Economic conditions in Northwest Arkansas remain robust, with regional growth similar to that of the fourth quarter of 2011, but slightly less than in the third quarter of 2012, according to The Compass Report.
The fourth quarter 2012 grade of C was down slightly from the B+ recorded in the third quarter of 2012. The quarterly Compass Report is managed by The City Wire, and is the only independent analysis of economic conditions in Northwest Arkansas.
Ongoing job growth and consistent gains in area sales tax collections suggest strength in the metro economy.
The unemployment rate in Northwest Arkansas was the lowest in the state amongst all MSAs in December (5.1%). It is a full percentage point lower than that for the Little Rock/North Little Rock/Conway MSA (5.9%). The highest rate in the state was the Pine Bluff MSA at 9%.
Based on current growth rates, the region is significantly outperforming its peers. The primary growth drivers were not destroyed by the recession, and if anything, the region is likely to become more attractive as other parts of the state and country struggle to create jobs.
Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said the Northwest Arkansas economy is outpacing even the state’s largest metro area in some areas.
“Despite an economy that is roughly two-thirds of the Central Arkansas economy, real estate data indicate that activity in Northwest Arkansas exceeded that of the state’s largest metro,” Collins said. “Specifically, building permits in the fourth quarter for Northest Arkansas were 111 percent of the total for Central Arkansas. The value of the permits during the period was roughly 123 percent of that for Central Arkansas.”
However, Collins said there remains a concern that growth in housing construction could again prove problematic for the region.
“Concern in the banking community that supply may be racing ahead of demand has not abated. If anything, it has increased,” Collins said.
OVERALL GRADES — Northwest Arkansas regional economy (per quarter)
4Q 2012: C
3Q 2012: B+
2Q 2012: B-
1Q 2012: B-
DATA AND REPORT DOCUMENTS
Link here for the raw data used to prepare The Compass Report for the Fort Smith area, Northwest Arkansas and central Arkansas.
Link here for more narrative about regional and national economic conditions.
Non-farm employment — A
Non-farm employment is well ahead of 2011 figures, with employment in the metro area at 213,900 in December compared to 205,000 in December 2011.
Non-farm employment is an often quoted measure of employment growth. Moreover, it is disaggregated into various employment sectors such as manufacturing, education and health services, etc. Change in employment drives population growth. The type of employment being created also determines in large part the change in income that drives growth in retail.
Goods-producing employment — B-
The decrease in manufacturing jobs as a percentage of the overall workforce helps diversify almost any metro economy. The percentage of manufacturing jobs in the overall workforce was 16.8% in December 2012, down from the 17.1% in December 2011.
This measure speaks to the risk in a local economy from being heavily weighted toward sectors that have been under economic pressure. One of the fundamental principles of reducing risk is diversification.
Metro area Unemployment rate — B-
The area unemployment rate, an important gauge in the health of the metro labor market, posted declines in the first quarter. Unemployment in December was estimated at 5.1%, compared to 5.7% in December 2011.
Like non-farm employment, the local unemployment rate is also often quoted. Increases in the unemployment rate are correlated with declines in consumer confidence.
The unemployment rate is an important gauge of the health of the local labor market.
Sales and Use tax collections — B+
Sales tax collections in the region have shown steady gains since 2010. The tax collections, which are good indicators of regional consumer confidence, were up in Benton, Madison and Washington counties to $6.254 million during November 2012 — compared to $6.858 million in November 2011. Overall, collections were up for the quarter.
Sales and use tax collections provide an insight into both the total income and change in total income in an area as well as how consumers are responding to new information about the health of the national and local economy. Obviously, this measure is tied to retail activity.
Building Permit (housing) valuation — A
The total value of permits issued in the fourth quarter (measured in a three-month rolling average) were higher than those in the fourth quarter of 2011. The rolling average in December was $38.238 million, ahead of the $17.053 million in December 2011.
Residential building is an indicator of current and expected population growth. As new households are created they induce growth in retail, education services, health care services and other types of businesses that provide goods and services to households. Also, new construction provides employment and tax revenues.
Hospitality employment — B-
Hospitality employment in Northwest Arkansas has trended positive for several quarters. December 2012 saw 19,800 jobs in the regional hospitality sector, up from the 18,500 jobs in December 2011.
Growth in the hospitality and leisure sector as measured by growth in employment is included because of the emphasis on creating quality of place in local economic development initiatives.
Unlike enplanements/deplanements, which may not be tied to activity in restaurants, hotels, and cultural venues, hospitality and leisure employment most certainly are influenced by growth of these activities. Another possible measure is hospitality-related tax collections.
Manufacturing employment — B-
Manufacturing employment in the region showed signs of stability during the quarter. Sector employment in December 2012 was 28,100, up from the 27,400 during December 2011. Employment in the sector is down more than 20% from more than a decade ago.
Construction employment — C-
This sector, which includes mining/natural resources employment, saw gains in employment compared to the fourth quarter of 2011, ending December with 7,800 jobs, up over the 7,600 jobs in December 2011.
The rationale for including construction employment is similar to that for building permits. The employment measure is influenced by changes in both the residential and commercial real estate markets.
Obviously, new space implies new residents and new businesses.