The national economy is creeping along at a slightly swifter pace than initially thought in the first three months of 2016, but annualized 0.8% GDP growth rate reported Friday (May 27) by the U.S. Commerce Department is nothing to rave about.
Arkansas’ economy is a different story, with economic engines also accelerating in several metro areas around the state.
Kathy Deck, director for the Center for Business and Economic Research, said Friday (May 27) at the University of Arkansas Regional Economic Quarterly luncheon in Fayetteville that there is a small recession risk in the national economy, but the risk is less than the odds of further expansion. She said sentiment shows consumers are concerned about the upcoming presidential election but regardless of who is elected, chances are concerns will mitigate after November.
“While they may not like either candidate and that raises uncertainty and concern in the minds, the reality is that historically it has had little to do with consumer spending. For instance, if they need to replace the refrigerator they will do so,” Deck told Talk Business & Politics.
She said while consumer sentiment is worth watching it may not be an indication of consumer spending, which is roughly two-thirds of the overall U.S. economy. She said there is a low inflation risk and room for interest rates to rise. Deck admits small businesses across the country have not fully recovered from the recession but said the reality is this could be a new normal given the lengthy nine-year recovery.
ARKANSAS BREAKS TREND
Deck said the good news for Arkansas is that for the first time in history the Natural State is outperforming the nation in terms of job creation, lower unemployment and overall growth projections.
“Arkansas’ growth rates are unprecedented, and while Northwest Arkansas is a part of the reason, Central Arkansas and Jonesboro are tracking higher as well just under Northwest Arkansas. We look at six metro areas across the state and growth there is strong,” Deck said. “It’s important for the state for the central Arkansas region to be strong given their higher population.”
While Fort Smith is growing at a slow pace, she said the trend is positive. Pine Bluff is the metro with the highest unemployment rate and it’s still around 5%.
Deck’s response to the state’s unemployment rate of 3.9% was simply “Holy Moly.” She said beyond the low number the employment sectors leading the growth for the state include: leisure and hospitality, supported by trade, transportation and utilities as well as construction.
“Anyone who wants a job can find a job today in Arkansas. It may not be the job they want at the pay they want or even in an industry they are trained for but there are jobs to be had,” Deck said. “With leisure and hospitality leading the growth, she said many of those are restaurant jobs at the low base rate of pay.”
Deck said Arkansas’ economy is not being driving by construction, like the national economy. She told Talk Business & Politics there are some risks – high inventory levels, recession in the energy sector, for example – in the national economy as indicated by economists who watch the freight industry. While those factors exist nationally, she expects a robust housing sector to help mitigate some of the risks.
She said trucking is one bellwether for the economy, but not the only one. She said as the state’s economy diversifies away from heavy manufacturing to services the risks associated with high inventories comes down.
AS GOOD AS IT GETS
She said Northwest Arkansas continues to outperform the nation in job creation, lower unemployment, business expansion, population growth and many other areas. Like the nation, construction is the biggest driver of new jobs in Northwest Arkansas. She is not concerned a building bubble is being created in the Benton and Washington counties. She said there is no evidence of excess supplies, with multifamily vacancies extremely low and the inventory of new homes in step with buyer demand.
The one thing present on the minds of some consumers are the rising prices of homes in Northwest Arkansas. Deck said the price increases are being driven by demand. She said with all the amenities and quality of life available in Northwest Arkansas it’s reasonable to see home prices accelerate.
“With the population growing by 31 people every day, more housing is needed,” Deck added.
She also said other employment sectors are growing at a healthy clip in Northwest Arkansas, behind construction: professional services, trade, transportation and leisure/hospitality sectors are also expanding adding support and diversity to the overall economy.
“Northwest Arkansas can’t really do much better. Incomes have been outpacing the national average since 2013 and the labor force is tight, which lends itself to rising wages in the future,“ Deck said.