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Impact of Covid-19 on the Arkansas Economic Outlook

(Revised version – Corrected Table 2, March 30, 2020)

As the impact of the novel coronavirus disease 2019 (COVID-19) works its way through the economy, national economic forecasts are showing an increasingly grim outlook. In addition to disruption of world supply chains, the decline in consumer spending associated with “social distancing” is generating forecasts with significant declines in aggregate demand that make a recession appear inevitable.

On Friday, March 20, IHS Markit released their latest forecast for the U.S. economy, projecting a second-quarter decline in GDP of 12.6% (annual rate), with a rebound not coming until the fourth quarter of the year. The IHS forecast suggests decline in payroll employment of 9.9 million (-5.6%) by the fourth quarter, with the unemployment rate peaking at 8.8%. Personal income and spending are expected to decline in the second and third quarters, with losses totaling 2.4% and 4.2%, respectively.

The IHS Markit Forecast for the U.S. assumed that “recovery from the looming economic contraction begins in August, by which time we expect the rate of new cases of coronavirus disease 2019 (COVID-19) to be dwindling and quarantines, official and self-imposed, to be lifting. It is not until the fourth quarter that a firm rebound takes hold.” Labor markets are expected to take somewhat longer to bounce back.

IHS forecasters have not yet released updated state-level forecasts, but by applying the new assumptions for the national model to the Arkansas model, we can estimate the magnitude of the Covid-19 impact on our state’s economy. To a large extent, the forecast for Arkansas reflects a direct application of changes in national aggregates to state-level variables. However, we’ve taken care to apply forecast adjustments on a disaggregated basis in order to account for unique characteristics of the Arkansas economy. For example, because a relatively large share of Arkansas workforce is engaged in goods-producing employment, some declines in service-sector employment have a smaller impact on total employment in Arkansas than at the national level.

In the following sections, we present post Covid-19 forecasts against a Baseline that represents projections from the IHS Markit model for Arkansas, published March 16, adjusted for benchmark revisions to employment that were subsequently announced by the BLS. The Covid-19 adjustment factors are calculated by comparing the IHS U.S. forecast from March 20 to the previously-published March baseline.

Employment
The impact of “social distancing” on employment is concentrated in service-providing sectors. For example, from the first quarter through the fourth quarter, employment in the Retail Trade sector is expected to decline 16%. Employment in Arts, Entertainment and Recreation is expected to fall 20%. In contrast, jobs in Health Care and Social Assistance are expected to increase by 2%. Overall, the decline in payroll employment is expected to total more than 77,000, a drop of 6.0% .

Figure 1:

Sources: IHS Markit, Arkansas Economic Development Institute

Table 1:

Sources: IHS Markit, Arkansas Economic Development Institute

Unemployment
The declines in payroll employment will be mirrored in the household measure of employment, with the number employed falling by more than 83 thousand by the fourth quarter, and with the number unemployed rising by nearly 70 thousand to total 117.5 thousand. With these developments, the unemployment rate is forecast to peak at 8.7%.

Figure 2:

Sources: IHS Markit, Arkansas Economic Development Institute

Personal Income
Personal income is forecast to be reduced by job losses and business closings, but declines are expected to be mitigated somewhat by increases in transfer payments. From the first quarter of 2020 through the third quarter, personal income is projected to decline by 2.3% before starting to recover in the fourth quarter.

Figure 3:

Sources: IHS Markit, Arkansas Economic Development Institute

Consumption
Social distancing practices are having a direct effect on consumer spending in the first and second quarters of 2020, with lingering effects due to the impact of declining employment and income later in the year and beyond. Total consumer spending is expected to decline by 5.1% in the second quarter of 2020. While spending begins to recover in the second half of the year, total consumer spending is expected to remain far below the baseline forecast through the end of 2021.

Figure 4:

Sources: IHS Markit, Arkansas Economic Development Institute

Overall spending is also impacted by recent sharp declines in energy prices, with a 51% decline forecast for spending in that category. Note that spending on Food & Beverages for Off-Premises Consumption is expected to increase 13%, as households substitute food prepared at home for restaurant meals.

