Burgundy Book: Most Arkansas Businesses Expect Overall Economic Conditions In 2015 To Improve

An August survey of business contacts indicated that a little more than half expect that economic conditions in 2015 will be better than in 2014, according to the Federal Reserve’s “Burgundy Book” of the Little Rock MSA.

The Little Rock zone of the Federal Reserve comprises the majority of Arkansas, except Northeast Arkansas. The total population is approximately 2.5 million people, including the 710,000 who live in the Little Rock metropolitan area. Only 12% of contacts surveyed by the Federal Reserve Bank of St. Louis expect economic conditions to worsen in 2015, the report said.

Most notable in the quarterly report for the Little Rock MSA was the fact Arkansas’ personal income grew by 4.7% year-over-year in the first quarter of 2015, slightly below the previous quarter’s growth rate but still well above the national rate.

Also, most of the regions across the state experienced mixed labor market conditions during the second quarter. Employment growth accelerated slightly in Little Rock, but slowed in Fayetteville and Texarkana, while Fort Smith saw negative job growth from one year ago. Overall growth in Fayetteville, however, remained stronger than the national average.

On the downside, the goods-producing sector lost momentum across the zone, with growth slowing significantly in both Fayetteville and Fort Smith. Little Rock was the only exception, where the sector’s employment growth accelerated by 1.5 percentage points from the previous quarter and was more than double the national average.

Manufacturing exports from Arkansas sharply decreased in the second quarter. Decreases were concentrated in transportation equipment, fabricated metal products, and food products. Despite a brief recovery in late 2014, Arkansas manufacturing exports have trended downward since 2012. Exports are now 20 percent lower than the pre-recession peak in 2008.

EASTERN ARKANSAS
Businesses in the Memphis zone, which includes parts of eastern Arkansas, northern Mississippi and eastern Tennessee, also expect economic conditions to improve modestly compared to a year ago. That report was highlighted by the fact that Eastern Arkansas’ sorghum production will more than triple last year’s output, while the state’s average soybean yield is projected to be higher than 2014’s record-breaking level.

These unexpected projections have contributed to the 31% decline in the cash price of sorghum and the 14% decline in the cash price of soybeans from their July peaks.

Here are some additional highlights from the Little Rock MSA report, which can be found here.

LABOR MARKETS
Overall, business contacts have a positive outlook for the labor market for the remainder of the year. Half of contacts surveyed expect employment and hours worked to remain about the same and the remaining half expect them to be slightly higher, compared with the same time last year. More than three-quarters of contacts surveyed reported they expect wages and labor costs to continue increasing slightly, and 40% expect prices to be higher than they were at end of last year.

The quarterly survey revealed strong gains in the goods-producing sector, nonfarm payroll employment in the Little Rock MSA rose 1.3% in the second quarter of 2015. Employment growth was appreciably stronger in the Fayetteville MSA, but little changed in the Fort Smith and Texarkana MSAs.

MANUFACTURING AND TRANSPORTATION
Manufacturing employment growth continued to slow in Arkansas but remained positive. In contrast, manufacturing employment in Fayetteville contracted slightly in the second quarter after several quarters of slowing growth.

Transportation employment growth slowed significantly in Arkansas following faster-than average growth in the first quarter. Transportation providers continue to report difficulty in filling truck driver vacancies. Several contacts speculated that new regulations regarding driver hours will further exacerbate the shortage.

HOUSEHOLD SECTOR
Auto and credit card debt in the second quarter of 2015 grew at a similar pace as in the previous quarter, and consumers continued to reduce their mortgage debt at a relatively modest pace. Retail contacts indicated that consumers continue to benefit from lower gas prices. Reports from local auto dealers were mixed.

BANKING AND FINANCE
Two of three bankers surveyed reported loan demand was slightly higher in the third quarter than it was during the same period last year, and they expect demand in the fourth quarter to be stronger than it was a year ago.

Profitability remained high at Arkansas banks in the second quarter. Return on average assets (ROA) rose 2 basis points to 1.2%, and the average net interest margin was up 6 basis points in the quarter. Arkansas banks remain more profitable, on average, than their District and U.S. peers.

AGRICULTURE AND NATURAL RESOURCES
According to the USDA’s August estimates, total production will decline for three of five major crops in Arkansas. The production declines registered for these crops were driven by an acreage reduction this year relative to 2014. In contrast, yields were strong and—with the exception of rice—were at least 10 percent higher than the 5-year average yield. Mining and logging employment declined by 3.8%, similar to the national average.