Compass Report: Top Arkansas Metro Economies End 2014 On A Good Note

Economic conditions in Arkansas’ three largest metro areas were relatively healthy in the fourth quarter of 2014. Small improvements were seen in the central Arkansas and Fort Smith areas, and overall solid numbers continuing for the Northwest Arkansas economy, according to The Compass Report.

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 fourth quarter of 2013, economic conditions were improved in Central Arkansas and the Fort Smith metro area, and down slightly in Northwest Arkansas. However, Northwest Arkansas remains by far the state’s most vibrant metro economy.

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 6.5%, down from 8.4% in December 2013. The statewide unemployment rate with the three largest metros added back in was 5.6% December-on-December.

Slow and steady improvements in the national economy should continue to help Arkansas’ economy in 2015, said Jeff Collins, the economist for The City Wire who gathers the extensive data used in The Compass Report. He is also a former director of the Center for Business and Economic Research at the University of Arkansas.

“Output growth has been solid over the last 3 quarters. This coupled with relatively strong employment growth has reduced the economic concerns of U.S. households and businesses,” Collins noted in his analysis of fourth quarter 2014 economic conditions. “Indeed, many economists expect output to grow between 2.5% to 3% for the foreseeable future barring unexpected shocks such as the extreme winter weather which significantly reduced output in the first quarter of the year.”

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

Gains in building permit values, sales tax collections and continued improvements in the region’s hospitality (tourism and travel) sector resulted in the slightly better than average grade. Decline in regional employment is the primary reason the region struggles to consistently trend toward the positive.

Non-farm employment in the metro area hit 116,700 in December, down from 117,300 in December 2013. The report also shows how many jobs have been lost since the Great Recession. In December the total number of employed in the MSA was an estimated 118,635. By contrast, total employment in December 2006, prior to the recession, was 130,702.

Sales and use tax revenue reported by the Arkansas Department of Finance & Administration were up quarter-on-quarter 5.5% after adjusting for the increased rate in Crawford County. Collections were particularly strong in October.

Although regional economic conditions have stabilized, Collins said the trends show that the overall labor market has “weakened.” He said the data make it hard to predict future patterns.

“Data for the Fort Smith regional economy had been mixed for some time. The most recent numbers do nothing to shed light on the long-term prospects for the region. Finally, the data for the Fort Smith area economy suggest the region has not performed as well as other key metros but has performed similarly to the state as a whole,” Collins wrote.

Rodney Shepard, president and CEO of Arvest Bank in Fort Smith and the River Valley Region, said the Fort Smith regional economy was hit hard but has stabilized.

“I still remain encouraged. … As a community, yes, we would like to see better numbers, but in this environment and in this economy, I see this as a positive,” Shepard said.

NORTHWEST ARKANSAS
Continued gains in employment, sales tax revenue and construction resulted in a solid grade of B for the Northwest Arkansas economy during the fourth quarter. However, the grade was down from a B+ in the third quarter and a B+ in the fourth quarter of 2013.

The Northwest Arkansas regional economy continues to grow but at a more moderate pace than in previous quarters. For example, nonfarm employment grew at the same rate as Central Arkansas where it had previously been adding employment at two to four times the rate of the state’s largest MSA.

Employment growth may be slowing but sales and use tax collections in Northwest Arkansas have definitely not stopped growing. Tax collection numbers show that Bentonville, Fayetteville, Springdale and Rogers have experienced growth quarter-on-quarter. In percentage terms, Bentonville experienced the strongest growth in collections (20.7%) while Fayetteville collected the most tax dollars of any of the four major municipalities ($9.6 million in the fourth quarter).

Collins expects the Northwest Arkansas economy to do well in early 2015.

“There is no reason to predict that growth will slow and will likely accelerate in the first half of 2015,” he noted in his analysis.

CENTRAL ARKANSAS
Economic conditions in central Arkansas, the state’s largest metro area, received a grade of C+ in the fourth quarter, better than the C in the third quarter and better than the C- in the fourth quarter of 2013.

Improvements in employment and impressive gains in the construction sector helped boost the grade higher. Non-farm employment stood at 350,900 in December, better than the 345,900 in December 2013. There were an estimated 18,700 jobs in the region’s construction sector in December, well ahead of the 15,900 in September 2013.

Collins said the area also benefitted from a 1.3% gain in retail activity in the region during the fourth quarter compared to the same period in 2013.

“Most recent economic data for Central Arkansas is encouraging. The local economy had struggled to gain momentum so the declining unemployment rate and growth in non-farm employment positive signs the region may be returning to trend. Whether this is an anomoly or a harbinger of things to come remains to be seen,” he said.

NATIONAL ECONOMY
“Grudgingly slow” gains in the U.S. labor market, gains in business investment and increases in consumer spending during the fourth quarter of 2014 point to modest national economic growth in 2015. Collins said the more stable economic outlook is allowing the Federal Reserve to end its monetary stimulus policies and begin setting the stage for short-term interest rate increases.

The continued low prices for energy is nothing short of a “tax holiday for the consumer,” Collins said. Real personal consumption expenditures grew by 4.4% in the fourth quarter compared to an increase of 3.2% in the third quarter. He expects the demand will continue, with slowing growth in China and economic weakness in the European Union likely to result in low energy prices for the foreseeable future.

Collins provided more detail on the national economy in this previous report.

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.