Execs optimistic on economy; worry about healthcare, regulations

Most of the Fort Smith and Northwest Arkansas business leaders who responded to an informal survey from The City Wire are optimistic about overall economic conditions in 2014, but worry that federal regulations and changes in healthcare will curtail the potential for growth.

The survey followed a Bank of America Merrill Lynch report released Tuesday (Dec. 10) finding that chief financial officers around the country are more optimistic about U.S. economic growth than they were a year ago. Also, most of the CFOs expect their companies’ sales to increase in 2014, with growth coming from doing more business with current customers and winning new customers.

However, concerns remain about healthcare costs, which the CFOs cited as having the biggest potential impact on the U.S. economy.

Of the financial executives who participated in the annual survey of middle market companies (annual sales between $2 billion and $25 billion), 54% said their companies’ 2014 sales will be higher than in 2013. Another 37% expect sales to remain at the same level, while 8% expect a decline. When asked about potential negative impacts on the U.S. economy, CFOs most often named healthcare costs, with 67% ranking it as a significant concern. That was followed by the effectiveness of the U.S. government (62%) and the U.S. budget deficit (57%).

CFOs gave the U.S. economy an average score of 53 out of 100, up from 49 a year ago. In the 2013 CFO Outlook Mid-Year Update – a smaller survey with 250 respondents – the score was 58. CFOs gave the global economy a score of 50, up from 45 a year ago and comparable to the mid-year score of 51.

‘WELL-POSITIONED’
Gary Head, CEO of Signature Bank of Arkansas, said he is optimistic about Northwest Arkansas and U.S. economic growth in 2014, but has concerns about business costs.

“Heath care costs are impacting Legacy and will require a hard look at structure and benefits going forward,” Head said.

Sam T. Sicard, president and CEO of Fort Smith-based First Bank Corp., said he is “slightly” optimistic about 2014. First Bank operates several banks in Arkansas, including First National Bank of Fort Smith and First National Bank of Rogers.

“The housing market appears to be relatively healthy again, the rapid increase in the stock market will spur additional spending in early 2014 from capital gains, and consumers are in a better position to spend and borrow as they increased savings and reduced debt during the Great Recession,” Sicard said.

Sicard also believes economies in Northwest Arkansas and the Fort Smith region will see positive trends in 2014.

“Both regions are well-positioned to recruit industry with the quality of their workforce, quality of life they provide, and the financial and economic resources they have to recruit industry. Both regions had several job expansion announcements in 2013 that will come to fruition in 2014,” according to Sicard.

SOME PESSIMISM
Mike Callan, president of Fort Smith-based Arkansas Oklahoma Gas Corp., and chairman of the Arkansas State Chamber of Commerce Board of Directors, is “moderately pessimistic” about 2014 economic conditions.

“The fundamentals for economic growth, such as consumer confidence, regulatory certainty and the condition of foreign markets, are still questionable. Consumers and business owners are understandably moving cautiously,” Callan noted. “Foreign markets as well as our own, are still being propped up with and through government policies. Until some comfort with respect to future polices is restored, I believe the economy will continue to limp along.”

However, Callan is “cautiously” optimistic that economic conditions will improve in the troubled Fort Smith regional economy. October was the 58th consecutive month the Fort Smith metro jobless rate has been at or above 7%.

“We have seen a number of positives occur recently which bodes well for the coming year. Company expansions along with new companies moving to the (Fort Smith) area provide a ray of hope, especially when coupled with the efforts of the state in incentivizing economic development throughout Arkansas,” Callan said.

Callan also believes Arkansas’ economy will do well in 2014.

“Energy production will continue to generate jobs, economic opportunity and growth, if we can avoid overreaching regulations. We have what it takes to attract and retain businesses. However, we are competing for a small number of opportunities with every other region in the U.S. Therefore, apathy must be avoided. We have what it takes to quiet the naysayers and complainers, who, while very vocal, seldom present solutions,” Callan said.

CAUTIOUS OUTLOOK
Don Gibson, head of Springdale-based Legacy Bank, also is “cautiously” optimistic about economic conditions improving in 2014. He sees more jobs coming to Northwest Arkansas “in the coming months which should spur the economy.”

Mike Harvey, chief operating officer for the Northwest Arkansas Council, is “slightly” optimistic about U.S. economic conditions “if we can just manage to get out of our own way.” As for the Northwest Arkansas economy, he is bullish.

“Growth in the Northwest Arkansas economy is across the board. Housing is back, and look for job growth around a number of new locations/expansions announced in 2013,” Harvey said. “Also look for continued growth in the retail complex – especially around big data. Transportation and food will hold their own as well.”

WALMART SUPPLIER IMPACT
Cameron Smith, founder and CEO of Rogers-based Cameron Smith Associates, is neutral on his outlook for the U.S. economy in 2014. He said the pace of recovery following the 2008-2009 recession has been “frustratingly slow.” But like Harvey, he’s bullish on Northwest Arkansas and he’s encouraged by regional cooperation.

“My predictions for the Northwest Arkansas region are very encouraging. Following the lead of the NW Arkansas Council, many of the individual cities have brought in companies like Market Street Services to help evaluate regional strengths, weaknesses and opportunities backed by participation from many local business leaders. The cities in this region are more collaborative today than I have seen in the past 20 years, which gives me confidence that that there will be strong economic development,” Smith explained.

Part of Smith’s optimism is fueled by the growth he sees in the Wal-Mart supplier community. Smith’s firm works to find talent and leadership for many of the supplier companies.

“The Walmart supplier market that we work within is expected to grow. As the millennials enter the job market, they will be reinventing the job descriptions needed to manage the ever-changing Walmart business. By 2015 they will represent over 50% of the Walmart supplier jobs,” Smith said in a statement to The City Wire.

HEADWINDS
But it’s not all positive. Following are some of the concerns listed by respondents to the brief survey from The City Wire.
• Don Gibson, Legacy Bank
“The largest headwinds are those created by our President which is tighter credit limitations from Dodd-Frank and the unbelievable cost of Obamacare.”

• Mike Harvey, Northwest Arkansas Council
“Health and financial regulation will continue to cause difficulties for businesses and consumers. Legislators will avoid much-needed tax reform – again. And the end of QE (quantitative easing) and normalization of (interest) rates will require some adjustment in the near term.”

• Sam Sicard, First Bank Corp.
“One headwind we will continue to face is the increasing government regulations many businesses are dealing with and the challenges many businesses are facing with increasing healthcare costs. A potential additional headwind is uncertainty on whether the federal government will be governed in a responsible manner. The governing by crisis through shutdowns and the threat of debt defaults we faced in 2013 could continue in 2014.”

• Cameron Smith, Cameron Smith Associates
Possible negative economic factors in 2014 are “Uncertainty in the business community regarding healthcare costs, dysfunctional government, 2014 elections, and possible changes in the Fed.”

• Craig Rivaldo, Arvest Bank-Fort Smith region
“When the government stops Quantitative Easing, it could start to drive up interest rates.  It is anticipated the 10-years Treasury could go over the 3.0% mark. Additionally, the government has indicated that once Unemployment got below 7% they would start considering moving up short term interest rates … Fed Funds Rate. Any movement up in rates could have a negative impact to businesses and ultimately could impact the economy.”