Dr. Michael Pakko

Chief Economist and State Economic ForecasterInstitute for Economic Advancement, UALR

November 2, 2011

Arkansas Economic Outlook

Arkansas Economic Forecast Conference2011

• Arkansas fared relatively well during the recession . . .

Arkansas’ Experience

. . . but the recovery has been faltering.Source: Federal Reseve Bank of Philadelphia

90

92

94

96

98

100

102

2007 2008 2009 2010 2011

Inde

x, 2

007Q

4=10

0

Coincident Indexes of Economic Activity

U.S.

Arkansas

• Economic conditions in the U.S. and Arkansas appear to be deteriorating in 2011 …

– Waning consumer confidence

– Political uncertainty

– Gasoline price spike

– Spring storms and flooding, summer drought

Arkansas’ Experience

• Output/GDP

• Personal Income

• Retail Sales

• Real Estate

• Labor Markets

Topics

GDP by State, 2010

Source: Bureau of Economic Analysis

GDP by MSA

Source: Bureau of Economic Analysis

2008 2009 2010*2010 Rank*

Fayetteville-Springdale-Rogers, AR-MO 0.8 -2.1 3.9 74

Fort Smith, AR-OK 0.4 -2.2 3.7 82

Hot Springs, AR -1.3 -3.9 1.0 253

Jonesboro, AR 3.9 -0.1 4.5 48

Little Rock-North Little Rock-Conway, AR -1.3 1.6 0.1 302

Memphis, TN-MS-AR -0.9 -4.0 1.9 192

Pine Bluff, AR -0.4 -3.6 2.6 134

Texarkana, TX-Texarkana, AR -0.8 -2.4 2.2 167*Advance statistics

Percent change

Real GDP by Metropolitan Area, 2007-2010

Personal Income

Personal Income

Source: Bureau of Economic Analysis

90

92

94

96

98

100

102

104

106

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Inde

x, 2

008:

Q2=

100

Personal Income(Seasonally Adjusted)

Arkansas

U.S.

Personal Income

Source: Bureau of Economic Analysis

10%

12%

14%

16%

18%

20%

22%

24%

26%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Transfer Receipts as Percent of Personal Income

U.S.

Arkansas

(Dashed lines include ARRA transfers.)

Personal Income

Source: Bureau of Economic Analysis

90

92

94

96

98

100

102

104

106

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Inde

x, 2

008Q

3=10

0

Personal Income less Transfer Receipts(Seasonally Adjusted)

Arkansas

U.S.

Personal Income

Source: Bureau of Economic Analysis

2009 2010p 2009 2010p

Metropolitan portion of the United States -1.9 2.9 --- ---

Fayetteville-Springdale-Rogers -0.4 4.0 153 61

Fort Smith -1.5 3.8 260 74

Hot Springs 0.4 2.8 99 189

Jonesboro 0.3 5.1 106 25

Little Rock-North Little Rock-Conway 1.2 1.4 42 351

Memphis -2.2 3.1 301 147

Pine Bluff 1.2 3.2 43 134

Texarkana 0.7 3.7 74 81

Personal Income In Arkansas Metropolitan Areas

Area

Percent change from preceding

period

Percent change ranking

Taxable Sales

Constructed by the Institute for Economic Advancement using data on sales and use tax collections from the Arkansas Department of Finance and Administration.

10.5

11.0

11.5

12.0

12.5

13.0

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1

Qua

rter

ly, B

illio

ns o

f Dol

lars

Arkansas Taxable Sales(Seasonally Adjusted)

Percent Changes: 2010Q2: +2.6% 2010Q3: +0.7%2010Q4: - 0.6%2011Q1: +0.4%2011Q2: -0.6%

Source: Oil Price Information Service

Taxable Sales

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2006 2007 2008 2009 2010 2011

Dol

lars

per

gal

lon

Arkansas Gasoline Price

Taxable Sales

Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement.

Introducing: Arkansas Taxable Sales Including Gasoline (ATSIG)

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1

Qua

rter

ly, B

illio

ns o

f Dol

lars

Arkansas Taxable Sales Including Gasoline(Seasonally Adjusted)

Including Gasoline

Not Including Gasoline

Taxable Sales

Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement.

Introducing: Arkansas Taxable Sales Including Gasoline (ATSIG)

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1

Qua

rter

ly, B

illio

ns o

f Dol

lars

Arkansas Taxable Sales Including Gasoline(Seasonally Adjusted)

Including Gasoline

Not Including Gasoline

Taxable Sales

Source: Arkansas Department of Finance and Administration, Institute for Economic Advancement.

