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Arkansas economist Michael Pakko says the state hasn’t been as hard-hit by the economic effects of COVID-19, and it’s so far escaped the worst of what other states have experienced. But figuring out why is a difficult task.
It could be because Arkansas didn’t fully shut down in the early weeks of the nationwide pandemic, he said. And as yet, there haven’t been major outbreaks here compared to other places.
Pakko, the chief economist and state economic forecaster at the Arkansas Economic Development Institute at the University of Arkansas at Little Rock, released an updated June forecast last week, based on recent data.
He cautioned that it’s difficult to pinpoint exactly why the state has bested national averages for many economic indicators.
“In the context of the forecasts that have come before it, this is an unprecedented experience, trying to forecast what the economic impact of a deliberate shutdown in response to a pandemic will be,” he told Arkansas Business on Monday. “We don’t have a whole lot of data to go on.”
But, Pakko said, a couple of recent developments have given economists like himself a clearer picture of the impact. And he said it’s been a “surprise” that the economy is bouncing back so quickly.
But one constant is that things are changing rapidly.
“That’s kind of been the theme all along,” Pakko said. “It hit much faster and harder than we expected, and so the continuing theme is things keep changing faster than we can keep up.”
Pakko’s new forecast calls for job losses of 8.6% from the first to second quarter, or 110,000. His previously forecast had projected job declines of nearly twice that. He now expects gradual recovery and steady positive job growth before the end of the year.
In May, Pakko’s forecast called for an unemployment rate between 16% and 17% through 2020; the new forecast predicts an unemployment rate that remains around 10.3% through the summer before starting to decline in the fourth quarter.
Personal income is now expected to decline 7.8%, better than the 10.3% drop in the previous forecast.
The outlook for taxable sales has improved as well, for the second consecutive month. The April forecast had shown a decline of 18.3% from the fourth quarter of 2019 through the second quarter of 2020. In May, the projected decline was 16.7%. The forecast calls now calls for a 16.1% decline.
State economists are still expecting a sharp decline in personal consumption expenditures, particularly in the second quarter, because businesses closed and people lost income. Second-quarter spending in the second quarter is now projected to decline by 13.4%, slightly less than the 14.8% decline predicted in the May forecast.
Pakko said people are also uncertain about their economic futures, a fact that won’t change anytime soon, unless a vaccine or cure or something like that ends the pandemic.
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While unemployment claims remain high in Arkansas, continuing claims appear to have plateaued at around 120,000, according to the forecast. The April forecast expected a decline of 160,000 jobs. Instead, the decline was 100,000.
Pakko also said the state’s retail trade and leisure and hospitality sectors contracted less, compared to the national average. Pakko said that those sectors were some of the most-impacted by COVID-19-related shutdowns.
Construction and manufacturing also experienced smaller-than-the national-average declines.
Pakko, in his report, called the unexpected rebound of U.S. labor markets, contained in the June 5 monthly jobs report, the “most paradigm-disrupting development over the past month.”
The May employment report showed a one-month increase in payroll employment of about 2.5 million and a decline in the official unemployment rate to 13.3%.
The payroll enrollment gain was the largest one-month gain ever recorded and the largest monthly percentage increase since World War II, though it represented a small recovery after a period of sharp decline. In the previous two months, employment had declined by 22 million.
National unemployment is now projected to peak at 13.4%, instead of at 14.7%, and it’s projected to peak earlier, in the second quarter rather than in the fourth.
Pakko said in his report that the limited re-opening of the economy around the country seems to be generating a more rapid and robust resurgence of economic activity than most economists had expected.