Table 2:

Sources: IHS Markit, Arkansas Economic Development Institute

Summary and Outlook
There is a great deal of uncertainty associated with any forecast of the current, unprecedented situation. Risks to the forecast are more likely to be on the down-side: The presumed scenario where economic recovery begins by the end of 2020 might prove to be overly optimistic. The declines in consumer spending and income may reinforce one another to create an even more dramatic downturn.

The outlook will undoubtedly change as the situation develops, particularly when it comes to the impact of fiscal and monetary policy responses. At the present time, however, it appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and for Arkansas.

A PDF file of this report is available HERE.

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Arkansas Employment and Unemployment – January 2020

Arkansas’ unemployment rate was unchanged at 3.5% in January. The number of unemployed declined by 120, while the number employed increased by 2,155. Over the past 12 months, the number of unemployed has fallen by 720 while the number employed has risen by 4,697 (an increase of 0.4%).

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Payroll Employment
Arkansas nonfarm payroll employment increased by 400 in January (seasonally adjusted). After the annual benchmark revisions to recent data, the January employment level was only 2,900 higher than in January 2019 (an annual growth rate of 0.3%).

Employment in most sectors expanded in January, but the notable exceptions of Manufacturing (-1,200) and Professional & Business Services (-2,400). The monthly press release from the Arkansas Division of Workforce Services reported that the decline in manufacturing was attributable to durable goods manufacturing, “with reported contractions in fabricated metal products and in transportation equipment manufacturing.” Including mark-downs to previously-reported growth in revised data, Manufacturing was down by 2,200 jobs compared to January 2019.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Benchmark Revisions
Today’s data release included the annual “benchmark revisions” to the state payroll data. Not seasonally adjusted data beginning with April 2018 and seasonally adjusted data beginning with January 2015 were subject to revision. After revision, total nonfarm payroll employment in December 2019 was 5,900 jobs below the number that was originally reported.

As shown in the figure below, the revised employment data indicate quite a different growth pattern than the previously-reported data. The unrevised figures suggested fairly steady growth over the past two years, with a growth rate of 1.0% in 2018 and 1.4% in 2019 (December-to-December). The revised figures show higher growth for 2018 (1.5%), but considerably slower net growth in 2019. From December 2018 through December 2019, cumulative employment growth was only 0.5%. The revised data suggest that employment declined, on net, from January through September of 2019, then regained those losses only during the final quarter of the year.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

A breakdown of employment revisions by sector shows that some sectors are estimated to have grown more slowly than earlier reports indicated, while others have expanded more rapidly. For example, over the two-year period from December 2017 through December 2019, employment in Wholesale Trade was originally reported to be 7.3%. After revision, growth of only 4.9% remains. Sectors that are now estimated to have grown more rapidly than previously reported include Transportation and Utilities and Other Services.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

The figures below illustrate the impact of benchmark revisions on Arkansas employment by sector:

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 Department of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE.

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Arkansas Unemployment – 2019 (Revised)

It’s data-revision season at the Bureau of Labor Statistics. Today we saw the release of revised household employment and unemployment statistics by state. For Arkansas, the changes were fairly minor, with the revised figure for the state’s annual unemployment rate in 2019, 3.5%, unchanged from previously-reported estimates. As shown in the figure below, the revisions had the effect of smoothing some of the monthly ups-and-downs in the data over the past several months. The revised data show the unemployment rate at year-end to be 3.5%, one-tenth below the 3.6% originally reported.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

One aspect of the revision that is noteworthy: As previously reported, Arkansas’ unemployment rate declined to 3.4% in July and August last year, establishing a new record low for the series. The revised data do not show that slight summer dip, so the officially recorded low for the series is now 3.5%.

