After strong 2013, GDP growth In most Arkansas metro areas slows in 2014

Five of the state’s eight metropolitan areas experienced flat or weaker business growth in 2014 as Arkansas’ economic output fell well below the rest of the nation last year, according to the data released Wednesday (Sept. 23) by the U.S. Bureau of Economic Analysis.

The Northwest Arkansas metro area, which includes Fayetteville, Springdale and Rogers areas posted the largest percentage increase (3.1%) in real GDP expansion among the metropolitan areas in or connected to Arkansas in 2014. Northwest Arkansas economy was also the only MSA in the state to rank in the top 100 regions across by GDP percentage growth at 69th.

Besides Northwest Arkansas, the other Arkansas metro areas posting GDP growth in 2014 were the Fort Smith metro with 1% growth and the Memphis-West Memphis area at 0.4% growth. Overall, Arkansas’ economy in 2014 expanded by a tepid 0.8%.

Real GDP increased in 282 of the nation's 381 metropolitan areas in 2014, led by growth in several industry groups: professional and business services, wholesale and retail trade, and the group of finance, insurance, real estate, rental, and leasing. Natural resources and mining remained a strong contributor to growth in several metropolitan areas. Collectively, real GDP for U. S. metro areas increased 2.3% in 2014, up slightly from a revised 1.9% in 2013. (Link here for the metro GDP report.)

In 2013, when Arkansas’ economy grew by 2.4%, all of the metro areas saw an increase in economic activity, except for Texarkana and Pine Bluff. Those two regions saw slight improvements in business activity in 2014 from the prior year, but still remained in negative GDP territory that has caused those local economies to shrink for several years.

Little Rock, the state’s largest metropolitan area by population and economic activity, ranked in the bottom quarter in the 314th spot as business activity in 2014 contracted by 0.8% from the previous year. Hot Springs and Jonesboro, which both saw robust expansions in 2013, also took backwards steps in 2014 as those local economies slowed down.

By GDP dollars alone, the Little Rock MSA was still the state’s largest economy with $38.6 billion in economic activity in 2014, followed by Northwest Arkansas at $25.1 billion in business revenue. Both Arkansas MSAs ranked in the top 100 in overall GDP activity at 66th and 95th, respectively.

Fort Smith was next with nearly $10.4 billion in GDP activity, followed by Jonesboro at $6.3 billion, Texarkana with $5 billion, Hot Springs with $3.4 billion, and Pine Bluff at nearly $3.1 billion. The Memphis MSA, just across the state-line in Tennessee, ranked 47th nationally with more than $69.6 billion in gross domestic product cash flow.

Following are the percentage gains among the metro areas between 2013 and 2014.
Northwest Arkansas
2014: 3.1%
2013: 4.9%

Fort Smith metro
2014: 1%
2013: 0.3%

Memphis/West Memphis
2014: 0.4%
2013: 0.4%

Jonesboro
2014: –0.6%
2013: 1%

Little Rock/North Little Rock
2014: –0.7%
2013: 1.4%

Hot Springs
2014: –0.8%
2013: 4.6%

Texarkana, AR-TX
2014: –1%
2013: –3.8%

Pine Bluff
2014: –3%
2013: –4.4%

Nationally, Midland and San Angelo, Texas, saw the biggest GDP growth with double-digit expansion on the strength of the shale drilling boom in Central and West Texas. Midland, which is at the epicenter of Cline and Permian shale plays in West Texas, grew by a whopping 24.1%.  San Angelo, two hours east of its sister boomtown, expanded by 11.4%.

Lake Charles, La., Greeley, Colo., and Wheeling, W.Va., three other energy-dependent economies, expanded by 10.3%, 9.9%, and 9.5%, respectively, year-over-year.

On the other end of the scale, the worst GDP performer was Homosassa Spring’s, which contracted by -7.5%, followed by Terre, Haute, Ind., at -4.0%. East Stroudsburg, Pa., Carbondale-Marion, Ill, and Lafayette, La., rounded out the bottom five at -3.6%, -3.5% and -3.4%, respectively. Pine Bluff also landed in top 10 in the final spot.

Overall, professional and business services contributed 0.61 percentage points to U.S. metropolitan area real GDP growth in 2014. This industry contributed to growth in 314 of the nation's 381 metropolitan areas. Growth in this industry accounted for more than half of real GDP growth in 49 metropolitan areas, and contributed more than one percentage point to growth in 28 metropolitan areas, most notably in Midland, Mich. (4.56%) and San Francisco-Oakland-Hayward, Calif. (2.05%).

Wholesale and retail trade contributed 0.34 percentage points to U.S. metropolitan area real GDP growth in 2014. This industry contributed to growth in 323 metropolitan areas and contributed more than one percentage point to growth in 16 metropolitan areas. The largest contributions from this industry occurred in Battle Creek, Mich., (2.85%) and Mobile, Ala. (1.96%).

Finance, insurance, real estate, rental, and leasing contributed 0.34 percentage points to U.S. metropolitan area real GDP growth in 2014. This industry contributed to growth in 188 metropolitan areas and contributed more than one percentage point to growth in 41 metropolitan areas, most notably in Naples-Immokalee-Marco Island, Fla., (3.84%) and Panama City, Fla., (3.46%).

Although natural resources and mining was not a major contributor to growth for the nation, this industry contributed to strong growth in several of the fastest growing metropolitan areas, including Midland, San Angelo and Wheeling.

The government sector subtracted 0.01 percentage points from U.S. metropolitan area real GDP growth in 2014. This sector subtracted from growth in 236 metropolitan areas. The largest subtractions occurred in Jacksonville, N.C. (1.64%), Hinesville, Ga. (1.4%), and Clarksville, Tenn. (1.09%).

Meanwhile, the forecast for real GDP growth in the third quarter of 2015 is 1.5% as of Sept. 17, according to the Atlanta Federal Reserve’s GDPNow estimates. That will fall well short of the strong upward revision of 3.7% growth reported for the second quarter of 2015 by the Department of Commerce in late August.

The choppy growth now some Wall Street economists now predicting that the sharp decline and other market turbulence could cause the Federal Reserve’s Open Market Committee (FOMC) to put off interest rate hikes for the remainder of 2015.

“The long-run central tendency for GDP (1.8-2.2%) portrays a much less encouraging outlook compared to prior projections (2.0-2.3%),” BBVA Compass Senior Economist Kim Chase wrote in a recent research report. “This suggests that the Fed has accepted the post-crisis low growth environment as the “new normal”, with declining productivity and labor force participation weighing on potential growth.”

Chase said the FOMC could still raise interest rates at its December meeting, but a clearer picture of the committee’s thinking won’t be known until the Fed releases minutes from the September meeting on Oct. 8.

"For now, we can assume that for the Fed to push toward liftoff, inflation needs to start picking up a bit more, in addition to stronger vibes from the global economy," said Chase.