A CLOSER LOOK: Arkansas’ COVID-19 economic impacts

A Closer Look

Economic contraction ... or recession? Either way, it's due to the pandemic

ARKANSAS (KNWA/KFTA) — The Commerce Department will release the gross domestic product (GDP) report on Thursday morning, July 30, which measures goods and services that are produced in the country.

The report by the Bureau of Economic Analysis (BEA) will also update the first quarter of 2020 GDP estimates.

U.S. Bureau of Economic Analysis

The first quarter of 2020 showed GDP decreases in all states and the District of Columbia.

The 2020 Q1 estimates of GDP by state were impacted by the response to the spread of COVID-19, as governments issued “stay-at-home” orders. 

In the southeast region, Arkansas’ GDP in Q1 2019 was at 1.6 and in Q1 2020 it was -5.0. All 12 southeast states were in the negative for Q1 2020, and Louisiana was the highest with -6.6.

ARKANSAS UNEMPLOYMENT

The Arkansas Division of Workforce Services Labor Statistics, June 2020

  • Unemployed: 105,338
  • Unemployment rate: 8%
  • Arkansas labor force: 1.312 million
  • Employment: 1.2 million

U.S. Labor Statistics, June 2020

  • Unemployed: 17.7 million
  • Unemployment rate: 11.1%
  • U.S. labor force: 1.6 million
  • Employment: 142 million

The CARES Act (Coronavirus Aid, Relief, and Economic Security) temporarily expanded unemployment insurance to help people financially impacted by COVID-19 — Pandemic Emergency Unemployment Compensation (PEUC) and the Pandemic Unemployment Assistance (PUA) program.

  • PEUC: Provides an additional 13 weeks of benefits for individuals who have exhausted their regular unemployment insurance claims
  • PUA: Provides financial assistance to self-employed individuals who are not eligible through the regular unemployment insurance program.

The Federal Pandemic Unemployment Compensation (FPUC) program provided an extra $600 beginning from the week ending April 4, 2020, through the week ending July 25, 2020. FPUC expires on July 31.

Negotiations are underway whether to extend the unemployment benefit by Republicans, Democrats, and the White House.

Two programs have been introduced:

  • In May, House Democrats passed the HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act). HEROES would keep the $600 benefit through January 2021. The Committee for a Responsible Federal Budget reports it would $437 billion to expand the benefit.
  • In July, Senate Republicans introduced several bills under the HEALS Act (Health, Economic Assistance, Liability Protection, and Schools). HEALS would pay a weekly benefit of $200 through September 2020. After September, a federal unemployment payment would kick in. As of Wednesday, July 29, the cost of the measure had not been disclosed.

Republicans criticize the HEROES Act because some say people are paid more while unemployed than they earned while working.

Democrats approve the payment because some say the additional money also helps the broader economy.

The Century Foundation, a nonprofit think tank, reports, in Arkansas, a total of 168,188 workers would be impacted if the $600 is cut, that figure is from July 11. The per week impact would be nearly $101 million.

KNWA/FOX24 asked the University of Arkansas Center for Business and Economic Research Director Mervin Jebaraj about some key economic factors: employment benefits, retail, and housing sales.

$600 UI BENEFIT, HELP OR HURT THE ECONOMY?

So far, there is no evidence that the $600 boost to UI (unemployment insurance) benefits have negatively affected the economy. In fact, because these jobs have not returned to pre-crisis levels, it is an important source of income to those households who have lost jobs due to the pandemic. The extra money has also boosted spending from these households which is making up from a drop in spending from high-income households. The studies conducted so far, show that the $600 boost has not affected incentives to work and that people are indeed giving up the UI boost and returning to lower-paid work when called back by their firms.

— Mervin Jebaraj

ARKANSAS RETAIL SALES

The tax-free weekend is coming up. Is this a pro or con for the state?

Sales tax holidays across the board are not good economic policy. If the state wishes to help low-income households pay for school supplies, it would be more cost-effective to simply provide a grant to those households.

— Mervin Jebaraj

ARKANSAS HOUSING SALES, MORTGAGE RATES

Mortgage rates have dropped because of the pandemic. “Rates on fixed-rate mortgages and home equity lines of credit have fallen since the Fed pledged to buy billions of dollars’ worth of mortgage-backed securities and cut short-term rates,” according to the finance company NerdWallet. Does reducing interest rate help with sales … even with a pandemic? 

In Northwest Arkansas, home prices have continued to climb and homes sales are increasing this year, albeit at a slower pace than last year. It looks like the slower increase in the number of homes sold has more to do with the lack of inventory (i.e. homes available for sale) than the pandemic.

— Mervin Jebaraj

FOR MORE FEATURE STORIES VISIT KNWA’S “A CLOSER LOOK” PAGE!

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