96

98

100

102

104

106

108

110

112

114

116

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1

Inde

x, 20

05=1

00

U.S. Retail Sales and ATSIG(Seasonally Adjusted)

Arkansas Taxable Sales Including Gasoline

U.S. Retail Sales

Home Sales

Source: Arkansas Realtors® Association

800

1,200

1,600

2,000

2,400

2,800

3,200

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

Homes sold in Arkansas by Realtors®(Not Seasonally Adjusted)

2007 2008 2009 2010 2011

Apr. 2010Nov. 2009

Jul. 2010

Home Sales

Sources: Arkansas Realtors® Association, Institute for Economic Advancement.

800

1,200

1,600

2,000

2,400

2,800

3,200

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

Homes sold in Arkansas by Realtors®(Seasonally Adjusted)

2007 2008 2009 2010 2011

Nov. 2009

Jul. 2010

Apr. 2010

Home Sales

Sources: Arkansas Realtors® Association, Institute for Economic Advancement.

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

2007 2008 2009 2010 2011

Homes sold in Arkansas by Realtors®(Quarterly Data, Seasonally Adjusted)

Home Prices

Source: Federal Housing Finance Agency (FHFA)

80

85

90

95

100

105

110

2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Inde

x, 2

006:

Q1=

100

FHFA House Prices(All-Transactions Indexes)

U.S.

Arkansas

Home Prices

Source: Federal Housing Finance Agency (FHFA)

80

85

90

95

100

105

110

2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Inde

x, 2

006:

Q1=

100

FHFA House Prices(All-Transactions Indexes)

U.S. Little Rock

Arkansas Fayetteville

Home Prices

Source: Federal Housing Finance Agency (FHFA)

1 quarter 1 year 2 years 5 years

Fayetteville-Springdale-Rogers -1.3 -5.0 -12.1 -16.7

Fort Smith -0.2 0.4 -3.7 3.8

Hot Springs 6.5 4.3 -3.7 7.6

Jonesboro -2.9 -2.2 -2.0 2.4

Little Rock-N. Little Rock-Conway -0.2 -2.7 -2.7 1.9

Memphis -1.9 -6.1 -10.5 -10.0

Pine Bluff 5.9 -1.0 -2.2 6.0

Texarkana 2.1 4.3 3.2 13.8

Arkansas -0.2 -2.5 -4.8 -1.4

United States -1.9 -4.5 -8.9 -14.6

*Percent changes to 2011:Q2.

FHFA House Price Changes (All-Transactions Indexes)Percent Changes*

Employment

Source: Bureau of Labor Statistics.

92

93

94

95

96

97

98

99

100

101

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

Ind

ex

, De

c. 2

00

7=

10

0

Nonfarm Payroll Employment, Arkansas and U.S.

2007 2008 2009 2010

U.S.

Arkansas

2011

(Net of Temporary Census Workers)

Source: Bureau of Labor Statistics.

Employment

Month Ago Year Ago Feb. 2010 Dec. 2007

Mining & Logging -0.2 0.0 0.3 0.6

Construction 1.8 0.9 0.9 -7.2

Manufacturing -1.1 -5.0 -4.0 -32.9

Trade, Transportation & Utilities -1.9 -0.6 1.1 -16.6

Information Services -0.1 0.5 0.2 -2.1

Financial Services 0.6 1.7 1.0 -3.0

Professional & Business Services -0.3 1.3 5.1 2.2

Education & Health Services 0.4 1.8 3.3 11.8

Leisure & Hospitality Services -1.6 3.2 6.0 2.5

Other Services 0.1 2.0 2.2 -0.5

Government 0.7 4.8 5.5 8.3

TOTAL -1.6 10.6 21.6 -36.9

Arkansas Nonfarm Payroll Employment - September 2011*Employment changes (thousands of jobs) from:

* Seasonally adjusted data.

Source: Bureau of Labor Statistics.

