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Arkansas Personal Income – How Policy Has Affected Growth

Recent statistics on personal income have been subject to significant influences by Federal tax policy.  In the most recent quarter (2013:Q1) Arkansas personal income declined by 1.9%, compared to an average decline of 1.2% nationwide.  These declines followed sharp increases in the fourth quarter of 2012: +3.0% for Arkansas (revised up from 2.2%) and +2.8% for the U.S. (revised up from 1.9%).  The relatively large drop in Arkansas in the first quarter ranked the state #48 among the 50 states plus D.C.  But as noted in the news release from the Bureau of Economic Analysis, “The decline in first-quarter personal income reflected the effects of several special factors including the expiration at the beginning of 2013 of the ‘payroll tax holiday.'”

In Figure 1 below, total personal income for Arkansas and the U.S. are compared on an index scale, with the previous business cycle peak (2008:Q2) normalized to a common value of 100.  Two prominent features are shared by the U.S. and Arkansas series:  a sharp increase in the 1st quarter of 2011 and an equally sharp decline in the 1st quarter of 2013.  These movements largely reflect the initiation and conclusion of the payroll tax holiday.

Figure 1:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

To get an idea of the magnitude of the tax holiday effect, Figure 2 shows two ratios constructed using the data for Arkansas.  The denominator for both ratios is the sum of “Wage and salary disbursements” and “Proprietor’s income”.  The numerators are (1) “Employee and self-employed contributions for government social insurance” and (2) “Employer contributions for government social insurance.”  The payroll tax holiday affected the first, but not the second.

Figure 2:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

The sharp drop in the employee ratio represents the payroll taxes that were not deducted from employee paychecks during 2011 and 2012.  By using simple regression methods, we can use the employer contribution ratio to estimate the magnitude of the tax holiday’s impact on wages and salaries (and on total personal income).  The result of this exercise reveals that the payroll tax holiday boosted Arkansas personal income by nearly a full percentage point (0.96%).  A comparable calculation for the U.S. suggests a slightly smaller impact (0.92%).  As a relatively low-income state, the payroll tax holiday had a larger-than-average impact in Arkansas because more wage and salary income is subject to Social Security taxes.

With these calculations in hand, we can answer the hypothetical question:  “What would have been the growth rate of personal income in 2013:Q1 were it not for the expiration of the payroll tax holiday?”  For Arkansas, income growth would have been -0.9% instead of the reported -1.9%.  For the U.S., the growth rate would have been -0.3% instead of the reported -1.2%.

These quarter-to-quarter growth rates are also affected by another set of tax-policy changes:  A number of other income tax increases were scheduled to take effect at the beginning of 2013, prompting “the acceleration of the receipt of income, especially personal dividends and salary bonuses, into the fourth quarter in anticipation of first-quarter changes in individual income tax rates.”  (An example is the special $5 per share dividend paid out by Little Rock-based Dillard’s Inc. at  the end of 2012.)  The impact of this effect is more difficult to quantify since it could potentially impact a number of categories in the personal income accounts; and more importantly, it is driven by behavioral responses to tax rate changes.

One manifestation of the end-of-year distortion is obvious in the “Dividends, interest, and rent” category of personal income.  Figure 3 shows this category of income as a percent of total personal income (using data for Arkansas).  The “hypothetical” path illustrated in Figure 3 is constructed by simply averaging the values for the prior and subsequent quarters.   This method implicitly assumes that the surge in income in 2012:Q4 would not have been otherwise realized — but it serves as a decent first-approximation of the effect.

Figure 3:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

If Dividends, etc., had followed the hypothetical path in Figure 3, personal income in Arkansas would have been 0.72% lower than reported in the fourth quarter of 2012.  For the U.S., total personal income would have been 0.60% lower.  This would also have the effect of lowering growth rates for the fourth quarter of 2012, and raising quarterly growth rates for the first quarter of 2013 by similar magnitudes.  Table 1 summarizes the impact of the two effects independently and jointly:

 Table 1:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

The results of these counterfactual exercises are just estimates, of course.  In particular the fourth quarter surge in income is likely to have affected sources of income other than dividends so the growth-rate adjustment is partial, at best.  We can conclude, however, that the dramatic ups and downs in personal income growth over the past two quarters are related to tax policy changes.  In the absence of these changes, fourth quarter growth would have been lower and first quarter growth higher.

