Forecast: GDP Growth To Be 3.5 Percent

 

As the calendar turns to a new year, businesses can take comfort in one all-important number: gross domestic product.

The GDP represents the nation’s total revenues for all goods and services, and is the metric most commonly used to measure the health of the economy.

According to Pennsylvania-based research firm Moody’s Analytics, the GDP is expected to increase in the U.S. at a 3.5 percent rate in 2015.

Even better news? The local economy is well ahead of that rate. In September, statistics released by the U.S. Bureau of Economic Analysis showed Northwest Arkansas ranked No. 26 out of 381 metropolitan areas in its rate of GDP growth last year, 5.6 percent to reach $23.8 billion.

What does that mean locally? Here’s a sampling from five industry sectors.

 

CONSTRUCTION

The Associated Builders & Contractors had some good news in early December.

The U.S. construction industry added 20,000 jobs in November, with nonresidential construction contributing 4,900 of them, according to the Bureau of Labor Statistics preliminary estimate released Dec. 5.

October’s overall construction estimate was revised downward from 12,000 to 7,000 net new jobs and nonresidential construction lost 2,100 jobs in October, after revisions. 

The outlook for continued job growth remains positive, according to ABC chief economist Anirban Basu, noting that the greatest constraint on nonresidential job growth may no longer be a lack of demand for construction services, but rather a lack of supply of sufficiently skilled workers.

“Growing demand for human capital coupled with tighter labor markets strongly suggests that industry wage pressures will expand in 2015,” Basu explained. “Perhaps to the extent that margins will be rendered too thin for many firms, even in the face of rising demand for services.”

The ABC’s Construction Backlog Indicator (CBI) set a record during the third quarter of 2014 at 8.8 months, eclipsing the previous all-time high of 8.5 months in the second quarter of 2014.

The CBI measures the amount of construction work under contract to be completed in the future. A backlog of less than eight months is statistically associated with construction spending declines, while a backlog of more than eight months indicates future spending increases.

The November report likely signals that 2015 will be a strong year of recovery for the nation’s nonresidential construction industry.

The area’s largest contractor also has a positive view of 2015.

“Our volume of projects has increased and we have a strong backlog of projects for 2015,” said Greg Fogle, president of Midwest operations for Nabholz Construction Corp. in Rogers. He noted that many of the new projects that have been chosen are in the private sector. “This is a nice change compared to previous years,” he said.

 

TOURISM 

The Northwest Arkansas tourism industry has grown quickly in the past decade, as each year the region adds new destinations and improves existing ones.

And 2015 will be no different, said Sandy Luetjen, president of the Northwest Arkansas Tourism Association. 

While it will mark the first full year in operation for two major attractions: the Walmart AMP in Rogers and the Siloam Springs Kayak Park, one highly anticipated project is the completion of the Amazeum, a children’s interactive learning museum, which is planned to open by year’s end in Bentonville.

Luetjen said its proximity to the Crystal Bridges Museum of American Art is a benefit to the museum, which will be “a hit for the young, as well as the not-so young.” 

Also, with the imminent completion (planned for late January) of the 34-mile Razorback Regional Greenway trail, much of which is already in use, Luetjen said she expects to see more biking events in the coming year.

Also next year, downtown neighborhoods will continue to be a strong focus of the Northwest Arkansas tourism industry, Luetjen said. “The region is known for its many vibrant and historic downtown areas, and several cities have exciting ‘master plans’ [for redevelopment] in the works.”

The Walton Arts Center will continue to undergo its estimated $20 million renovation and expansion, which is planned to be completed mid-2016.

In the six-county region of Benton, Carroll, Crawford, Madison, Sebastian and Washington counties, tourism-tax collections account for about 27 percent of the statewide total.

Arkansas set a record with $12.71 million in revenue from its 2 percent tourism tax in 2013. Through the first nine months of 2014, revenue from the tax was at $10.61 million. For comparison, the first nine months of 2013 brought $9.94 in tourism tax revenue.

 

RETAIL

Americans were spending money in October, sending retail sales to a gain of 0.3 percent for the month after falling 0.3 percent the previous month.

That is according to the National Retail Federation, which announced Nov. 14 that estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, were $444.5 billion. That’s a 4.1 percent from the same month in 2013.

“Consumers regained the energy to spend again in October, removing some of the concerns surrounding the slower consumer spending results seen as of late,” NRF chief economist Jack Kleinhenz said in a news release. “Much of the spending power stems from lower gas prices, accelerated job growth, wages and salary gains, and the recent rise in stock prices. We expect that the next two months will bring forth confident holiday shoppers who have the ability and desire to spend on gifts and more.”

Sophia Koropeckyj, a labor economist at Moody’s, told syndicated columnist Phillip M. Perry in a recent interview that shoppers will continue their willingness to spend in 2015, which should help improve revenues and profits for retailers.

“Recent economic data has been encouraging,” Koropeckyj said. “Stronger job growth, record low debt service burdens, record high stock values and rebounding house prices are supporting consumer spending.”

 

COMMERCIAL REAL ESTATE

While 2014 was considered a great year for commercial real estate, 2015 is expected to be even better. That’s the opinion of the experts who say the region’s continued economic health will drive demand for quality space ranging from Class A offices to warehouses to strip retail centers.

Looking ahead to next year, significant real estate activity is expected all along the Northwest Arkansas corridor, with the headliner being, not surprisingly, the Pinnacle Hills area, described by some as “Downtown Northwest Arkansas.”

Still, even with the positive outlook for the coming year, problems will remain, said Kathy Deck, director at the Center for Business and Economic Research at the University of Arkansas. Construction costs are on the rise, identifying real demand can be difficult, and Northwest Arkansas still has a lot of low-quality space that needs to be repurposed and re-priced.

In addition to Pinnacle Hills, Deck sees activity hotspots in downtown Bentonville for retail and offices, and in Fayetteville near campus for multifamily and restaurants. She also said a new-to-NWA big box store might be on the way.

“There are rumors, but nothing solid,” Deck said.

Phil Taldo, an executive broker with Weichert, Realtors — The Griffin Co. in Springdale, said don’t be surprised if something unexpected happens.

“I think we’ll have a couple of big announcements that will surprise people,” he said.

And Ramsay Ball, a principal with Colliers International, said there’s no doubt 2015 will be better than 2014.

“It’s a good time to be in the business if you like action and dynamic change,” Ball said.

 

AGRICULTURE & POULTRY

Due to favorable feed prices for corn and soybean meal, and thanks to the support of high beef prices, 2015 U.S. broiler production is expected to increase by 3 percent over 2014, according to the U.S. Department of Agriculture.

Though the USDA’s prediction does not consider the impact of Tyson Foods Inc. and its $8.5 billion acquisition of Hillshire Brands Co., a big year for poultry in general bodes well for one of the largest food companies in the world.

Dennis Leatherby, Tyson’s executive vice president and chief financial officer, told investors in November that Tyson expects to set new financial records in 2015. He predicts revenues of approximately $42 billion and adjusted earnings in the range of $3.30 to $3.40 per share, a 12-percent increase over fiscal 2014.

Donnie Smith, Tyson’s president and CEO, speaking at the same November meeting as Leatherby, said: “Tyson Foods has shown good growth over the past five years, but I think right now is the beginning of a new growth phase. … It’s a very exciting time to be one of the leading food companies in the world.”

The agriculture industry will also replace its top state official in 2015. Arkansas Agriculture Secretary Butch Calhoun submitted his letter of resignation to Gov. Mike Beebe in October, effective Dec. 31.