State of the State Mid-Year 2023: Arkansas’ steel industry to bolster overall manufacturing sector

Editor’s note: The State of the State series provides reports twice a year on Arkansas’ key economic sectors. The series publishes stories to begin a year and stories in July/August to provide a broad mid-year update on the state’s economy. Link here for the State of the State page and previous stories.

The U.S. manufacturing sector has been soft in recent months, but Arkansas manufacturing job numbers are up more than 5% in the past two years. One sector advocate believes the job numbers would be higher if more people were in the workforce.

Manufacturing employment in Arkansas totaled 165,200 in July, up from 163,400 in July 2022 and above the 162,000 in the pre-pandemic July 2019. Manufacturing, once the state’s largest jobs sector, posted record employment of 247,600 in February 1995.

Among the three Arkansas metro areas with significant manufacturing activity, two have seen manufacturing job growth in the past five years. Manufacturing job numbers are up 6.3% in Northwest Arkansas during the past five years and up 9.3% in the Fort Smith metro. Manufacturing job numbers are down 6.5% in the Little Rock-North Little Rock metro in the past five years.

Northwest Arkansas
June 2023: 32,300
June 2019: 30,400

Little Rock-North Little Rock
June 2023: 20,100
June 2019: 21,500

Fort Smith metro
June 2023: 18,800
June 2019: 17,200

The latest Institute for Supply Management Manufacturing Report on Business showed the purchasing managers’ index (PMI) rose by 0.4 percentage points to 46.4% in July from June. A PMI below 50% indicates the manufacturing sector is contracting. According to the July report, new orders, production, employment and backlogs declined. Supplier deliveries were faster. Raw materials inventories fell. Customers’ inventories were too low. Prices decreased. Exports and imports contracted.

“The U.S. manufacturing sector shrank again, but the uptick in the PMI indicates a marginally slower rate of contraction,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “The July composite index reading reflects companies continuing to manage outputs down as order softness continues.”

There were an estimated 12.985 million U.S. manufacturing jobs in July, according to the U.S. Bureau of Labor Statistics, better than the pre-pandemic 12.785 million jobs in February 2020. The U.S. manufacturing sector reached a record of 19.406 million jobs in August 1979.

‘MORE TALENT’ NEEDED
Arkansas State Chamber of Commerce CEO Randy Zook doesn’t see Arkansas’ manufacturing sector contracting.

“Everybody I talk to is busy and needing more people, more talent, and talent willing to show up and take advantage of the opportunities available,” Zook told Talk Business & Politics.

While he sees gains around the state, Zook is particularly bullish on the steel industry in Northeast Arkansas. Between the operations of U.S. Steel and other steel operations and vendors in the area, the region will, in the next few years, see a gain of at least 1,500 jobs, according to Zook. And those jobs all pay more than $75,000, with most paying more than $100,000, Zook said.

“That’s a generational thing that is going to happen up there. Those are wealth-building, generational opportunities that are happening in northeast Arkansas,” Zook said, adding later that the steel industry could reverse decades of population declines in some parts of the Arkansas Delta.

“In those areas where you have had that long-term (economic) decline, you will see all the needles moving in the right directions, and personal income would be moving in the right direction,” he said.

Zook also said the state and national manufacturing sector also would benefit from “a rational energy policy” to transition to an “all of the above” future for the energy industry.

STEEL AND FOOD
John Shelnutt, director of economic analysis and tax research at the Arkansas Department of Finance and Administration, also is bullish on the state’s manufacturing sector because of the emerging steel industry in Northeast Arkansas.

“Extensive investment in the northeast Arkansas steel corridor continues with the expected completion in late 2023 of the US Steel mill in Osceola and ramp up in 2024. The mill will mark another milestone in the evolution of investments, product types, and capabilities in the area,” Shelnutt said in a note to Talk Business & Politics. “This will include electrical steel for electric vehicles and grid investments in the push to electrify America. Products from Arkansas will be important in extensive regional gains in the supply chain for electric vehicles and utility companies.”

Shelnutt said overall wage growth resulting from a rising number of steel industry jobs will offset the recent loss of more than 1,000 jobs with the Husqvarna plant closure in Nashville and HanesBrands in Clarksville. And even with recent job losses at Tyson Foods operations in North Little Rock and Van Buren, Shelnutt said the state’s food processing sector will continue to help stabilize the overall manufacturing sector.

“Elsewhere, the very large food processing sector in Arkansas is dealing with worker shortages and higher wage costs amid high food inflation nationally. This sector is an often-overlooked stabilizer of state growth with extensive connections to agriculture, transportation, and export markets. No big change is expected here except more automation in production lines,” Shelnutt advised.

Not all market watchers are bullish on manufacturing.

“Manufacturing growth is expected to slow and possibly contract over the course of the next year,” noted Dr. Michael Pakko, chief economist and state economic forecaster at the University of Arkansas at Little Rock’s Institute for Economic Advancement.

Talk Business & Politics reporter Jeff Della Rosa contributed to this report.