The Compass Report: Central Arkansas economy relatively ‘weak’ in 2013

The 2013 fourth quarter economy in the central Arkansas area received a grade of C- meaning that economic conditions declined slightly compared to the fourth quarter of 2012 and were unchanged from the previous three quarters of the year, 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 had a “weak” showing in terms of job growth.

“Despite the stagnant unemployment rate, nonfarm employment added 3,500 jobs or 1% since December 2012. Given recent job creation data for the Central Arkansas metro, this was a relatively weak showing,” Collins noted. “By comparison, the Northwest Arkansas regional economy added 8,900, or 4.1%, while the Fort Smith regional economy added 3,400 jobs, or 2.9%, during the same period.

METRO COMPARISONS, IMPACT
Continued gains in employment and sales tax collections helped the Northwest Arkansas economy finish 2013 with a strong fourth quarter, according to The Compass Report. The fourth quarter 2013 grade of B+ was unchanged compared to the fourth quarter and was an improvement over the fourth quarter of 2012.

The Compass Report for the fourth quarter of 2013 shows that small but broad based gains in key metrics has resulted in the Fort Smith regional economy finishing out 2013 with two consecutive positive quarters. A fourth quarter 2013 grade of C+ was unchanged compared to the fourth quarter and better than the C grade in the fourth quarter of 2012.

Collins said the relative poor performance of the central Arkansas economy is not a positive indicator of the overall Arkansas economy.

“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 subdued,” Collins said.

He also said the three metro areas – especially Northwest Arkansas – continue to be key job generators for the state.

“To underscore the impact of the three largest metro areas, for December of this year the unemployment rate for the rest of the state was 8.5%, up 0.3% from December 2012 to December 2013. The statewide unemployment rate with the three largest metros added back in was 7.2%, up 0.1% December-on-December,” Collins said.

CENTRAL ARKANSAS
OVERALL GRADES — Central Arkansas regional economy (per quarter)
4Q 2013: C-
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 349,000 in December, up from 345,500 in December 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 10.4% in December 2013, down from the 10.5% in December 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 — D+
The area unemployment rate, an important gauge in the health of the metro labor market, was up slightly in the fourth quarter. Unemployment in December was estimated at 6.2%, which was unchanged compared to December 2012.

Sales and Use tax collections — C
Overall, sales tax collections in the region were up in the fourth quarter of 2013. The tax collections, which are good indicators of regional consumer confidence, in the five counties in the region totaled $8.11 million during November 2013 — compared to $7.783 million in November 2012.

LEADING INDICATORS
Building Permit (housing) valuation — C+
The total value of permits issued in the fourth quarter (measured in a three-month rolling average) was up slightly compared to the fourth quarter of 2012. The rolling average in December was $21.246 million, more than the $18.973 million in December 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 — D+
Hospitality employment in central Arkansas has trended positive for several quarters, but leveled off during the first quarter of 2013, with declines seen in the fourth quarter. December 2013 saw 29,300 jobs in the regional hospitality sector, down from the 29,700 jobs in December 2012.

Manufacturing employment — C-
Manufacturing employment was relatively stable during the fourth quarter. Sector employment in December 2013 was 19,900, unchanged compared to December 2012.

Construction employment — C-
This sector, which includes mining/natural resources employment, also was stable during the fourth quarter, ending at 16,300 jobs in December 2013, which was unchanged compared to December 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.