Arkansas’ 3.9 percent GDP rise ranks first

Experts skeptical of ag-output data

Arkansas ranked No. 1 in the nation for economic growth at the beginning of this year largely because of an increase in agricultural output, according to a federal report released Wednesday.

The federal Bureau of Economic Analysis said Arkansas’ economy grew 3.9 percent in the first quarter of 2016 — more than any other state — compared with the last quarter of 2015.

That the report cited growth in agriculture surprised economists and other experts. One professor said the forestry industry might be behind some of the growth. Others questioned the bureau’s findings.

Travis Justice, chief economist with Arkansas Farm Bureau, said the numbers just don’t reflect what farmers are facing in the commodity markets. It also contradicts data from the U.S. Department of Agriculture that show farm incomes in decline, he said.

“I really can’t explain it,” he said. “We are looking at — on the crop side — most prices are depressed. They’re lower than they were a year ago. Most of

our livestock prices, same story.”

Poultry prices are up a bit, but Justice said he didn’t see how they could offset problems in the rest of the state’s agricultural economy.

Matt Pelkki of the Arkansas Forest Resources Center said the forestry industry is growing quickly. That might explain some of the increase in the sector, he said.

Forestry accounts for about a quarter of the state’s agricultural products, said Pelkki, a professor at the University of Arkansas at Monticello, where the center is based.

“The forest industry five, six years ago wasn’t just in a recession, it was in a downright depression,” he said. “It’s faced some tough times. It really has.”

That’s changed. New homes are being built, which means the nation needs more lumber. Firms throughout south Arkansas are retooling, Pelkki said. Canadian firms are also stepping in to make investments.

“It’s just been good, solid growth,” he said.

Bobby Coats, a professor and extension economist, said more information is needed about the bureau’s numbers.

Livestock, poultry and forestry are all possible candidates for growth, he said, but he’s not sure what would have caused the spike in the first quarter of this year.

“It’s just absolutely fascinating when you look at Arkansas compared to the other states in agriculture,” he said in an interview.

The bureau measured economic activity using GDP, or gross domestic product, which is the total value of goods produced and services provided over a given period of time. Arkansas’ GDP in the first quarter was $125.76 billion, less than all surrounding states except for Mississippi. Among the 50 states and the District of Columbia, Arkansas’ GDP ranks 35th.

“I really will be surprised if the GDP for Arkansas is correct,” Coats said in a follow-up email.

Arkansas would not have ranked No. 1 in the percentage increase in GDP without the reported increase in agriculture.

According to the bureau, agricultural goods and services totaled $4.1 billion in Arkansas in the first quarter of 2016. That’s an increase of 18 percent — or $632 million — compared with the fourth quarter of 2015.

The bureau attributed more than half of the 3.9 percent in GDP growth to agriculture.

Two other sectors of the economy — information and retail — contributed about 0.5 percentage point each to that total.

Meanwhile, several sectors — mining, utilities, durable goods manufacturing and transportation and warehousing — shrank.

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas, cautioned that a couple of months of data cannot fully capture changes in Arkansas’ economy.

Like other economic data, agriculture is “lumpy,” meaning it trends up and down from quarter to quarter and year to year, Deck said.

“I don’t know who has increased production in this substantial way,” she said.

But Deck said the report was good news that reflected other available economic data, like the state’s low unemployment rate.

“When we look at 2015, Arkansas’ GDP grew more slowly than the national GDP did,” she said. “This, of course, is outperforming the U.S., so we’ll have to see if it holds true for the rest of this year.”

Likewise, Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, said the report was good news — even without agriculture’s increase.

“On the one hand, it buttresses the very positive unemployment reports we’ve been getting over the first quarter of the year,” he said. “This report is consistent with the fact that Arkansas growth has picked up.”

Based on his analysis, if agriculture’s increase was removed, the state’s economic growth would have been about 1.7 percent in the first quarter of 2016. That still beats the national average of 1.2 percent growth.

And there are other positive signs for the state.

“Construction has been lagging for quite some time, and to see that pick up is really an improvement,” he said.

Manufacturing is the single largest component of Arkansas’ economy, after briefly dipping below government spending.

The sector accounts for $16.4 billion in economic activity. That’s down from $19.7 billion a decade ago, but up from a 10-year low of $13.7 billion in 2009.

Despite the recovery in the value of what’s manufactured, an increase in manufacturing jobs shouldn’t be expected, Pakko said.

Those workers have moved into the service industry in Arkansas, he said.

“The long-term story of manufacturing is increased automation,” he said. “We saw a lot of job losses in the few years up to the recession and including the recession and then a plateau of manufacturing employment while output has continued to increase.”

Whatever the cause, a growing economy means a larger tax base for the state.

“Continued positive economic growth over the next several quarters could translate into strong revenue growth for State government,” John Shelnutt, administrator of the Department of Finance and Administration’s Office of Economic Analysis and Tax Research, said in a statement. “However, revenue collections can be difficult to predict.”

According to the Bureau of Economic Analysis report, North Dakota faced the largest economic contraction of any state. Its economy shrank by 11.4 percent in the first quarter of 2016, largely because of a decrease in mining-related activity in its oil-bearing Bakken shale formation.