How’s Your Budget Looking?

Most of us are in the same boat these days as we prepare and perhaps try to finalize our company budgets for 2011.

Writing this column gives me a welcome excuse to escape the numbers for a few hours and think through the year ahead before the final gut check that we all must face.

Budgeting for 2011 seems just about as difficult as it has for the past two trying years, but I’m more hopeful. Maybe it’s the hope of prosperity that I recently saw in the people of China that lifts my outlook.

Better yet, it’s more likely the political landscape changes coming in Washington, the continued steadiness of the Arkansas economy and the multiple indications that the U.S. economy is poised for recovery mode, albeit at a slow pace as job creation lags into 2012.

One longtime state economist predicted Arkansas would reach 8.4 percent unemployment this year, and fortunately we have stayed far short of that, though the state still may hit 8 percent in the first quarter. The quicker recoveries in metro areas such as Little Rock, northwest Arkansas and Jonesboro may offset the ongoing challenges of rural areas hard-hit by big manufacturing losses.

Continued low interest and inflation rates have surprised just about everyone. Those who have been able to take advantage of home refinancing at record-low rates will have a better opportunity to fuel the recovery with their greater disposable income. However, not even cheap money has been able to drive much activity in the commercial real estate and construction markets.

Companies and families have delayed major purchases for two years now, and I think 2011 is the year everyone realizes that capital needs can’t be put off forever. U.S. credit card companies say consumers have paid down debt substantially and are staying current with payments, so household balance sheets must be improving. Corporate balance sheets, particularly cash positions, have strengthened and given investors enough comfort to drive up the stock market about 5.5 percent so far this year.

The housing market in Arkansas has held up incredibly well with the exception of northwest Arkansas, which was enjoying irrationally exuberant values for a decade and couldn’t escape being part of the bubble burst.

A chart on home-pricing trends and foreclosure rates presented at the University of Arkansas at Little Rock College of Business Economic Forecast Conference shows a much stronger performance in Arkansas compared with national averages during the past four years.

“Arkansas has fared relatively well during this recession, and it is poised to recover in better shape than many other regions of the country,” UALR Institute for Economic Advancement Chief Economist Michael Pakko said.

Arkansas even stands to make gains on other states in the area of personal income, though you have to think this depends greatly on progress with the jobs market. Pakko is projecting 3.2 percent growth in fourth-quarter 2010, then 4.1 percent in 2011 and 6 percent in 2012.

Taxable sales in Arkansas are forecast by Pakko to reach 2008 levels early next year, with 3.2-percent annual growth in 2011 and a 4-percent increase in 2012. He’s estimating 17,000 net new jobs for 2011 and then a really healthy 33,500 new jobs in 2012 that would return the state to early 2008 employment levels and a jobless rate of 6 percent.

Gov. Mike Beebe’s budget for the next biennium, which was presented to the Arkansas General Assembly last week, reflects some of the optimism. While most states are scrambling to dig out of massive budget deficits, this state is entertaining a tax cut on groceries.

The state’s unemployment benefits fund debt of $330 million is the most daunting issue facing businesses because we’re going to be forced to pay for it.

I can understand the interest in being proactive with the U.S. government on repayment, but we don’t need to repay it only to watch federal bailouts to bankrupt states that can’t repay their debts. 

Jeff Hankins can be reached via e-mail at [email protected], followed on Twitter @JeffHankins and connected with at Facebook.com/Jeff.Hankins and LinkedIn.com/in/JeffHankins.