Employment Data Indicate Bottom of the Bust Nearing (Market Forecast by Jeff Colins)

What seems to be preoccupying the minds of many of the Northwest Arkansans I speak with is the economy. For the record I should state that most of the folks I speak with are bankers and reporters, so there is an undoubted bias in the choice of topic. However, even with the disclaimer, it is difficult to ignore the current state of the national and local economy.

I get the sense that the statistical evidence does not always correlate with public perception. Therefore I thought it would be beneficial to give a quick overview of the current state of the economy.

The first and most troubling aspect of the national economy is the lack of job creation. From June 2007 to June 2008 the national economy lost 0.2 percent of non-farm employment.

Specifically, just over 300,000 fewer Americans had jobs in June 2008 than in June 2007. Understanding that the U.S. economy must create new employment every month to absorb the increase in labor force, the deficit is more disturbing.

Obviously, lack of job creation is highly correlated with the unemployment rate.

Rising unemployment rates both nationally and locally have a significant impact on the psyche of American consumers. In addition, rising gasoline prices and stagnant or declining housing values have taken their toll on the willingness of consumers to open their pocketbooks.

As consumers reduce their purchases of goods and services, further downward pressure is put on employment. What is surprising and indicative of the strength of the local economy is the local employment data. In Northwest Arkansas for the June 2007 to June 2008 period, the local rate of job creation was roughly 1.0 percent. That is, on a base of roughly 200,000 non-farm jobs the local economy created roughly 2,000 new jobs.

This is a far cry from the annual job creation numbers the region generated in 2004 through 2005 but it is far better than the national average.

As we look forward to the next 12 months it is important to realize that our reference period will be changing. The local economy began to cool in 2006, declining further in 2007 and into 2008.

However, in the first quarter of 2009 we will be referencing the fairly poor first quarter of 2008. This relatively “good news” will no doubt encourage local business. The region can also rely on the lack relative strength of local employers in an economic downturn. If the local economy does not seem to be trending up, it will no doubt outperform the national economy.

A quick glance at local employment statistics provides an indication of the stability of local employment growth.

In the end the local economy must be considered sound despite our share of bad news. We have only to wait a few more months to regain the confidence locally that may take much longer to regain nationally.

(Jeff Collins, Ph.D., is an economist and partner in Fayetteville’s Streetsmart Data Inc. The company produces a quarterly report on all aspects of real estate in Northwest Arkansas. Collins may be reached at (479) 872-1000.)