The Compass Report: Economy slows in Fort Smith area

The Fort Smith regional economy ended 2012 on a positive note, but first quarter 2013 conditions did not continue the trend, according to data collected for The Compass Report.

First quarter 2013 economic conditions declined compared to the 2012 period. Slippage in tax collections and building permits gains along with relatively flat employment figures dominating the economic picture in the 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.

The quarterly Compass Report is managed by The City Wire and presented by Fort Smith-based Benefit Bank. The report is the only independent analysis of economic conditions in the metro area.

Joe Edwards, president of Benefit Bank, said the regional economy is having a tough time maintaining momentum.

“The positive thing is that there has been some stabilization to our job losses, but we’re not able to get any traction for growing,” Edwards said.

The $150 million expansion at Gerber that could add up to 90 jobs, the $4 million expansion of Tankersley Food Service in Van Buren that could add up to 40 jobs and other recent expansion news do represent signs of hope, Edwards said.

“I’ve been very encouraged by some of the latest announcements. It appears to me that everyone is still in the battle,” Edwards said.

Year-on-year tax collections at the county level show that consumer spending as of February was down slightly. In Fort Smith, the tax collection figures also dipped slightly. The trend from February has continued into 2013. For the first four reporting months of 2013, Fort Smith sales tax collections are 1.55% below 2012 levels and 4.33% below budget.

While there is a lag in sales tax collection reporting by the state, the data suggest local retail activity is struggling to return to more stable patterns seen before the sharp national economic downturn experienced during 2009.

Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said the Fort Smith region still suffers from weak employment levels.

“In March the total number of employed in the Fort Smith MSA was an estimated 121,126. By contrast, total employment in March 2006, prior to the recession, was 130,119,” Collins wrote.

Continuing, Collins noted: “Weak jobs data, as expected, negatively impact the unemployment rate in the Fort Smith area. March-on-March the rate was up 0.2%. The reason for the increase was an increase in the number of unemployed and a simultaneous decrease in the labor force. This implies that frustrated workers likely withdrew from the labor force.”

Collins said the economy is somewhat stable, but “a return to trend growth does not appear to be imminent.”

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.

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.

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.

FORT SMITH REGION
OVERALL GRADES — Fort Smith regional economy (per quarter)
1Q 2013: C-
4Q 2012: C
3Q 2012: C-
2Q 2012: C-
1Q 2012: C-
4Q 2011: C-
3Q 2011: C
2Q 2011: C
1Q 2011: C-
4Q 2010: C-/D+
3Q 2010: C-
2Q 2010: C-
1Q 2010: C-
4Q 2009: D
3Q 2009: D
2Q 2009: D-
1Q 2009: D+

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 in the area has stabilized, with employment in the metro area at 117,500 in March compared to 116,800 in March 2012.

Goods-producing employment — B
The decrease in manufacturing jobs as a percentage of the overall workforce helps diversify the economy. The percentage of manufacturing jobs in the overall workforce was 21.4% in March 2013, down from the 22.5% in March 2012.

This measure tells us about the risk to the local economy from being heavily weighted toward sectors that have been under economic pressure.

One of the fundamental principles of reducing risk is diversification. The Fort Smith economy has been based on manufacturing for decades, but this heavy reliance on one sector for employment and wealth creation has left the region vulnerable. For several years the manufacturing sector in the U.S. has shed employment as technology and international trade have redefined the production process.

As the economy of Fort Smith becomes more diversified the risk of a downturn in any one sector causing a catastrophic loss of employment diminishes.

Metro area Unemployment rate — D
The area unemployment rate, an important gauge in the health of the metro labor market, posted an increase to end the first quarter. Unemployment in March was estimated at 7.8%, compared to 7.6% in March 2012.

Sales and Use tax collections — C-
Sales tax collections in the region and the city of Fort Smith began to show weakness in the fourth quarter of 2009. That weakness began to improve in the fourth quarter of 2010, was on a stable pace, but began to cool in the second half of 2012. The tax collections, which are good indicators of regional consumer confidence, were up in Crawford, Franklin, Logan and Sebastian counties to $3.199 million during February 2013 — compared to $3.018 million in February 2012. During the December 2012-February 2013 period, overall collections were down 0.76% compared to the same period in the previous year.

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 up 17% compared to the first quarter of 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 — B
Hospitality employment, which began trending downward in the second quarter of 2012, leveled off during the fourth quarter of 2012 and improved during the first quarter of 2013. March 2013 saw 8,800 jobs in the regional hospitality sector, up 300 jobs from March 2012.

Manufacturing employment — D
Manufacturing employment in the Fort Smith region showed signs of stability in 2012, but began to dip again during the first quarter of 2013. Sector employment in March 2013 was 18,600, down an estimated 700 jobs from March 2012 employment. Employment in the sector is down more than 34% from a decade ago.

For better or worse, Fort Smith remains a manufacturing town. That implies the near-term economy rises and falls on the performance of the sector. Growth in employment or even stable employment in the sector bodes well for the near-term outlook for the local economy.

Construction employment — D
This sector, which includes mining/natural resources employment, saw employment decline during the quarter (6,500 in March 2013, compared to 7,000 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.