Arkansas 4Q GDP growth in 2016 only 0.5%, full-year GDP sees major downward revision

New data from the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) shows that Arkansas’ economy expanded at a tepid rate of only 0.5% in the fourth quarter of 2016, well below the national average and in the bottom five among the 50 U.S. states.

The BEA’s revisions show that Arkansas’ overall Gross Domestic Product (GDP) growth in 2016 was substantially below previously estimates, including a nation-leading 3.9% growth spurt in the first quarter that was subsequently revised downward to only 1.7%.

In his review of the fourth quarter GDP report for 2016, University of Arkansas at Little Rock Economist Michael Pakko said the cumulative revisions for the full year were “negative and substantial.” Pakko, in his “Arkansas Economist” report, said the recent GDP growth rates fell in the range of less than 1%, compared to the 2%-3% range indicated by previously published data for 2016.

“Today’s report also represents the first estimate of the state’s GDP for 2016 as a whole. On an annual basis, the growth rate for Arkansas’ GDP was 0.8%, compared to 1.5% for the U.S. Arkansas’ growth rate has fallen short of U.S. growth since 2013, with the gap particularly wide in 2015,” wrote Pakko, chief economist at UALR’s Institute for Economic Advancement.

In the fourth quarter, Arkansas’ GDP expanded at an annual rate of 0.5%, compared to the nationwide average of 1.9%. Among the 50 states, Arkansas ranked in the bottom five at the 45th position. By industry, the relative weakness of Arkansas’ growth is clearly concentrated in the goods-producing sectors, Pakko said.

“Low energy prices have depressed mining activity both nationwide and in Arkansas,” said the UALR economist. “Durable goods manufacturing growth has been positive nationwide, but manufacturing growth for both durables and nondurables has been negative here in Arkansas.”

Among key industries, arts, entertainment and recreation was the outlier with strong growth of 19.7% during the three-month period. That trend is similar to the rest of the nation, where the nation’s leisure and hospitality industry grew by 155% in April and added 55,000 new jobs.

Other sectors that saw strong quarterly growth were finance and insurance, administration and waste management services, and transportation and warehousing at 8.9%, 4.7% and 4.3%, respectively. The retail trade, accommodation and food services, and health care and social assistance sectors also expanded by more than 3%.

However, the state’s agriculture, forestry and hunting sector in Arkansas and the rest of the U.S. fell off significantly in the fourth quarter of 2016, declining by 11.9% and 8.3%, respectively. Other Arkansas industries that struggled in the fourth quarter were utilities, manufacturing and the wholesale trade, falling by 4.4%, 4%, and 1.8%, respectively. Nondurable goods manufacturers continue to lose ground in Arkansas, declining -6.8%, compared to -7.1% for the rest of the U.S.

Nationwide, real gross domestic product increased in every state and the District of Columbia in the fourth quarter of 2016, BEA’s data shows. The fastest growing states were Texas, Utah, and Washington, which grew 3.4%, 3.2%, and 3.1%, respectively. The largest contributor to growth in Texas was real estate and rental and leasing, while the largest contributors to growth in Utah and Washington were finance and insurance and information services, respectively.

The slowest growing states were Mississippi and Kansas at 0.1%, followed by Wyoming with expansion of 0.2%. Nondurable goods manufacturing subtracted the most from growth in Mississippi and Kansas while agriculture, forestry, fishing, and hunting subtracted the most from growth in Wyoming.

ARKANSAS’ REVISED GDP GROWTH
For the year, U.S. real GDP growth slowed to 1.5% in 2016, compared to moderate expansion of 2.6% in 2015. The fastest growing states were Washington, Oregon, and Utah which grew 3.7%, 3.3%, and 3%, respectively. Arkansas ranked near the bottom with annual GDP growth of only 0.8%, which included GDP of 1.7% in the first quarter, followed by 0.5%, a 0.9% decline in the third, and 0.5% growth in the fourth.

The states with the largest declines were North Dakota, Alaska and Wyoming which declined 6.5%, 5%, and 3.6%, respectively. Mining, which includes the struggling oil and gas sector, was the largest contributor to the decline in each of these states.

By industry, information services grew 6.4% in 2016. This industry contributed to growth in 46 states and the District of Columbia. The largest contributions to growth occurred in Washington and California, which grew by 3.7% and 2.9%, respectively. Professional, scientific and technical services, which support some of the highest-paying jobs in Arkansas and the rest of the U.S., saw yearly growth of 3.3%. This industry contributed to growth in 44 states and the District of Columbia, which saw the biggest bump at 2.4%. As Congress and the many states grapple with Medicaid and rising health care costs, that industry continued to grow in 48 states and the District of Columbia at an annual rate of 3%.

Overall, with the current revisions, Arkansas’ growth rate has fallen short of U.S. growth since 2013. The gap was particularly wide in 2015, ranging from 0.2% vs. 2.6%. However, the revisions in 2016 are also notable, including the eye-popping 3.9% growth in the first quarter of 2016 that brought Arkansas’ economy into the national headlines. But as Pakko noted, first-published estimates of GDP are based on incomplete data and are subject to significant future revisions as more information becomes available. Not only have the BEA revisions lowered the first and second quarter numbers substantially, the cumulative impact on Arkansas’ third quarter GDP growth amounted to 2.1%, Pakko said.