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Economic fortunetelling.

Economic Fortunetelling

There is no crystal ball economists use to predict the future.

Forecasting economic performance requires more work than that. There are trend lines, graphs and charts.

But economist John Shelnutt of the Arkansas Institute for Economic Advancement at the University of Arkansas at Little Rock makes economic predictions quarterly.

He presented his most recent analysis earlier this month during a breakfast meeting at Little Rock's Camelot Hotel, claiming the Arkansas economy continues to avoid national economic woes.

Present to hear the soothsayer were about 40 people from entities as diverse as the state Department of Higher Education and Arkansas Power & Light Co.

Shelnutt says that although "an extended U.S. slump would have pulled the Arkansas economy down by the end of 1991, there is no evidence of a delayed slump in the state."

Compared with the rest of the country, most of Arkansas' economic trends are positive, according to Shelnutt. But he adds there are some trouble spots, namely farm income and weak durable goods activity.

The Big Picture

The national economy is into its second quarter of recovery. That's the good news.

The bad news is that the recovery will soothe recession wounds slower than any recession since 1949-50.

The average growth of the gross national product in a recovery year is 6.3 percent. Predicted growth for this recovery year is 2.8 percent.

Shelnutt cautions that growth will be uneven as some states struggle with budget deficits and other negative factors.

A turnaround in the labor market traditionally lags behind a turnaround in GNP. The unemployment rate is expected to remain close to the current level through the first half of 1991.

What about Arkansas?

* Unemployment

The state's unemployment rate has inched up, but economists say the movement is minor considering the unemployment rate remains below 1989 levels. At 7.5 percent, it's just above the national rate of 6.9 percent and headed lower, according to Shelnutt.

* Per Capita Income

In 1990, Arkansas' per capita income equaled 77 percent of the national per capita. Shelnutt believes if farmers have a good year, Arkansas could approach 80 percent of the national per capita.

He says the state has a "decent chance to hit 85 percent" by the end of the decade.

Until the 1990 census is completed, per capita income figures will remain in flux. A loss of population tends to increase per capita income and can be misleading. Following the oil bust of the mid-1980s, Texas' per capita figures were inflated artificially as people left the state.

* Manufacturing

Arkansas' manufacturing wages have fallen during the past 10 years in real terms, while employment opportunities have increased steadily.

Employment levels are held up by three sectors - transportation, equipment and non-durable goods. However, there is a threat to the assembly-line jobs of those who produce durable goods, according to Shelnutt.

Arkansas' manufacturing growth has outpaced that of the United States, Mexico and Japan. Shelnutt forecasts 1991 growth of 1.3 percent and 1992 growth of 5.1 percent in manufacturing.

Durable goods jobs, down 0.8 percent in 1990 and 1 percent in 1991, are expected to make up the losses in 1992.

* Total Non-Agricultural


Buoyed by service jobs, Arkansas' non-agricultural employment continues to grow. The state's lead over the national growth rate is the widest it has been in at least 30 years.

U.S. employment levels fell for the first half of this year, compared with the first half of 1990. Meanwhile, Arkansas sported a 2.9 percent gain (26,500 jobs) for the first half of 1991, compared with the first half of 1990.

Even Texas, which practically avoided the recent recession, has begun to falter. The recovery came just in time for Texas to dodge new economic problems, Shelnutt says.

Arkansas' job growth in 1990 was 3.8 percent. Shelnutt predicts lower growth rates of 2.8 percent in 1991 and 3.6 percent in 1992.

Not surprisingly, the largest employment sectors - manufacturing, government, services and trade - have posted the largest gains this year. Service jobs have grown 50 percent.

Wholesale and retail trade employment remains stable with predicted 1991 growth of 2.4 percent.

As elsewhere, health services employment continues to grow. Arkansas' predicted health services growth for 1991 is 6.8 percent.

* Agricultural Employment

Arkansas' agricultural employment is lower than one might expect, accounting for 4 percent of the state's total employment.

Shelnutt says the sector "continues on a gradual fall" with the trend expected to continue.

* Existing Home Sales

Existing home sales have been down, but attractive interest rates should spark a recovery in 1992, according to Shelnutt.

He says there is a "psychological recession" that will make 1991 a down year.

But Shelnutt adds, "Look out for 1992."

As the nation's recovery continues, Arkansas' growth will slow and won't look as good in comparison, he says. But it's easier to continue on a positive track than to break out of a downward spiral, Shelnutt adds.

The economist believes consumer confidence will grow - cautiously.

Shelnutt's closing remark at the breakfast: "You can start spending again."

As if some of us needed encouragement.


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Title Annotation:economist John Shelnutt's predictions on Arkansas' economy
Author:Ford, Kelly
Publication:Arkansas Business
Date:Jul 29, 1991
Previous Article:Slaying the Arkansas dragon.
Next Article:Bank buy barometer.

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