Revisions to the underlying components of the unemployment rate indicated modest changes. Originally, the number of unemployed was reported to have expanded to over 50,000 in early 2019, then dropping below 47,000 during the summer months. The revised data show the number of unemployed to be steady throughout the year, moving narrowly within a range of 48,000 to 49,000. Both employment and the labor force were revised higher for the latter part of 2018, lower during mid-2019, and ending the year slightly lower than originally reported.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

The impact of the revisions on household employment growth is shown in the figure below. Over the full two-year period from December 2017 through December 2019, the state’s employment growth rate was revised down from 0.8% to 0.7%. Growth rates over that time show a somewhat different pattern for pre-revision vs. post-revision data: It was previously reported that employment growth slowed during mid-2018 then ended 2019 with an acceleration. The revised data suggest stronger employment growth during 2018, but with the growth rate sagging to below 0.5% during the latter part of 2019.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)
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Metro Area Employment and Unemployment – December 2019

Unemployment rates in Arkansas metro areas were little changed in December. The rate declined by one-tenth of a percent in Memphis, to 4.1%, and increased by one-tenth in Pine Bluff, to 5.3%. Compared to a year earlier, the unemployment rate in Texarkana was down 0.9%, with smaller year-over-year declines reported for Jonesboro, Hot Springs and Northwest Arkansas. Memphis and Pine Bluff saw slight increases since December 2018, while Fort Smith and Little Rock saw zero net change over course of the year.

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Annual averages for metro area unemployment rates will not be published until March 4th, after the annual data revision process is completed. Using preliminary data, the figure below shows un-revised, unofficial averages for the year. For the year, unemployment rates were lower than the statewide average in Fayetteville, Jonesboro and Little Rock, while rates were above-average in Memphis, Pine Bluff and Texarkana. Unemployment rates in Fort Smith and Hot Springs were approximately equal to the statewide average.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Payroll Employment
Nonfarm payroll employment increased in five of the state’s metro areas in December, with the largest increase in Northwest Arkansas (0.5%). Memphis and Texarkana saw slight declines for the month, while Jonesboro and Pine Bluff experienced no net change.

Compared to a year earlier, employment was down by 1.8% in Pine Bluff, but was unchanged or higher in Arkansas’ other metro areas. Fayetteville and Jonesboro continued to show the fastest growth, with rates of 4.1% and 2.6%, respectively.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)
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Arkansas Employment and Unemployment – December 2019

In the final state-level employment report for 2019, data from the Bureau of Labor Statistics showed solid job growth in Arkansas. The unemployment rate remained unchanged at 3.6%, with both the household and payroll employment data indicating strong year-end increases. The unemployment rate in Arkansas has remained below 4% for 3-1/2 years now and shows no indication of moving outside the range of 3 to 4%.

Source: Bureau of Labor Statistics

Household employment was up 2,483 in December and has increased by 4,714 over the past three months. The number of unemployed increased slightly (+214) in December, adding to small increases from the previous three months. Labor force growth has been strong, with nearly 2,700 added to the labor force in December and nearly 6,400 added over the final three months of the year.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Payroll Employment
Nonfarm payroll employment surged 5,400 in December, translating to an annualized growth rate of over 5%.  In fact, the news release from the BLS cited Arkansas as one of only three states seeing statistically significant job gains in December. 

Payroll data for November were revised downward by 800, but the year-end employment total was up 18,300 jobs from December of 2018.  In percentage terms that year-over-year change represents a growth rate of 1.4%, roughly matching the U.S. growth rate over the same period.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

The monthly change in employment was driven primarily by service-sector growth, with Professional & Business Services up 2,800 and Education & Health Services up 2,000. Goods producing sectors showed zero growth, with gains in manufacturing matched by a decline in construction employment.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Year-over-year growth job growth was been positive for most sectors. Information Services and Mining & Logging contracted slightly over the course of 2019 and overall government employment was unchanged. Otherwise, job gains emerged in both goods-producing and service-providing sectors. Manufacturing employment was up for the fourth consecutive year. Service sector job growth showed some signs of a slowdown over the summer months but regained momentum toward the end of the year.

Since the current employment-growth trend started (from about December 2013), Arkansas payrolls have expanded by 111,600 jobs, an average annual growth rate of 1.5%.

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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 Department of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE.



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Arkansas GDP – 2019:Q3

Arkansas’ Real Gross Domestic Product (GDP) increased an an annualized rate of 2.9% in the third quarter of 2019, surpassing the national growth rate of 2.1% and ranking #5 among state GDP growth rates. The third quarter growth rate represents a sharp increase in GDP growth over the second quarter’s 1.8% rate.