Employment

Month ago

Year ago

Feb 2010

Dec 2007

Fayetteville-Springdale-Rogers 1.1 -0.3 1.4 -3.8Fort Smith -0.8 -0.8 -0.9 -8.3Hot Springs 0.0 7.8 8.1 2.8Jonesboro -1.0 -1.2 0.0 -1.6

Little Rock-N. Little Rock-Conway -0.1 -0.6 0.6 -3.6Memphis -0.3 1.0 -0.8 -8.5Pine Bluff -0.8 -1.9 -1.6 -4.9Texarkana 1.8 2.0 2.5 -0.5

Arkansas -0.1 0.9 1.9 -3.1U.S. 0.1 1.1 1.6 -4.8

Employment Changes in Arkansas Metro Areas,September 2011

Percentage change from:

(Seasonally adjusted data)

Employment

Sources: Bureau of Economic Analysis, Institute for Economic Advancement

1,140

1,150

1,160

1,170

1,180

1,190

1,200

1,210

1,220

2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3

Thou

sand

s

Arkansas NFPE - Forecasted Revisions

As Published

Expected Revision

Unemployment Rates

Source: Bureau of Labor Statistics.

4

5

6

7

8

9

10

11

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

Per

cen

t

Unemployment Rates, Arkansas and U.S.

2007 2008 2009 2010

Arkansas

U.S.

2011

Unemployment Rates

Sources: Bureau of Labor Statistics, Institute for Economic Advancement.

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Unemployment Rates for Arkansas Metro Areas, Jan. 2010 - Sep. 2011

(Seasonally Adjusted*)

Fort Smith

Hot Springs

JonesboroTexarkana

Little Rock

Fayetteville

Pine Bluff

2010 2011

Memphis

Economic Outlook

"Prediction is very difficult, especially about the future."- Niels Bohr , Nobel prize-winning physicist.

Real GDP

2.7%

0.7%

-0.1%

-1.5%

2.3%

3.1% 3.2%2.8%

-2%

-1%

0%

1%

2%

3%

4%

2006 2007 2008 2009 2010 2011* 2012* 2012*

Arkansas Real GDP Growth

* Forecasts

Personal Income

Q4/Q4 Growth (%)

2010 4.7

2011 3.6

2012 5.1

2013 3.9

80

85

90

95

100

105

110

115

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Qua

rter

ly, B

illio

ns o

f dol

lars

(SAA

R)

Arkansas Personal Income(Seasonally Adjusted)

Actual Forecast

Sales

Q4/Q4 Growth (%)

2010 5.8

2011 4.4

2012 3.2

2013 2.0

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Qua

rter

ly, B

illio

ns o

f dol

lars

(SAA

R)

Arkansas Taxable Sales (Including Gasoline)(Seasonally Adjusted)

Actual Forecast

Home Sales

Sales(Pct. Change)

2009 24.7K -0.4%

2010 23.6K -4.4%

2011 23.4K -0.8%

2012 26.3K +12.6%

2013 27.5K +4.3%

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2007 2008 2009 2010 2011 2012 2013

Qua

rter

ly S

ales

Homes sold in Arkansas by Realtors®

Actual Forecast

Employment

Q4/Q4 Growth

2009 -5.64M -4.1%

2010 +0.70M +0.5%

2011 +1.37M +1.1%

2012 +1.26M +1.0%

2013 +2.24M +1.7%

124

126

128

130

132

134

136

138

140

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Mill

ions

U.S. Nonfarm Payroll Employment(Seasonally Adjusted)

Actual Forecast

Employment

Q4/Q4 Growth

2009 -37.9K -3.2%

2010 +15.1K +1.3%

2011 +4.6K +0.4%

2012 +15.3K +1.3%

2013 +18.1K +1.5%

1,140

1,150

1,160

1,170

1,180

1,190

1,200

1,210

1,220

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Thou

sand

s

Arkansas Payroll Employment(Seasonally Adjusted)

Actual Forecast

Employment

Q4/Q4 Growth

2009 -37.0K -3.1%

2010 +9.1K +0.8%

2011 -1.4K -0.2%

2012 +15.3K +1.3%

2013 +18.1K +1.5%

1,140

1,150

1,160

1,170

1,180

1,190

1,200

1,210

1,220

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Thou

sand

s

Arkansas Payroll Employment(Seasonally Adjusted)

Actual Forecast

Including expectedrevision in 2012

Unemployment

End of Year (Q4)

2010 9.6

2011 9.1

2012 8.8

2013 8.4

4

5

6

7

8

9

10

11

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Perc

ent

U.S. Unemployment Rate(Seasonally Adjusted)

Actual Forecast

Unemployment

End of Year (Q4)

2010 7.9

2011 8.2

2012 7.9

2013 7.6

4

5

6

7

8

9

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1

Perc

ent

Arkansas Unemployment Rate(Seasonally Adjusted)

Actual Forecast

Arkansas Economist

For more information and analysis of the Arkansas Economy, visit the Arkansas Economist: www.arkansaseconomist.com