Arkansas' Diversification Blunts Effects of U.S. Recession

by Mark Hengel  on Monday, Jan. 19, 2009 12:00 am  

Most durable goods require large initial investments, which companies put off as cash grows scarce. Arkansas has labored mightily to attract a major auto manufacturing plant, but states – particularly Michigan – that depend on the auto industry are feeling the current downturn more acutely. The slowdown in durable goods manufacturing has touched Fort Smith, though, where Whirlpool Corp. and Baldor Electric Co. have slashed their employee rosters.

(DeVol will speak at the 15th annual Business Forecast luncheon Friday in Rogers. Deck is also speaking.)

The state's economy is comparatively broad-based, said Gregory Hamilton, an economist at the University of Arkansas at Little Rock. So as one area of the economy goes south, another can pick up the slack, he said.

After World War II, Arkansas avoided developing "specific industry risk," meaning an economy that relies too heavily on one sector for growth. Michigan is the quintessential example of what can happen when such risk develops.

As the automobile industry has weakened, Michigan's economy has struggled, said Hamilton, of UALR's Institute for Economic Advancement's Research Group. In Arkansas, specific regions have suffered as one industry or large company shut down, but the state's economic diversity does not allow one city's or region's woes to affect the entire state.

Arkansas did feel the brunt of the Great Depression, however, because of its reliance on agriculture, Hamilton noted. After the Depression and World War II, the state began diversifying and developing a manufacturing base. The Legislature established the Arkansas Industrial Development Commission in 1955 to modernize Arkansas' economy and bring industry to the state.

Arkansas' governmental employment sector also has remained steady recently, DeVol said. The state also is not facing the financial woes of states like California, where state budget balancing may be done on the backs of government employees, he said.

While Arkansas' economy is steadier than many, it is changing, Hamilton said.

"As the Arkansas economy has evolved, it has gone primarily from an agriculture-based economy to a manufacturing-based economy during the smokestack-chasing phase," he said. "And now it is going to more of a service sector-based economy."

We'll Feel It

Arkansans should not, however, assume that our state's economy is bulletproof.  The state will eventually feel the current recession, though less severely than other states and regions.

"People who believe Arkansas will not feel this recession are mistaken," DeVol said.

 

 

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