U.S., Arkansas economy on slow, steady growth path

by The City Wire staff (info@thecitywire.com) 3 views 

The near-term outlook for the U.S. economy is “bullish,” and growth in the top three metro regions in Arkansas ranges between concerns of too little and too much, according to a segment of fourth quarter 2012 analysis included in The Compass Report.

Jeff Collins, an economist for The City Wire who prepares and analyzes economic data for The Compass Report, said the U.S. economy ended the year on a down note, but expects 2013 growth to be muted, but steady.

“Recent economic data suggest the near-term outlook is bullish at least for the financial markets. Even the housing sector, which had the greatest imbalances, seems to have rebounded,” Collins noted. “Moreover, the near-term negative impact of the debt, although much ballyhooed by politicos, is suspect at best. Interest rates remain at historic lows. Government borrowing has not crowded out the private sector and the U.S. companies flush with cash sit poised to initiate a new wave of mergers and acquisitions.”

A review of economic conditions and the potential to move closer to U.S. energy independence with more use of natural gas are the planned highlights of the 2013 The Compass Conference. The luncheon conference is set for 11:30 a.m., Friday, April 12, 2013, at the Fort Smith Convention Center. Tickets are $35 each, or $325 for a table of 10. Reservations can be made by calling 242-2800. Link here for more info about the conference.

The quarterly Compass Report is managed by The City Wire, and is the only independent analysis of economic conditions in the Fort Smith metro area, Northwest Arkansas and central Arkansas. The Fort Smith metro report is sponsored by Benefit Bank, with support also from Cox Communications and the Fort Smith Regional Chamber of Commerce.

Details on fourth quarter 2012 economic activity in Arkansas’ top three metro areas will be posted Friday (April 12) morning on The City Wire.

The second estimate of fourth quarter GDP was up just 0.1%, a considerable drop from the 3.1% gain during the fourth quarter of 2011. However, Collins notes that real GDP has increased each quarter since the second quarter of 2009.

“Economic growth has remained steady if not impressive. Though not reflected in the GDP numbers, holiday retail spending indicated was solid and a strong indicator that consumers were feeling much better about their economic situations,” Collins explained.

Indeed, the closely watched forecast from The Conference Board predicts first quarter 2013 real GDP of 3.5%. However, the forecast predicts real GDP for all of 2013 to hit 1.9%, below the 2.2% in 2012.

Although the GDP growth in the fourth quarter was scant, Collins said the good news is that it was fueled by private sector investments. Federal government spending decreased during the fourth quarter by 14.8%, with defense spending down by 22% in the quarter.

The bright spot for the national economy is the housing sector, according to Collins.

Real residential fixed investment increased 17.5% in the fourth quarter following solid growth in the second quarter of 13.5%. Collins said the two quarters are a “welcome sign for the housing market and an indication of how far the U.S. economy has come since the bottom of the recession.”

He also noted that housing prices have rebounded and are now growing at an annualized rate of approximately 7.3% nationwide. Housing starts and permits have also improved with seasonally adjusted permits up roughly 29% and starts up roughly 41% from December-to-December.

“Key to prolonging the recovery in housing will be continued improvement in the availability of credit. Persistently low interest rates are not sufficient to offset significantly tightened lending standards,” Collins said.

Collins said the Arkansas economy is almost a tale of two extremes.

Overall, the state still has troubles improving the jobs picture. February marked 49 consecutive months that Arkansas’ jobless rate has been at or above 7%. February also continued a trend in which the jobless rate improves but declines in the size of the workforce and number of employed point to ongoing weakness in Arkansas’ economy.

Arkansas’ unemployment rate in February was 7.2%, unchanged from January, and below the 7.3% in February 2012.

The number of employed in Arkansas during February was down more than 25,000 compared to February 2012, but the number of unemployed fell from 100,292 in February 2012 to an estimated 95,927 in February 2013.

But in Northwest Arkansas, there are concerns the growth is too hot.

“While most of the state looks for ways to kick-start economic growth, observers of the Northwest Arkansas economy worry that the current growth rates are unsustainable. For many, particularly those in the banking sector, the memories of losses incurred from an over-heated real estate sector are still vivid,” Collins noted in the report. “The core metric upon which the viability of continued growth must be measured is employment. To that end, current growth appears to be based on sound economic footing.”

With the exception of Northwest Arkansas, Collins is not optimistic about the outlook for Arkansas’ economy.

He noted: “For other regional economies the outlook is less certain. It is encouraging to see the growing stability of the Fort Smith regional economy. It is disturbing to see the slow growth and particularly the erosion of employment in core sectors of the Central Arkansas economy. Unfortunately, there is no evidence to suggest that current conditions within the State’s regional economies are likely to change in the near-term.”