Regional Employment Key to Growth Market (Market Forecast by Jeff Collins)

I have spent the last eight years measuring, in one way or another, various aspects of the Northwest Arkansas economy. Studies I have been involved in have required the determination of all sorts of statistics, from the shortage of bilingual nurses to the number of residential lots. Of the myriad of things folks would like to know about our region, several questions continually get asked.

The most frequently asked question is, “how many people move here a month?”

The answer to this question has varied over the last several years as growth accelerated, peaking in 2005 and then retrenched a bit. Currently, a rough and ready figure is about 1,000 a month. This is about the monthly estimated population increase for the Fayetteville/Springdale/Rogers Metropolitan Statistical Area from the U.S. Bureau of the Census for the six-year period 2000-2006. Importantly, this is the net population change. Of course knowing how many people move into the region is only one aspect of the ongoing demographic change that is affecting Northwest Arkansas. I am also often asked where immigrants to Northwest Arkansas come from. How many are Hispanic? Where do they find employment? What sort of incomes do they earn?

With regard to where immigrants originate, there is no data set or method short of surveying the population to determine this information. The other questions can be at best partially answered. About 6,200 net new jobs were created from September 2006 to September 2007. These jobs ranged across a variety of economic sectors but tend to be concentrated in services.

It wouldn’t surprise most observers that a large number of retail trade jobs have been created with the growth in the retail sector. In addition, business and professional services have had and continue to show strong growth. Moreover, I expect to see stronger growth moving forward in the health and education sector as new health care facilities are added to the existing infrastructure.

What is unfortunate is the slow decline of manufacturing. This is notable because manufacturing jobs, on average, pay relatively higher wages. Manufacturing employment also diversifies the local employment portfolio.

Another statistic I get asked for frequently is how long till the residential real estate market hits bottom? My first thought is, what do you mean by bottom? Is it the point at which the net absorption of newly constructed houses is positive? If so, the bottom was reached maybe one or two quarters ago. Currently, very little new housing inventory is being added. What inventory exists is being absorbed. What we do not see is any substantial construction activity. Finally, even though year-over-year sales of new homes are up, total sales are down. The existing housing market has not bottomed. Taken together, I could not say the bottom of the market has been reached. Finally, the data indicate that price has not stabilized.

The local market is also being affected by the national market. Given most economists are predicting a slow 2008, the local economy and therefore the local real estate market is likely to suffer. My forecast for the residential market is 2008 will probably look similar to 2007. The next two quarters are likely to be very slow. By the second quarter of 2008, activity will begin to pick up and remain reasonable through September.

The last question I’m often asked that bears comment is how many months of residential lots are on the ground. The first point I would make is that there are differing ways to measure this. Some researchers look strictly at the number of lots in subdivisions where building activity has taken place. This tends to understate the total number of lots as it fails to take into account lots in active subdivisions that have been approved and are ready for sale but are in subdivisions that have yet to see any construction activity. If all lots that have been approved and could be sold were to be included, rather than four years of inventory the total for the region is closer to six years.

That said, it might also be a useful exercise to rate the lots that are currently for sale based on the likelihood of their timely absorption. That is, not all lots are created equal. Subdivisions that are relatively far from the Interstate 540 corridor and far from amenities such as retail shops or schools are less likely to be absorbed quickly than are lots in subdivisions with superior locations. Moreover, lots in subdivisions where very little if any building activity has taken place are also less likely to be absorbed quickly. Obviously, pulling the low probability lots out of the calculation of total months of inventory improves the outlook.

In the end the most important statistic to me remains the ability of the region to create employment. No matter how much housing or commercial space is currently available, strong job growth solves many if not all of our regional woes.

The growth rate as indicated by the six month moving average trend line implies job creation in the area may actually be accelerating. This is good news and further indication that the outlook for the long-term growth of Northwest Arkansas is positive, any way you measure it.