The Compass Report: NWA economy remains hot

Economic conditions for the Northwest Arkansas economy were stronger in the third quarter than in the previous three quarters, with employment and building permit numbers leading the way.

The third quarter 2013 grade of B+ was an improvement compared to the second quarter and unchanged compared to the B+ during the third quarter of 2012.

The quarterly Compass Report for Northwest Arkansas is managed by The City Wire. The report is the only independent analysis of economic conditions in the metro area.

Economist Jeff Collins, who conducts the data collection and analysis for The Compass Report, said impressive job creation numbers continue to be the story in Northwest Arkansas.

“The unemployment rate in Northwest Arkansas was the lowest in the state amongst all MSAs in September (5.2 percent). It was more than a full percentage point lower than that for the Little Rock/North Little Rock/Conway MSA (6.4 percent). The highest rate in the state was the Pine Bluff MSA at 9.4 percent. To add perspective, of the 372 MSAs in the country, only 23 posted rates above 10 percent in October and only 57 had rates below 5 percent,” Collins wrote in his analysis.

Continued growth in Northwest Arkansas has the potential to alter the state’s political landscape, according to Collins.

“The geographic differences in economic performance have very real implications for the distribution of population and wealth in the state. The Northwest Arkansas economy is quickly approaching two-thirds of the Central Arkansas economy. The implications for relative population are obvious,” Collins wrote. “Moreover, population correlates with political power. Should the current differential growth rates continue, the 2020 Census will lead to significant changes in relative representation in state government.”

Data collected for The Compass Report also suggest that state and national economic trends have been positive in the back half of 2013 – even with relative dysfunction within the federal government.

“Economic data, both at the local and national level in the third quarter was very encouraging, particularly the surprising growth in output. Even more encouraging was the rate of growth despite the lack of clear policy direction regarding federal spending. The primary concern continues to be weak labor markets,” Collins said.

Collins also provided an economic health summary of the state’s three largest metro areas.
• The Central Arkansas economy continues to underperform, in many ways reflecting the national economy.
• For the Northwest Arkansas economy, despite the rapid rate of growth there is no reason to believe that current growth rates are unsustainable. Look for momentum to continue for at least the four to six quarters.
• Despite continued erosion of manufacturing, the Fort Smith regional economy has been amazingly resilient. The uptick in growth bodes well for the regional economy.  Look for growth to continue through the next four quarters barring an unforeseen shock to the Fort Smith regional economy.

The 2013 third quarter economy in the central Arkansas area received a grade of C- meaning that economic conditions declined slightly compared to the third quarter of 2012 but were unchanged compared to the second quarter of 2013.

In the Fort Smith region, a third quarter 2013 grade of C+ was up compared to the second quarter of 2013 and an improvement over the C- in the third quarter of 2012.

NORTHWEST ARKANSAS
OVERALL GRADES — Northwest Arkansas regional economy (per quarter)
3Q 2013: B+
2Q 2013: B
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 222,900 in September compared to 211,700 in September 2012.

Goods-producing employment — C+
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% in September 2013, down from the 16.8% in September 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 overall during the quarter. Unemployment in September was estimated at 5.2%, compared to 5.1% in September 2012. However, the third quarter of 2012 include a jobless rate higher than 6%, a level not reached during the 2013 quarter.

Sales and Use tax collections — B+
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 $6.966 million during August 2013 — compared to $6.703 million in August 2012. Overall, collections were up for the quarter.

LEADING INDICATORS
Building Permit (housing) valuation — A
The total value of permits issued in the third quarter of 2013 (measured in a three-month rolling average) were higher than those in the first quarter of 2012. The rolling average in September was $37.314 million, ahead of the $27.791 million in September 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 — A
Hospitality employment in Northwest Arkansas has trended positive for several quarters. September 2013 saw 22,300 jobs in the regional hospitality sector, up from the 20,900 jobs in September 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 may or may 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.

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Manufacturing employment — C-
Manufacturing employment in the region was essentially flat during the quarter. Sector employment in September 2013 was 26,800, unchanged compared to September 2012.

Construction employment — B+
This sector, which includes mining/natural resources employment, saw gains in employment compared to the third quarter of 2012, ending September with 8,800 jobs, up over the 8,300 jobs in September 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.

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