Nationally known chief economist Rich Yamerone, of Bloomberg L.P. , said tracking ladies dress and make-up sales will offer insight into consumer spending and sentiment — responsible for 72% of the U.S. economy.
Yamerone was one of three economists featured at the 20th Annual University of Arkansas Forecast Luncheon held in Rogers on Thursday, (Jan. 16). About 1,000 attended this year’s event coming from Little Rock, Fort Smith and other areas across the Natural State.
Tyson Foods CEO Donnie Smith moderated the event while also sharing his knowledge on the food business. As one of the region’s largest employers, Springdale-based Tyson Foods is also very aware of what U.S. consumers want and need. Smith said consumers are constantly redefining the concept of value.
“Consumers are walking a tightrope right now, they want what they want. They will trade down when they have to; but they expect the healthier food choices. They prefer fresh over frozen and they want to know it’s been produced responsibly,” Smith said.
Yamerone took the stage and tried for some 30 minutes to convince the large crowd that the U.S. economy is treading on thin ice through two quarters and there are more caution signs ahead.
“How many of you think the U.S. is headed for another recession,” Yamerone asked the crowd.
After a showing of less than five hands, Yamerone said, “I see that two or three of you are right. I hope to bring the rest of you over to the dark side before I am finished.”
He said jobs are the key to a better economy and as he travels across the country talking with owners and managers businesses large and small, the one common complaint he hears is that mandated healthcare is stifling business expansion.
Smaller employers are reducing staffs to get below the 50 person cut-off to avoid the healthcare mandate, he said. Larger companies like Darden Restaurants — 300,000 employees — are simply reducing hours and hiring more people.
“What we have are more lower middle class consumers having to work two and three jobs in some cases to keep up. I don’t see this changing and it is doubtful many of the middle class manufacturing jobs that were lost post 2008 will ever return,” Yamerone said.
He said there are not enough workers in place or coming soon to peddle the economy forward at a pace needed to maintain stability.
WOMEN CONTROL THE FINANCES
In closing, Yamerone shared his “Fab Five” indicators for what to expect with the U.S. economy going forward.
• Dining out — trending down over the past two years
• Casino gambling — downward trend since 2006, buoyed recently largely from Chinese consumers
• Jewelry & watch sales — rose some in 2012 but trending flat since
• Cosmetics & perfume sales — trending lower since 2011
• Women’s dress sales — wide swings since 2011, but trending lower toward the end of 2013
“Women are the chief financial officers of the household. They pay the bills, do nearly all the shopping and keep the family finances afloat. When they see less money coming in, they will pull back on eating out and self purchases, like dresses, cosmetics and perfume. They won’t cut out the kid’s soccer — that’s why we all love mom so much,” Yamerone said.
In all seriousness, Yamerone said he recently met with the executive team from Lowe’s, the home improvement retailer. He said the Lowe’s executives wanted to hear from the ladies in the room because they said it’s mostly the females in the household that decide when there will be a kitchen remodel or other household purchase.
Ironically, many of the largest companies in Northwest Arkansas are largely dependent on U.S. consumer behavior in retail, supply chain and food processing. So what goes on in the rest of country is important to Northwest Arkansas and the rest of the state as well.
Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas, had better news for the group with respect to the state and regional economies. But even she took a pause of concern about the “dreadful” labor force numbers across the Natural State.
Deck said slow growth does not equal recession, even though it might feel like it for some.
The forecast for the Arkansas economy in 2014 looks a lot like the experiences of 2013, Deck said. The rate of job growth in the state will continue to be slow and Arkansas will struggle to reach its pre-recession employment peak.
Employment growth in Arkansas is not on pace to make up the recession’s shortfall in 2014 or 2015, although the national economy is likely to reestablish employment highs during that time, according to Deck. Highlights of her talk included:
• There were net job losses in the manufacturing, government, information and other service sectors in Arkansas in 2013.
• Despite these losses, the unemployment rate in Arkansas has fallen to 6.9% from its post-recession high of 9%.
• The Arkansas labor force has been declining on a year-over-year basis every month since July 2012, even though the U.S. labor force has grown.
• In 2013, employment growth picked up in the Fort Smith, Central Arkansas and Jonesboro metropolitan areas and continued to boom in Northwest Arkansas.
• In Northwest Arkansas, no sectors had employment declines on a year-over-year basis in 2013, and overall employment grew at 4.3%.
“We have seen Fort Smith begin to generate some positive growth and that area looks to be rebounding since the Whirlpool closure there,” Deck said.
The employment growth in Northwest Arkansas and Central Arkansas also has been healthy this past year, according to Deck. But those regional improvements are not enough to compensate for the large rural areas that continue to suffer, she said. Deck said the state, led somewhat by Northwest Arkansas, will need to see continued investment into start-ups and other entrepreneurial ventures.
She said housing has been strong in Northwest the past two years and infrastructure spending is helping to spur some growth along with continued private investments.
“Take Crystal Bridges for instance, who would have ever thought a Frank Lloyd Wright home would make its way to Bentonville,” Deck said.
One other area posed to do well in Northwest Arkansas is the business and professional sector. Deck said the University of Arkansas is graduating more accountants, engineers and architects, and companies are taking advantage of that local talent.
Yi Wen, economist with St. Louis Federal Reserve Bank, said China is in the midst a major revolution, much like the Industrial Revolution that took place in the 18th and 19th Centuries.
“Once a revolution of this magnitude begins it’s very difficult to stop,” Wen said during his remarks the forecast luncheon.
Though much has been said in recent months about a slowing in China’s economic output, Wen said he believes China will continue to post 7% to 8% annual grow rates for the next 20 years or so until the per capita income levels reach some 70% to 80% of those in the U.S.
He said China has its problems, like losing manufacturing jobs to Africa and other lower paying countries. But the housing market is doing well, as many Chinese consumers are investing in real estate seeking higher rates of return.
“In China, consumers must put 30% down on the purchase of a housing unit. If they buy two, the downpayment is 50%. In many cases the Chinese just pay cash for these investments, so there is little risk to the banking system with this rise in real estate,” Wen said.
The two largest companies in Northwest Arkansas continue to invest in China. Tyson Foods works to fully integrate chicken operations there and Wal-Mart has said it will add 110 new stores in China by 2016.