With the exception of Fort Smith, five of the six metro areas covered in the Little Rock Zone of the Federal Reserve’s St. Louis District showed improvement or flatline stability in the first quarter of 2013.
The Burgundy Book, which analyze smaller markets in the region, was released on Thursday by the Federal Reserve Bank. The Little Rock Zone covers six MSAs, including Little Rock/North Little Rock/Conway, Pine Bluff, Hot Springs, Texarkana, Fort Smith and Fayetteville/Springdale/Rogers. Neither the Jonesboro nor Memphis/West Memphis MSAs are included in the study.
“The Arkansas economy performed about as well as the U.S. economy in the first quarter,” the report noted. “Although Arkansas’ employment growth in the first quarter of 2013 trailed the nation’s growth, unemployment rates in the largest cities were generally well below the nation’s rate.”
The book merges data and anecdotal news collected from January through March. The information covers employment, wages, manufacturing, real estate, banking and consumer debt.
EMPLOYMENT & WAGES
“After job losses in early 2012, non-farm employment growth in the zone picked up in the final months of the year,” the report said.
Service sector gains were primarily responsible for the improving employment picture except in Fort Smith where service growth “remains negative.”
The feds warned that in discussions with locals there could be “headwinds” in the making.
“There are some headwinds stemming from the uncertainty around fiscal policy: two of seven business contacts expect to increase employment in the upcoming year; the remainder expect their employment to remain unchanged,” the report said.
The average unemployment rate in the zone is 6.9%, which is lower than the national rate of 7.8%. The Fort Smith unemployment rate increased to 8.3% during the period.
The Burgundy Book also disclosed the latest data on average weekly earnings, which showed a mixed bag. Workers in Little Rock experienced the largest gains up about 14% from one year ago, while growth in the remaining MSAs were below the national average of 2% growth. Average weekly earnings actually declined in Fayetteville and Fort Smith, according to the report.
Per capita income in Arkansas continued to increase faster than the U.S. average in the third quarter of 2012, the most recent statistics provided. Income growth was primarily due to the growth in labor earnings.
“Manufacturing employment in Arkansas finally exhibited some positive – though almost negligible – growth” during the quarter, the report said.
Arkansas manufacturing has struggled despite gains made in other southern and midwestern states in the U.S.
The survey suggested that durable goods manufacturing employment contributed 1.5% to the growth rate, while nondurable goods employment tempered those gains.
“Over a longer time horizon, relatively large employment declines occurred in 2009. Besides a slight uptick in late 2010, this downward trend has remained constant since 2006, even with the economy’s recovery and manufacturing’s resurgence in other parts of the country,” the report said.
Manufacturing employment was up 6% compared to one year ago.
REAL ESTATE & CONSTRUCTION
The residential real estate market improved thanks to a surge in home sales and higher average prices. New and existing home sales in 2012 increased by about 4.8% over last year.
“Moreover, the year-over-year growth of Little Rock home prices in the fourth quarter was the strongest it has been all year,” the report noted. In the first quarter of 2013, home sales and average prices have been trending higher.
The Burgundy Book also noted:
• On the residential construction side, single-family building permits in 2012 increased throughout in all MSAs except Pine Bluff.
• Multi-family real estate activity continued to show improvement.
• Asking rent in Little Rock enjoyed 3% growth in the fourth quarter of 2012 compared with a year ago. Asking rent has increased consistently over the past five quarters.
• The office real estate market in Little Rock experienced a strong ending in 2012 as the vacancy rate dropped by 2% on a year-over-year basis, to 12.5%.
“This is far below the national rate of 17 percent. The lower vacancy rate is probably due to increasing demand, as both office asking rent and effective rent have increased modestly,” the report said.
BANKING & CONSUMER DEBT
That real estate and construction activity seen in the region led to improvements in the banking sector.
“Arkansas banks generally outperformed their Eighth District and U.S. peers,” the report said. “Still, nonperforming loans of Arkansas banks are relatively high compared with other Eighth District banks and the nation, and some contacts expressed concern about the recent easing in lending standards.”
Consumers in the Little Rock Zone continued to decrease their credit card debt levels, which were down 2.8% from a year ago and down 25% since peak levels in 2008.
The Fed said industry contacts from the zone believe this trend has continued into early 2013, but they expect national credit card debt might rise in the early portion of the year.
Also of note, increased auto sales have led to consumers taking on more auto debt.
“This continued the upward trend that began in the first quarter of 2010. The average amount of auto debt per capita was $3,676,” the report said.
More than three-quarters of area bankers surveyed expect loan demand to increase or stay the same during the next three months.
Banking observations included:
• Profitability improved in the Little Rock Zone as Arkansas banks continued to outperform their District peers.
• Return on average assets increased 5 basis points in the fourth quarter to 1.18% and was up 10 basis points from a year ago.
• Earnings were boosted by a decline in loan loss provisions.
• Average net interest margin at Arkansas banks was unchanged in the fourth quarter and was down 12 basis points from a year ago.
• Nonperforming loans fell again in the Little Rock Zone, marking the sixth straight quarterly decline.
“This trend is expected to continue as four of five bankers surveyed expect loan delinquencies to decline during the next three months,” the survey noted.
Link here for a video interview by Roby Brock with Robert Hopkins of the Federal Reserve Bank-Little Rock branch.