Source: Bureau of Economic Analysis

Smoothing growth rates over a four-quarter moving average, the latest reading puts Arkansas up 1.9% compared to the third quarter of 2018. Over the same period, U.S. GDP expanded by 2.1%.

Source: Bureau of Economic Analysis

The news release from the Bureau of Economic Analysis noted that the leading contributors to GDP growth nationally included nondurable goods manufacturing; retail trade; and professional, scientific, and technical services. As shown in the table below, the first two of these sectors were also significant contributors to Arkansas’ growth rate. In addition, Arkansas GDP was boosted by strong growth in agriculture, forestry, fishing and hunting; as well as management of companies and enterprises. The Agriculture, etc., component itself grew at a rate of 56.2% in the third quarter—the fastest growth rate in the nation for that particular sector.

Source: Bureau of Economic Analysis

Sectors experiencing negative growth in the third quarter included finance and insurance, which the BEA noted as a factor subtracting from growth in all 50 states and the District of Columbia. Other contracting sectors in Arkansas included utilities, and transportation & warehousing.

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Arkansas Employment and Unemployment – November 2019

The latest state-level employment report shows the Arkansas unemployment rate ticking up 0.1 percentage point to 3.6% in November. As is often the case, the reported change was as much rounding error as an actual change (calculated with more accuracy, the unemployment rate was up 0.05%). Moreover the change was nowhere close to being statistically significant.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

The underlying data from the household survey show that the upward pressure on the unemployment rate over the past three months is the result of increases in the estimated number of unemployed, up 1,690 since August. In November, the number of unemployed rose by 764. The number of employed increased in November as well (+1,439), resulting in a sizable uptick in the labor force total (+2,203).

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics

Payroll Employment
The payroll survey showed that nonfarm payroll employment in Arkansas increased by 1,000 jobs in November (seasonally adjusted). Employment in goods-producing industries was down for the month, but both Construction and Manufacturing employment remain well above their levels of a year ago.

Two service-providing supersectors each added 1,000 jobs or more to the total: Professional & Business Services (almost entirely due to an increase in Administrative & Support Services) and Education & Health Services (mostly due to an increase in Health Care & Social Assistance). Other service-providing sectors subtracted 700 jobs from the total monthly change.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Over the past 12 months, payroll employment is up by 15,900, approximately 1.3%. Over the same period, U.S. payroll employment rose 1.5%.

The data from the household and payroll surveys are indicating similar growth trends for total employment. From November 2018 through November 2019, the household measure of employment has risen by approximately 14,000, or 1.1%.

Source: Bureau of Labor Statistics

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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 Department of Workforce Services, can be found hereTable-Seasonally Adjusted NFPE.

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Arkansas Personal Income – 2019:Q3

Arkansas personal income increased at an annual rate of 6.5% in the third quarter of 2019, outpacing the national growth rate of 3.8%.  Arkansas’ growth rate was the 5th-highest in the nation.

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Arkansas rapid growth rate was primarily attributable to a surge in farm income. According to today’s news release from the Bureau of Economic Analysis, “Increases in farm earnings were the leading contributors to income growth in each of the ten fastest growing states, reflecting increases in payments associated with the Department of Agriculture’s Market Facilitation Program in the third quarter.” The annualized growth rate for Arkansas farm income was 21,772%. The farm component of proprietors’ income was similarly enormous, boosting the growth rate of total proprietors’ income to 81.4%. Dividends, interest and rent (property income) declined at both the state and national levels.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Arkansas personal income growth for the second quarter was also revised up slightly from 4.0% to 4.3% (annual rate), bringing the cumulative four-quarter growth rate to 5.1%. Over the same period, U.S. personal income rose 4.5%.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Total earnings growth for Arkansas was 9.7%, contributing 5.75 percentage points to total personal income growth. Farm income contributed 3.06 percentage points to the total. Among other sectors, large contributors to Arkansas’ earnings growth included Management of Companies and enterprises, and Health care and social assistance.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

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Metro Area Employment and Unemployment – October 2019

Unemployment rates in Arkansas metro areas were mostly unchanged in October, ticking up 0.1% in Fort Smith and Pine Bluff and down 0.1% in Texarkana. Fayetteville, Jonesboro and Little Rock remain below the statewide average of 3.5%, while Memphis, Pine Bluff and Texarkana remain above 4%.  Compared to October of 2018, unemployment rates have declined somewhat in Fayetteville, Hot Springs, and Jonesboro.  The rate in Texarkana is down a full percentage point from a year earlier.

