Arkansas’ leading economists say the state should have an improved economy next year.
“We’re beginning to see things pick up a little bit in Arkansas again — not quite the pace of the United States, but we’re seeing many of the sectors in Arkansas doing well,” said Kathy Deck, director of the Center for Business & Economic Research at the University of Arkansas’ Walton College of Business. “I feel like Arkansas is poised for a reasonably good 2015. That assumes that the domestic economy does what I expect it to do and chugs along as well.”
One of the highlights will be a continued decline in the state’s unemployment rate, which reached a high-water mark of 8.2 percent in October 2011. It was 7.5 percent at the end of 2013 and projected to be 6 percent at the end of 2014, according to an Oct. 15 report by Michael Pakko, chief economist and state economic forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock. (In fact, it reached 6 percent in October, according to the state Department of Workforce Services.)
The unemployment rate is expected to continue to drop to 5.5 percent by the end of 2015 and then slip to 5.3 percent in 2016, the report said.
Pakko’s report shows about 1.18 million Arkansans will be employed at the end of year, after years of slow growth. But the numbers will start to soar in 2015 and continue through 2016.
An improved employment picture should help retail sales, Pakko said.
He projects that after retail sales growth of just 1.1 percent in 2013 and less than 1 percent projected in 2014, sales will start climbing next year.
In 2015, retail sales are projected to see a 5.4 percent increase to about $15 billion. They are then expected to climb another 5.6 percent in 2016.
Deck said that lower gasoline prices will help Arkansas’ economy. As of Wednesday, the average price of a regular gallon of gas for sale in Arkansas was $2.362, down 20.8 percent from a year ago, according to the American Automobile Association.
Deck projected the gas prices should stay relatively low for some time — but not forever.
Pakko said the sectors that will see continued employment growth in 2015 are health care, professional business services and leisure and hospitality.
And as the state’s economy continues to improve, the construction sector, which has been lagging in terms of job growth, also will see gains, he said.
“While I don’t expect any monumental turnaround, it would be nice to see a little bit of pickup in manufacturing employment as well,” he said. “Manufacturing has been in a long-term decline and the recession has made things worse.”
Minimum Wage Increases
On Jan. 1, Arkansas voters approved increasing the minimum wage. On Jan. 1, it will rise from $7.25 to $7.50 an hour and by 2017 it will be $8.50, $1.25 more than the current federal minimum wage.
The impact of the minimum wage increase on the state’s economy will be difficult to measure, both Deck and Pakko said.
“I think it’s very wise, of course, to phase it in [and] give businesses a chance to plan over time. That mitigates some of the knee-jerk response to it,” Deck said.
Pakko said there might be slower job growth for the young, inexperienced workers as a result of the minimum wage increase, but it’s hard to know for sure.
Overall, he doesn’t expect the minimum wage increase to have “any real noticeable effects on employment growth.”
Deck said she understood why people wanted the minimum wage raised.
“Average wages are lower than they’ve been since the ‘70s,” Deck said. “That is why folks are looking for a solution.”
One of the reasons wages have been kept low is because of rising health care costs, she said.
Health care “is expensive and we have to pay for it somehow,” she said. “The employers have borne a lot of that. … We’ve seen a lot of what might have gone to employees as wage increases show up as maybe employer-paid premium.”
Home sales in Arkansas should continue to improve in 2015, according to Pakko’s report.
Through September 2,525 homes were sold in Arkansas, which was up 7.9 percent from the same period in 2013, according to the Arkansas Realtors Association.
“The kinds of improvement that we’re seeing in some markets is reasonably consistent with the fundamentals of employment and wage growth,” Deck said.
Pakko said he’s “not enthusiastic but cautiously optimistic” about the state’s economy in 2015. “The long, very slow period of economic recovery in Arkansas should be picking up pace,” he said.
He said that if the state sees a 2 percent employment growth, which is what he’s expecting, all areas of the economy should improve.
“That’s basically what I’m looking forward to,” Pakko said.