The Compass Report: Arkansas Economy Improves In The First Quarter Of 2015
by July 20, 2015 9:51 pm 113 views
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 report first analyzed all three areas. The biggest relative gains 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.
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 first quarter of 2014, economic conditions were stable and unchanged in Central Arkansas and Northwest Arkansas, and improved in the Fort Smith metro.
Northwest Arkansas remains by far the state’s most vibrant metro economy. For example, the labor force grew March-on-March in Northwest Arkansas by roughly 4.8% better than the 2.4% in central Arkansas and the 1.8% in the Fort Smith metro.
To underscore the impact of the three largest metro areas, for the first quarter of this year the unemployment rate for the rest of the state was 7.1%. The statewide unemployment rate with the three largest metros added back in was 5.8%.
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.”
FORT SMITH REGION
The Compass Report for the Fort Smith area posted a B grade for the first quarter, up from the C+ in the fourth quarter of 2014 and up from the C in the first quarter of 2014.
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.
Non-farm employment in the metro area peaked at 112,600 in the first quarter, better than the 112,300 mark in the first quarter of 2014. Countywide sales and use tax revenue reported by the Arkansas Department of Finance & Administration were up 2.9% quarter-on-quarter after adjusting for the increased rate in Crawford County. Building permit values finished strong in March, with $9.269 million in work permitted, well ahead of the $2.678 million in March 2014.
However, the region has yet to fully recover from the Great Recession, Collins said. For example, the total number of employed in the metro area during March was an estimated 113,468. By contrast, total employment in March 2006, prior to the recession, was 122,900. Collins said the numbers are moving in the right direction, but it is unclear if the trend will continue or when regional jobs return to pre-recession levels.
“The most recent numbers do nothing to shed light on the long-term prospects for the region. Moreover, barring some unforeseen event, the outlook remains mixed,” Collins noted in the report.
Mike Jacimore, sales manager for Arvest Bank in Fort Smith and the River Valley Region, said The Compass Report grade for the Fort Smith area coincides with a rise in consumer confidence measured by the Arvest Bank Consumer Sentiment Survey.
“It is great Fort Smith has received our highest grade ever published for the city since the report began. We have seen consumer sentiment becoming more positive, and the improved grade is one more measurement validating this assertion,” Jacimore said. “Arvest is proud to support research beneficial for our community.”
NORTHWEST ARKANSAS
Impressive job growth and a continued rise in building activity resulted again in a solid grade of B for the Northwest Arkansas economy during the first quarter. The grade was unchanged from the fourth quarter and better than the B- in the first quarter of 2014.
Nonfarm employment grew rapidly in the March-on-March comparison. The metro economy added an estimated 7,900 jobs. This was roughly four and a half times the growth rate of Central Arkansas metro for the same period. Looking at the real estate data for the two regions, building permits in the fourth quarter for Northwest Arkansas were roughly equal to the total for central Arkansas while the value of the permits during the period was roughly 177% greater.
Sales and use tax collection data indicate that Bentonville, Fayetteville, Springdale, and Rogers have experienced solid growth quarter-on-quarter. In percentage terms, Springdale experienced the strongest growth in collections (12.5%) while Fayetteville collected the most tax dollars of any of the four major municipalities – $9.9 million in the fourth quarter.
The region is also setting records in travel and tourism sector jobs. Federal numbers show that 21,900 were employed in the area’s hospitality sector in March, better than the 21,500 in March 2014.
Collins said there is no reason to believe the pace of growth in Northwest Arkansas will slow during the remainder of 2015.
CENTRAL ARKANSAS
Economic conditions in central Arkansas, the state’s largest metro area, received a grade of C+ in the first quarter, unchanged from the fourth quarter of 2014 and better than the C- in the first quarter of 2014.
Job gains and improvements in sales tax collections were the high points for the state’s largest metro area during the first quarter.
Improvements in employment and impressive gains in the construction sector helped boost the grade higher. Non-farm employment stood at 347,700 in March, better than the 344,800 in March 2014. Helping drive the jobs gain was the region’s construction sector. That sector employed an estimated 16,700 in March, ahead of the 15,600 in March 2014.
Comparing the most recent three month period to the same period for the previous year, sales and use tax data indicates that retail activity grew for the metro area by approximately 4%.
Collins said the metro area appears to be on a better economic trend line.
“The most recent economic data for central Arkansas continues to be encouraging. The local economy had struggled to gain momentum, so the declining unemployment rate and growth in non-farm employment are positive signs the region may be returning to trend. Given the size and overall importance of the metro to state economic performance, a return to trend growth is essential,” Collins noted in his analysis.
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.