Arkansas personal income up in third quarter 2010

Personal income data released Friday (Dec. 17) shows that economic conditions are slowly improving, with Arkansas’ personal income in the third quarter of 2010 up 4.23% compared to the 2009 period.

The report from the Bureau of Economic Analysis shows that Arkansas’ third-quarter 2010 personal income was $97.717 billion, compared to $93.606 billion in the third quarter of 2009. The income was up 1.03% compared to the second quarter of 2010, with Arkansas ranked 10th in the nation in terms of income growth.

Oklahoma’s personal income in the third quarter was $137.605 billion, up 4.23% compared to the 2009 period, and up 1.04% compared to the second quarter of 2010. Oklahoma was ranked 7th in the U.S. in terms of income growth.

Nationwide, personal income totaled $12.590 trillion in the third quarter of 2010, up 3.56% compared to the 2009 period and up 0.67% compared to the second quarter of 2010.

“The latest personal income report shows that the economic recovery is ongoing, and that Arkansas’ expansion continues to outpace the national average,” said Dr. Michael Pakko, chief economist and state economic forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock. “For U.S., the third quarter increase represents the fourth consecutive quarter of growth. For Arkansas, the run of positive growth had now gone for five quarters.”

In Arkansas, third quarter net earnings gained 1.3% (an estimated gain of $707 million) compared to the second quarter. Dividends, to include interest and rent, fell 0.4%, reflecting a loss of $62 million. Transfer receipts (Social Security, unemployment benefits, etc.) rose 1.5%, reflecting a $355 million gain in the quarter.

Pakko said it’s not a stretch to see the relationship between the personal income gains and recent gains in Arkansas tax collections.

The Arkansas Department of Finance & Administration reported Dec. 2 that year-to-date (July-November) total revenues are $2.198 billion, up 2.4% over the same period in 2009. Year-to-date gross receipts collections — primarily sales and use tax collections — total $891.9 million, up 7.8% above the 2009 period and up 0.9% above forecast.

“Based on state tax collections in the third quarter, I had been expecting that this morning’s (BEA) announcement would show an increase of about 0.8%, so this report is even stronger than expected,” Pakko said.

However, on a day when the BEA reported a gain in personal income for Arkansas, the federal Bureau of Labor Statistics reported that Arkansas’ unemployment rate increased to 7.9% in November.

Pakko said income and sales are leading indicators of economic activity, with the unemployment rate typically a lagging indicator.

“Employment and unemployment tend to be lagging indicators. Particularly during the
recessions of 1990-91 and 2001, unemployment rates remained well above full-employment levels for 18 months or more after the start of the recovery,” Pakko explained. “This recovery is following a similar pattern. For employers, the decision to hire additional workers represents a longer term investment, and many employers have been hesitant to hire given ongoing uncertainty about the state of the economy. As other indicators pick up the pace of expansion, we should see hiring begin to increase as well.”

Pakko also noted that Arkansas’ jobless rate indicates that 92% of the eligible workforce is employed.

“The economy would certainly be growing faster if unemployment was closer to the full-employment rate, but broad economic growth is a precursor to getting there,” he said.

NATIONAL STATS
• State personal income growth slowed to an average 0.7 percent in the third quarter of 2010 down from 1.4 percent in the second quarter. The slowdown was spread widely across the country with growth decelerating in 41 states, unchanged in 3, and accelerating in 6 states.

• The national price index for personal consumption expenditures increased 0.3% in the third quarter after remaining unchanged in the second quarter.

• Growth of the net earnings of workers slowed to 0.8% (on average) from 1.5% in the second quarter; property income (dividends, interest and rent) fell 0.4% after rising 0.4%, and the growth of transfer receipts (such as social security benefits received by retirees and benefits received by the unemployed) slowed to 1.3% in the third quarter from 1.8% in the second.

• Construction earnings declined in most states in the third quarter, with the largest effects on personal income growth in Nevada and Hawaii. Real estate earnings in every state also fell, continuing the downward trend of the last five years.

• Farm earnings grew 12% on average in the third quarter with increases in every state. The main factor was higher commodity prices, particularly for wheat (which rose 22% in the third quarter) and milk (which rose 11%).

• Earnings in the durable goods manufacturing industry grew in most states in the third quarter and made relatively large contributions to earnings growth in Washington State, Indiana, and Wisconsin.

• Mining earnings (including earnings in oil and gas extraction) made a relatively large contribution to personal income growth in Wyoming, Texas, and West Virginia.