The Compass Report: Central Arkansas economy slows

First quarter 2013 economic conditions in the Little Rock-North Little Rock-Conway (central Arkansas) metro area were down slightly compared to the first quarter of 2012. The quarter saw gains in building permit numbers but slight declines in sales tax collections and construction sector employment.

The 2013 first quarter economy in the central Arkansas area received a grade of C-, meaning that economic conditions declined slightly compared to the fourth quarter of 2012, and were unchanged from conditions in the first quarter of 2012, according to The Compass Report.

The quarterly Compass Report is managed by The City Wire, and is the only independent analysis of economic conditions in central Arkansas.

Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, expressed concern about labor figures in the central Arkansas economy.

“The Central Arkansas economy may be the largest in the state but it has not performed well recently. For example, the regional labor force declined almost 3%,” Collins wrote. “The unemployment rate in Central Arkansas peaked in January 2011 at 7.7%. It has improved since and stood at 6.7% in March. By comparison, the March 2012 rate was 6.6%.”

Collins said reliance on employment in the government sector comes with short- and long-term risks.

“The Central Arkansas economy appears to be struggling to gain momentum coming out of the recession. While the regional economy had mirrored the national economy, data for the most recent quarter is alarming. Given the importance of the Central Arkansas region to the economic health of the state, data for the coming quarters will be closely watched for signs of improved performance,” Collins explained.

Data collected for The Compass Report also suggest that Arkansas’ economic trends are “troubling” compared to improvements in the national economy, Collins said.

“The core metric upon which the viability of continued growth must be measured is employment. If measured by the number of unemployed, the state appears to be improving. However, given there has been little change in the unemployment rate the reduction in the number of unemployed is hardly cause for celebration. There has also been a decline in the labor force. It is therefore the case that discouraged works are withdrawing from the labor force,” Collins said.

In Northwest Arkansas, the first quarter 2013 grade of B was up compared to the C posted in the fourth quarter of 2012, and was up compared to the B- during the first quarter of 2012.

In the Fort Smith region, a first quarter 2013 grade of C- was down from the C in the fourth quarter of 2012 and unchanged from the first quarter of 2012.

Collins also provided the following points about Arkansas’ top three regional economies.
• While the Central Arkansas economy had been mimicking the national economy, it now appears it reflects the broader state economy.
• Despite the set-back in manufacturing employment, it is encouraging to see the growing stability of the Fort Smith regional economy.
• The Northwest Arkansas is growing rapidly but whether this pace is sustainable remains to be seen.

CENTRAL ARKANSAS
OVERALL GRADES — Central Arkansas regional economy (per quarter)
1Q 2013: C-
4Q 2012: B-
3Q 2012: C-
2Q 2012: C+
1Q 2012: C-

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.

SECTOR DATA
CURRENT INDICATORS
Non-farm employment — C-
Non-farm employment has seen only slight gains compared to 2012 figures, with employment in the metro area at 343,300 in March, up from 342,200 in March 2012.

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. However, given the relatively small percentage of employment in the goods producing sector in the central Arkansas area, this metric is less meaningful than for the Fort Smith or Northwest Arkansas areas. The percentage of manufacturing jobs in the overall workforce was 10.4% in March 2013, down from the 10.9% in March 2012.

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 — C-
The area unemployment rate, an important gauge in the health of the metro labor market, was up slightly in the first quarter. Unemployment in March was estimated at 6.7%, compared to 6.6% in March 2012.

Sales and Use tax collections — C
Overall, sales tax collections in the region were down in the first quarter of 2013. The tax collections, which are good indicators of regional consumer confidence, in the five counties in the region totaled $8.098 million during February 2013 — compared to $8.129 million in February 2012. Little Rock posted February tax collections of $5.862 million, up from $5.828 million in February 2012.

LEADING INDICATORS
Building Permit (housing) valuation — B-
The total value of permits issued in the first quarter (measured in a three-month rolling average) were improved compared to the first quarter of 2011. The rolling average in March was $32.649 million, ahead of the $22.11 million in March 2012.

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 — C
Hospitality employment in central Arkansas has trended positive for several quarters, but leveled off during the first quarter of 2013. March 2013 saw 29,600 jobs in the regional hospitality sector, down from the 30,100 jobs in March 2011.

Manufacturing employment — D+
Manufacturing employment continues a slow decline in the area, not unlike most metro areas in Arkansas. Sector employment in March 2013 was 19,900, down 300 jobs from March 2012 employment of 20,200.

Construction employment — D
This sector, which includes mining/natural resources employment, showed a drop in the first quarter, ending at 15,900 jobs in March 2013, compared to 17,100 in March 2012.

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.