The Compass Report: Third quarter trends positive for top three Arkansas metros

While not broad, improvements in employment, sales tax collections and tourism sector employment helped push positive economic trends during the third quarter of 2014 for Arkansas’ three largest metro areas.

Data gathered and analyzed as part of The Compass Report showed gains and stability during the third quarter of 2014 compared to the same period in 2013. The quarterly Compass Report is managed by The City Wire, and is sponsored in the Fort Smith area by Arvest Bank. The report is the only independent analysis of economic conditions in Arkansas’ three largest metro areas.

Compared to the third quarter of 2013, economic conditions were improved in Northwest Arkansas and the Fort Smith metro area, and unchanged (stable) in central Arkansas.

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 6.4 percent, down 1.7% from September 2013. The statewide unemployment rate with the three largest metros added back in was 5.7%, down 1.5% September-on-September.

Rodney Shepard, president and CEO of Arvest Bank in Fort Smith and the River Valley Region, said it is nice to see the ongoing improvements in the Fort Smith area and hopes the growth can be sustained.

“We are pleased that there is an improvement in our overall grade from last quarter,” Shepard said. “Part of that stems from a slight increase in year to year employment gains. While encouraging, we are hopeful these jobs are permanent for the area.”

Jeff Collins, economist for The City Wire, said Arkansas’ metro areas should benefit from “slow but steady” improvement in the U.S. economy.

“With the mid-term elections over, we have the Presidential election season to look forward with the New Hampshire primary and Iowa caucuses only 14 months away. In the meantime, most Americans will enjoy lower gas prices, and slow but steady improvement in employment and housing markets. The most important government policy action impacting the economy will continue to come from the Federal Reserve. The greatest risk appears to come from slow international growth impacting exports,” Collins noted.

NORTHWEST ARKANSAS
Continued employment gains and increases in sales tax collections are signs of a metro economy on a clear growth trend. The third quarter 2014 grade of B+ was better than the B in the second quarter of 2014 and unchanged compared to the third quarter of 2013.

The grade of B+ indicates an economy that is growing. Non-farm employment in the region was 219,800 in September, well ahead of the 216,800 in September 2013. Countywide sales tax collections in the three-county metro area totaled $21.982 million in the quarter, ahead of the $20.889 million in the third quarter of 2013.

Although the Northwest Arkansas metro continues to be the fastest growing metro in Arkansas and one of the most dynamic regional U.S. economies, the pace of growth is slowing.

“The Northwest Arkansas regional economy, as measured by change in non-farm employment, slowed noticeably. Growth rates had regularly exceeded 2% annually but current rates based on month-on-month comparisons are closer to 1.5%,” Collins said.

However, the size of the labor force in Northwest Arkansas is more stable than that of the other two metro areas. According to data from the Bureau of Labor Statistics the labor force declined by 1.7% September-on-September in Northwest Arkansas. The labor force declined in Central Arkansas by 2.2%. In the Fort Smith area the labor force declined by roughly 3.5%.

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

Holding back the improving trend continues to be relatively flat employment gains in the year-over-year period, and a decline in sales tax collections. Non-farm employment in the metro area hit 116,600 in September, up slightly from 116,500 in June 2013. County sales tax collections in the four-county area totaled $10.302 million in the third quarter, down from $10.34 million in the 2013 quarter.

For the quarter, employment growth was concentrated in a handful of service sectors.  The following service sectors had increased employment September-to-September: trade, transportation, and utilities (700), leisure and hospitality services (700), business and professional services (200), and government (100). In percentage terms, leisure and hospitality gained the most during the period (7.4%).

Still lagging is the region’s manufacturing sector.

“The critical manufacturing sector performed poorly September-on-September losing 500 jobs. An estimated 17,900 people worked in the sector in September 2014 compared to 26,500 in September 2007,” Collins wrote.

Although employment and sales tax collections struggle to post consistent improvement, Collins said the regional economy is doing well considering the loss of major employers in recent years.

“While the metro area economy continues to struggle with the decline in manufacturing, given economic performance at the state and local levels, the data for the Fort Smith area economy implies the regional economy has been somewhat resilient,” he said.

CENTRAL ARKANSAS
Economic conditions in central Arkansas, the state’s largest metro area, received a grade of C in the third quarter, unchanged compared to the second quarter but better than the C- in the third quarter of 2013.

Improvements in overall employment and ongoing gains in the construction sector helped maintain the C grade. Non-farm employment stood at 348,900 in September, better than the 345,900 in September 2013. There were an estimated 18,500 jobs in the region’s construction sector in September, well ahead of the 16,600 in September 2013.

“Improvement in the unemployment rate was evident in the nonfarm employment data.  The Central Arkansas economy added 3,000 jobs, or 0.9% since September 2013. Given recent job creation data for the Central Arkansas metro, this was an above average improvement,” Collins noted in his report.

Like the Fort Smith metro area, Collins said central Arkansas struggles to stay on a positive track.

“The Central Arkansas regional economy has slowly improved since late 2010. While the local economy benefits from diversity and concentration of healthcare and government employment, it has yet to regain its pre-recession trajectory,” Collins said.

NATIONAL ECONOMY
Output growth in the U.S. has been very good over the last two quarters. This coupled with relatively strong employment growth has reduced the economic concerns of U.S. households and businesses.

The unemployment rate has steadily declined since reaching a seasonally adjusted peak in October 2010 of 10%. The current rate stands at 5.8%. This is still well above what most economists historically consider the “full employment” unemployment rate of 4%.

However, the better job numbers have not resulted in clear gains in consumer confidence.

“Despite the positive employment data public opinion polls continue to show most Americans are concerned about the direction of the U.S. economy and generally dissatisfied with policies coming out of the federal government,” Collins noted.

Other national economic notes from Collins’ included:
• Despite persistently high unemployment rates, consumer spending has picked up since the first two months of the year. Real retail and food service sales grew at an annualized rate of 2.6% in September. Again, lower gas prices are increasing household buying power. This unexpected windfall is likely to impact holiday sales. Look for a better than expected retail season in the fourth quarter.

• The economic outlook is unlikely to be impacted by governmental policy choices given Republican control of the legislative branch and Democrat control of the executive. Factors likely to have significant impact include reduced monetary stimulus offset by lower petroleum prices, the net of which remains to be seen.

• Ironically one man’s silver lining is another man’s cloud. Low oil prices will negatively impact oil producing regions of the U.S. as well as returns for energy companies. The rapid growth of shale oil in places like the Dakotas is likely to slow as the local economy experiences the primary hazard of a commodity-based economy—falling prices.

• Consumers, on the other hand, are likely to return to larger and more powerful cars and trucks, a clear boon for automobile manufacturers.

• The U.S. economy remains heavily dependent on the consumer. It remains to be seen if consumers will maintain purchasing at current levels with persistently high unemployment and modest wage growth.

REGIONAL GRADE HISTORY
FORT SMITH REGION – Fort Smith regional economy
3Q 2014: C+
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
3Q 2014: B+
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
3Q 2014: C
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.