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Payroll Employment
Nonfarm payroll employment surged in three metro areas in October:  Fayetteville, Hot Springs, and Jonesboro all saw employment increases of 0.5% for the month.  Fort Smith was unchanged; Little Rock, Memphis, and Texarkana saw slight declines; Pine Bluff was down 0.6%.  Over the past 12 months, employment growth has exceeded the statewide average in Fayetteville, Hot Springs, and Jonesboro.  Employment in Fort Smith has been essentially unchanged not only over the past year, but since the current statewide employment expansion began in late 2013.  Employment in Pine Bluff has been declining consistently and is now 14% lower than it was before the onset of the “Great Recession.”

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

 

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Local Area Personal Income – 2018

The Bureau of Economic Analysis recently released a new set of estimates for Local Area Personal Income for 2018, covering metropolitan areas and counties.

For Arkansas’ metro areas, the data for 2018 largely reflect a continuation of trend rates of growth.  At 6.4%, Northwest Arkansas was the only metro area to exceed the national average growth rate of 5.6%.  Four metro areas (Hot Springs, Jonesboro, Little Rock and Memphis) all had growth rates close to the Arkansas statewide average, while Fort Smith, Pine Bluff and Texarkana grew more slowly.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

The new data included revisions to annual figures dating as far back as 1998, but most of the revisions were to more recent data.  As shown in the figure below, the revisions had the effect of lowering recent growth estimates for the Fayetteville-Springdale-Rogers metro area, as well as for Jonesboro and Pine Bluff.  Growth estimates for Arkansas’ other metro areas were revised upward slightly.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

In terms of per capita personal income, the 2018 data for Arkansas metro areas show estimates ranging from $34,554 in Pine Bluff to $65,306 in Fayetteville-Springdale-Rogers.  The Northwest Arkansas metro was the only area of the state with per capita income exceeding the national average.

Growth rates of per capita income in 2018 tended to be less dispersed than total personal income growth.  Rapid population growth in the fastest-growing areas and slow population growth in the slower-growing areas tended to dampen the variability of growth rates compared to total personal income.  For example, after accounting for a 1.5% population decline in Pine Bluff, per capita income there expanded by 4.0%.  Rapid population growth in Northwest Arkansas meant that a 6.4% growth rate in total personal income translated to per capita income growth of only 4.3%.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

County Data
Data for Arkansas counties are summarized and illustrated in the table and map below.

Total personal income growth was positive in all counties except three (Madison, Monroe and St. Francis).  Benton County had the fastest growth, at 7.4%.  Population growth, on the other hand, was positive in only 28 of Arkansas 75 counties.  As a result, modest income gains (or even losses) in some areas translated to positive growth in per capita income.  In terms of levels of per capita income, county averages ranged from a low of $27,002 in Lincoln County to $88,890 in Benton County.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

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Special Reports: Impact of Covid-19 on the Arkansas Economy

Forecast Update (June)
Information since May has suggested that Arkansas has not been as severely impacted as other parts of the country, and that the sharp declines in national employment have abated.
Read more…

Forecast Update (May)
“The economic impact of the COVID-19 pandemic continues to be more rapid and more severe than initially expected… In this updated report we present new projections for the Arkansas economy.”
Read more…

Forecast Update (April)
“In this note we update that forecast with new estimates of the magnitude of the downturn. We also update and extend our previous guidance on how the forecast is likely to impact sales tax receipts of local governments.”
Read more …

Implications for Local Government Sales Tax Collections
“In this note, we focus on consumer spending and the outlook for sales tax collections by county and municipal governments.” Read more…

Arkansas Economic Outlook (March)
“It appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and for Arkansas.”  Read more…

 

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