Arkansas over the next few years will likely see unemployment of between 3.3%-4%, consumer spending slow down and personal income level out at a pre-pandemic 4%-5% growth, economist Michael Pakko said during the annual Little Rock regional economic briefing last week.
These predictions would be affected by the resurgence of a new COVID-19 variant that prompts shutdowns and restrictions, and also if current supply chain disruptions worsen, said Pakko, the chief economist with the Arkansas Economic Development Institute.
“There's signs of what's going on in the economy all around us – whether it's shortages on the shelves, rising prices, ‘help wanted’ signs at every business location – the post COVID-19 economy is very much present in our everyday lives,” Pakko said.
Kevin Kliesen, business economist with the Federal Reserve Bank of St. Louis, also led the virtual program. He said inflation would remain at 2% or more next year.
On consumer spending in Arkansas, Pakko said the state fared much better than the rest of the country in most categories, including clothing, groceries, food services, vehicles and building materials. It was one of only four states that saw spending increase last year; the others were Idaho, Montana and Utah, he said.
This is in part because Arkansas didn’t impose as many restrictions on businesses during the pandemic, compared to other states, Pakko said.
Arkansas also saw an “unexpectedly large boost” in 2021 spending as well.
Increased spending was fueled by federal stimulus payments and the state already having lower income households and a low cost of living, Pakko said. So those dollars went further.
But he expects overall retail spending in the state to drop by 3.9% in 2022 then increase by 2.3% in 2023 amid rising inflation and prices.
On unemployment, Pakko said, 4% is often associated with full employment, and that is very close to where Arkansas was before the pandemic.
However, he said, “We still don't have the same number of people working as we did before. And that's problematic because the labor force has expanded. Potential labor has expanded by two years’ worth in the interim.” Pakko said some people who aren’t working but could work took early retirement during the pandemic, or are holding out for better job opportunities.
The state’s unemployment rate was 3.7% in October, Arkansas Business reported on Friday.
Pakko said, officially, the pandemic-caused recession was only two months long, which is highly unusual. Recessions typically last much longer. Instead, there was a very brief downturn followed by a sharp recovery.
So the economy was “whipsawed back and forth in terms of demand,” Pakko said, as he explained how lingering supply chain disruptions have caused rising prices.
He said that during the height of the pandemic, demand for services declined. Some companies prepared for a normal downturn, making decisions in March 2020 and April 2020 that they may regret in hindsight, Pakko said.
There were opportunities to expand production very shortly after the contraction that they didn’t expect.
One example he offered was automobile manufacturers, who scaled back production plans and canceled some materials and parts orders. When demand started picking up as soon as consumers received federal stimulus payments, suddenly those manufacturers came up short on production capacity, had to get back in line for microchips and had to restart supply chains to increase production with relatively short notice. Many couldn’t hack it.
In addition, not only was there demand from consumers but also from rental car agencies that reduced their fleets in anticipation of a longer downturn, Pakko said. They now need to rebuild their fleets to meet unexpected demand.
So prices for new and particularly used vehicles have “skyrocketed” as a result of the higher demand, he said.