Transfer Payments and Inflation
In addition to the temporary effects of tax policy changes, personal income data are influenced by other factors relating to public policy.  For example, government transfer payments generally follow a counter-cyclical pattern — rising during recessions and tapering off during economic expansions.  In part, this is due to the so-called automatic stabilizer effects of government policies:  For example, unemployment insurance payments increase when the unemployment rate rises.  In addition, policymakers often respond to recessions by adopting specific stimulus policies.

Figure 4 shows how Personal current transfer receipts have grown during and since the recession of 2008-09.  Expressed as a percent of total personal income, transfers increased sharply in 2009 and have since held relatively stable.  For the U.S., transfers rose from less than 15% of total income up to approximately 18%.  For Arkansas the transfer share rose from 20% to more than 24%.  The upticks in these ratios in 2013:Q1 partly reflect continued increases in transfer receipts, but are also related to the decline in total personal income induced by the end of the payroll tax holiday.

Figure 4:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

By removing “personal current transfer receipts” we can get a clearer view of the strength of income growth in the private sector — wages, salaries, proprietors’ income, etc.  As shown in Figure 5, the recovery in personal income less transfers has not been as substantial as total income (shown in Figure 1).  Whereas total income in the first quarter of 2013 was 8% higher than the previous cyclical peak, the measure that excludes transfers is now only 4 to 5% above early-recession levels.

Figure 5:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Finally, one further adjustment is helpful for putting personal income growth into context: accounting for inflation.  Over the past 5 years, inflation has eroded the purchasing power of income by over 8% (as measured by the price index for personal consumption expenditures).  As a result, the real (inflation-adjusted) value of personal income has not risen as much as the nominal (dollar-denominated) value.  Figure 6 shows Real Personal Income less Transfer Receipts.*  After the adjustment for inflation, this measure of personal income remains below its value from the reference-period of 2008:Q2.  The surge in income during 2012:Q4 had briefly raised income to the parity-value of 100 for both Arkansas and the U.S., but the first-quarter downturn brought it back down to -2.6% for Arkansas and -1.9% for the U.S.

Figure 6:
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

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*Real Personal Income less Transfer Receipts is the measure of personal income used by the National Business Cycle Dating Committee to help establish start- and end-dates for recessions.

Real Personal Income and Purchasing Power, 2007-2011

The Bureau of Economic Analysis (BEA) released a brand new set of data yesterday:  Real Personal Income for States and Metropolitan Areas, 2007-2011 (Prototype Estimates).  The data are not as timely as those we usually cover here on the Arkansas Economist, but they are rich in detail.

When economist refer to “real” magnitudes, it means that the data have been adjusted to reflect price differences.  Typically this involves adjusting “nominal” growth rates to account for changes in the price level over time — i.e., inflation.  What is truly novel about the prototype estimates that came out yesterday is that they are also adjusted to reflect differences in relative price levels from one region to another.

As described in a previous post, the BEA’s new set of Regional Price Parities (RPPs) are intended to measure differences in the cost of living across states and metro areas.  Hence, the “real” personal income statistics released yesterday convert dollar-denominated figures into units of current local purchasing power.

As shown in Figure 1 below, the cost of living varies considerably among the states.  In 2011, the RPP for Arkansas was 89.2, meaning that prices in Arkansas are more than 10% below the national average (which is equal to 100, by definition).  The highest prices in the nation are in Hawaii (116.0) and the lowest are in South Dakota (87.0).  In the 2011 data, Arkansas ranked as having the 5th lowest prices in the nation.

Figure 1:
Source: Bureau of Economic Analysis

As shown in Figure 2, RPPs do not vary much over time, but they do differ even among areas within the state.  As of 2011, the average RPP for metropolitan areas in Arkansas was 90.9, while the non-metro RPP was only 85.5.

