The Compass Report: Arkansas metro areas see Q2 gains, stability

Arkansas’ three largest metro areas showed either improvements or stability during the second quarter of 2014 compared to the same period in 2013, according to The Compass Report’s analysis of second quarter 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.

Compared to the second quarter of 2013, economic conditions in Northwest Arkansas and the Fort Smith metro area were stable (no change), and conditions in central Arkansas improved.

To underscore the impact of the three largest metro areas, for June of this year the unemployment rate for the rest of the state was 7.4%, down 1.7% from June 2013. The statewide unemployment rate with the three largest metros added back in was 6.3%, down 1.4% June-on-June.

New to The Compass Report is sponsorship of the Fort Smith analysis by Arvest Bank-Fort Smith and River Valley Region.

“Arvest is excited to partner with The City Wire, the Fort Smith Regional Chamber of Commerce and Cox Communications to provide the community leaders in the River Valley the most usable, up to date information on economic indicators that the Compass Report provides,” said Rodney Shepard, president and CEO of Arvest Bank of the Fort Smith and River Valley Region. “Arvest’s mission statement is ‘People helping people find financial solutions for life.’ When people are better informed, better decisions are made in our communities.”

NORTHWEST ARKANSAS
Continued employment gains and building activity continued from the first quarter inot the second quarter of 2014 for Northwest Arkansas. The second quarter 2014 grade of B was better than the B- in the first quarter of 2014 and unchanged compared to the second quarter of 2013.

The grade of B indicates an economy that is growing. Non-farm employment in the region was 216,900 in June, well ahead of the 213,700 in June 2013. Building permit values in the region totaled $181.395 million in the second quarter, up over the $138.505 million in the second quarter of 2013. Construction sector employment was 8,900 in June, up compared to 8,400 in June 2013.

Despite the growth, Collins said the pace of growth in Northwest Arkansas is slowing.

“The Northwest Arkansas regional economy slowed noticably in the first half of the year. In the last two years the local growth rate exceeded 2% in all but seven months. Five of the seven have occurred since January,” Collins said.

Collins also said the slowing pace of growth combined with continued growth in commercial and residential construction could prove problematic.

“Finally, at the risk of sounding alarmist, slowing job creation coupled and accelerating real estate development is not sustainable. Both markets bear close scrutiny,” Collins wrote.

FORT SMITH REGION
The Compass Report for the Fort Smith area posted a C grade for the second quarter, unchanged compared to the first quarter of 2014 and unchanged compared to the second quarter of 2013.

A key factor in preventing the region from posting gains is the continued decline in employment.

Non-farm employment in the metro area hit 115,800 in June, down from 116,000 in June 2013. The metro jobless rate fell from 8.2% in June 2013 to 6.4% in June 2014, but the number of employed did not gain.

“The regional economy had added employment for six straight months prior to the start of the second quarter. The statistical evidence suggests that the local labor market has stabilized but is clearly not out of the woods,” Collins wrote.

Continuing, Collins said: “The improvement in the unemployment rate was based on the decline in the number of unemployed (-2,726) relative to the decline in the labor force. The number of employed also declined (-2,775). 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.”

An emerging positive was in tax collections. Tax collections in Fort Smith totaled $10.389 million in the second quarter, better than the $9.956 million in the same quarter of 2013. Tax collection numbers, a sign of consumer confidence and spending, have not been positive in recent quarters.

Overall, Collins said the Fort Smith metro economy is stable, but possibly struggling.

“Given economic performance at the state and local levels, the data for the Fort Smith area economy imply the region has performed relatively well compared to most other metros and the state as a whole,” Collins said. “Data for the third quarter will be closely examined to determine if the soft second quarter was an anomaly or indicative of a regional economy struggling to regain its footing.”

CENTRAL ARKANSAS
Economic conditions in central Arkansas, the state’s largest metro area, received a grade of C, an improvement over the first quarter of 2014 and better than the C- in the second quarter of 2013.

Improvements in overall employment and a better showing in construction sector jobs helped push the better grade. Non-farm employment stood at 348,600 in June, better than the 344,400 in June 2013. There were an estimated 17,400 jobs in the region’s construction sector in June, up compared to 16,800 in June 2013.

“Given recent job creation data for the Central Arkansas metro, this was a modestly improved showing. By comparison, the Northwest Arkansas regional economy added 3,200 or 1.5 percent while the Fort Smith regional economy was essentially flat June-on-June (-200 jobs) during the same period,” Collins said.

However, building permit values declined in the quarter.

Overall, the recent growth in central Arkansas is not reflective of what is possible in the metro area, according to Collins.

“The Central Arkansas regional economy continues to mimic the national economy, growing but at a pace that fails to impress. This is likely due to continued weak national growth and the impact of reduced state and local government spending,” he said.

NATIONAL ECONOMY
Nationwide, overall economic indicators improved during the second quarter of the year.

“The economy was hard hit in the first quarter by the effects of severe winter weather. However, it rebounded substantially in the second quarter,” noted economist Jeff Collins, who conducts data collection and analysis for The Compass Report. “The outlook for the remainder of the year is for solid but unspectacular growth.”

Other national economic notes from Collins’ included:
• Business investment had been one of the bright spots for the national economy. The outlook is for business spending to continue to grow through the remainder of the year. Growth is expected to be especially strong in structures and equipment.

• Unemployment rates were lower in 359 of 372 metropolitan areas and higher in just 10 according to the most recent data available. The labor force had been growing consistently through the recovery until recently. The data suggests that the labor force has been essentially flat for the last two quarters.

• Employment growth has been and will continue to be relatively strong in the services sector, particularly in hospitality, retail trade, professional and business services, and education and health care services.

• With the exception of fluctuations in the highly volatile energy sector, prices have been stable for some time. The lack of inflationary pressure has allowed short and long-term interest rates to remain at or near historic lows. Short-term rates are expected to remain low until the unemployment rate improves substantially and/or inflation rises above 2%.

• Real disposable income grew roughly 3.3% compound annual growth quarter-on-quarter while retail sales data indicate a relatively good second quarter. The forecast for the remainder of the year is for retail sales to accelerate along with growth in disposable income.

REGIONAL GRADE HISTORY
FORT SMITH REGION – Fort Smith regional economy
2Q 2014: C
1Q 2014: C
4Q 2013: C+
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+

NORTHWEST ARKANSAS – Northwest Arkansas regional economy
2Q 2014: B
1Q 2014: B-
4Q 2013: B+
3Q 2013: B+
2Q 2013: B
1Q 2013: B
4Q 2012: C
3Q 2012: B+
2Q 2012: B-
1Q 2012: B-

CENTRAL ARKANSAS – Central Arkansas regional economy
2Q 2014: C
1Q 2014: C-
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 three metro areas.

Link here for more narrative about regional and national economic conditions.

UNDERSTANDING THE COMPASS REPORT GRADES
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.