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A New Report on the Arkansas Economy from the St. Louis Fed

During my interview on Unconventional Wisdom, the show’s host – David Sanders – mentioned the St. Louis Federal Reserve Bank’s “Burgundy Book.” It just so happens that the latest editions of the Fed’s four Burgundy Books came out yesterday. The first line of the report for the Little Rock zone summarizes the Fed’s current assessment of the Arkansas economy: “Economic activity … has continued to stabilize since the June report.” (News Release: September Burgundy Book Shows Continued Stabilization in the Little Rock Regional Economy)

In contrast, conditions in the Louisville zone were reported as “mixed.” In the St. Louis zone conditions “ranged from weak to mixed.” In the Memphis zone, economic activity “continued to weaken during the third quarter of 2009.” Relative to these neighboring regions, the summary of Arkansas’ situation is clearly more optimistic.

The Burgundy Book provides useful information about the regional economy. I don’t say that just because I am a former Federal Reserve economist who helped to develop the Burgundy Book program. Solid data on regional and local economic conditions can be scarce and is often out-of-date. The Burgundy Books provide anecdotal information that can be used to fill in the gaps—especially when it comes to up-to-date assessments of economic conditions.

A bit of background information: The Federal Reserve System puts out a report called the “Beige Book.” (The formal title is “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” but it’s easier to refer to it by the color of its cover.) The Beige Book reports information derived from survey data, reports from members of the Fed’s Boards of Directors, and other informal contacts with businesses on a local level. The Burgundy Books parse that information for the St. Louis Federal Reserve District into separate reports for the district’s four local “zones.”

Here are some highlights of the September report for the Little Rock zone:

Consumer Spending: Among general retailers, “75 percent noted that sales levels met their expectations and 25 percent reported sales above expectations… The sales outlook for September and October was mostly optimistic among general retailers,” with 83 percent expecting a sales increase relative to 2008.

Manufacturing and Other Business Activity: “Manufacturing … has begun to expand slightly since our previous report, with a few firms reporting an increase in new hiring activity… Firms in the aerospace, fabricated metal, furniture, and paper product manufacturing industries announced plans to expand operations and hire new workers… Contacts in the service sector reported new hires related to government services or as a result of federal stimulus dollars. However, firms in business support services reported layoffs as they consolidated operations.”

Banking and Finance: “On net, lending activity for commercial and industrial loans decreased slightly, despite a few isolated reports indicating an increase in demand for these loans. Reports on the level of lending to consumers ranged from unchanged to slightly increased… Residential mortgage lending activity decreased slightly, with several contacts indicating that new loan applications and refinancing activity have both slowed since the second quarter. Most contacts reported an increase in delinquencies, although to a lesser extent than earlier in the year. ”

A chart from the Little Rock Zone Burgundy Book
A chart from the Little Rock Zone Burgundy Book

This report reinforces an assessment that I have been seeing in the economic data and hearing from focus groups around the state: Arkansas is poised to recover from this recession in relatively good shape.

An Encouraging State Employment Report

One should always be cautious about placing too much emphasis on data for a single month, but the state employment report for August (released this morning by the Bureau of Labor Statistics) includes several encouraging signs for Arkansas.  Among the highlights of the report:

  • The unemployment rate in Arkansas fell by three-tenths of a percent to 7.1%.  The Arkansas unemployment rate is now 2.6 percentage points lower than the national average.  Arkansas was one of only 16 states to experience an unemployment rate decline.
  • Underlying the decline in the unemployment rate was a decrease in the number of people unemployed.  In July, Arkansas unemployment rolls topped 100,000 for the first time.  The August report shows that  number falling to 96.5 thousand.
  • Nonfarm payroll employment rose slightly in August.  Arkansas was one of only 8 states to experience an increase.  Moreover, the data for July were revised upward to show a net gain for that month as well.  (Arkansas was one of only 3 states to experience employment gains in both July and August).
  • Employment in goods producing sectors remains weak, but some of the key service-providing industries continue to show reslience.  For July and August, net job gains were recorded in Professional and Business Services, Education and Health Services, Other Services, and Government. 
  • The payroll employment data confirm a trend observed in a previous post:  After declining by 26.4 thousand between October 2008 and March 2009, the employment situation in Arkansas is stablizing.  Since March, employment has been approximately flat, with a net increase of 600 jobs through August.

– Michael Pakko


The Poverty Rate and the Cost of Living

When the latest data on state-level poverty rates was released last week (September 10), I was asked to comment for a story in the Arkansas Democrat-Gazette.  I pointed out that poverty rates are not adjusted for differences in the cost of living.

My point was the comparisons across states and regions can be misleading.  For example, Arkansas poverty rate in 2007 ranked it as the 4th highest in the nation, yet Arkansas also ranked as the 6th lowest in the nation for median gross rental rates for housing. When it comes to the affordability of the basic necessities of life, a uniform nationwide poverty threshold doesn’t adequately capture differences across states and regions.

This has long been a recognized shortcoming of the existing poverty rate measures.  In 1995, studies from the General Accounting Office (GAO) and the National Academy of Science (NAS) independently reached the same conclusion:  Cost of living differences matter, but a lack of data prevents the adjustment of poverty rates for regional cost disparities.  Since the NAS study, researchers have been working on recommendations for improving the quality of poverty rate statistics.

