‘The Compass’ is the first ever comprehensive economic analysis of Fort Smith metro area

story by Michael Tilley; artwork by Jake McTyre

The Fort Smith regional economy is struggling and the near-term outlook is mixed at best, according to The Compass — the first-ever comprehensive economic analysis of the Fort Smith metropolitan area.

To be sure, the assessment that times are tough is not a revelation. But the effort to better document economic fundamentals is the goal of The Compass, and should prove valuable to regional planners, business owners and individuals.

Funded and managed by The City Wire, The Compass is a quarterly regional economic report with data collection and analysis handled by Jeff Collins, a nationally respected economist based in Springdale.

Collins served as director of the Center for Business and Economic Research at the University of Arkansas’ Sam Walton College of Business between August 1999 and Dec. 31, 2006. After leaving the UA, he co-founded Streetsmart Data, a Springdale-based company that provides economic analysis to businesses and governments around the country.

During his time at the university, Collins was instrumental in crafting the now-popular “Skyline Report,” which is sponsored by Arvest Bank and is an analysis of the activity of residential and commercial construction in northwest Arkansas. His research also included working with the Walton Family Foundation to study the economic impact of a Benton County art museum (Crystal Bridges).


“The Compass provides information about the local economy — where the Fort Smith region is and where it is going. It is a tool to gauge our progress, or how much state and national economic winds have blown us off course,” Collins said of the analysis provided in The Compass.

Jackie Krutsch, president of the Van Buren Chamber of Commerce, said the “fresh look” at the regional economy will be helpful in many ways.

“I see this type of analysis as an instrument that the region can use to establish important goals for the future. During times like these the picture is not always pretty.  However, seeing the good, the bad and the ugly is important if we are to strive to move the regional economy forward,” Krutsch said. “It appears that The Compass is about an analysis of local data, not just a reporting of blips on the radar screen.”

UNDERSTANDING THE COMPASS
A key factor in understanding The Compass is in understanding the “grading” approach used to measure the current and leading economic indicators. The following points are useful in that understanding:

The strategy is to place the most recent data in historical context. Average values for the percent change over the referenced time period were calculated, as were standard deviations for each measure.

The more similar current values are to historic averages the more likely the indicator grade is to be a “C.” The farther away the observed value, as measured by the standard deviation of the data, the more divergent the grade from “C.”

In other words, “C” reflects no change in economic activity. The grades “B” or “A” indicate improvement above the historical average, and “D” and “F” indicate a decline in economic activity compared to the historical average.

“A beneficial aspect of The Compass is that we are launching it in the midst of a national and local recession. It will allow regional business and civic communities to more accurately and honestly measure our path out of this recessionary environment,” said Tom Kirkham, publisher and co-owner of The City Wire.

Kirkham also said The Compass may be used as an independent measurement of any future economic development efforts to diversify and enhance the regional economy.

John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank and Sparks Health System, said the Fort Smith region has long needed quality economic analysis.

“The Compass will be valuable to those of us who live here as well as those outside our area making decisions that impact us. Even if I were not in the business of putting myself out there and giving people advice on how to plan for the future I could find multiple uses for this data,” Taylor said. “I love that there are current indicators as well as leading indicators. Why shouldn’t an area as vibrant and important as ours have our own economic measure instead of being cast in with Little Rock and NWA?”

CURRENT INDICATORS
The overall grade for the first quarter of 2009, based on eight sets of data and Collins’ analysis of the information, is a D+. The grade means that relative to the region’s historic economic performance, the first quarter of 2009 saw economic decline.

Determining the current position of the area economy depends on reading the relative performance of the area economy based on the current indicators. Data for the period 2005 to the first quarter of 2009 are used to provide historical reference points for current data. Using the grading scale for each indicator, the current position of the economy is as follows:

• Change in non-farm employment: D-
The highest employment figure for the first quarter of 2009 was 123,400 in March, compared to a quarterly high of 125,500 in March 2008.

• Change in metro area unemployment rate: F
The metro unemployment rate jumped to a high of 7.7% in the first quarter of 2009, up significantly over a 5.3% high in the first quarter of 2008.

• Change in sales and use tax collections: C-
Fortunately, the region has seen gains in sales tax collections, but the percentage of monthly gain has declined.

• Concentration of employment in goods sectors: B
In what is initially a counterintuitive concept, the decrease in manufacturing jobs as a percentage of the overall workforce is a good thing — however painful it might be in the process — in that it helps diversify the economy, according to Collins. The percentage of manufacturing jobs in the overall workforce hit a low of 25.7% in March 2009, down from the 27.6% in the first quarter of 2008.

LEADING INDICATORS
Leading indicators provide insight into the near-term direction of the local economy. Economic figures for the period 2005 to the first quarter of 2009 are used to provide reference points for current data. Using the grading scale for each indicator, the near-term position of the area economy is as follows:

• Change in building permit valuation: B
Although the first-quarter 2009 building permit values (measured in a three-month rolling average) were lower than those in the first quarter of 2008, the consistent uptick in monthly gains suggest positive momentum in the building sector.

• Change in manufacturing employment: D
Manufacturing employment fell from a first-quarter 2008 high of 25,700, to a first-quarter 2009 high of 23,400.

• Change in construction employment: D
Construction employment levels between the quarters were relatively consistent, but began trailing downward at the end of the first quarter of 2009. (This sector also includes employment in natural resources and mining.)

• Change in hospitality employment: D
Hospitality sector (hotels, restaurants, tourism businesses) employment fell from a first-quarter 2008 high of 9,200, to a first-quarter 2009 high of 9,000.

Link here for a PDF document graphically illustrating the research. Link here for a PDF document describing in greater detail the data and methodology.

OTHER COMPASS COMMENTS
The Compass was welcome news to Mat Pitsch, former vice president of economic development for the Fort Smith Regional Chamber of Commerce and the new regional intermodal program manager for the Western Arkansas Planning and Development District.

“My background in manufacturing, in academia and in economic development have convinced me that having good and reliable information is a must,” Pitsch said. “My understanding of The Compass is that it will provide solid real-time info on the current and future health of the regional economy. That can’t be anything but a good thing.”

Rob Ratley, the Arkansas community affairs manager for OG&E, said he was impressed with the depth of The Compass, and said it has a larger importance than just being a set of numbers.

“This data, this report, underscores that we are truly a region. This information about the direction of our economy provides an analytical example of how all the cities and leaders in this region are in this together. It’s an example of why we need to continue the focus on a regional approach to economic improvement,” Ratley said.