Economic conditions in Northwest Arkansas have been strong for several quarters, and the first quarter 2013 economy improved compared to the fourth quarter of 2012.
The first quarter 2013 grade of B was up compared to the C posted in the fourth quarter of 2012, and was up compared to the B- during the first quarter of 2012.
Ongoing job growth, impressive gains in area sales tax collections and continued increases in building permit values are some of the clearest signs of economic growth in Northwest Arkansas.
The unemployment rate in Northwest Arkansas was the lowest in the state amongst all MSAs in March (5.5%). It was more than a full percentage point lower than that for the Little Rock/North Little Rock/Conway MSA (6.7%).
To add perspective, of the 372 MSAs in the country, only 157 posted rates below 7% in March. In Arkansas, only Pine Bluff and Fort Smith have rates that exceed the 7% benchmark.
Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said the only concern with the Northwest Arkansas economy is growth in the housing sector.
“Continued strong performance in the real estate sector has exacerbated concern in the banking community that supply may be racing ahead of demand. However, concern does not appear to have translated into reduced lending,” Collins said.
Collins said economic momentum will continue even if employment slows in some of the core sectors.
“Northwest Arkansas is likely to continue to outperform its peers. The core growth drivers remain as area employers look to add headcount and the multiplier effect implies related sectors also gain employment,” Collins explained. “The multiplier effect implies that even if employment in core sectors slowed, it would be some time before the regional economy slowed significantly.”
Data collected for The Compass Report also suggest that Arkansas’ economic trends are “troubling” compared to improvements in the national economy, Collins said.
“The core metric upon which the viability of continued growth must be measured is employment. If measured by the number of unemployed, the state appears to be improving. However, given there has been little change in the unemployment rate the reduction in the number of unemployed is hardly cause for celebration. There has also been a decline in the labor force. It is therefore the case that discouraged works are withdrawing from the labor force,” Collins said.
The 2013 first quarter economy in the central Arkansas area received a grade of C-, meaning that economic conditions declined slightly compared to the fourth quarter of 2012, and were unchanged from conditions in the first quarter of 2012.
In the Fort Smith region, a first quarter 2013 grade of C- was down from the C in the fourth quarter of 2012 and unchanged from the first quarter of 2012.
Collins also provided the following points about Arkansas’ top three regional economies.
• While the Central Arkansas economy had been mimicking the national economy, it now appears it reflects the broader state economy.
• Despite the set-back in manufacturing employment, it is encouraging to see the growing stability of the Fort Smith regional economy.
• The Northwest Arkansas is growing rapidly but whether this pace is sustainable remains to be seen.
NORTHWEST ARKANSAS
OVERALL GRADES — Northwest Arkansas regional economy (per quarter)
1Q 2013: B
4Q 2012: C
3Q 2012: B+
2Q 2012: B-
1Q 2012: B-
DATA AND REPORT DOCUMENTS
Link here for the raw data used to prepare The Compass Report for the Fort Smith area, Northwest Arkansas and central Arkansas.
Link here for more narrative about regional and national economic conditions.
SECTOR DATA
CURRENT INDICATORS
Non-farm employment — A-
Non-farm employment is well ahead of 2012 figures, with employment in the metro area at 217,000 in March compared to 208,200 in March 2012.
Goods-producing employment — B
The decrease in manufacturing jobs as a percentage of the overall workforce helps diversify almost any metro economy. The percentage of manufacturing jobs in the overall workforce was 16.3% in March 2013, down from the 16.5% in March 2012.
This measure speaks to the risk in a local economy from being heavily weighted toward sectors that have been under economic pressure. One of the fundamental principles of reducing risk is diversification.
Metro area Unemployment rate — C+
The area unemployment rate, an important gauge in the health of the metro labor market, improved in the first quarter. Unemployment in March was estimated at 5.5%, compared to 5.8% in March 2012.
Sales and Use tax collections — C+
Sales tax collections in the region have shown steady gains since 2010. The tax collections, which are good indicators of regional consumer confidence, were up in Benton, Madison and Washington counties to $6.148 million during February 2013 — compared to $5.951 million in February 2012. Overall, collections were up for the quarter.
LEADING INDICATORS
Building Permit (housing) valuation — A
The total value of permits issued in the first quarter of 2013 (measured in a three-month rolling average) were higher than those in the first quarter of 2012. The rolling average in March was $33.06 million, ahead of the $29.832 million in March 2012.
Residential building is an indicator of current and expected population growth. As new households are created they induce growth in retail, education services, health care services and other types of businesses that provide goods and services to households. Also, new construction provides employment and tax revenues.
Hospitality employment — B
Hospitality employment in Northwest Arkansas has trended positive for several quarters. March 2013 saw 20,500 jobs in the regional hospitality sector, up from the 19,600 jobs in March 2012.
Growth in the hospitality and leisure sector as measured by growth in employment is included because of the emphasis on creating quality of place in local economic development initiatives.
Unlike enplanements/deplanements, which November or November not be tied to activity in restaurants, hotels, and cultural venues, hospitality and leisure employment most certainly are influenced by growth of these activities. Another possible measure is hospitality-related tax collections.
Manufacturing employment — B+
Manufacturing employment in the region showed signs of stability during the quarter. Sector employment in March 2013 was 27,000, up from the 26,700 during March 2012. Employment in the sector is down more than 20% from more than a decade ago.
Construction employment — C-
This sector, which includes mining/natural resources employment, saw gains in employment compared to the first quarter of 2012, ending March with 8,400 jobs, up over the 7,700 jobs in March 2012.
The rationale for including construction employment is similar to that for building permits. The employment measure is influenced by changes in both the residential and commercial real estate markets.
Obviously, new space implies new residents and new businesses.