Commerce Secretary sees Arkansas bucking economic uncertainty for now

Arkansas’ Secretary of Commerce Hugh McDonald is excited for the state’s GDP standing and labor participation rate, but he recognizes that national uncertainty around President Trump’s tariffs policies are causing some businesses to pause.

Appearing on Sunday’s edition of Talk Business & Politics and Capitol View, McDonald shared his thoughts on the overall economy and a spate of incentive bills being debated in the Arkansas legislature.

“Clearly what’s happening with the tariff situation in Washington is causing a lot of questions and uncertainty of the investment cycles. People are either making decisions that make sense from their perspective, for the tariffs, or they’re holding off. I think probably there’s maybe more in the latter camp of holding off due to the uncertainty,” said McDonald.

“But for the Arkansas economy, I still feel that the Arkansas economy is strong. There’s a good labor force participation rate still going in the right direction. The unemployment rate, there are more Arkansans working than ever before. So I think all the right cylinders are still clicking in Arkansas,” he added.

On Friday, Arkansas’ GDP was rated as the best state in the U.S. with a 5.1% growth rate in the fourth quarter. It was the second quarter in a row that Arkansas ranked first in state GDP growth. Arkansas’ latest jobless rate in February was 3.6%, up from 3.4% a year ago, while the state’s labor force participation rate in February was 58.4%, up from 58% in February 2024.

McDonald discussed the Generating Arkansas Jobs Act, now Act 373, which changes the way utility companies can present rate increases based on economic development projects. A former CEO of Entergy Arkansas, McDonald is familiar with the utility arguments for the new law as well as the economic development angles that his new job entails.

“It was very important. I made some comments last week at a function that we look at the three Ps – people, product and power. And power today is hugely important in any economic development activity. The power that this state has been living on, that capacity, a lot of that was built in the ‘70’s and ‘80’s. There was excess capacity that we’ve been using over the past 40 years. And that excess capacity plus a reserve margin is now been used up by companies. So all the utilities are in this cycle of needing to add new capacity. Some of the economic development projects we’re seeing are huge consumers of power. So this provides them another regulatory mechanism that they can invest faster,” he said.

McDonald addressed criticisms of the measure that it will increase utility rates for consumers. Supporters of the new law contended that energy rates would rise with or without the act, but were likely to rise less or at a slower rate under Act 373.

“It allows utilities to finance these projects at a lower cost overall for the life of the project for customers. So customers at the end of the day are going to see the rates go up, but they’re going to go up much less than they otherwise would’ve,” said McDonald.

McDonald also reiterated his bullishness on Arkansas’ prospects to develop a significant lithium industry in south Arkansas’ Smackover Formation. Two weeks ago, he moderated a discussion with Albemarle CEO Kent Masters on the subject before an audience of about 1,000 business leaders in Little Rock.

“The state has been very supportive of that industry and wants to see it grow. It’s a once in a lifetime new industry to the state,” he said.

A bill that is working its way through the 95th General Assembly would offer new incentives to companies in the lithium industry to further invest in Arkansas.

“This incentive is not unlike the data center incentive where if you meet certain payroll thresholds and investment thresholds, there are sales tax exemptions for the companies,” he said.

You can watch McDonald’s full interview in the video below.