The year 2021 ended with another month of robust employment gains in Arkansas. The state’s unemployment rate fell to a new record low in December, and payroll employment finished the year more than 2% higher than the end of the previous year.
The headline news was another significant drop in the unemployment rate, from 3.4% in November to 3.1% in December. Arkansas was one of 12 states that registered all-time low unemployment rates for the month. The number of unemployed, at 42,609 was also a record low for the series (dating back to 1976). The U.S. unemployment rate 3.9% in December.
Source: Bureau of Labor Statistics
The drop in the unemployment rate reflected a decline of 3,750 in the number of unemployed and an increase of 2,652 in the number of employed. The net change in the labor force was a decline of 1,098. Compared to a year ago, the number of unemployed has fallen by over 24,500. However, owing to the unusual surge in the measured number of employed persons in December 2020, a year-over-year comparison shows the number of employed slightly down in December 2021 (see more below).
Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
Payroll Employment
Nonfarm payroll employment increased by 1,200 in December (seasonally adjusted). Over the last four months of the year alone, employment was up by 15,000. From December 2020 to December 2021 the gain was 26,300 (2.1%).
Employment growth in goods-producing sectors was particularly robust in December with Construction and Manufacturing showing solid gains for the month. Service-providing sectors were more mixed: Leisure and Hospitality Services showed a strong gain, as did Wholesale Trade. However, job-losses were recorded in Health Services and Transportation.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Arkansas payroll employment has nearly recovered to the level of the previous cyclical peak (February 2020), with the shortfall now less than 10,000 jobs, or 0.7%. Nationwide, the data show a remaining employment shortfall of 2.3% relative to February 2020.
Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
Household vs. Payroll Employment
Although there are slight differences in the definitions of the number of employed covered in the household survey and the payroll survey, the two measures tend to show similar trends. There are times, however, when the two measures give conflicting signals. If we compare December 2021 to December 2020, the payroll survey shows an increase of 26.3 thousand jobs, while the household survey shows a decline of 1,643. As shown in the figure below, the difference is attributable to the unusual surge in household employment recorded for December 2020.
Source: Bureau of Labor Statistics
Generally speaking, the payroll data are considered more accurate, although both measures are subject to annual revisions that can change the trends considerably. We might have expected the December 2020 surge in employment to be revised by now, and it may be changed in the upcoming round of data revisions. For the time being, however, the trend in Arkansas employment is probably better-represented by the data from the payroll survey rather than the household survey.
The proper measure of employment is important when it comes to evaluating the labor force participation rate. The participation rate is calculated as the total labor force as a percentage of the population (specifically, the civilian non-institutional population aged 16 and over), where the labor force is calculated using the payroll measures of employed plus unemployed. As shown in the figure below, Arkansas labor force participation rate–as conventionally measured–inherits the odd December 2020 employment surge. If we use nonfarm payroll employment (with appropriate scaling and rebasing) to calculate an alternative measures, the pattern of labor force participation appears to correspond much more closely with U.S. trends. Whichever way it is calculated, however, the participation rate has decline by approximately 1.3 percentage points since early 2020. For the U.S. data, the decline has been approximately 1.5 percentage points.
Sources: Bureau of Labor Statistics, Arkansas Economic Development Institute
These declines in participation rates matter for interpreting the unemployment rate data. Although unemployment rates are at or near record lows across the country, these rates are measured relative to significantly smaller bases than before the pandemic.
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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.
