MONTICELLO – A federal Bureau of Economic Analysis report showing Arkansas having the nation’s fastest growing gross domestic product has led to some head-scratching among economists, but there’s little doubt that forestry is an upward mover in the state’s economy, said economist Matthew Pelkki.
Pelkki, is associate director of the Arkansas Forest Resources Center and professor within the University of Arkansas System Division of Agriculture and is based at the University of Arkansas at Monticello. Pelkki is also the George H. Clippert Endowed Chair within UAM’s School of Forestry and Natural Resources.
The report, released on Wednesday, covers the 2016 first quarter. It defines the gross domestic product of a state as the market value of goods and services produced by the labor and property located in a state.
Arkansas’ first quarter GDP grew by 3.9 percent, the report said, powered by a 2.21 percent rise in agriculture, forestry, fishing and hunting. Other areas showing growth in Arkansas were the information sector, up .48 percent; retail trade, up .45 percent; construction up .28 percent; non-durable goods manufacturing up .26 percent; and finance and insurance, up .04 percent.
There were contractions in mining and durable goods manufacturing, both down .16 percent; utilities, down .17 percent; and transportation and warehousing down. 25 percent.
Driving growth were the needs of an expanding housing market for flooring, cabinetry and framing, as well as rising demand for consumer products, along with its need for more packaging and pallets for shipping.
This growth is no small thing in a state whose economy is four times more dependent on the forestry industry than the United States as a whole. “So when the economy for wood products improves, Arkansas gets a real economic boost,” Pelkki said.
If Arkansas’s gross state product is roughly $130 billion, a 3.9 percent annual rate for the first quarter would mean about a $1.3 billion actual rise in its first quarter GDP.
“Two major costs of wood products production —timber and energy -- remain at record lows,” he said. “Wood as an industrial material has cost advantages due to steady low prices and availability and wood use is growing again in the USA.”
Labor is another factor.
“The third major cost, labor, has also become readily available to forest industries as the production of natural gas in Arkansas has declined and many workers laid off in that industry have moved to forestry,” he said.
In the last two years, there has been significant investment in Arkansas's sawmills and paper mills. Pelkki said that investment is paying off with lower costs of production.
“Some of that reinvestment is ongoing, some of that has been completed,” he said. “When reinvestment is completed, those funds are no longer counting against a sector’s GDP, and of course, the improvements from reinvestment usually mean greater productivity as well.”
Forestry’s resurgence has been rolling for a few years, according to economic impact data calculated through IMPLAN, a data modeling product.
“If you look at the IMPLAN data for 2012 to 2014, the pulp and paper sector in Arkansas had a negative GDP of about $700 million dollars, even though output largely remained steady,” Pelkki said. “If in 2016 Arkansas’s paper industry just rebounds to 2012 levels, you have 50 percent of the expected GDP growth for 1Q 2016 as reported by BEA.
“The logging and solid wood products side has been steadily improving since 2010, even the 2012-2014 IMPLAN data shows strong recovery in those sub-sectors,” he said.
Several economists looking at the agriculture information questioned the report in other media outlets. One extension agricultural economist was quoted saying he thought the GDP estimate would eventually be shown to be wrong.