The Compass Report: Central Arkansas economy stable but flat

The 2013 third quarter economy in the central Arkansas area received a grade of C- meaning that economic conditions declined slightly compared to the third quarter of 2012 but were unchanged the first and second quarters 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 the central Arkansas economy showed “relatively strong” job growth, but overall the outlook remains mixed.

“The Central Arkansas regional economy is the most diverse in the state and arguably the representative of overall statewide economic performance. Given this relationship, recent data indicates the statewide economic outlook remains mixed,” Collins wrote in his analysis. “It remains to be seen if recent data represent a return to pre-recession trend growth or indicate that the regional economy will continue to struggle.”

The third quarter 2013 grade of B+ in Northwest Arkansas was an improvement compared to the second quarter and unchanged compared to the third quarter of 2012.

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

Data collected for The Compass Report also suggest that state and national economic trends have been positive in the back half of 2013 – even with relative dysfunction within the federal government.

“Economic data, both at the local and national level in the third quarter was very encouraging, particularly the surprising growth in output. Even more encouraging was the rate of growth despite the lack of clear policy direction regarding federal spending. The primary concern continues to be weak labor markets,” Collins said.

Collins also provided an economic health summary of the state’s three largest metro areas.
• The Central Arkansas economy continues to underperform, in many ways reflecting the national economy.
• For the Northwest Arkansas economy, despite the rapid rate of growth there is no reason to believe that current growth rates are unsustainable. Look for momentum to continue for at least the four to six quarters.
• Despite continued erosion of manufacturing, the Fort Smith regional economy has been amazingly resilient. The uptick in growth bodes well for the regional economy.  Look for growth to continue through the next four quarters barring an unforeseen shock to the Fort Smith regional economy.

CENTRAL ARKANSAS
OVERALL GRADES — Central Arkansas regional economy (per quarter)
3Q 2013: C-
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 348,000 in September, up from 342,600 in September 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 — B
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 10.6% in September 2013, down from the 10.8% in September 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 third quarter. Unemployment in September was estimated at 6.4%, compared to 6.1% in September 2012.

Sales and Use tax collections — C-
Overall, sales tax collections in the region were up in the third quarter of 2013. The tax collections, which are good indicators of regional consumer confidence, in the five counties in the region totaled $8.259 million during August 2013 — compared to $8.212 million in August 2012.

LEADING INDICATORS
Building Permit (housing) valuation — C-
The total value of permits issued in the third quarter (measured in a three-month rolling average) fell compared to the third quarter of 2012. The rolling average in September was $20.782 million, below the $62.48 million in September 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, with declines posted in the third quarter. September 2013 saw 29,800 jobs in the regional hospitality sector, down from the 31,100 jobs in September 2012.

Manufacturing employment — D+
Manufacturing employment continues a slow decline in the area, not unlike most metro areas in Arkansas. Sector employment in September 2013 was 19,900, down 100 jobs from September 2012 employment of 20,000.

Construction employment — C-
This sector, which includes mining/natural resources employment, showed a drop in the third quarter, ending at 16,900 jobs in September 2013, compared to 17,100 jobs in September 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.