Figure 2:
Source: Bureau of Economic Analysis

To the extent that RPPs do vary over time, increases or decreases can be interpreted (roughly) as indicating a higher or lower rate of inflation than the national average.  Typically, nominal growth rates are converted to real values by simply adjusting for the nationwide inflation rate.  By using the RPP adjustments, the real income calculations reflect a more accurate and nuanced measure of income that better reflects purchasing power at the local level.  Figure 3 shows changes in personal income in Arkansas — and for its metro and non-metro areas — from 2008 through 2011.  The recession of 2008-09 is reflected in the negative growth rates in 2009.  Statewide, real income declined by 2.5%, but the downturn was sharper (-3.3%) in the non-metro areas of the state than in the metro areas (-2.1%).  During the recovery in 2010 and 2011, total metro-area income has grown faster than non-metro income.

Figure 3:
Source: Bureau of Economic Analysis

However, there is one additional adjustment that is necessary to evaluate how incomes support real purchasing power:  population growth.  If real income in an area is rising simply because there are more people earning the same amount per person, then living standards have not really improved.  Consequently, the best measure of overall economic welfare is “real per capita personal income,” displayed in Figure 4.

Figure 4:
Source: Bureau of Economic Analysis

In general, the metro areas of the state have been growing in population, while the non-metro regions have experienced slower growth — or even outright population declines (see Arkansas Population Estimates for 2012).  Figure 4 shows that these changes in population are important.  In real per capita terms, the recession hit metro and non-metro areas about equally, and the recovery has been slower in metro areas.  In fact, metro area per capita real income declined in 2011, pulling the statewide average negative.  Non-metro areas displayed a small but positive growth rate.

The most significant implication of using RPPs to adjust nominal incomes is how it affects comparisons of the relative purchasing-power of incomes.  It is often noted that Arkansas is far below the national average of per capita income.  However, when regional differences in prices are taken into account, the standard of living in Arkansas is much closer to the national norm.  In nominal terms, Arkansas per capita income was only 81% of the U.S. average in 2011.  But after adjusting for price differences, real per capita income (RPP-adjusted) was 91.2% of the national average.  The adjustment for relative prices moves Arkansas up in the rankings among the 50 states plus D.C. from #46 to #41.

Figure 5:
Source: Bureau of Economic Analysis, with calculations by IEA.

Although the adjustment of per capita income using RPPs brings the statewide standard of living closer to the U.S. average, there remain significant differences between the metro and non-metro areas of the state.  As of 2011, real per capita personal income in Arkansas’ metro areas was 95.7% of the U.S. average, while the corresponding figure for the state’s non-metro areas was only 84.5%.

Metropolitan Areas
The RPP data in yesterday’s report are also broken down by individual Metropolitan Statistical Areas (MSAs).  Even among the various MSAs, Relative Price Parities differ considerably (Figure 6).  Prices are higher in the larger MSAs of Memphis, Little Rock, and Fayetteville.  The smaller metro areas have prices that are comparable to the non-metro areas of the state.

Figure 6:
Source: Bureau of Economic Analysis

Real per capita income growth rates in Figure 7, below, reveal an uneven pace of recovery among the state’s metro areas during 2010 and 2011.  In 2010, the negative growth in total metro area income (shown in Figure 4) was concentrated entirely in three MSAs:  Fort Smith, Little Rock, and Jonesboro. Growth was positive in Arkansas’ other metro areas.   In 2011, however, growth rates were positive for all areas of the state.

Figure 7:
Source: Bureau of Economic Analysis

Finally, how do the state’s MSAs stack up in terms of real per capita personal income, adjusted for purchasing power?  Figure 8 shows that even though prices tend to be higher in larger metropolitan areas, higher incomes tend to compensate for the differences.  In dollar terms, incomes in Arkansas MSAs range from 74.3% of the national average in Pine Bluff to 96% in Little Rock.  After adjusting for relative prices, the real per capita income figures show that Little Rock has a standard-of-living slightly above the national average.  Pine Bluff remains the MSA with the lowest relative income level, but the standard of living is nearly 11 percentage points higher than the nominal, dollar-denominated figures suggest.

