The Compass Report: Gains seen in Fort Smith area economy

by The City Wire staff ([email protected]) 172 views 

Improvements in the number of employed and gains in building permit values in the Fort Smith region helped boost the economy in the second quarter of 2013 compared to the first quarter of the year and the second quarter of 2012.

A second quarter 2013 grade of C was improved over the C- in the first quarter and the C- in the second 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.

A change to a better and more consistent numbers was welcomed by Joe Edwards, president of Benefit Bank.

“After reviewing the Compass Report information, I found the data very encouraging. Hopefully our market is beginning to develop a positive trend line,” Edwards said.

Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said employment in the region is finally showing signs of stability.

“Nonfarm employment was up a solid 2.7 percent year-on-year (3,200 new jobs), with total nonfarm employment of 120,200 jobs in June. This was the strongest year-on-year increase since November 2007 and further evidence that the local labor market has stabilized after a prolonged period of decline,” Collins noted in his analysis.

Collins also noted that the slight increase in the unemployment rate during the quarter is not necessarily a bad thing.

“The reason for the increase was a more substantial increase in the labor force than could be absorbed by the market. This is, frankly, a very positive sign for the regional economy. This implies that discouraged workers likely returned to the labor force,” Collins explained.

Data collected for The Compass Report also suggest that Arkansas’ economic trends are improving compared to national economic trends, Collins said. Momentum during the second quarter is a good sign for Arkansas’ economy in the second half of 2013.

“The Central Arkansas economy should continue to reflect national growth — slow and steady. For the Northwest Arkansas economy, there is absolutely no reason to believe that current growth rates are unsustainable over the next 18-24 months. And finally, despite continued erosion of manufacturing, the Fort Smith regional economy has been amazingly resilient. Overall, the local economies should perform well during the last half of the year,” Collins said.

The 2013 second quarter economy in the central Arkansas area received a grade of C- meaning that economic conditions declined slightly compared to the second quarter of 2012 but were unchanged the first quarter of 2013.

The second quarter 2013 grade of B in Northwest Arkansas was unchanged compared to the first quarter and an improvement over the B- during the second quarter of 2012.

OVERALL GRADES — Fort Smith regional economy (per quarter)
2Q 2013: C
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+

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 — B+
Non-farm employment in the area has stabilized, with employment in the metro area at 120,200 in June compared to 117,000 in June 2012.

Goods-producing employment — C+
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 21.3% in June 2013, down from the 22.6% in June 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 June was estimated at 7.7%, compared to 7.6% in June 2012.

Sales and Use tax collections — D
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 and have continued to show weakness in 2013. The tax collections, which are good indicators of regional consumer confidence, were down in Crawford, Franklin, Logan and Sebastian counties to $3.332 million during May 2013 — compared to $3.355 million in May 2012. During the March 2013 to May 2013 period, overall collections were down 0.75% compared to the same period in the previous year.

Building Permit (housing) valuation — C
The total value of permits issued in the second quarter (measured in a three-month rolling average) were up 6.3% compared to the second 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. June 2013 saw 9,600 jobs in the regional hospitality sector, up 400 jobs from June 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 June 2013 was 18,500, down an estimated 800 jobs from June 2012 employment.

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.

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.