UAFS economist predicts ‘long and bumpy road’

The latest response to the “When will the economy quit sucking?” question, is that we should all expect a “long and bumpy road” to a recovery that is primarily dependent upon the willingness of consumers to start spending again.

That was gist of the message delivered Friday morning (Oct. 2) by Dr. Latisha Settlage, assistant professor of economics at the University of Arkansas at Fort Smith, before a crowd gathered for the “First Friday” breakfast of the Fort Smith Regional Chamber of Commerce.

“The real driver behind the market, the consumer, continues to be cautious,” Settlage said, citing job security concerns, the weak job market and tight credit conditions as factors spooking consumers.

Other factors causing consumers to keep their checkbooks closed comes from their knowledge and/or concern about looming inflation and possible tax increases. Settlage explained that consumers today are smart, and are aware that the vast amounts of money the federal government has put into the economy is planting the seeds for “high, high inflation.” Consumers also know that growing federal deficits may require tax increases.

Consumers also are concerned with the rising national unemployment rate, which Settlage predicted would hit 10% by early 2010. On Friday morning, the U.S. Department of Labor reported that the September U.S. unemployment rate rose to 9.8%, the highest rate since June 1983, and up from 9.7% in August.

With consumer spending responsible for up to 80% of national GDP, “consumer optimism is the key” to recovery, Settlage said.

Possible sources for optimism include the end of a decline in housing starts. Settlage said the housing sector has a long road to recovery, but the recent improvements are possibly “foreshadowing” a return of consumer confidence in the sector.

Settlage said recent improvements in retail sales, industrial production and a national business activity index are reasons to be optimistic that the economy may soon recover.

The Fort Smith regional economy is doing well relative to the national economy, Settlage said, with per capita income and the region’s jobless rate remaining stable when compared to state and national numbers.

“Our economy in Fort Smith looks good,” she said, adding that the recent Mars Petcare opening is proof the regional economy is positioned well to take advantage of a recovering national economy.

Fort Smith sales tax collections recently posted double-digit declines, with the city’s portion of the one-percent countywide tax down more than 12% on July purchases. Between January and July, the city sales tax collections are down 7.72% compared to the same period in 2008. For Arkansas, January-September overall gross receipts (primarily sales and use taxes) are down 9.7%.

The Fort Smith metro unemployment rate during August fell to 7.1%, a welcome decline from the 7.7% posted in July and the 7.8% in June. However, the Fort Smith metro unemployment rate has been above the state rate and the highest among the state’s five largest metro areas.

The unemployment rates in the Fayetteville-Springdale Rogers area during August was 5.4%; Little Rock-North Little Rock fell to 6%; the Jonesboro area was 6.4%; and the Hot Springs area was 6.4%.

Arkansas’ unemployment rate in August fell to 7.1%, down from 7.4% in July, marking the first monthly decline since January 2008. The U.S. jobless rate in August was 9.7%, up from 9.4% in July and a big increase from the 6.2% in August 2008.