Figure 8:
Source: Bureau of Economic Analysis, with calculations by IEA

The new RPP data have now moved from the experimental phase to prototype.  There are likely to be further refinement in the methodology and coverage of the data, but it is extremely useful to now have an official set of measurements for geographic relative price differences.  As detailed here and in yesterday’s report from the BEA, the new data bring a novel perspective to the examination of income differences across the nation and within the state of Arkansas.

Arkansas Personal Income – 2012:Q4

The Bureau of Economic Analysis released new data on state personal income this morning.  In Arkansas, personal income rose by 2.2% for the quarter, compared to a 1.9% growth rate nationwide.  Arkansas’ growth rate for the quarter was the 12th highest in the nation.  Data for the third quarter were revised downward, but growth for the entire year remained relatively strong at 4.9% (Q4/Q4).

As shown in the figure below, personal incomes in Arkansas have risen to a level that is 9.3% higher than the previous cyclical peak (in 2008:Q2).  By comparison, U.S. personal income is 8.3% higher over the same period.  These figures do not include the effects of inflation, however.  After accounting for price increases of approximately 6.7% over the period (as measured by the price index for personal consumption expenditures), real personal income is up 2.4% in Arkansas and 1.9% for the U.S.

Source: Bureau of Economic Analysis

The press release noted particularly strong growth in the fourth quarter, citing special and accelerated dividend payments that were associated with end-of-year expectations for higher income tax rates in 2013.  The report also cited accelerated bonus payments and other irregular pay in anticipation of tax rate changes.  These effects had their largest impacts on states where the finance industry is particularly prominent.

The BEA report also noted the impact of severe heat and drought on agricultural production and income in the summer and fall of 2012.  Although the impact of these weather-related effects were fairly large and negative for states in the upper Midwest and great plains states, the impact on farm incomes in Arkansas was positive.  Record crop yields and high prices combined to boost Arkansas farm incomes by 44% over their levels in the fourth quarter of 2011.

The table below compares annual growth rates in total personal earnings for Arkansas and the U.S.  For the year in total, earnings growth was 2.6% in Arkansas, compared to 3.3% for the U.S.  Sectors generating large income gains included Farming, Utilities, and Management of companies.  Industries in which Arkansas earnings growth lagged the nation included Mining, Nondurable goods manufacturing, and Finance and Insurance.

Source: Bureau of Economic Analysis

With data now available for the year as a whole, today’s report also highlighted new measures of per-capita income in 2012.  Per capita personal income in Arkansas was estimated at $34,723 — about 81% of the national average ($42,693).  This ranked Arkansas #45 among the 50 states.  As noted in a previous post, the real purchasing power of incomes are affected by regional differences in the cost of living.  Updated estimates of regional price parities will come out later this summer (scheduled for June 12).  For now, using the 2006-2010 estimates of regional price differences, price-adjusted per capita income in Arkansas amounted to 91% of the national average in 2012, moving the state up to #41 in the rankings (not including D.C.)

Income and Price Parities – Implications for Arkansas

“After adjusting for a relatively low cost of living, incomes in Arkansas allow for a higher standard of living than in some of the higher-cost regions of the country.”

It is widely recognized that changes in income and spending over time should be adjusted for changes in prices; i.e., inflation.  Comparisons of income across countries are also routinely adjusted for differences in prices using exchange rates or other relative price measures.  Less common is the adjustment of state and local data to account for differences in relative prices across regions within the United States.  This type of inter-regional relative price adjustment is familiar to regular readers of the Arkansas Economist — in the context of interpreting poverty rates published by the Census Bureau (see, here and here, for example).  In recent years, researchers at the U.S. Bureau of Economic Analysis (BEA) have been developing statistics on regional price differences that can be applied more generally to income and consumption data for the states and metropolitan areas of the U.S.  This year, the BEA is scheduled to publish the first set of annual updates for personal income adjusted by regional price parties (RPPs).

The baseline estimates for these regional price parties were published in the Survey of Current Business in August 2012 — Regional Price Parities for States and Metropolitan Areas, 2006–2010.   Using data on rents from the American Community Survey (Census Bureau), price data from the Consumer Price Index (Bureau of Labor Statistics), and expenditure shares from the Personal Consumption Expenditure survey (BEA), the newly-developed RPP statistics allow for the comparison of the cost of living among states and metro areas in the U.S.

