With the first two quarters of 2015 already in the history books, local and national economists predict a stronger economy in Northwest Arkansas, Fort Smith and the nation as a whole for the remainder of the year.
John Silvia, chief economist with Wells Fargo, described the national economic scene as mixed with strong consumer spending somewhat damped by slower growth overseas that is constraining exports, as well as continuing cutbacks in energy exploration.
“The drags on growth should lessen somewhat during the second half of the year, allowing overall growth to ramp back up to a 3% or better,” Silvia said. “Real GDP contracted at a 0.2% pace in the first quarter and we expect growth to rebound at a 2.1% pace in Q2 before settling in to a3.4% pace in the second half of the year.”
While business investment has slowed, he’s encouraged by recent improvement in commercial construction. Ongoing improvements in residential home sales and construction, stronger jobs numbers, income growth and rising home values are also boosting household finances.
Silvia expects housing is likely to become a more important driver in coming quarters. He predicts slightly better operating metrics for manufacturers that have taken a one-two punch from slumping oil prices and surging dollars.
ARKANSAS OFF TO A GOOD START
The year got off to a good start for Arkansas’ economy. Gains in employment, sales tax collections and building permits resulted in the best combination of grades for Arkansas’ top three metro economies since the first quarter of 2012 when The Compass Report first analyzed all three areas.
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.
Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas, also sees bluer skies for much of the Natural State. She said Northwest Arkansas and Jonesboro should continue to set the bar high among overall economic growth in the back half of 2015. Central Arkansas will also grow, but less than the afore mentioned regions. Deck said Fort Smith and Hot Springs are likely to see modest improvements growing at a slower pace, but with signs of optimism.
The laggard region, according to Deck will likely be Pine Bluff.
Although low oil prices and the strong dollar have slowed national GDP growth for the remainder of 2015, improvements in the national economy should continue to benefit Arkansas’ economy, said Jeff Collins, the economist for The City Wire who gathers the extensive data used in The Compass Report. He also is a former director of the Center for Business and Economic Research at the University of Arkansas.
“Non-farm employment has grown for the last 18 quarters. The economy created roughly 586,000 non-farm jobs in the fourth quarter after creating 973,000 in the fourth quarter of the previous year,” Collins wrote in the first quarter 2015 report. “Incomes and employment are expected to grow modestly through the remainder of 2015. Housing, however, is expected to continue to accelerate given positive market conditions.”
Arkansas’ closely watched nonfarm payroll number was 1,211,400 in June, better than the 1,209,600 in May and up over the 1,188,100 in June 2014. If the June number stands, it will mark a new high. Prior to June, nonfarm jobs reached a high in Arkansas of 1,209,800 in February 2008.
Deck said real estate is tied directly to jobs and population growth in a local market. She said in that respect Northwest Arkansas can continue to see improved growth in its housing sector.
Harold Crye, CEO of Crye Leike Real Estate, said Northwest Arkansas is one of the best performing regions in which it operates. Crye-Leike operates 112 offices across the Southern region in major metro areas such as Memphis, Little Rock, Atlanta, Huntsville, Ala., Kansas City, Joplin and Destin, Fla. He told The City Wire that Benton and Washington counties have made a robust comeback since he entered this market in 2009.
“We continue to see solid growth each year in Northwest Arkansas. The only market close to those growth patterns is Nashville (Tenn.),” he said.
Crye expects the residential real estate market to continue its upward trajectory this year. He said sales will likely taper in the fall but the on the whole he predicts record growth in 2015 for his firm.
Other Northwest Arkansas Realtors expect the local market to post double-digit gains in home prices this year. This uptick in pricing is linked to rising new home costs and lower inventory levels that favor sellers. Through June, Benton County’s median sales price rose 11.3% to $167,000 from a year ago, according to MountData.com. In Washington County the median sales price increased 6.6% to $162,000, compared to the same period in 2014.
In Fort Smith, Deck expects to see slower growth patterns in housing which are consistent with that economy given that it has had to retool itself from a manufacturing base to a more diversified economy including professional services and tourism.
“The Fort Smith market is a very different dynamic than Northwest Arkansas starting with population growth and employment expansion. We have not seen that dynamic job growth there, although we are now seeing glimmers of hope in that economy. It would make sense that this real estate market is also improving a bit,” Deck said.
Jan Dyer, president of the Fort Smith Board of Realtors, said everyone is happy with the market improvement to date. She ranks the overall health of the Fort Smith metro real estate market a solid “B” which is better than she’s seen in several years. Dyer credits the rise in sales to a healthier overall economy and said there are buyers at both ends of the price spectrums which is another sign of steady demand.
The biggest relative gains in The Compass Report were in the Fort Smith metro, which posted a “B” grade for the first time since The Compass Report launched in the first quarter of 2009. Improvement in the region’s non-farm employment, gains in sales tax collections and continued strength in building activity played a primary role in the region posting its best grade with The Compass Report.
Looking to the back half of 2015, Dyer expects a steady pace will continue, noting that the first half of the year is typically a little stronger than the second half. That said, Dyer expects the local market will increase 3% overall in 2015, which she said is “excellent” and sustainable growth.
Deck said the economic engines of Northwest Arkansas for the most part continue to expand. She said Northwest Arkansas has had consistent job growth in its largest employment sectors — trade, transportation, business and professional services
education and health.
“In any thriving economy there is ebb and flow even among the largest of employers. The nonfarm payrolls that don’t pick up contract laborers shows 6,000 new local jobs year-over-year. The labor force data shows 9.000 new jobs in the same period. Those are strong numbers,” Deck said.
In the Fort Smith economy, Deck said recent announcements like the more than $32 million osteopathic college under construction and other developments at Chaffee Crossing are reasons for optimism as the region works to recover job losses during the Great Recession.
“Keep in mind they are starting from a hole left behind from manufacturing withdrawal, namely Whirlpool and related services,” Deck said. “The investments being made now will pay off. The real estate market is already responding to them and the tourism infrastructure will take time.”
The Bureau of Labor Statistics show that Fort Smith’s metro area’s nonfarm payrolls lost 300 jobs in June, compared to a year ago. The labor force data that reflects contract laborers grew by nearly 3,000 in May, compared to a year ago. The June labor force data will be released Wednesday (July 29).