Slight but continued improvements in economic trends for the Fort Smith region during the third quarter of 2013 has resulted in the best quarterly grade for the economy since the first quarter 2009 launch of The Compass Report.
A third quarter 2013 grade of C+ was improved over the C in the second quarter and the C- in the third 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.
Joe Edwards, president of Benefit Bank, said it’s nice to finally see the region’s key economic metrics moving in the right direction.
“It was really encouraging. I find myself mainly looking at trend lines and you always hope they will go up dramatically. Obviously I don’t see that happening here, but what I do see is that we are moving in a positive direction,” Edwards said of The Compass Report.
Edwards also said the report mirrors what he sees and hears in the business community’s served by Benefit Bank.
“By and large, they (bank customers) are optimistic, but everybody seems to be guarded somewhat. It is improving, but we all know of the issues out there for 2014 that remain unsettled and uncertain. No one is going to throw a party, but what we are hearing is encouraging,” Edwards explained.
Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said employment and other data indicate that the Fort Smith region “has performed reasonably well” during the first three quarters of 2013.
“Nonfarm employment was up a respectable 2.0 percent year-on-year (2,400 new jobs), with total nonfarm employment of 120,200 jobs in September. This marks the ninth straight month of positive employment growth. The statistical evidence suggests that the local labor market has stabilized after a prolonged period of decline,” Collins wrote in his analysis. “Data for the Fort Smith regional economy had been mixed for some time but now a clear trend appears to be emerging that the local economy is growing.”
However, Collins said the improvements will need to continue if the region is to return to employment levels seen prior to the recession.
“In September the total number of employed in the MSA was an estimated 123,871. By contrast, total employment in September 2006, prior to the recession, was 130,736,” Collins wrote.
He also noted that the regional manufacturing sector continues to lose jobs.
“Strong overall non-farm employment growth did not carry over to the manufacturing sector. September-to-September the sector lost 700 jobs or roughly -3.6 percent. In September an estimated 18,500 people worked in the sector,” he wrote.
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.
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 compared to the second quarter of 2013.
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.
Continued growth in Northwest Arkansas has the potential to alter the state’s political landscape, according to Collins.
“The geographic differences in economic performance have very real implications for the distribution of population and wealth in the state. The Northwest Arkansas economy is quickly approaching two-thirds of the Central Arkansas economy. The implications for relative population are obvious,” Collins wrote. “Moreover, population correlates with political power. Should the current differential growth rates continue, the 2020 Census will lead to significant changes in relative representation in state government.”
FORT SMITH REGION
OVERALL GRADES — Fort Smith regional economy (per quarter)
3Q 2013: C+
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+
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.
Non-farm employment — C
Non-farm employment in the area has stabilized, with employment in the metro area at 120,200 in September compared to 117,800 in September 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 21.4% in September 2013, down from the 22.1% in September 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 — B-
The area unemployment rate, an important gauge in the health of the metro labor market, posted a decline to end the third quarter. Unemployment in September was estimated at 7.2%, compared to 7.5% in September 2012.
Sales and Use tax collections — C
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 third half of 2012 and has 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 $3.342 million during August 2013 — compared to $3.35 million in August 2012. However, during the June 2013 to August 2013 period, overall collections in the counties were up 4.6% compared to the same period in the previous year.
Building Permit (housing) valuation — C
The total value of permits issued in the third quarter (measured in a three-month rolling average) were down 1.4% compared to the third 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 third quarter of 2012, leveled off during the fourth quarter of 2012 and improved during the first quarter of 2013. September 2013 saw 9,400 jobs in the regional hospitality sector, up 300 jobs from September 2012.
Manufacturing employment — C-
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 September 2013 was 18,500, down an estimated 700 jobs from September 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 — B+
This sector, which includes mining/natural resources employment, saw employment reach 7,200 in September, up from 6,800 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.