Fed Burgundy Book: Arkansas business contacts more upbeat on 2016 economic outlook

Optimism about the state’s near-term economic outlook for the remainder of 2016 has “improved appreciably” over the past three months, according to the Federal Reserve’s Burgundy Book survey for the Little Rock region.

The Fed’s Burgundy Book report for the Little Rock zone provides statistical and anecdotal notes on 62 of the state’s 75 counties, and covers six state metro areas, including Little Rock/North Little Rock/Conway, Pine Bluff, Hot Springs, Texarkana, Fort Smith and Fayetteville/Springdale/Rogers. The most recent report was released Wednesday (Sept. 28).

The other three zones in the expansive St. Louis Federal Reserve district are the St. Louis, Memphis and Louisville metropolitan areas. Economic conditions for Jonesboro and parts of northeast Arkansas are captured in the Burgundy Book report for the Memphis area.

Categories of the quarterly report include housing, real estate, construction, employment, manufacturing, banking, consumer debt, and agriculture. St. Louis Fed economist Kevin Kliesen noted in this month’s report that the zone’s unemployment rate averaged 3.8% in the second quarter, its lowest rate on record. The Fayetteville metro unemployment rate remained the lowest in the zone at 2.8%, followed by the Little Rock MSA rate at 3.4%. The other two MSAs, Fort Smith (4.7%) and Texarkana (4.3%), also registered rates below the national average (4.9%).

“Payroll employment growth remained positive across the zone in the second quarter,” Kliesen wrote. “The majority of MSAs registered stronger growth in the services-producing sector than in the goods-producing sector. The survey of business contacts suggests that nominal wages are increasing.

The Fed economist also noted that housing activity remained strong across most areas of the zone in the second quarter. With the exception of the Hot Springs metro, single-family building permits were up by double digits on a year-to-date basis. House price gains, however, were in the low single -digit range on average.

As detailed in the St. Louis’s Fed recent Quarterly Debt Monitor for the Eighth District, per capita automotive debt balances in the zone were up by nearly 9.5% in the second quarter from a year earlier, far outpacing the national average (7.7%). Automotive loan delinquency rates were also slightly above the national rate.

In the financial sector, overall loans in the third quarter were little changed from a year earlier, although a majority of bankers expect loan demand to pick up in the fourth quarter. Favorable weather conditions and a projected increase in harvested acreage is expected to lead to bumper corn, cotton, and rice crops this year.

Following are other highlights of the quarterly Burgundy Book report for the Little Rock metro.
• Overall labor market conditions in the Little Rock zone were somewhat mixed. Employment growth was faster than the national rate in Fayetteville and Little Rock and slower than the national rate in Texarkana and Fort Smith.

• The private service-providing sector continued to drive employment growth throughout the zone in the second quarter, as the majority of job gains came from this sector in Little Rock, Fayetteville, and Texarkana. Strong growth in government payrolls boosted growth in Fort Smith.

• Demand for labor in Arkansas continued to increase. There were fewer than two unemployed persons for every advertised vacancy statewide in the second quarter. A survey of business contacts suggests that wages in the zone are increasing: Almost two-thirds of respondents reported that wages were higher or slightly higher in the third quarter compared with the same period last year.

• Manufacturing employment declined slightly across the Little Rock zone in the second quarter, mirroring the nationwide decline in manufacturing employment. Despite the overall decline in manufacturing employment in Arkansas, employment in the nondurable goods sector increased significantly. The sector, which includes food products, wood products, and paper products, grew by 2.1%, the fastest growth rate since before the recession.

• Growth in home sales continued to accelerate in Little Rock, climbing more than 15% over sales in the second quarter of 2015. The MSA’s growth rate has risen over the past four quarters and has well exceeded the national rate over the past two quarters.

• Changes in house prices varied by MSA. Only Texarkana experienced growth above the U.S. average, but Northwest Arkansas metro house prices continued to see a steady increase of nearly 5% year-over-year. Pine Bluff house prices have declined in each of the past three quarters.

• Growth of credit card debt balances per capita in the zone continued to accelerate during the second quarter to nearly triple the national growth rate. The zone’s credit card delinquency rate has exceeded the nation’s for the second consecutive quarter.

• Reports from auto dealers indicated that sales halfway through the third quarter fell short of expectations. Nevertheless, auto debt growth remained high in the zone, with real auto loan balances increasing at a faster rate than the U.S. average. Multiple dealers reported a shift in demand toward used vehicles.

• In the Memphis metro, which comprises northern Mississippi, eastern Arkansas, and western Tennessee and a total population of approximately 3.1 million people, Kliesen reported that business contacts in that regional were slight less optimistic about the local economic than in other regions of the St. Louis district.

• Still, the Fed economist noted that the unemployment rate in the Jonesboro area fell to a record low level of 3.3%. Manufacturing contacts in the Memphis MSA reported that slow global growth hurt sales and finding high-skill labor remains a challenge.

• The report also noted that wage growth and real income per capita has accelerated in northeast Arkansas and northwestern Mississippi. In the financial sector, profitability remained strong at commercial banks in Tennessee and Arkansas.