Arkansas’ first quarter GDP falls flat, ranks 49 out of 50 states

Arkansas’ economic expansion fell flat in the first quarter as the state’s volatile farming sector almost pushed real gross domestic product (GDP) growth into negative territory, leading Arkansas to a dismal ranking of 49 out of the 50 states and the District of Columbia.

In the three-month period ended March 31, Arkansas’ economy stood still with 0% in GDP growth during a period when the rest of the nation was chugging along at an annual growth rate of 2.2%, generating economic output of more than $19.8 trillion, according to the U.S. Bureau of Economic Analysis (BEA).

In its quarterly GDP report for all 50 states, BEA data shows that real GDP increased in 48 states and the District of Columbia in the first quarter of 2018. The percent change in real GDP output ranged from 3.6% in Washington to -0.6% in North Dakota.

The poor first quarter snapshot of Arkansas’ economy follows tepid, but positive growth of 1.1% in the fourth quarter of 2017, when the Natural State’s expansion ranked 36 among the 50 states. Arkansas’ economy did pick up steam in the final three months of 2017 with average GDP growth at 2.5%. However, that respectable growth spurt was not able to offset the decline into negative territory in the third quarter at -1.9%.

As Arkansas’ largest industry, the downturn in the state’s agriculture, forestry, fishing and hunting sector had the biggest impact on the economy entering 2018 with a decline of 0.68%, BEA data shows. Greg Kaza, economist and executive director of the Arkansas Policy Foundation, said the first preview of Arkansas’ economy in 2018 is cause for some worries.

“Flat or negative growth in an expansion is troublesome,” Kaza said of the state GDP quarterly data that is likely to be revised later this year. “Contraction of Arkansas’ agricultural sector was a key factor behind the (level) reading in the first quarter.”

Creighton University economist Ernie Goss said last week that regional economic indicators show that rural communities across the Midwest are facing headwinds after several months of position growth came to a halt in July. The highly-watched economic forecaster, who is director of Creighton’s Economic Forecasting Group, said farmers and bankers across agri-dependent rural states are increasingly concerned about rising interests rates and trade tariffs that have hit grain farmers especially hard.

“Surveys over the past several months indicate the rural Main Street economy is solid but with less positive economic growth. However, the negative impacts of recent trade skirmishes have begun to surface with the weakening of already anemic grain prices,” said Goss, who produces the monthly Mid-America business conditions index that surveys business conditions across a 10 state-region that includes Arkansas.

University of Arkansas at Little Rock (UALR) economist Michael Pakko also noted the downward impact that state’s farming sector had on the larger economy.

“The breakdown of GDP growth by sectors shows that Arkansas’ weakness was largely attributable to the agriculture, forestry, fishing, and hunting component, which subtracted nearly 0.7 percentage points from overall growth,” Pakko wrote in his “Arkansas Economist” blog.

Pakko said Arkansas’ economy has only expanded at an annual rate of 0.7%, well below the U.S. average of 2.6%.

“Arkansas’ growth rate has lagged the nation since at least 2014,” opined Pakko, director for the university’s Economic Development Institute.

Statewide, the tepid annual GDP growth of 0.91% and 1.1% over the past two calendar years has left Arkansas in the bottom tier among the 50 states and D.C. That largely mirrors weak GDP growth of 1.3% and 0.4%, respectively, in 2014 and 2015.

Over the last four years, Arkansas’ GDP output has shown brief signs of breaking out of the economic doldrums, notably a nation-leading 3.9% growth spurt in the first quarter of 2016 that was subsequently revised downward to only 1.7% and later to only 0.4%, BEA data shows. Similarly, the robust 4.8% reading in the fourth quarter of 2016 was later revised downward to 4.2%.

Besides the contraction in the state’s all-important farming sector, the wholesale trade and government sectors also lost ground with declines of -0.26 and 0.23, respectively. Other decliners include utilities, construction, professional, scientific and technical services, arts and entertainment, and other services.

The top contributor to Arkansas’ economic output of $127 billion in the first quarter was the state’s real estate and rental and leasing sector, which grew at a rate of 0.36% as lending standards on nonresidential commercial real estate loans eased in the first quarter, according to local bankers.

The state’s blue collar-focused manufacturing sector also continued to advance with an uptick of 0.3% and 0.15% at respective nondurable- and durable goods factories. Other Arkansas sectors that advanced in the first three months of 2019 include the retail trade, transportation and warehouse, finance and insurance, health care and social assistance, and information. Other smaller components — such as administration and waste management services, arts and entertainment, and management of companies and enterprises – saw little or no growth during the quarter.

The BEA, which is housed with the U.S. Department of Commerce, will release a more comprehensive update of gross domestic product (GDP) by state along with quarterly economic state data for the second quarter on Nov. 14.