Compass Report: Central Arkansas Economy ‘Underperforming’

by The City Wire Staff ([email protected]) 81 views 

Economic conditions in two of Arkansas’ three largest metro areas continue to be stable or improving, with central Arkansas – the state’s largest metro – continuing to show signs of weakness that began in the first quarter of 2013, according to The Compass Report’s analysis of first quarter 2014 data.

The quarterly Compass Report is managed by The City Wire. The report is the only independent analysis of economic conditions in Arkansas’ three largest metro areas.

To underscore the impact of the three largest metro areas, for March of this year the unemployment rate for the rest of the state was 8%, down 0.5% from March 2013 to March 2014. The statewide unemployment rate with the three largest metros added back in was 7%, down 0.5% March-over-March.

Continued gains in key employment sectors and building activity helped the Northwest Arkansas economy begin 2014 with a strong quarter. The first quarter 2014 grade of B- was slightly off compared to the first quarter 2013 grade of B and reflected a slight decline from the the fourth quarter of 2014.

However, while the regional economy slowed compared to the first quarter of 2013, the grade reflects an economy in expansion mode. For example, non-farm employment in the region was 217,400 in March, well ahead of the 213,600 in March 2013. Building permit values in the region totaled $126.551 million in the first quarter, up over the $100.803 million in the first quarter of 2013.

Economist Jeff Collins, who conducts data collection and analysis for The Compass Report, said the Northwest Arkansas economy may have slowed but the pace of growth continues to outpace the state’s largest metro economy.

“Despite being roughly two-thirds the size of the Central Arkansas economy, nonfarm employment grew at three times the rate of the state’s largest MSA,” Collins noted in the analysis. “Looking at the real estate data for the two regions, building permits in the third quarter for Northwest Arkansas were roughly 87% of the total for Central Arkansas. However, the value of the permits during the period was roughly 151% of that for Central Arkansas.”

A potential problem on the horizon is the connection between regional employment and housing sector growth.

“There has been considerable development of residential real estate in the last two quarters which may cause disequillibrium in the housing market given slowing employment growth rates,” Collins wrote.

The Compass Report for the first quarter of 2014 in the Fort Smith area shows gains compared to the first quarter of 2013, but a small decline from the fourth quarter of 2013. A first quarter 2014 grade of C was better than the C- of the first quarter of 2013 but below the C+ of the fourth quarter of 2013.

Collins said regional economic conditions were “somewhat encouraging given the national statistics.”

Non-farm employment in the metro area hit 116,600 in March, up from 116,000 in March 2013. And although the metro jobless rate fell from 8.1% in March 2013 to 6.9% in March 2014, the number of employed did not gain. That was partially reflected in continued pressure on metro sales tax collections. For example, tax collections in Fort Smith totaled $10.246 million in the first quarter, below the $10.377 million in the same quarter of 2013.

“The number of employed was basically unchanged year-over-year. These data indicate the local labor market is improving primarily due to people either leaving the area or choosing not to look for work. Either way, it would be difficult to conclude the employment situation is improving in the Fort Smith area despite the declining unemployment rate,” Collins wrote.

And while the employment picture in the Fort Smith region is not pretty, Collins said “the region has performed relatively well compared to most other metros and the state as a whole.”

The 2014 first quarter economy in the Central Arkansas area received a grade of C- meaning that economic conditions declined slightly compared to the first quarter of 2013 and were unchanged from the previous four quarters of the year.

“The Central Arkansas regional economy continues to underperform. This is likely due to weak national growth and the impact of reduced state and local government spending,” according to Collins.

Non-farm employment ended the quarter at 346,100, up from 344,900 in March 2013. However, sales tax revenue in the region continues to lag.

“Despite improvement in the unemployment rate, nonfarm employment added only 1,200 jobs or 0.3% since March 2013. Given recent job creation data for the Central Arkansas metro, this was a weak showing,” Collins noted. “By comparison, the Northwest Arkansas regional economy added 3,800 or 1.8% while the Fort Smith regional economy added 600 jobs or 0.5% during the same period.”

A key factor in understanding The Compass is in understanding the “grading” approach used to measure the current and leading economic indicators.

The strategy is to place the most recent data in historical context. Average values for the percent change over the referenced time period were calculated, as were standard deviations for each measure.

The more similar current values are to historic averages the more likely the indicator grade is to be a “C.”

The farther away the observed value, as measured by the standard deviation of the data, the more divergent the grade from “C.” In other words, “C” reflects no change in economic activity. The grades “B” or “A” indicate improvement above the historical average, and “D” and “F” indicate a decline in economic activity compared to the historical average.

You can read more analysis and review additional data at this link.