UA economist Mervin Jebaraj provides direction on the state of the economy
by January 26, 2025 9:51 am 341 views
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Mervin Jebaraj, director of the Center of Business and Economic Research, addresses the state's economy during last year's Business Forecast Luncheon.
Jobs are growing, unemployment is low, gross domestic product is strong, and consumer spending is healthy. Arkansas’ economy is booming, right?
Yes and no.
That’s according to University of Arkansas economist Mervin Jebaraj, who is set to deliver remarks to more than 1,100 attendees at the 31st Annual Business Forecast that will be held midday on Friday, Jan. 31 at the Rogers Convention Center.
Walton Enterprises CEO Rupal Poltack will moderate a discussion of panelists that include Jebaraj; Dana Peterson, chief economist and leader of the Economy, Strategy & Finance Center at The Conference Board; and Sam Khater, vice president and chief economist of Freddie Mac’s Economic & Housing Research department. Jebaraj, Peterson and Khater will all give presentations from their local, state, national and international perspectives.
Jebaraj describes the Arkansas economy as a balance between the “have’s” and the “have not’s.” Right now, the “have’s” have more and are pulling the “have not’s” along for the ride, but there’s a concern that these pockets of prosperity need to grow.
“I think for most of 2024, broadly, the state economy has done well. And by that, when you look at the headline indicators, … we look pretty good,” Jebaraj tells the Northwest Arkansas Business Journal. “There are still parts of our state that are left behind from that growth, some that haven’t seen that growth in several years and that hasn’t changed.”
As he prepares to deliver his Arkansas-focused economic sermon, Jebaraj will rely on data to tell the story. He notes that state unemployment stands at near-historic lows below 3.5%. Arkansas employers added more than 20,000 jobs last year. The state’s gross domestic product (GDP) was a nation-leading 6.9% in the third quarter of 2024. And a study of sales tax collections – a good measurement of consumer spending – shows that state government has collected about 1.5% more above year ago levels.
But Jebaraj indicates that more than 12,000 of those new jobs – around 60% – were in central and Northwest Arkansas. There has been a burst of health care and construction jobs in central Arkansas, while manufacturing employment and education jobs in fast-growing Northwest Arkansas led the boom.
State GDP, which in recent years has been laggard due to agriculture’s low commodity prices, was greatly impacted by steel manufacturing in Northeast Arkansas and missile production in south Arkansas’ defense industry hub.
“So that’s where we’ve seen the growth in our state and that has helped the overall headline numbers, but that also means that we haven’t seen significant growth in some of our other metro areas around our state and in some of the more rural communities,” he said. “It takes a lot of bushels of corn or soybeans or whatever else to make up one airplane that comes off the manufacturing line in central Arkansas, or even a few different missiles that come off the manufacturing line in Camden. So those things just have a way higher dollar value, and we have invested significantly more in those activities.”
NATIONAL LANDSCAPE
January 2025 ushered in a second term for President Donald Trump, but it wasn’t consecutive. He inherits an economy that was guided by the policies of former President Joe Biden, who took over during the COVID-19 pandemic that ended Trump’s first term.
Inflation raged at the beginning of Biden’s term and the lingering effects were no doubt a major factor for Trump’s comeback.
Jebaraj offers an even analysis of where the economy was, what it’s been through, and where it may be headed.
“Judging by the outcome of the election, you might think that the economy is not doing great, and that was probably the reason for the political change in D.C., but that’s actually not the case. The economy has done well for the past two years,” said Jebaraj. “I would say this is maybe not as good as the economy that Bill Clinton passed to George W. Bush at the end of 2000 to 2001, but it is in several indicators sometimes about as good if not just a little bit under.”
The UA economist noted that U.S. GDP growth has been very close to 3% the last few years, which is the target that the Trump administration has set for his second term. After raging in 2021 and 2022, the headline inflation rate has dropped over the past year to consistently between 2.3% and 2.7%, closer to the Federal Reserve Bank’s targeted goal of 2%.
There was job growth during every month of the Biden administration with job additions averaging more than 180,000 per month after revisions, an unprecedented string of healthy labor data. Unemployment was as high as 14.8% during the COVID spike in Trump’s first term, but it dove as low as 3.5% a summer ago and stands at 4.1% today.
“I think this is a very healthy economy to pass from one administration to another, and it allows the new administration to work from a position of strength versus a position of weakness,” said Jebaraj.
TRUMP POLICIES
Trump 2.0 has promised several economic changes seen in the first administration. The new president wants to make a tax cut he passed permanent before it expires. He has threatened tall tariffs on nearly every country, even America’s two strongest trading partners, Canada and Mexico.
Immigration reform – which includes mass deportation, stringent visa programs, and changes to birthright citizenship – could be particularly disruptive to the U.S. labor force. Federal regulatory easing, which will be aided by Republican majorities in Congress, are likely to cut compliance expenses for many corporations. And, on the energy front, there are questions about what type of effect Trump’s “drill, baby, drill” policy will have on advancing the domestic economy.
Jebaraj sees the permanent tax cuts as a bit of a non-starter for changing economic conditions. They weren’t repealed during the Biden years and they’ve been a certainty for job creators as they’ve remained in place.
Energy markets occur in a global context and worldwide influences, which can change rapidly by Middle East players or a less-sanctioned Russia, could erase U.S. policy advantages quickly and easily. Chinese and Indian economic activity also impact energy markets.
Immigration and tariffs pose much more risk to the U.S. economy, according to Jebaraj.
“The challenges that we would have would be related to trade to a certain extent and some of the immigration issues. Some of the job growth that we’ve seen in the United States has come from larger-than-average immigration to the United States. That immigration level has already dropped off significantly from where it was in the early part of 2024, so there is some possibility that the job growth will not be nearly as strong because we’re not adding as many people to the workforce as we did in the previous years,” he said.
“Then compared to that, we’ve talked about some of the manufacturing growth in the United States. We’ve been exporting airplanes, steel products, and a lot of weapons systems. Any changes to any of those things would either increase or decrease the production of those items, and those could have employment and GDP impacts going forward as well. So a lot of this is just up in the air right now… there are still a lot of major policy changes being discussed, and we don’t have the outline for that yet,” added Jebaraj.
The business forecast on Jan. 31 will no doubt tackle more of this subject matter and offer multiple perspectives for participants to consider. The event is one of the largest regional and statewide draws of the year and offers a huge networking opportunity for business leaders to convene.
“It’s a great event,” noted Jebaraj. “A lot of people come together. It’s sort of a big business event where people really want to talk to each other more than they want to listen to the economists sometimes, but that’s fine.”
You can watch Jebaraj’s full interview in the video below.