Steel, Lithium Industries Promise Economic Impact

Pictured above: A Standard Lithium bromine tower in El Dorado hints at big things to come in south Arkansas. (Photos provided)

In a nutshell, more of the same is what Arkansans can expect of the state’s economy in 2024. The economic trends that emerged at the close of 2023 are likely to continue in the new calendar year, according to the state’s leading economists.

Michael Pakko, chief economist and state economic forecaster for the Arkansas Economic Development Institute at the University of Arkansas at Little Rock, said he believes the state will continue to see slower growth in employment but not enough to result in a sustained recession.

Michael Pakko

“The trends in key economic variables started to weaken toward the end of 2023 and into the beginning of this year,” he said. “This was not unexpected. The [Federal Reserve’s] move toward higher interest rates in 2022 was bound to have some impact on growth, and while that impact is observable in certain sectors, the effect on aggregate economic activity has been less than many economists feared.”

Inflation was down year over year to 3.1 percent in January following a 2022 peak of 9.1 percent. Pakko, however, forecasted only gradual progress toward the Federal Reserve’s target rate of 2 percent.

“I anticipate that the pace of interest rate reductions will accordingly be slower than many other economists seem to be expecting,” he said. “Meanwhile, the pace of employment growth has slowed. For the U.S., annual growth rates for nonfarm payrolls declined from a range of 3.5 percent to 4 percent in 2022 to less than 2 percent in the second half of 2023. The national unemployment rate edged higher over the second half of 2023, as well, rising from 3.4 percent to 3.7 percent.”

Pakko said he sees similar patterns in the data for employment and unemployment in Arkansas with employment growth slowing and unemployment rates edging higher in late 2023.

“The state data for 2023 will be revised in March, so that might give us a slightly different picture, but I expect the overall patterns to be similar to what we’re seeing now,” he said.

Despite a moderation of growth evident in the state’s labor markets, Arkansas remains in “relatively good shape,” he said. Pakko attributed weakening labor markets in Arkansas and across the U.S. to declines in the number of job openings, rather than the number of jobs.

“Vacancy rates remain elevated, so there is still room for that channel to continue to absorb potential job losses — that is, firms are cutting back on hiring plans, not workers. In Arkansas, the job openings rate has consistently remained even higher than the national average,” he said. “In the state GDP and personal income reports, Arkansas registered relatively weak growth rates in the latter part of 2023, but much of the slowdown was in the volatile farm income components, which can be affected by fluctuations in commodity prices. More broadly, economic growth has continued.”

Mervin Jebaraj, director of the Center for Business and Economic Research at the Sam W. Walton College of Business at the University of Arkansas in Fayetteville, said he expects job growth in Arkansas to mostly mirror national growth but grow at a slower pace in 2024.

Mervin Jebaraj

He forecasted continued job growth in the state’s two major metropolitan areas, central and northwest Arkansas, as well as modest growth in smaller markets such as Fort Smith, Jonesboro and Hot Springs.

Arkansas may soon be home to a pair of industry clusters, which Pakko described as regional economies of scale and
agglomeration that drive the development of a primary industry, along with local growth in businesses that supply and support it. Mississippi County is now considered the largest steel-producing county in the country, according to state and U.S. steel officials, and the potential lithium play in south Arkansas has energy industry officials buzzing.

“The ongoing expansion of the steel industry in northeast Arkansas continues to be a source of growth, particularly in Mississippi County,” Pakko said. “The impact of the steel industry spreads well beyond Mississippi County, but it is nice to be able to say that Arkansas has the No. 1 steel-producing county in the nation.”

The existing industry cluster in Mississippi County delivers on its potential for economic impact. Since acquiring Big River Steel in 2021, U.S. Steel has begun construction on a second mill. In fiscal year 2022 alone, the company’s Arkansas endeavors generated an estimated $383.2 million in total economic impact, supported roughly 1,750 jobs, contributed $16.3 million in state and local tax revenue, and worked with 187 Arkansas-based suppliers, the Arkansas Economic Development Commission states.

A galvanized steel roller at Big River Steel in Mississippi County represents the size of the industry’s economic impact.

The second mill is expected to provide a construction impact of $5.2 billion, and $3 billion in direct spending in the state is expected over four years. Last year, the newly formed Hybar announced plans to build a high-tech steel rebar mill on 1,300 acres in Mississippi County, creating 200 high-paying jobs.

Jebaraj said private and public officials are doing all they can to train and deliver the workforce required to meet the demands of the burgeoning steel industry, but Arkansas still has work to do.

“Certainly, when we made the investment way back to provide the incentives to get the steel industry here, we couldn’t have expected this much growth,” he said, adding that many of the region’s steel workers still commute from the Memphis area or even the Missouri bootheel. “The key is getting them there and keeping them there, and it will require investments in communities that will help incentivize those commuting workers to want to live there too.”

Pakko said recent and planned expansions suggest strong growth in the steel industry and confidence from industry officials that the state will be able to supply the necessary workforce and meet its needs. In November 2022, ground was broken on a $30 million housing development in Osceola intended to help bolster local housing options for steel workers.

“It can be a powerful engine of economic growth for a region as long as it doesn’t outpace the availability of specialized labor and capital,” he said.

Jebaraj said the impact of the potential lithium play in south Arkansas holds promise but cannot yet be quantified.

“Given the scale of investment, I expect to see some positive impact down the line, but possibly up to four years out,” he said.

Pakko agreed that it is too early to forecast an economic impact but said the potential for lithium production in south Arkansas is big.

“All of the exploration and demonstration projects seem to be going exceptionally well, and I expect that we will begin seeing more rapid progress toward commercial-level production in coming years,” he said. “The development of this new industry is likely to require large investments in infrastructure and production facilities, and the impact of construction projects alone is likely to have a notable impact on regional economic activity. A number of firms have expressed interest in developing lithium operations in the region, possibly foreshadowing the growth of an industry cluster in southwest Arkansas.”