Arkansas? Economic Outlook (Jeff Hankins Commentary)

Economists are often like weather forecasters when making their predictions, what with their cautious optimism and multiple “if” scenarios.
As I try to wrap up our company’s 2007 budget, I’ll admit that I may be no different. I just don’t have quite so many variables to consider.
Arkansas tax revenue continues to strongly outpace budget projections that were developed two years ago, and that’s a pretty good gauge for what’s happening with the state’s economy. I continue to think the biggest flaw in the state’s system of convening the Legislature only every other year is the budgeting challenge. I can’t imagine trying to budget two years out in the rapidly changing publishing and marketing environment.
Recent economic forecasts presented in Little Rock, Jonesboro and Northwest Arkansas by the University of Arkansas at Little Rock, the University of Arkansas and Arkansas State University gave us some multifaceted views.
As we all do final “gut checks” with our numbers, here are some factors to consider that may or may not affect your particular business:
Housing is a major factor, particularly for Northwest Arkansas and Little Rock. Northwest was overbuilt with speculative construction. West Little Rock is experiencing the same situation but to a lesser extent, and one real estate agent told me the high-end market is the worst she’s seen in nearly 30 years.
The best news for housing is that interest rates remain in a healthy 6 percent range. Buying a house remains incredibly affordable.
It was nice to hear independent validation that the Fayetteville Shale development is indeed going to be a major economic development for the state to the tune of more than $1 billion. Dan Pickering of Pickering Energy Partners in Houston used the words “early,” “promising,” “growing” and “significant” to describe the natural gas exploration and drilling activity across a 12-county area stretching from Johnson to St. Francis counties.
Thousands of jobs, royalty income and property values — along with associated taxes on all counts — will translate to positive benefits for that region and the rest of the state.
The commercial construction industry is running strong with solid pipelines for 2007. Continued statewide construction in secondary education plus another $150 million in higher education projects that will move forward as a result of passage of the bond issue will keep this sector strong. Health care-related construction continues to boom as well.
Inflation is expected to remain low, particularly if oil prices remain stable. T. Boone Pickens, the billionaire oil tycoon who spoke at the Little Rock Regional Chamber of Commerce annual meeting last week, offered a pessimistic view that oil would return to $70 a barrel in 2007. Other forecasters differ. Trying to forecast what will happen in the Middle East is almost impossible.
How disappointing is Wal-Mart Stores Inc.’s fourth-quarter performance? I’m not so certain that it’s the sure-fire barometer on retail sales that everyone makes it out to be, considering a lot of other retailers are reporting improvements in sales. The world’s largest retailer has more and more competition that’s outperforming it.
Arkansas needs Wal-Mart to do well for any number of reasons, but particularly for the Northwest Arkansas economy. CEO Lee Scott and his team haven’t been able to find the right formula for growth, and it’s worth watching whether the Walton family and investors have lost their patience after years of stagnant share value.
The unemployment rate in Arkansas may not improve much because of the continued loss of manufacturing jobs. The bad news is in the blue-collar sector. In the white-collar sector, the labor market is tight — from health care to technology to sales. This is why personal income growth is expected to rise between 3 percent and 3.5 percent next year.
(Jeff Hankins can be reached via e-mail at [email protected] or via his blog at www.arkansasbusiness.com/jeff.)