Northwest Arkansas Has Lost its Immunity Card (Commentary by Jeff Collins)

The strength of the Northwest Arkansas economy can best be seen in the employment data over the last decade. It was the rapid job creation in the core employers of the region that enabled the explosion in retail, education and health care services. Invariably, if I was overly cautious as I spoke about the Northwest Arkansas economy in the early part of the decade, I would be chided by those who had become true believers in the Northwest Arkansas miracle. As it turns out, we are not immune to the worst recession since the Great Depression, even though we barely noticed the previous two recessions. The data tell the tale. The local economy actually grew above trend during the last recession. What is different this time?

First, the unprecedented depth and breadth of the current downturn is markedly different then other post-World War II recessions. In duration, the current downturn already exceeds the 1973-75 and 1981-82 recessions, both of which lasted 16 months. It is also notable that the current recession has the added drag of inhibiting mobility.

Declining real estate values and soft residential markets have significantly eroded the ability of Americans to pick-up and leave an underperforming region for better opportunities elsewhere.

Year-on-year job losses in the Northwest Arkansas area are estimated to be 2,400. The losses are concentrated but not limited to the goods producing sectors, natural resources, mining, construction, and manufacturing. The gaining sectors remain education and health, professional and business, and leisure and hospitality services.

There does appear to be evidence that the rate of decline at the national level is slowing. According to Fed Chairman Ben Bernanke in a speech on May 5:

“We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

Analyzing recent data from the U.S. Department of Labor, Bureau of Labor Statistics indicates monthly non-farm job losses seem to be slowing.

Any evidence of improvement at the national level must be heartening to local business and community leaders. The recovery when it comes will no doubt come too late for many. For example, the rate of foreclosure in Northwest Arkansas jumped substantially to 1 in every 89 households during the first quarter of the year.

The recent announcement of job losses at Wal-Mart corporate has shaken local confidence and many are asking if Northwest Arkansas is the same place they knew. As the economy recovers our growth rate is likely to be noticeably better then surrounding areas revitalizing confidence in the business community. However, the belief that the Northwest Arkansas economy is immune to the ebb and flow of national and perhaps international economic tides has surely been shattered.

(Jeff Collins, Ph.D., is an economist and partner in Fayetteville’s Streetsmart NWA, which produces a quarterly report on real estate in Northwest Arkansas. For more information, call 479-575-9100.)