The Compass report indicates further economic decline in the metro area

The second quarter of 2009 saw Fort Smith regional economic conditions worsen thanks to declining sales tax collections and rising unemployment, according to the The Compass report — the only comprehensive economic analysis of the Fort Smith metropolitan area.

Funded and managed by The City Wire, The Compass is a quarterly regional economic report with data collection and analysis handled by Jeff Collins, a nationally respected economist based in Springdale and co-founder of Streetsmart Data Services.

The overall grade for the first quarter of 2009, based on eight sets of data and Collins’ analysis of the information, is a D-. The grade means that relative to the region’s historic economic performance, the second quarter of 2009 saw economic decline, and saw decline compared to the first quarter of 2009. The first quarter of 2009 was given an overall grade of D+.

“The overall position of the Fort Smith economy is unlikely to improve until real momentum is regained by the national economy,” Collins noted in his analysis of the numbers. “While the overall grade is marginally worse than the last quarter, the conclusion to be drawn is the economy is more likely at the bottom than continuing to slide. The mixed economic news being released at the national level implies we are probably at the murky bottom.”

Collins cited tax collections and unemployment rate increases for the relative decline in the health of the regional economy during the second quarter of 2009. However, Collins reminded that all 372 U.S. metro areas saw unemployment rate increases in June 2009.

“It is important to note that although the unemployment rate is relatively high (7.8%), the national rate is 9.4%. Moreover, 31 states have rates that are higher than the Fort Smith metro, and unemployment rates were higher in June than a year earlier in all 372 metropolitan areas,” Collins said.

Joe Edwards, president and CEO of Fort Smith-based Benefit Bank, said The Compass report findings may be painful, but the report is a necessary tool. Benefit Bank is the Presenting Sponsor of The Compass.

“While we don't like the information (grades), we know it is always good to know the truth about our regional economy,” Edwards said. “We realize everyone is working hard to change this trend, and encourage each of you to stay in the battle.”

Joining to support The Compass as Participating Sponsors are Cox Communications and the Fort Smith Regional Chamber of Commerce.

“We recognize that the key to a strong and vibrant Fort Smith is based on many of the indicators found in this quarterly assessment. Assisting in the growth and success of our system's largest Arkansas community is important in staying true to our ‘Trusted Provider’ namesake,” said Cox spokesman Len Pitcock.

UNDERSTANDING THE COMPASS
A key factor in understanding The Compass is in understanding the “grading” approach used to measure the current and leading economic indicators. The strategy is to place the most recent data in historical context. Average values for the percent change over the referenced time period were calculated, as were standard deviations for each measure.

The more similar current values are to historic averages the more likely the indicator grade is to be a “C.” The farther away the observed value, as measured by the standard deviation of the data, the more divergent the grade from “C.”

In other words, “C” reflects no change in economic activity. The grades “B” or “A” indicate improvement above the historical average, and “D” and “F” indicate a decline in economic activity compared to the historical average.

CURRENT INDICATORS
Determining the current position of the area economy depends on reading the relative performance of the area economy based on the current indicators. Data for the period 2005 to the second quarter of 2009 are used to provide historical reference points for current data. Using the grading scale for each indicator, the current position of the economy is as follows:

• Change in non-farm employment: D
Unfortunate but not a surprise, non-farm employment continued to show weakness, with employment in the metro area at 123,800 in June compared to 125,500 in June 2009.

• Change in metro area unemployment rate: F
The area unemployment rate, an important gauge in the health of the metro labor market, showed dramatic increases in the quarter compared to the 2008 quarter. Unemployment in June was estimated at 7.8%, considerably higher than the 4.9% in June 2008.

• Change in sales and use tax collections: D-
Sales tax collections in the region and the city of Fort Smith began to show weakness in the first quarter of 2009 and that weakness continued into the second quarter. The tax collections, which are good indicator of regional consumer confidence, were down in Crawford, Franklin, Logan and Sebastian counties.

• Change in goods-producing employment: B-
In what is initially a counterintuitive concept, the decrease in manufacturing jobs as a percentage of the overall workforce is a good thing — however painful it might be in the process — in that it helps diversify the economy. The percentage of manufacturing jobs in the overall workforce was 27.3% in June 2008, but up 27.6% in June 2009.

LEADING INDICATORS
Leading indicators provide insight into the near-term direction of the local economy. Economic figures for the period 2005 to the second quarter of 2009 are used to provide reference points for current data. Using the grading scale for each indicator, the near-term position of the area economy is as follows:

• Change in building permit valuation: C
The total value of permits issued in the quarter (measured in a three-month rolling average) were lower than those in the second quarter of 2008. However, the indicator is one of the bright spots in the regional economy.

• Change in construction employment: D
The sector, which includes mining/natural resources employment, showed minor employment decreases but not enough to lower the sector grade from the first quarter.

• Change in manufacturing employment: D
The big story continues to be the decline in manufacturing employment in the Fort Smith region. Sector employment in June 2009 was 22,600, down 2,600 jobs from June 2008 employment of 25,200,

• Change in hospitality employment: D-
After being relatively stable for several quarters, employment in the second quarter of 2009 began to dip compared to the same period in 2008.

COMPARATIVE CHANGES
Grade change comparisons between the first and second quarters of 2009

OVERALL GRADE
2Q 2009 — Overall grade for the Fort Smith regional economy: D-
1Q 2009 — Overall grade for the Fort Smith regional economy: D

• Current Indicators
2Q 2009 — Change in non-farm employment: D
1Q 2009 — Change in non-farm employment: D-

2Q 2009 — Change in metro area unemployment rate: F
1Q 2009 — Change in metro area unemployment rate: F

2Q 2009 — Change in sales and use tax collections: D-
1Q 2009 — Change in sales and use tax collections: C-

2Q 2009 — Change in goods-producing employment: B-
1Q 2009 — Change in goods-producing employment: B

• Leading Indicators
2Q 2009 — Change in building permit valuation: C
1Q 2009 — Change in building permit valuation: B

2Q 2009 — Change in construction employment: D
1Q 2009 — Change in construction employment: D

2Q 2009 — Change in manufacturing employment: D
1Q 2009 — Change in manufacturing employment: D

2Q 2009 — Change in hospitality employment: D-
1Q 2009 — Change in hospitality employment: D