Normalizing the U.S. average to have an index value of 100, the estimate of Arkansas’ relative price level is calculated to be 89.3.  That is, the overall level of prices in Arkansas is more than 10% lower than the national average.  For the calculation period 2006-2010, the highest and lowers price parities in the nation were calculated for Hawaii (116.1) and South Dakota (87.2), respectively.  The Arkansas level of 89.3 ranked our state as having the 6th lowest prices in the nation.

This as in interesting finding in its own right, but is even more important in what it tells us about relative incomes and purchasing power.  For example it is widely known that Arkansas has one of the lowest levels of average income in the nation.  But to the extent that prices are also lower than in other regions, the differences in price-adjusted standards of living are less extreme than the unadjusted dollar-values suggest.  The map below, reproduced from the article in the Survey of Current Business, shows how per capita personal income changes after adjusting for regional price parities.  Arkansas is one of the states where the purchasing power of income is increased the most by the adjustment — specifically, price-adjusted per capita income for 2010 is 12.2% higher than unadjusted per capita income.

Source: Bureau of Economic Analysis

The average per capita income in all 50 states plus the District of Columbia was $39,900 in 2010.  By construction, this is also the price-parity-adjusted level of income for the U.S.  Without price adjustment, Arkansas’ per capita income was $32,800 — approximately 82.2% of the national average.  After adjusting for the relatively low cost of living in Arkansas, however, the RPP-adjusted income in Arkansas was the equivalent of $36,800 — about 92.2% of the U.S. average.  The table below summarizes this comparison and presents data on RPP-adjusted incomes for the eight metropolitan areas that include parts of Arkansas.

Source: Bureau of Economic Analysis

The RPP figures for Arkansas are all below the national average of 100, ranging from 82.8 in Jonesboro to 94.7 in the Memphis metro area.  In unadjusted dollar terms, per capita income in Arkansas metro areas range from 75.7% of the national average in Pine Bluff to 96.5% in Little Rock.  After adjusting for regional price parities, however, incomes in Pine Bluff rise to 86.2% of the national average and incomes in Little Rock are 3.5% higher than the national average.  In fact, after re-calculating incomes to account for their greater purchasing power, the RPP-adjusted measures of personal income are above the national average in three of the state’s metro areas.

The research on RPPs is still considered to be experimental, with economists at the BEA and elsewhere working to improve the quality of regional price data and the methodology for compiling them into regional index values.  The data will undoubtedly be refined and revised as research continues.  But the overall implications of the findings are clear:  after adjusting for a relatively low cost of living, incomes in Arkansas allow for a higher standard of living than in some of the higher-cost regions of the country.

 

Arkansas Personal Income – 2012:Q3

Total personal income in Arkansas rose by 1.0% in the third quarter, with a particularly sharp increase in farm income.  According to today’s news release from the Bureau of Economic Analysis (BEA), Arkansas’ third-quarter growth rate was the second-highest in the nation (North Dakota had the highest growth rate).  Data for the first two quarters of the year were also revised upward — from 0.8% to 1.0% in the first quarter and from 1.2% to 1.4% in the second quarter.  Compared to the third quarter of 2011, personal income in Arkansas is up 3.8%.  For the total United States, income growth was 0.4% in the third quarter, and has totaled only 2.4% over the past four quarters.

Source: Bureau of Economic Analysis

Inflation (as measured by the price index for Personal Consumption Expenditures) rose at a rate of 0.4% in the third quarter, up from a 0.2% pace in the second quarter.  Consequently, real personal income in Arkansas rose by only 0.6% in the third quarter, and was up just 2.2% over the past year.  After this inflation-adjustment, Arkansas personal income is now slightly above its previous cyclical peak (by about 1.4%).

Source: Bureau of Economic Analysis

Arkansas was one of several agricultural states for which farm income figured prominently.  For the third quarter alone, farm income was up 19.6%, and accounted for approximately one-third of the state’s income growth.  The BEA report cited two special circumstances affecting agricultural income in the third quarter — both associated with the summer’s drought conditions.  One key factor was net insurance settlements — particularly in the states of the upper Midwest where crop damage from the drought was the most extensive.  In the south, third quarter farm income was also affected by a relatively early harvest season.  (The BEA cited Texas, in particular.)  As noted in previous posts, Arkansas farm output was not as severely affected by the drought due to the high proportion of irrigated farmland in the state, but weather conditions were such that crops were both planted and harvested earlier than usual.

