Arkansas’ economic fortunes blossomed in the second quarter as the state’s Gross Domestic Product accelerated to 4.4%, the 10th-highest growth rate in the nation, according to the newly released U.S. Bureau of Economic Analysis (BEA) GDP report on Wednesday (Nov. 14) for all 50 states.
The Natural State’s second quarter reading more than doubles the moderate expansion of 2% in the first quarter, which was revised by the BEA from the earlier zero percent annual growth rate in July. Still, Arkansas’ year-over-year GDP growth through the second quarter remains at a weak 1.7%, compared to the U.S. annual growth rate of 2.7%.
Considering the improved economic growth indicator for Arkansas in early 2018, University of Arkansas at Little Rock economist Michael Pakko highlighted the fact that the quarterly GDP for Arkansas and the other 49 states included comprehensive revisions going back nearly two decades.
“Although the newly-revised data give cause for reassessing the strength of Arkansas’ economic expansion over the past several years, the latest readings provide reason to be optimistic that the recent pick-up in GDP growth nationwide is also being enjoyed here in Arkansas,” Pakko noted in his Arkansas Economist blog.
According to the BEA, which is housed in the U.S. Department of Commerce, the second quarter GDP by state results incorporates revisions to the so-called North American Industry Classification System (NAICS) estimates from 1997 to 2017. The comprehensive revisions also update quarterly NAICS estimates for the first quarter of 2005 to the first quarter of this year.
BEA REVISIONS SHOW SLOWER ARKANSAS GROWTH
For Arkansas, the revisions had the effect of lowering the level of GDP estimates for much of the past decade, said Pakko, director of UALR’s Economic Development Institute. The widely-watched Arkansas economist said the revised economic data shows a somewhat sharper downturn during the “Great Recession” in 2008 and 2009 and shows sharply slower growth over the period 2013 through 2017.
For example, the previous moderate expansion of annual GDP growth of 1.1% in 2017 has now been revised to a weak O.3%. That revised data also now shows that Arkansas dipped twice into negative territory in the first and third quarters of 2017 with contractions at -1.3% and -2.1%, respectively.
“From the first quarter of 2013 through to the fourth quarter of 2017, the revised data show a growth rate of 0.5% compared to 1.0% in the previously published data,” said Pakko, who had earlier warned that the yearly revisions could highlight weaker growth that had been masked in BEA data.
Based on the detailed data provided by BEA for all 50 states, Arkansas’ economic expansion in the first quarter was largely supported by a whopping 1.27% upturn in the Natural State’s agriculture, forestry, fishing and hunting sector. Those gains stand in stark contrast to that industry’s downturn for nearly all of 2017 and the first quarter of 2018.
Other top contributors to the state’s $127.9 billion economic output in the second quarter included real estate and rental and leasing and information, which grew at annual rates of 0.56% and -0.48% respectively. Other key gainers were utilities, durable goods manufacturers, professional, scientific and technical services, administrative support and waste management, and wholesale trade.
Among the top decliners, nondurable goods manufacturing and finance and insurance experienced the largest contraction at -0.14%, followed by retail trade and transportation and warehousing at -0.11% and 0.07%, respectively.
TEXAS, MISSOURI LEADS U.S. EXPANSION
Nationwide, real GDP — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased in all 50 states and the District of Columbia in the second quarter of 2018. The percent change in real GDP in the second quarter ranged from 6% in Texas to 2.5% in Delaware, BEA data shows. After Texas, Michigan and Missouri had the second and third-largest economic expansion at the end of June at 5.4% and 5.1%, respectively.
Across the U.S., information services, professional, scientific, and technical services, and real estate and rental and leasing spiked 13.4%, 9.3%, and 5.3%, respectively. All three industries contributed to growth in every state and the District of Columbia.
Durable goods manufacturing, the blue-collar industries that produce most of the nation’s “hard goods,” increased 7.3%. This industry was the leading contributor to growth in Michigan and Missouri –the second- and third-fastest expanding states.
Mining, which includes the nation’s shale-focused oil and gas sector, increased 11.7% as volatile oil prices increased significantly in the second quarter. In addition to Texas, this industry was the leading contributor to the increases in Alaska, North Dakota and Oklahoma, all key shale-producing states.
Agriculture, forestry, fishing, and hunting increased 8.5% rebounding from a decline in the first quarter. Besides the strong growth in Arkansas, this industry was the leading contributor to GDP increases in the farming and agriculture-dependent states of South Dakota, Montana and Minnesota.
The nation’s overall economic output increased 2.1% to $20.41 trillion in the second quarter, compared to $20 trillion in the first quarter. The Southeast region, which includes Arkansas and eleven other states, had the largest share at $4.3 trillion, followed by the Far West and Mideast at $4.04 trillion and $3.72 trillion, respectively.
Nearly two weeks ago, the BEA reported that real GDP in the U.S. rose by 3.5% in the third quarter, according to “advance” estimates that will be updated again after Thanksgiving and Christmas. The nation’s economy expanded at an annual rate of 2% and 4.2% respectively in the first and second quarters, put the U.S. industry on course to hit the St. Louis Federal Reserve’s forecast of annual growth of 3%.
Last week, at the economic outlook conference sponsored by UALR and the St. Louis Fed, Pakko and IHS Markit chief economist Chris Varvares offered dour economic forecasts for Arkansas and the rest of the nation in late 2019. Varvares said his forecast for the U.S. economy mirrors the Fed’s 3% annual rate growth rate for 2018, while Pakko said Arkansas will close out the year with tepid GDP growth of 1.6% and then peak in 2019 at 2.4%.