Arkansas’ economy should gradually improve over the next two years, Michael Pakko, a university economist, said Wednesday at an economic forecast conference.
The state’s unemployment rate should drop to 5.9 percent by the end of 2015; and gross domestic product, employment, income, taxable sales and home sales should rise over the same period, Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, projected at the annual UALR conference at the Clinton Presidential Center.
“We expect to see the unemployment rate to start to fall at the same pace as the U.S. [rate],” Pakko told about 100 people.
Arkansas’ unemployment rate was 7.4 percent in August, the most recent month available. Pakko expects that to fall to 7.3 percent by the end of the year and drop to 6.6 percent at the end of 2014 and 5.9 percent at the close of 2015.
The U.S. unemployment rate was 7.3 percent in August.
In other categories, Pakko said he expects Arkansas’ gross domestic product to climb 2.7 percent in 2014 and 3 percent in 2015; personal income will grow by 4.1 percent next year and 4.5 percent in 2015; taxable sales will increase by 5.6 percent next year and 4.6 percent in 2014; and home sales will grow to 28,800 in 2015, about 2,100 more than expected sales this year.
Pakko cautioned that most economic forecasts are geared toward the assumption that the economy will return to past trends.
“While that is a useful tool for a model to have, sometimes when you’re dealing with the aftermath of a substantial recession like we’ve had, that assumption might not necessarily be a correct one,” Pakko said. “Even mild recessions typically have a small permanent component that you never quite return to the same trend. When you look at measures of economic activity over the last recession and recovery, it looks pretty much like a step downward and onto a new growing path.”
Home sales is the best performing category, Pakko said. In August, Arkansas saw a growth in sales of more than 20 percent and an 18 percent jump in September, Pakko said.
“This was really welcome news,” Pakko said. “There is a rebound in the housing sector around the nation. We just haven’t seen much of a sign of it here in Arkansas. Over the past two years, we saw pretty much a flat pace of home sales.”
David Altig, director of research at the Federal Reserve Bank of Atlanta, gave his estimate when he anticipates the Federal Open Market Committee will ease off its policy of holding interest rates at zero percent.
When the federal government began its monetary policy of buying $85 billion of bonds each month in September last year, the assumption was that unemployment would be 7.8 percent by the end of this year, Altig said. It was 7.2 percent in September, better than half a percentage point lower than anticipated, Altig said.
At that pace, the unemployment rate will be somewhere in the neighborhood of 6.5 percent by the end of next year, Altig said.
“That 6.5 percent unemployment number is important,” Altig said.
At that rate, the government has said it would pull back on its policy of holding interest rates at zero percent, Altig said.
“So if you’re waiting for the moment that interest rates are going to go up, that’s my best guess,” Altig said. “Well, maybe. But it’s certainly when the committee has laid out the marker for the time it should start thinking about that.”
Business, Pages 27 on 11/07/2013