State output, growth expected to slow

Gains in manufacturing are helping lift the Arkansas economy and companies in the sector are confident the improvements will continue through the Christmas holiday season and into the first quarter of 2022.

However, manufacturing production and overall economic growth is expected to slow over the next 12 months, according to two recent economic reports on Arkansas and the surrounding region.

The Federal Reserve Bank’s Beige Book report, released Tuesday, says “economic conditions have shown modest improvement” through mid-November. Though a report issued two weeks ago by Creighton University cited Arkansas as one of two states in the region that registered a decline in business conditions.

The Creighton study noted a slight dip in overall confidence while the Fed found that consumer spending continues to spark economic growth.

“We have seen some strong consumer demand across the region and in Arkansas as well,” Nathan Jefferson, a regional economist with the Federal Reserve in St. Louis, said Tuesday.

That pace will slacken later next year, Jefferson said. “We are in a better place than we were at this time a year ago but the pace will slow a little bit going forward,” he said. “We anticipate growth to be slower in Arkansas in 2022 than in 2021.”

Nevertheless, both the Fed report and the Creighton survey noted that the manufacturing sector is a highlight for the state.

Manufacturing gains in Arkansas lead the nine-state region in Creighton’s Mid

America business conditions index. “Over the past 12 months, according to U.S. Bureau of Labor Statistics, Arkansas manufacturing employment expanded by 4.8%, tops in the region, with a gain in average hourly wages of 4.1%, fifth in the region,” Ernie Goss, the university economist who conducts the report, said in a statement.

The Fed’s Beige Book also recorded boosts in manufacturing activity. Manufacturers “expect strong increases in production, capacity utilization and new orders in the coming quarter,” the report said, referring to the first three months of next year.

“We’ve seen some strong manufacturing activity and the manufacturers that we talk to in Arkansas are reporting moderate upticks in production,” Jefferson said. “Even though new orders are slowing a little bit, these firms are still seeing strong activity.”

The most recent statewide unemployment report showed Arkansas gained 900 manufacturing jobs from September to October and added 7,000 manufacturing workers year-over-year, from October 2020 to October 2021.

Two issues should weaken overall economic momentum next year: supply-chain disruptions and hiring difficulties, the Fed predicts.

The Fed study found two examples in Arkansas related to both issues. A car dealer in the state expects the computer-chip shortage to continue into 2022 and drag down sales. On the job front, a pizzeria in the state said it has raised wages to $21 per hour to entice delivery drivers and still has trouble hiring employees. “The contacts that we talk to expect to continue to be dealing with these issues in 2022,” Jefferson said.

The Beige Book provides a summary of national economic activity, broken into regional reports, for key sectors of the economy such as employment and wages, prices, consumer spending and manufacturing activity among others. Information was compiled through midNovember from sources that include businesses, community organizations, economists and market experts.

Arkansas is part of the St. Louis district, which also includes parts of Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The Creighton University study includes Arkansas with those states and adds Kansas and Nebraska. The Creighton study was conducted throughout October.

Like the Fed, the Creighton report predicts an economic slowdown next year, fueled by supply-chain troubles.

“Creighton’s monthly survey results indicate the region is adding manufacturing business activity at a positive pace, and that regional growth will remain solid, but somewhat slower,” the economist Goss said. “Almost one-third of supply managers reported that inventory stockpiling has contributed significantly to supply chain bottlenecks.”