If the Northwest Arkansas economy was a professional sports athlete, most folks would think it necessary to test for steroids or some other performance enhancing drug.
But it’s all natural — if you consider it natural for a relatively small metro area to be home to the world’s largest retailer, one of the world’s largest food companies, one of the world’s largest transportation and logistics operators, and a state’s flagship university.
Job growth in the region fell following the 2008 national financial crisis, as it did in most of the country. The number of employed was 215,826 in January 2008, with job numbers falling to a low of 205,106 in January 2010. But the climb has been steady after 2010. The region added 3,326 jobs in 2012, and 7,554 jobs in 2013, according to the U.S. Bureau of Labor Statistics.
Then came 2014 and 2015, when the region added an impressive 17,865 jobs and 19,091 jobs, respectively. But doubts about the growth trend and worries about another bubble emerged in 2016 when the region fell back to 8,419 jobs added.
2017 has put doubts and worries on hold.
In the first five months of the year, the region added 15,037 jobs, growing from 253,354 jobs in January to a record 268,391 jobs in May. The region is on pace to set a new record for annual job growth despite more than 1,000 job cuts by Wal-Mart Stores during the early months of 2017.
Other economic indicators in 2017 are just as impressive.
Sales tax revenue — a sign of consumer confidence — in Bentonville, Fayetteville, Springdale and Rogers for the first four months of 2017 totaled $32.488 million, up 7.3% compared with the $30.279 million in the same period of 2016.
For the first four months of 2017, hospitality tax collections are up 7.5% in Bentonville, up 9.6% in Fayetteville, up 17.6% in Rogers and up 10.19% in Springdale.
Residential permit values in Bentonville, Fayetteville, Rogers and Springdale from January through May totaled $193.63 million, up 7.2% compared to $180.61 million from the same period a year ago. The increase is 31.6% when compared to the same period of 2015.
In Benton and Washington counties there were 3,802 homes sold between January and May, ahead of the 3,576 homes sold in the same period of 2016. The value of those homes sold for the first five months of 2017 was $825.2 million, up almost 10% compared to $752.3 million during the same period of 2016. The median home price in Benton County in May was $193,500, up 4.65% from a year ago. The median home price in Washington County was $178,440 in May, up 2% from a year ago.
But will the growth continue? Is there a danger of another bubble, especially in the region’s red-hot housing market?
Yes. Yes. And yes. No. No. And no.
Those are the answers from Jeff Collins, an economist with Talk Business & Politics-Northwest Arkansas Business Journal, and former director of the Sam M. Walton College of Business Center for Business and Economic Research (CBER) at the University of Arkansas; Mike Harvey, chief operating officer of the Northwest Arkansas Council; and Mervin Jebaraj, interim director of the CBER.
“The last recession was driven by the housing bubble, and I don’t see that imbalance of supply and demand out there at this point,” Harvey said. “I think [home] prices are rising faster than they need to, but hopefully the market will provide some discipline before that gets out of hand. This recovery has better balance.”
Collins agreed with Harvey’s point about prices.
“What we are seeing is rising prices for residential real estate, whether that is for empty lots or finished construction. … [T]he area around the Bentonville Square is perhaps the most emblematic of what is occurring in Northwest Arkansas real estate with prices being quoted above $300 per square foot and tear downs of existing homes for new construction.”
Jebaraj said rising jobs numbers are driving the housing industry, not speculation.
“The low unemployment rate and growing labor force and population in Northwest Arkansas means that people continue to find jobs in this area.
“On the real estate side, Northwest Arkansas is not seeing anything like the build-up of housing inventory that was present before the Great Recession, and new housing coming on the market is being steadily absorbed,” he said.
The labor force is growing, especially when compared to the central Arkansas metro area, which has posted moderate growth in recent years. In January 2005, Northwest Arkansas’ labor force was 65% the size of the central Arkansas metro. In January 2015 the labor force grew to almost 72% of that in central Arkansas, and by January 2017 the Northwest Arkansas labor force was 76% of that in central Arkansas.
“What will happen over the next eight years depends on many factors outside the control of local policymakers and business leaders, but barring something unexpected, I would anticipate the local economy being roughly 85% to 90% of the central Arkansas economy,” Collins told the Business Journal.
Most of the job growth is coming from four sectors: professional and business services (everything from attorneys to janitors); trade, transportation and utilities; leisure and hospitality (tourism and business travel); and education and health services.
Between May 2017 and May 2010, professional and business services grew from 33,900 jobs to 53,200 jobs, up 56.9%. During the same period, trade, transportation and utilities sector job growth grew from 44,300 jobs to 56,700 jobs, up 27.9%. Tourism industry jobs in the seven-year period grew from 18,600 jobs to 26,300 jobs, up 41.3%. Education and health services jobs grew from 22,000 jobs in May 2010 to 28,100 jobs in May 2017, up almost 28%.
AVOIDING LABOR PAINS
The oft-cited concern for future economic growth is the ability to recruit and retain a workforce able to meet the demands of the large corporations and new entrepreneurial businesses that fuel the region’s economy.
“With the unemployment rate as low as it is, Northwest Arkansas cannot continue to grow unless we are able to recruit and retain the best workers,” Jebaraj noted. “As such, cities in the region, along with philanthropic organizations have made improving the amenities in Northwest Arkansas a top priority.”
He said more investment is needed in transportation, transit and affordable housing “to make sure the region can continue to recruit and retain younger workers who expect to have these amenities.”
A focus on workforce training and recruitment is one of the top priorities of the Northwest Arkansas Council.
“If our employers are unable to develop, recruit, and retain the people they need, that work will go elsewhere,” Harvey said. “I believe that this is the challenge of our time.”
Collins is optimistic the challenge will be met.
“There have been significant efforts to develop messaging and programs by large companies in the area to recruit talent. It helps that quality of life is very good in the region and improving,” Collins said. “Bottom-line, I think the region will continue to attract and retain talent. Quick anecdote: I was recently at a restaurant on the Bentonville Square eating dinner, and I could not help but notice how many people were out and more surprising how diverse they were; Indian, Asian, young people with tattoos and piercings, hipsters, young families, retirees, etc. It was absolutely incredible.”
If the labor challenge is met, what will be the status of the Northwest Arkansas economy in 2025?
Jebaraj has a policy of not making long-term economic predictions.
“There are simply too many variables to make that prediction. However, I do think that Northwest Arkansas needs to continue its vibrant entrepreneurship efforts to make sure that we add to the Fortune 500 companies that call this region home,” he said.
Harvey hopes the region’s educational institutions continue to work with the business community and “support business formation through commercialization of research and tech transfer.” He also is confident the region is moving beyond being entirely dependent on a few corporations.
“I think this region has reached a point in its history that growth is on a new trajectory. It seems like it’s now creating its own momentum because of the critical mass of talent and support services in its economic pillars. If this continues, I think we stand out among a small number of mid-sized metros in the U.S. as a region that got here on a diversified economy that hasn’t been dependent on a larger metro, retirees, or the energy boom.”