Unemployment – January 2023
New and revised data on metropolitan area employment and unemployment were released this morning from the Bureau of Labor Statistics. As was the case with the state-level data earlier this week, data from both the household and payroll surveys were subject to annual revisions. In the case of unemployment rates and other indicators from the household survey, the revised data are only partly available (the full revisions will be available April 21, 2023).
The table below shows the revisions to metro area unemployment rates for January 2022 and December 2022, along with the new estimate for January 2023 (not-seasonally adjusted data). As of December 2022, the revised data shows slightly lower unemployment rates for Hot Springs, Little Rock, Memphis, and Pine Bluff. Texarkana’s rate was revised slightly upward, while the other metro areas were unchanged. From December 2022 to January 2023, unemployment rates increased for all metro areas, reflecting typical seasonal changes. (The unemployment rate always increases at the beginning of the new year, after the holiday season ends.)
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
The figure below summarizes the unemployment rates for metro areas in January and the change since a year ago. The pattern of rates around the state has changed little over the past year. The unemployment rates in Northwest Arkansas and in Jonesboro are running below the statewide average, while rates in Hot Springs, Memphis, Pine Bluff and Texarkana are running higher. In Fort Smith and the Central Arkansas metro area, unemployment rates are close to the statewide average.
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
Payroll Employment
Nonfarm payroll employment data were extensively revised as part of the annual benchmark revision process. The figure below illustrates the changes. As was the case with the statewide data, the metro are employment numbers for Arkansas metro areas were generally revised higher. The exceptions were Memphis and Pine Bluff (where the revisions were mixed) and Texarkana (where the data were revised lower).
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
The revised data now show that employment has expanded beyond pre-pandemic levels in all metro areas except Pine Bluff. All eight metro areas displayed significant growth over the past twelve months. The monthly data for January show robust increases in Pine Bluff and Texarkana, with smaller gains in Hot Springs, Jonesboro and Little Rock. Data for the Memphis metro area show a slight decline for the month.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Arkansas Employment and Unemployment – January 2023 (with Revisions)
The state-level report on employment and unemployment that was released today shows little change in current conditions or the near-term outlook for Arkansas. For example, the unemployment rate, at 3.4%, remains in the 3.5%+/- range in which it has fluctuated over the second half of 2022. The rate remains historically low.
Source: Bureau of Labor Statistics
However, revisions to the underlying data for both the household and employment surveys shows much stronger employment growth over the past two years than previously estimated. The revision to the unemployment rate amounted to 0.2 percentage points in December: previously reported at 4.6%, it is now reported to have been 4.4% (with the January rate unchanged from that revised estimate). On the other hand, the number of employed Arkansans was revised upward over the past two years, resulting in a total for December that is 22,642 higher than previously reported. From December 2020 through December 2022, previous reports showed an increase in the number of employed of approximately 35,000. The revised figures show an increase of nearly 59,000 jobs. This revision implies an annual growth rate of 2.3% from December 2020 through December 2022, compared to the 1.4% pace that was previously reported.
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics
The increase in employment resulted in a similar boost to the total labor force figures. After the revisions, Arkansas post-pandemic decline in the labor force participation rate appears much smaller than previously reported, and the rate is now only about 0.5 percentage points below the pre-COVID level.
Source: Bureau of Labor Statistics
Payroll Employment
The data from the Nonfarm Payroll Employment report were also subject to annual revisions. Although compiled from completely independent source data, the revisions to Arkansas payroll employment were also substantial. Total employment for December 2022 was revised upward by 27,000 jobs. Most of the revision was for 2022: the growth rate from December 2021 through December 2022 was originally reported to be 1.4%; it is now estimated to have been 3.3%.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
The table below summarizes the revisions to the super-sectors covered by the payroll employment data. The sectors with the largest revisions to both growth and employment levels included Construction, Retail Trade, and Other Services. The only sectors to show negative data revisions were Manufacturing (related to nondurables production), Information Services, and Government.
Source:
The newly-revised data, updated for January 2023, show a monthly increase of 6,700 jobs (seasonally adjusted), with a cumulative twelve-month gain of 44,200 (a 3.4% growth rate). The sectors showing substantial one-month increases were concentrated in the service-providing sectors: Professional & Business Services, Education and Health Services, & Leisure and Hospitality Services. Wholesale Trade also expanded by over 1,000 jobs, while Retail declined slightly.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Compared to the pre-pandemic peak of February 2020, the revised nonfarm payroll statistics show a net gain of 56,700 jobs — approximately 4.9% cumulative growth. By comparison, U.S. payroll employment is only 1.8% above the pre-pandemic level.
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 consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE.