Arkansas’ unemployment rate is expected to drop to 5.3% – nearly full employment – by 2016, despite jobs growing at only moderate levels. Meanwhile, personal income and retail sales will rise, according to Dr. Michael Pakko, state economic forecaster and chief economist for UALR’s Institute for Economic Advancement.
Pakko presented his annual state economic forecast Wednesday in Little Rock. He said Arkansas’ unemployment rate will be around 6% by the end of the year and then fall to 5.5% in 2015. The state’s rate never reached the 10% level seen nationwide during the worst of the recession but also has fallen at a slower pace than the national average.
While Arkansas unemployment is falling, jobs will grow only about 2% in both 2015 and 2016. The state’s total payroll employment should reach pre-recession levels in mid- to late-2015, he said. Statewide job growth from 2010-14 was half the national rate and was propped up by Northwest Arkansas, Jonesboro and Little Rock, said Charles Gascon, regional economist and senior research support coordinator for the St. Louis Federal Reserve. Gascon presented his remarks prior to Pakko’s.
Gascon said the state has 27,000 jobs less than it did at its peak in 2006 thanks to losses in certain sectors, the biggest being manufacturing, which has lost 48,200 jobs. Health care has been the fastest growing sector with 23,467 more jobs than in 2006.
Pakko said the gap between falling unemployment and relatively stagnant job growth is the result of declining labor force participation, which has been falling since March because of factors such as discouraged workers and early retirements. Particularly concerning is the high number of men ages 45-65 no longer in the labor force during what should be their prime earning years. Younger workers are staying in school longer than they have in the past.
Nationally, the economy was slowed by winter weather earlier this year but rebounded in the second quarter, with job growth now more than 200,000 per month, said Kevin Kliesen, St. Louis research officer and business economist. Kliesen expects unemployment nationwide to fall to 5.5% in 2015. Inflation is slowing because of falling oil prices and slower growth in food and medical care. He expects consumer spending nationwide to continue to increase. Business capital spending is more solid, and housing appears to be up. However, a strengthening dollar and weakening global growth could put downward pressure on exports in the fourth quarter and into 2015.
The state is faring worse than the national average when it comes to labor-based statistics but better regarding personal income. Pakko expects personal income to grow 4.1% this year, by 5.4% in 2015, and by 5.7% in 2016, not adjusted for inflation. It fell 1.9% in 2013.
Arkansas’ overall economy underwent a burst of activity in 2013 but slowed in 2014. Pakko said the state’s gross domestic product will grow 1.5% in 2014, 2.2% in 2015, and 2.1% in 2016. Retail sales have been slow, but Pakko predicted they will increase 5.4% in 2015 and 5.6% in 2016, not including inflation.
Home sales, mostly of existing homes, are expected to grow 8.4% in 2014 and 9.9% in 2015 before falling back in 2016 to 6% growth as mortgage interest rates rise and as pent-up demand is met, Pakko said.
Pakko said the approval by voters of an increase in the state’s minimum wage would have a small negative effect on the overall economy.