story by Wesley Brown
wesbrocomm@gmail.com
Arkansas’ economy gained strength in 2013 as the state’s gross domestic product (GDP) grew at 2.4% in 2013, ranking The Natural State 16th among the 50 states, according to new statistics released Wednesday by the Bureau of Economic Analysis (BEA).
Arkansas’ growth was well ahead of the U.S. average in 2013, which slowed to 1.8% in 2013 after increasing 2.5% in 2012, according to the statistics from the U.S. Labor Department analysis arm.
Still, real gross domestic product (GDP) increased in 49 states in 2013, but the surprise takeaway from the yearly report is that U.S. growth was widespread but lost momentum. Per capita real GDP ranged from a high of $70,113 in Alaska to a low of $32,421 in Mississippi. Per capita real GDP for the U.S. was $49,115.
In the Southeast region, Arkansas only trailed West Virginia – which grew at a whopping 5.1%. Virginia had the lowest GDP at 0.1%, while the entire 12-state region came in at 1.6%.
‘UNUSUAL’ GROWTH
John Shelnutt, head of the Arkansas Department of Finance and Administration’s Economic Analysis and Tax Research division, called the sources of growth in Arkansas “a little unusual.” He said the state experienced robust gains in the service and agriculture sectors, but saw contraction in construction and manufacturing. The government sector in Arkansas also lost momentum, mainly in the number of federal and Postal Service jobs.
But the most unusual source of growth came in the mining sector, which saw a huge decline in 2012 as natural gas prices and low rig counts buffeted the Fayetteville Shale. This year, that sector rebounded with vigor.
“That is a little odd because it is a volatile sector where (growth) doesn’t persist year after year, or multiple years,” Shelnutt said. “It could be seen as a one-time contribution. It is a rebound from the negative year in 2012, but goes beyond a simple recovery.”
Just last month, severance tax collections in 2014 set new record highs as Arkansas continues to reap the benefits from higher natural gas prices and steady production levels primarily in the Fayetteville Shale, state revenue statistics show.
For the first three months of 2014, gross natural gas severance tax revenue came in at $19.9 million, up 29% from $15.4 million in the same period of 2013. At the same time, monthly collections of $7.3 million and $9.1 million in March and April, respectively, were the highest severance tax revenue totals posted since the state began keeping such records.
Overall, severance tax collections for January, February, March and April all came in well above $6 million, also a first for the state of Arkansas. The fiscal year for the state of Arkansas begins on July 1, 2013 and ends on June 30, 2014. In fiscal 2013, the highest monthly severance tax collection was $5.8 million in June. The severance tax data is compiled by the Revenue Division of the Arkansas Department of Finance & Administration using monthly tax reports filed by producers.
Shelnutt added that Arkansas’ growth in 2013 could be an anomaly.
“It is nice to get those,” said the state’s chief economist, noting the growth in the mining sector. “But you can’t count on them.”
Growth in GDP does not necessarily translate to job growth. The number of employed in Arkansas stood at 1.228 million in December 2013, down 0.19% compared to December 2012, and down 2.19% compared to December 2011. The number was also down 5.76% – or more than 70,000 employed – compared to peak employment of 1.299 million in March 2008.
The number of employed in Arkansas during April 2014, the latest month data is available, was 1.235 million, down from 1.238 million in March, but up from the 1.227 million in April 2013.
MANUFACTURING STRENGTH
GDP by state is the state counterpart of the Nation’s gross domestic product (GDP), the Bureau’s featured and most comprehensive measure of U.S. economic activity. Real GDP by state is an inflation–adjusted measure of each state’s production based on national prices for those goods and services produced within each state.
Overall, nondurable-goods manufacturing; real estate and rental and leasing; and agriculture, forestry, fishing, and hunting were the leading contributors to real U.S. economic growth.
And although mining was not a significant contributor to real GDP growth for the nation, it did play a key role in several states, including Arkansas. This industry was a large contributor in five of the fastest growing states: North Dakota, Wyoming, West Virginia, Oklahoma, and Colorado. Growth in those states was propelled by the recent development in liquids-rich shale plays that are attracting billions in new investment.
Meanwhile, real GDP increased in all eight BEA regions. Growth accelerated in the Rocky Mountain and Plains regions. The Rocky Mountain region grew the fastest, led by Wyoming, which increased 7.6%.
Nondurable–goods manufacturing was the largest contributor to U.S. real GDP by state growth in 2013. This industry increased 5.3% in 2013 after declining 0.5% in 2012. It was the leading contributor to growth in three of the eight BEA regions and in 10 states. Nondurable–goods manufacturing contributed 2.65 percentage points to growth in Louisiana and 1.19 percentage points to growth in Texas.
Real estate and rental and leasing were also a leading contributor to U.S. real GDP by state growth. This industry increased 1.6% in 2013, down slightly from 2.2% in 2012. It contributed to growth in all eight BEA regions and was the leading contributor to growth in the New England region. Real estate and rental and leasing contributed 0.5% or more to growth in North Dakota, Nevada, and Massachusetts.
Agriculture, forestry, fishing, and hunting contributed to real GDP growth in all eight BEA regions and in 49 states and the District of Columbia. It was the largest contributor to the growth of GDP in the Plains region. This industry contributed 1.36 percentage points or more to growth in North Dakota, South Dakota, Iowa, and Nebraska.
POTENTIAL FOR 2014
Looking ahead, GDP growth may also be strong in 2014 for Arkansas. Mark Zandi, chief economist for Moody’s Analytics, also reported Wednesday that U.S. economic growth “looks set to accelerate in the coming months, although significant challenges still remain.”
He said real GDP is tracking near 4% in the second quarter, with some of the strength coming from the rebound in activity from the unusual first quarter winter weather. And while Zandi does not anticipate continued 4% real GDP growth, he said second quarter results suggest “consistently stronger growth in coming quarters.”
However, Zandi also noted that U.S. employment is not keeping pace with GDP growth.
“Although the labor market has improved, unemployment and underemployment remain frustratingly high,” Zandi said in his report. “Job‐market slack is estimated at nearly 2% of the labor force. For context, in the wake of the tech‐bust in 2000, job‐market slack peaked at no more than 1% of the labor force.”
Continuing, Zandi wrote: “The U.S. recovery completes its fifth year this month. This is significant, as the average expansion since World War II has been about as long. But it is also a disappointment, because the economy has yet to experience the rapid growth that has characterized past recoveries.”