Arkansas, national economies poised for more growth in 2017

While 2016 ended with markets surging on the promise of economic growth under the policies of a new presidential administration, economic reality tells us that it may be too early to tell yet whether change is truly on the horizon.

My prediction is that very little, if any tax cuts and/or spending stimulus will occur with enough time to materially affect the economy in 2017, given the national debt situation not to mention the typical lags that tend to plague federal government intervention. In addition, there are other concerns that Congress is likely to give priority to, such as a re-make of Obama-care, immigration policy, and trade policy. Absent any world-changing innovation, most economists expect growth to hover just above 2% for the first quarter with a mild increase to between 2% and 3% in the second quarter. While consumer optimism is presently surging, I would expect this to back off significantly in the first half of 2017 as voters begin to realize that the new administration (like all that have come before) will have to set priorities. Thus, not all stated campaign policies will be pursued simultaneously.

One advantage of normal economic growth is that inflationary pressures should stay moderate at roughly 2% annually. This is likely to prompt the Federal Reserve to make little, if any changes to interest rates throughout the first half of 2017. However, by the end of 2017 and in particular, if the new administration is successful in implementing some expansionary policies, get ready for a more active Federal Reserve and rising mortgage rates. Savvy residential and business investors are likely to be more active in the first half of 2017 in an effort to get ahead of rising rates as this may truly be their last chance – good news for economic growth if consumer optimism wanes.

With the national picture in perspective, we turn to the state economy. While Arkansas lagged the nation in terms of recovery following the Great Recession, employment growth in the state has accelerated. Personal incomes, while still well below national averages in absolute terms, are now keeping pace with the rest of the United States in terms of growth rates. Increases in personal incomes have been due in large part to rising proprietor income as well as increased payments to land and capital. Expect continued increases to personal income for 2017 as the promise of a more favorable tax environment is likely to lead to more investment spending and firm start-ups.

While the unemployment rate in Arkansas has fallen well below national levels, expect the two rates to converge in 2017 as long-term unemployed residents of the state return to the labor force in search of opportunity. State experts predict just over 11,000 jobs to be added in 2017 with most additions coming in the fields of professional/business services, education/health services, and retail trade.

With healthy job growth and continued increases in personal income, state GDP growth rates should closely follow or potentially outpace the national average.

In summary, both the state and national economies are poised for economic growth. How much growth is a matter of speculation and likely dependent on the cooperation of policymakers as well as the responses of businesses and consumers.

Editor’s note: Dr. Latisha Settlage is an associate dean and professor of economics at the University of Arkansas at Fort Smith College of Business.