Good, Not Great, Results Predicted for 2004 Economy: Construction Booms, Manufacturing Tabbed To be the Hardest Hit Industries in Natural State

Most industries should have a good year in 2004.t

“It’s difficult to find too many losers for 2004 because most sectors will be improving,” said John Shelnutt, senior research economist and head of research at the University of Arkansas at Little Rock’s Institute for Economic Advancement.

Leading the way for the state’s economy will be the transportation and warehousing industries, farm and professional and business services, Shelnutt said.

The health service industry is expected to hold steady in 2004.

“It’s had a run of three good years during the weak period of the overall economy,” he said. “And we show it decelerating somewhat in 2004 … but it’s still growing at better than the state average for 2004.”

The leisure and hospitality services sector also will show an improvement from 89,000 jobs in 2003 to 90,100, an increase of 1.3 percent, according to the annual IEA report.

“The travel sector is still in recovery, and we expect that to continue in Arkansas as well,” Shelnutt said.

Construction will do well, witnessing a 1.2 percent gain to 54,600 jobs in 2004. In 2005, the sector is expected to see a 3.5 percent increase.

The rise is tied to more businesses spending money on construction of buildings, which had been a weak area of investment at the national level, Shelnutt said.

One industry that could be hit hard in 2004, though, is manufacturing.

It will see a 2.2 percent decline from 208,300 jobs in 2003 to 203,800 jobs next year.

Other bad news is Arkansas’ per capita income. While it is expected to increase 4.6 percent from $24,278 to $25,396, it will remain about 75 percent of the national average in 2004 through 2006, the last year of the report’s projection.

Home and auto sales are forecasted to be down in 2004.

Arkansas single family home starts will drop 9.2 percent from 12,088 in 2003 to 10,972 in 2004. And total new car sales will drop 1.5 percent from 44,360 in 2003 to 43,684 in 2004.

Shelnutt said he expects to see fewer rebates in the auto sector for new cars and slowly rising interest rates.

“Given the fact that we’ve had so many good years recently in the auto [sector], I think we’ll be coming off that peak,” he said. “And the same will be true for housing, where we can’t keep setting records in that sector.”

Overall, Arkansas’ economy will improve with the rest of the country in 2004.

“I don’t see quite as much as an explosive growth in the state economy,” Shelnutt said. “We just don’t have the sectors responding to the signals for growth that you do at the national level,” such as the high-tech sector.

“I think it will be a good year for the state, better than the last three certainly,” he said.

Education

Education reform could have strong implications for the state’s economic future.

The Legislature currently is working on a way to deal with the Lake View case, where the state Supreme Court ruled that the state’s system of public education is unconstitutionally inadequate and inequitable. The ruling means the General Assembly is forced to fund hundreds of millions of dollars in additional educational spending each year.

But improvement of the education system will be great for the state in the future, said Jeff Collins, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville.

“The thing about education reform is all the costs are immediate and the benefits are long term,” Collins said. “And that’s one of the reasons I think it’s hard to get done — because everyone is looking at the cost side of things, and the benefits seem to be so far out in the future that they’re pretty much discounted away.”

Collins predicted the Legislature will raise the state sales tax anywhere from three-fourths of a cent to a penny, which could end up hurting cities.

Municipalities have been under a lot of pressure to pay for infrastructure that sales taxes typically cover, he said. If the state raises the sales tax, it could change the way consumers shop, Collins said. More people will start buying items off the Internet or through catalogs to avoid paying the sales tax.

“That has real implications for city revenues and county revenues where you really need some infrastructure investment,” Collins said.

Still, education is the best bet for long-term economic development, he said.

An educated work force has the ability to increase productivity and respond to changes in market conditions.

“When new technology comes along, an educated work force is more adaptable at utilizing the new technology than an uneducated work force,” he said. “So really, is education a magic bullet? Yea, in the end, it’s your best hope for providing quality economic development.”

TAB CHART

Economic Forecast for Arkansas 2003-2004

Arkansas Personal Income	2003	2004	2005	2006
Per Capita Income	$24,278	$25,396	$26,472	$27,833
Ratio to U.S. Per Capita Income	74.50%	74.70%	74.60%	75.00%
?
Arkansas Labor Force	2003	2004	2005	2006
Civilian Labor Force*	1,302	1,311	1,326	1,342
Percent Change From Previous Year	1.3%	0.7%	1.2%	1.1%
Unemployment Rate	5.4%	5.6%	5.5%	5.5%
?
Arkansas Employment by Industry**	2003	2004	2005	2006
Construction	54	54.6	56.5	58
Percent Change	-1.7%	1.2%	3.5%	2.7%
Manufacturing	208.3	203.8	203.7	203.6
Percent Change	-2.8%	-2.2%	0.0%	-0.1%
Transportation and Warehousing	61.2	63	65.7	68
Percent Change	3.2%	3.0%	4.2%	3.5%
Retail Trade	130.9	131.1	131.8	132.4
Percent Change	0.3%	0.1%	0.6%	0.4%
Services	40.6	40	39.4	38.8
Percent Change	-0.8%	-1.5%	-1.3%	-1.6%
?
Housing and Auto Sales in Arkansas	2003	2004	2005	2006
Single-family Home Starts	12,088	10,972	10,192	9,984
Percent Change	18.5%	-9.2%	-7.1%	-2.1%
Existing Homes Sold	73,400	76,200	76,700	77,800
Percent Change	9.6%	3.8%	0.6%	1.5%
New Cars	44,360	43,684	43,624	42,692
Percent Change	-5.5%	-1.5%	-0.1%	-2.1%
New Light Trucks	82,360	84,792	85,880	86,628
Percent Change	-3.7%	3.0%	1.3%	0.9%

*In millions. **In thousands.tttt

Source: University of Arkansas Institute for Economic Advancement