Economic Forecast 2014

As 2013 draws to close, it is natural to reflect on the year that was.

And if 2013 was good to you and your business, that’s good — because you may have it again in 2014.

As noted eloquently by business forecast guru Kiplinger, four years after the recession ended, the convalescence appears to be endless. That means if you’re counting on the economic recovery to find a second gear, don’t expect it to happen in the next 12 months.

Michael Pakko, a longtime state economist and head of the Institute for Economic Advancement at the University of Arkansas at Little Rock, said economic recovery is still slow in Arkansas.

During his remarks at the annual Arkansas Economic Forecast Conference in November, he went a bit further by saying the state, by some measures, has fallen behind the rest of the country.

“At the present time, it’s really a matter of just slogging it out and going through this relatively slow growth period,” Pakko said. “That seems to be the trend.”

Pakko added that with low unemployment figures and a turnaround in home prices, it’s fair to expect Northwest Arkansas will continue to stay on the leading edge of the recovery.

What do others think? Here’s what leaders in five industries said, all of which deserves some thought.

 

Residential Real Estate

Residential real estate should be strong in 2014, and with interest rates still at historic lows and home prices still on the affordable side, next year could be a good time to buy, said George Faucette, co-CEO of Coldwell Banker Harris McHaney & Faucette of Fayetteville.

“As long as you are comfortable with your job and you can afford what you need, go ahead and do it,” he said. “Why wait?”

While the year-over-year increases from 2013 to 2014 won’t wind up looking too dramatic, in the end, that’s not the number to necessarily look at, Faucette said. The real story will be told in total sales volume, and in that regard, 2014 should be good.

While he sees the entire market doing well, he also said it would be wise to keep an eye on Springdale.

“You hear a lot about Fayetteville and Rogers, but Springdale has had a lot of silent growth,” Faucette said. “It’s a crossroads town and there’s a lower price point there.”

The smaller towns of Northwest Arkansas, like Pea Ridge, Prairie Grove and Elkins, should also experience good home sales, a point perhaps made by Wal-Mart Stores Inc.’s recent decision to build a Neighborhood Market in Centerton.

In terms of the personnel of real estate, Faucette said he sees a new generation of agents coming into the fold, and the infusion of new blood is a good thing. Real estate, an industry based in large part on an individual’s ability to make connections, lends itself to the entrepreneur.

While the market can be fickle, and while events halfway around the world can affect consumer sentiment at home, Faucette said he does not expect any appreciable slowdown in the real estate sector. People will continue to buy and sell, and new houses will continue to be built on lots platted in the past.

“I think it’s going to be another good year,” he said.

 

Banking

Consumers should enjoy improved convenience in everyday banking, and when it’s time to apply for a loan, interest rates should be low enough to make it affordable for families and small businesses, said Dennis Smiley, president of Arvest Benton County.

Looking out at next year’s banking landscape, Smiley sees continued development of systems for automated deposits, remote and mobile banking, and enhanced banking-related social media.

“The banks that are going to be successful are going to have a relationship with the community,” he said. “You’ll continue to see more of an emphasis on technology.”

While the tightening of banking regulations is expected to affect the approval and documentation process for borrowers, money will be there for qualified applicants. Banks are still being infused with cash from the Federal Reserve’s program of quantitative easing, in which the Fed purchases bonds from banks, thus flooding the banks with cash that it can lend to consumers. In that environment, banks will compete for customers, and there could be plenty of them, too.

“Most of the banks will have money to loan,” he said.

Locally, Northwest Arkansas is poised to have a good year in real estate and in commerce, and banks will be ready to invest in a healthy economy.

“Next year should be a good year for residential construction and purchase,” Smiley said. “And banks are willing to loan to new businesses and businesses that are expanding.”

Citing the blockbuster acquisitions of Metropolitan National Bank by Simmons First National Bank, and of Liberty Bank of Arkansas by Centennial Bank, Smiley said consumers could see something like that happen again.

“You’ll continue to see more mergers and acquisitions as the cost of doing business continues to rise,” he said.

 

Health Care

The price of health insurance is expected to rise, and financial pressure on health care systems will continue to draw doctors to integrate with hospitals, said Bill Bradley, president and CEO of Washington Regional Medical Center.

When asked if he thought medical expenses would increase, Bradley said: “Overall we would anticipate consumer costs rising. With the post-reform requirements for what’s covered with restrictions such as pre-existing conditions, lifted insurance costs were logically going to go up.”

And while the number of people with health insurance is expected to rise, hospital officials are still in limbo as to how big of an impact the Affordable Care Act will have on the number of people who are treated at clinics and at facilities such as Washington Regional.

“We were [expecting an influx of new patients] but have tempered that view noticeably due to the well-publicized enrollment difficulties and seemingly some doubters choosing not to enroll initially even if the enrollment issues are remedied,” he said.

Expansion of medical facilities will continue, based on demand, population growth and new services, but “frivolous” growth will not occur, Bradley said.

The vast majority of doctors will continue to affiliate themselves with a large, established hospital or private practice, while only a limited few will opt for concierge medicine, a form of practice that does not accept public insurance plans such as Medicare and Medicaid.

As this region continues to grow, so will its need for physicians.

“Northwest Arkansas’ biggest needs seem to be more focused on primary care physician shortages and a few select specialty/sub-specialty areas,” he said.

 

Retail

American consumers will be more likely to spend freely in 2014, according to a report from Kiplinger, a Washington, D.C.-based economic forecast publisher.

With personal income set to hike at least 3.5 percent next year and wages climbing faster than inflation for the first time since the start of the recession, Kiplinger predicts consumer spending will rise about 2.5 percent.

“Rogers has seen such an increase in activity, and I think it will continue to grow,” Majors said. Driving forces for this growth include the announcement of the Arkansas Music Pavilion moving to the area. Also, the business climate of Northwest Arkansas as a whole has benefitted from the opening of destination spots like the Crystal Bridges Museum of American Art.

“There are plenty of businesses and business opportunities,” Majors said.

Also in 2014, Wal-Mart Stores Inc. will continue with its Buy American campaign. The retail giant publicly committed in January to spend an additional $50 billion on American-made goods during the following 10 years.

Bill Simon, president and CEO of Walmart’s U.S. division, previously said the goal is easily attainable, and that two-thirds of the products sold in Walmart stores are already grown or made in the U.S.

 

Transportation

Money from the half-cent tax to fund Arkansas highway projects began trickling in this fall, and Northwest Arkansas is putting it to good use.

It will help fund several major road projects aimed at accommodating traffic volumes and improving connectivity throughout the area.

The projects all have been started, whether on paper or on the ground, and all are slated for completion within the next 10 years.

“An incredible amount of money is going to be spent,” said John McLarty, assistant director and transportation planner for the Northwest Arkansas Regional Planning Commission.

Improvements to Arkansas Highway 265 will continue, with an end goal to extend the highway to Rogers, McLarty said. The project, which will cost about $25 million, will open up a travel route across the east side of the area, making it  more attractive to potential businesses, since a lot of recent development has been in the west side of the region.

The renovation of Interstate 540 will cost about $370 million over the next 10 years and consists of 17 projects, including the widening of both the northbound and southbound routes to three lanes. This project aims to ease congestion on the interstate, allowing for better mobility, McLarty said. 

Additional funding of $100 million has been allotted for the Bella Vista bypass; $150 million has been allotted for the Springdale bypass; and $30 million has been allotted to connect Don Tyson Parkway in Springdale to the interstate.