The Compass Report: Slow trend seen for Central Arkansas economy

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, 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, said relatively stable economic conditions in central Arkansas is a good sign for the state.

“The Central Arkansas regional economy is the most diverse in the state and arguably the representative of overall statewide economic performance. Given its importance, recent data bode well for overall statewide growth. It remains to be seen if recent gains represent a return to pre-recession trend growth or are short-term,” Collins said.

Although sales tax collections in the region were flat, the pace of new construction is a good sign for the second half of 2013.

“Looking at the construction sector, building permit data revealed significantly improved activity for the quarter. Therefore, expectations are employment in the sector should rebound in the coming months,” Collins said.

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 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.

In the Fort Smith region, a second quarter 2013 grade of C was up compared to the first quarter of 2013 and an improvement over the C- in the second quarter of 2012.

CENTRAL ARKANSAS
OVERALL GRADES — Central Arkansas regional economy (per quarter)
2Q 2013: C-
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 saw improved gains compared to 2012 figures, with employment in the metro area at 350,900 in June, up from 343,300 in June 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 — C+
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 10.5% in June 2013, down from the 11% in June 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 second quarter. Unemployment in June was estimated at 6.7%, compared to 6.8% in June 2012.

Sales and Use tax collections — D+
Overall, sales tax collections in the region were down in the second quarter of 2013. The tax collections, which are good indicators of regional consumer confidence, in the five counties in the region totaled $8.346 million during May 2013 — compared to $8.232 million in May 2012. However, combined collections during the three-month period (March-May 2013) were down 0.83%. Little Rock posted May tax collections of $6.029 million, down from $6.125 million in May 2012.

LEADING INDICATORS
Building Permit (housing) valuation — A
The total value of permits issued in the second quarter (measured in a three-month rolling average) were improved compared to the second quarter of 2012. The rolling average in June was $45.244 million, well ahead of the $28.064 million in June 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. But gains returned in the second quarter. June 2013 saw 31,900 jobs in the regional hospitality sector, up from the 31,300 jobs in June 2011.

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

Construction employment — D
This sector, which includes mining/natural resources employment, showed a drop in the second quarter, ending at 16,900 jobs in June 2013, compared to 17,400 in June 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.