Other than agriculture, earnings growth by industry in Arkansas generally mirrored the national averages.  Sectors with strong earnings growth included durable goods manufacturing, professional services, and health care & social assistance.  Transportation and warehousing fared well in Arkansas, but contributed little to the nation’s income growth.  On the other hand, earnings in the construction industry were weaker in Arkansas than for the nation as a whole (although the BEA report noted that construction income was particularly concentrated in Texas and Oklahoma).

Source: Bureau of Economic Analysis

Arkansas Personal Income – 2012:Q2

A new report from the Bureau of Economic Analysis shows that personal income in Arkansas rose by 1.2% in the second quarter of 2012, slightly higher than the U.S. average rate of 1.0%.  Growth was postitive in all 50 states, although it slowed in most states.  Arkansas growth rate was up from the previous quarter, and ranked the state as the 8th fastest-growing in the nation.  Over the past four quarters, cumulative income growth in Arkansas was 3.0%, just slightly lower than the 3.3% growth rate for the U.S.  With a CPI inflation rate of 1.9% for the same period, these figures represent postive real (inflation-adjusted) growth in incomes.

Revised data from the previous quarter also show an improved picture for Arkansas.  Previously reported at 0.3%, first quarter growth is now estimated to have been 0.9%.  The revisions show a particularly large adjustment to farm income:  The new report shows farm income expanding 1.2% in the first quarter instead of contracting by 28.6% as originally reported.

Today’s report also included comprehensive revisions for 2009 through 2011.  As shown in the figure below, the revised data show that incomes fell more sharply during the recession (-4.7%) than previously estimated (-3.3%).  The revised data also show a more variable growth path during the subsequent recovery.

Source: Bureau of Economic Analysis

The revised data continue to show that Arkansas incomes were not as hard-hit by the recession as the national average, but cumulative growth during the recovery has been somewhat slower.   As of the second quarter of 2012, incomes in both Arkansas and the U.S. were up 6.4% from the previous cyclical peak (2008:Q2).

Source: Bureau of Economic Analysis

Today’s report shows that earnings growth was up 1.0% for the quarter, compared to a 0.8% growth rate for the U.S.  Earnings growth was positive for nearly every industry in Arkansas, with only nondurable-goods manufacturing and military pay showing slight declines.

Source: Bureau of Economic Analysis

 

A Note on Poverty in 2011

This morning, the Census Bureau released new statistics on Income, Poverty, and Health Insurance Coverage in the United States: 2011.  The headline of the report was that the official U.S. poverty rate was 15.0% in 2011, little changed from the previous year.

The report did not contain any specific information on individual states, but some of the underlying data from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) are now available.  Those data tell us that here in Arkansas, the poverty rate was 18.7%.  That was the fifth highest rate in the nation (of all 50 states plus the District of Columbia).  Median Family Income in Arkansas was  approximately $51,000, amounting to 84.3% of the national median of $60,500.  Arkansas’ ranking on family income was 46th.*

These statistics are based on the Census Bureau’s measure of “money income,” which does not include income from many programs intended to alleviate poverty.  For example, money income does not include Supplemental Nutrition Assitance Program (food stamps), housing subsidies, low-income energy assitance, or the earned-income tax credit.  A new Supplemental Poverty Measure which incorporates these income sources—along with updating the methodolgy for calculating the poverty threshold—were introduced last year.  Statistics on these alternative calculations will not be available until November.

It should also be pointed out that income and poverty data for individual states are more accurately measured in the Census Bureau’s American Community Survey (ACS) and the Small Area Income and Poverty Estimates (SAIPE), which will come out later this month and in November, respectively.
_________

*Median income figures are calculated using the standard method and may differ from published Census estimates that are calculated using linear interpolation.

