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Third Quarter Personal Income Growth

Figures for personal income growth in the 50 States and District of Columbia were released this morning.  In Arkansas, personal income was essentially unchanged from the previous quarter.  The press release from the Bureau of Economic Analysis was generally upbeat, noting that the report showed “19 states seeing net earnings growth for the first time in at least a year.”  With income growth improving in many States, the zero-growth measured for Arkansas placed our state in the lowest quintile with a rank of #42.

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Today’s report is a very good example of why it is important to look beyond a single data observation.  For many states in the nation, even modest income growth represents a vast improvement over recent quarters.  However, Arkansas suffered a more modest slowing of income during the recession.  Personal income during the first two quarters of the year declined by less than one-tenth of one percent in Arkansas.  Income declines in other parts of the country were far greater, with a national average of -1.5%. 

The report released today shows that Arkansas personal income in the third quarter was only 0.09% lower than in the fourth quarter of 2008.  From this longer term perspective (cumulative growth during 2009), Arkansas is in the highest quintile among the states, with a rank of #8. 

Arkansas may not be showing the gains that are being recorded in other states, but we didn’t suffer as severe a downturn either.   It’s good news that other parts of the country are showing signs of recovery – this can only help businesses in Arkansas as demand for our goods and services picks up in other parts of the nation .

Metro Area Unemployment in October

The October unemployment rates for Metropolitan Statistical Areas (MSAs) were released by the BLS this morning.  The report on state unemployment rates released two weeks ago showed that Arkansas’ unemployment rate rose by one-half of one percent to 7.6 percent.  The new data for Arkansas’ MSAs show similar sharp increases.

As noted in earlier posts, the MSA data are not seasonally adjusted by BLS.  The unadjusted data show that unemployment rates rose slightly or remained steady in October.  However, October is a month in which seasonal movements typically result in a falling unemployment rate.  After accounting for this recurring pattern, seasonally-adjusted measures show increases in the range of 0.4 to 0.6 percent.

The table below summarizes the MSA unemployment rate data for October.

MSA-urates-Oct09

State Revenue Woes (?)

Governor Mike Beebe announced today that he had “accepted a recommendation by the Arkansas Department of Finance and Administration to cut the state budget by $100 million for the current fiscal year.”  This amounts to a budget reduction of  just over 2 percent.  The background to this announcement was a report from the Department of Finance and Administration (DF&A) earlier this month that showed that Arkansas tax revenues were sharply lower than expected in the first quarter of fiscal year 2010 (July-Sept 2009).

Year-to-date gross general revenues were down by 7.2 percent from the previous year, and were 6.4 percent below the general revenue forecast.  Net available general revenues were down 3.3 percent from the previous year and 7.1 percent below forecast.  The report noted that “in percentage terms Corporate Income is below forecast the most (-22.1 percent [-$19.9 million]), but Gross Receipts [sales taxes] are down by a greater amount in dollar terms (-$61.6 million [-10.8 percent]).”

These declines are disconcerting, especially in the context of recent signs of renewed growth in the Arkansas economy.  However, there are reasons to believe that this is a temporary problem and that state revenues will recover sufficiently to meet revised revenue projections in the latter part of the fiscal year.

  • First, tax revenues are recorded by DF&A in the month that they were received, rather than in the month that the tax liabilities were incurred.  Reporting and payment lags mean that revenues received in the July-September period reflect economic conditions earlier in the year when the recession was having a greater impact on the economy.  Recent signs of stabilization should show through to revenue receipts in coming months.
  • More important, as the economy recovers from the recession in coming months, economic activity will pick up — further expanding the tax base and revenue receipts.

The depth of the nationwide recession and its impact on the Arkansas economy were more severe than anticipated.  Consequently, state revenues will be lower than earlier expected.  With prospects of an improving economy on the horizon, however, a modest 2 percent reduction in annual revenue projections and budgetary authority should be sufficient to correct the state’s budget imbalances.  As Governor Beebe put it, “Just like any family or business, state government must live within its means.”  His response to unexpectedly sharp declines in revenue is a prudent fiscal adjustment.

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Report from the Arkansas Economic Issues Breakfast

The first event of the new Arkansas Economic Issues Breakfast series took place this morning.  Linking seven different locations around the state in a statewide videoconference presented some technological challenges, but we managed to pull it off without any serious problems.  Governor Beebe kicked-off the event, then we saw presentations by Kathy Deck in Fayetteville, Alan McVey in Jonesboro, and me in Little Rock.   The meeting also included a discussion group session where attendees talked about some of the issues relevant for their local economies.

In addition to the locations in Little Rock, Fayetteville, and Jonesboro, simultaneous sessions took place in Magnolia, Monticello, Pine Bluff and Fort Smith.  Across the state, we estimate that over 800 people participated.

All the background inforamation, presentation materials, and summaries of the discussion groups will be posted shortly on the Arkansas Economic Issues Breakfast website. 

– Michael Pakko