A recent flurry of research activity at government statistical agencies has aimed to address this shortcoming.  Just last month, Trudi Renwick—a statistician/economist at the Census Bureau—presented some recent findings on this topic at the Annual Meeting of the American Statistical Association.  In addition to providing a thorough review of the literature on the topic, Renwick reported comparisons of three different methods for adjusting the official statistics.  The first method is the Census Bureau’s experimental adjustment for Fair Market Rent (FMR) using data from the Department of Housing and Urban Development.  The second method—from an April 2009 report by Census Bureau researcher Alemayehu Bishaw—uses median gross rental costs derived from the American Community Survey (ACS).   The third adjustment technique— reported in November 2008 by Betina Aten and Roger D’Souza—represents collaborative research by the Bureau of Economic analysis and the Bureau of Labor Statistics to use hedonic regression methods for estimating regional price parity (RPP) differences incorporating a more comprehensive measure of cost-of-living.

The table below reports various measures of the poverty rate for Arkansas, comparing some of the alternatives to the current official standard.  The first set of rates (from Bishaw, 2009) uses the official poverty definition, comparing the unadjusted measure with two of the techniques for housing cost differences. After accounting for relatively inexpensive rents in Arkansas, the poverty rate falls by two percentage points, and Arkansas moves down in the rankings from 4th highest to 8th highest poverty rate in the nation.

The second set of estimates (from Renwick, 2009) uses the NAS alternative definition for the poverty threshold (which incorporates different expenditure and income definitions from the official definition).  The unadjusted alternative measure shows a slightly lower poverty rate for Arkansas, with a correspondingly lower state ranking.  When adjustment for regional price disparities is included in the analysis, the results are dramatically different:  For two of the three adjustment techniques, Arkansas does not even rank above the median for poverty rates.  Indeed, the most comprehensive adjustment—the Regional Price Parity approach—Arkansas ranks as having one of the lowest poverty rates in the nation.

The cost of living matters when it comes to poverty rates.  After accounting for differences in prices from state to state, the poverty rate in Arkansas is not nearly so high as the official statistics suggest.

 – Michael Pakko

Alternative Poverty Rates and Rankings for Arkansas
Alternative Poverty Rates and Rankings for Arkansas


Aten, Betina, and Roger D’Souza. November 2008. “Regional Price Parities: Comparing Price Level Differences Across Geographic Areas,” Survey of Current Business 88:11, pp. 64-74.

Bishaw, Alemayehu. April 2009. “Adjusting Poverty Thresholds Based on Differences in Housing Costs: Applications in the American Community Survey, “ poster presentation prepared for the Population Association of America Annual Conference.

Citro, Constance F., and Robert T. Michael (eds). 1995. Measuring Poverty: A New Approach. Washington, D.C.: National Academy Press. (National Academy of Science recommendations).

Renwick, Trudi.  August 2009.  “Alternative Geographic Adjustments of U.S. Poverty Thresholds: Impact on State Poverty Rates,” Paper presented at the Annual Meeting of the American Statistical Association Section on Social Statistics, Washington, DC.

Seasonally Adjusted Unemployment Rates for Arkansas MSAs

Earlier this week (on Sept. 1), the U.S. Bureau of Labor Statistics (BLS) announced the release of its latest estimates of unemployment rates for metropolitan statistical areas (MSAs) around the country. The data for Arkansas MSAs showed that unemployment rates remained lower than the national average, but were well above their levels of a year earlier. The data released by the BLS also showed that unemployment rose from June to July in every metro area of the state except Fort Smith.
The latter observation might be misleading. While the national and state-level data are released on a seasonally adjusted basis, the BLS does not seasonally adjust the data for MSAs.  But it is important to recognize seasonal patterns. Most economic data series follow a distinct seasonal pattern. Economists call this pattern “the seasonal cycle.” Unlike the business cycle—which is irregular and often unpredictable—the seasonal cycle is recurring and predictable.
In the case of the unemployment rate there are some obvious reasons for a seasonal pattern: The unemployment rate tends to fall near the end of the year as temporary workers are hired to take on the extra demand of holiday shopping. It tends to rise sharply in January and then recover during the spring. When students enter the employment market in search of summer jobs, the unemployment rate rises again.  Typically, July represents the high point of the summer.
So when one asks the question, “Why did unemployment rise in July?” the answer might very well be: “Because it was July.” That doesn’t help explain the more pressing question, “Where do we stand in this irregular and unpredictable business cycle?”
Seasonally adjusted data can help to illuminate the answer to that question. Research on the development of seasonal adjustment techniques has been formidable, but the application of state-of-the-art methods is not rocket science: most statistical software packages that are designed for economic analysis include seasonal-adjustment as a standard procedure.
So I took it upon myself to seasonally-adjust the unemployment rate data for Arkansas’ MSAs (using data from January 1999 through July 2009). Some statistics from that exercise are reported in the table below.
Unemployment Rates for Arkansas MSAs
Unemployment Rates for Arkansas MSAs

The seasonally adjusted data show that the unemployment rate fell or remained stable in four MSAs, not just in Fort Smith as suggested by the not-seasonally-adjusted data.  In Fayetteville, Hot Springs, and Jonesboro, the not-seasonally-adjusted unemployment rate rose “because it was July.”  After accounting for seasonal factors, the situation doesn’t seem so bad after all.  In fact, for every metro area in Arkansas the level of the unemployment rate is lower after adjusting for seasonal patterns.  So why do the data show such high unemployment rates for Arkansas’ MSAs in July? . . .  “Because it was July.”

— Michael Pakko

Arkansas employment stabilizing

The latest payroll employment data for Arkansas (July 2009) indicate that the severe job losses we witnessed in late 2008 and early 2009 have subsided.  From October 2008 through March 2009, Arkansas suffered a net decline of more than 26 thousand jobs.  From March through July, the net loss has totaled only about 400 jobs.

Job losses are never good news, but the fact that we are no longer seeing the steep declines that we did during the most severe phase of the recession suggests that the worst might be over.  Employment tends to be a lagging indicator, so when we see job growth moving in a positive direction it will be a very good sign. 

Arkansas Nonfarm Payroll Employment