Arkansas Personal Income – 2012:Q1

Personal incomes in Arkansas rose slightly in the first quarter, up 0.3% from the fourth quarter of 2011 (seasonally adjusted).  According to the report from the Bureau of Economic Analysis, Arkansas’ growth rate was the slowest among all the positive growth rates in the nation — although three states showed zero or negative growth.  On a year-over-year basis, income growth was 2.4%, ranking Arkansas #40 among the 50 states plus D.C.  By comparison, total U.S. personal income was up 0.8% from the previous quarter and up 2.9% from a year ago.  As shown in the chart below, Arkansas Personal Income is now approximately 6% higher than the peak recorded at the beginning of the recession.

Source: Bureau of Economic Analysis

A sharp decline in farm incomes for the quarter–down by over 28% from the previous quarter–contributed to the overall weakness in the report.  Nonfarm incomes were  up by 0.6%.

Total earnings–which include wage and salary disbursements, supplements to wages and salaries, and proprietors’ income–were essentially unchanged for the quarter (+0.04%).  In addition to the substantial drop in farm incomes, a large decline was also evident in Real estate and rental and leasing (-13.76%).  These two sectors combined had a net contribution of -0.55 percentage points to total personal income growth.  As shown in the table below, a handful of industries generated fairly robust income gains, including Accommodation and food services, Management of companies and enterprises, Construction, and Transportation and warehousing.

Source: Bureau of Economic Analysis

Note:  Today’s income report also included data revisions for 2011.  These changes were very small for Arkansas, but did result in a slight upward revision to growth in the fourth quarter.  The new data show an increase of 0.7%, compared to a previously-reported growth rate of 0.6%.

County Per Capita Income – 2010

New estimates of local area personal income for 2010 were released today by the U.S. Bureau of Economic Analysis.  The data contain a wealth of information about aggregate income and its sources for every county in the United States.  But perhaps the best measure for comparing economic well-being in different areas is per capita income.  Previously released data showed that per capita income growth was 2.8% for the U.S. in 2010, and 2.3% for Arkansas.  The new data show that 41 of Arkansas’ 75 counties exceeded the national growth rate.   A total of 58 counties had growth rates that exceeded the rate of CPI inflation for 2010 (1.64%), implying real income growth.

County growth rates ranged from a low of -1.1% in Perry county to a high of 9.7% in Jackson county.  The distribution of growth rates by county is illustrated in the map below (and detailed in a table at the end of this article).  Northwest Arkansas has long been an area of rapid income growth, but a more remarkable observation about the 2010 data is the strong growth rates exhibited in the Delta region:  The counties of Arkansas, Asheley, Chicot, Drew, Jackson, Lee, Lincoln, Monroe, Phillips and Woodruff all had per capita income growth rates exceeding 4%.

Source: Bureau of Economic Analysis

A long-sought objective for economic development in Akansas has been to raise per capita personal income to a level equal to the national average.  Because the Arkansas growth rate was slightly lower than the U.S. average, the ratio of statewide per capita income to U.S. per capita income declined a bit in 2010, from 83% to 82%.  The two highest-income counties in the state, Pulaski and Union, remained above the national average but showed small relative declines.  The most rapidly growing county, Jackson County, showed an increase from 76% of average U.S. income in 2009 to 81% in 2010.

Source: Bureau of Economic Analysis

 

Source: Bureau of Economic Analysis

Updated Forecasts for 2012 and 2013

At the Arkansas State University Economic Outlook Conference today, we presented revised and updated forecasts for some key economic indicators for the Arkansas economy.  At the time that the original forecasts were complied in late October 2011, data for some series were available only through the first half of the year (e.g., personal income).  Some of the statistics that were available through the third quarter have subsequently been revised (particularly employment data).  Hence, the original projections for 2012 and 2013 incorporated forecast estimates of how 2011 would turn out.  Now that we have at least preliminary data for all of 2011, it seems a propitious time to revisit the forecasts.

In general, the data have confirmed our expectations that 2011 would show a slowdown in the pace of  the economic recovery overall, but with clear signs of improvement in the final months of the year.  In some cases, our expectations for improvement in the waning months of 2011 were exceeded — in other cases our outlook was overly optimistic.  Accordingly, the forecast revisions are mixed. And the outlook — in broad strokes — continues to be one of steady but unremarkable growth as we slowly emerge from the aftermath of the 2008-09 recession.

Personal Income
Yesterday’s data-release from the Bureau of Economic Analysis showed that total Personal Income in Arkansas grew by 3.7 percent in 2011 (Q4/Q4).  This fell closely in line with our forecast of 3.6% growth for the year.  Hence revisions to the outlook are minor.  Due, in part, to lower-than-expected transfer payments in the second half of 2011, the forecast for personal income growth in 2012 has been revised down from 5.1% to 5.0%.  The forecast for 2013 is unchanged at 3.9%.

Personal Income
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Arkansas Taxable Sales Including Gasoline
Our proxy for state retail sales, Arkansas Taxable Sales Including Gasoline (ATSIG), finished 2011 with a Q4/Q4 growth rate of 5.0% — slightly higher than the 4.4% rate in the forecast.  Some of this strength is expected to continue into 2012, prompting a slight upward growth revision from 3.2% to 3.3%.  (The slowdown from 2011 reflects, in part, the expectation of slightly lower inflation rate.)  Our original forecast included a (somewhat anomalous) slowdown in growth for 2013 (2.0%).  Such a slowdown now appears less likely, and we are now forecasting 2013 growth of 3.9%.

Arkansas Taxable Sales Including Gasoline
Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

Home Sales
Arkansas home sales had been steadily improving during 2011 (on a seasonally-adjusted basis), but after having been supported by home-buyer tax credit programs in the previous two years, 2011 was still expected to be have the lowest total annual sales volume in recent memory.  Sales in the last three months of the year were fairly strong, but were somewhat below our expectations.  Compared to the previous year, total sales volume was down slightly more than forecasted: down 2.5% from the previous year’s (revised) sales figures.  Carrying this weakness forward into the projected sales trajectory, the forecasts for 2012 and 2013 have been revised downward.  Expectations of a double-digit growth rate in 2012 have given way to a revised forecast of +7.5%.  Sales are still expected to improve by 4.3% in 2013, but end the year with a lower sales volume than previously forecasted.

Home Sales
Sources: Arkansas Realtors Association, Institute for Economic Advancement

Payroll Employment
At the UALR Arkansas Economic Forecast Conference, we predicted that downward revisions to the payroll employment data would show that the year would end with a lower level of employment than the previous year — in sharp contrast to data that was available at the time.  The actual data revision was slightly larger than anticipated, showing a Q4/Q4 employment loss of 0.4%, rather than the 0.2% that had been forecasted.  Nevertheless, relatively strong job growth did materialize in the fourth quarter of 2011, as anticipated.  Accordingly, the growth path for employment has not been revised (+1.3% in 2012 and +1.5% in 2013), but the path has been benchmarked to a slightly lower starting point.

Payroll Employment
Source: U.S. Bureau of Labor Statistics, Institute for Economic Advancement

Unemployment Rate
Unemployment rate data for 2011 were also recently revised.  The updated statistics showed that unemployment was not quite as high in mid-2011 as previously estimated.  Moreover, the rate dropped over the last three months of the year much more rapidly than expected.  Consequently, our unemployment rate forecasts have been revised downward significantly.  2011 ended with a rate of 7.9%, instead of the expected 8.2% rate.  The downward trajectory of unemployment has been adjusted downward from this lower starting point.  We now expect the unemployment rate to average 7.4% in the fourth quarter of 2012 (instead of 7.9%) and to fall to 7.0% by the fourth quarter of 2013 (instead of 7.6%).  These would be welcome developments, if realized.  The risk to this revised forecast is that new entrants and re-entrants to the labor force might put upward pressure on the unemployment rate as the labor market continues to improve.

Unemployment Rate
Sources: U.S. Bureau of Labor Statistics, Institute for Economic Advancement

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Methodological Note:  The original forecasts of November 2011 were produced using the Moody’s Economy.com Arkansas model, benchmarked to a composite of national economic forecasts.  The revised projections presented here represent adjustments to the original forecasts in light of new and revised data.   Underlying forecast assumptions and model estimates were not generally re-evaluated as a part of this exercise, but updated model forecasts for the unemployment rate and retail sales were factored into the analysis.