UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
Second Quarter Summary of Regional Economy
S
econd quarter economic data for the Fort Smith regional economy continued to offer a mixed bag, but several indicators supported a more positive tone when compared to a year ago. While the employment picture continues to be the weakest link in the recovery formula, some key sectors closed the gap relative to last year. In the end, however, the area economy still generated about 2,750 fewer jobs than the same quarter a year ago. The economic activity index for May was at 97.8, up 1.2% from 2009 levels for the same period, using the latest data available for this report. While a strong upturn is not evident in these data, several aspects of the economy show improvement. Retail sales were up .4% for the threemonth period ending in May. Sales and use tax receipts data on which retail sales are calculated lag by 60 days, making it difficult to get a pulse on current consumer behavior, but these results suggest a modest rebound is in place over the same period last year. Auto sales showed solid improvement relative to a year ago, up 10.2 % over the second quarter of 2009. This was also true for residential real estate activity, where second quarter existing home sales were up 6.8% over last year, as were total new construction permits, up 16.8% over 2009. Even more impressive was the value for residential units sold and building permits issued, each reporting double digit growth over the period relative to a year ago. The residential real estate market has reported solid gains through the first half of the year. The argument for this continuing is supported by record low interest rates, large inventory, and favorable pricing. The factors working against this trend are the stricter lending requirements for home buyers, a weak sellers market (many buyers must first sell an existing home in order to buy), reduced equity in existing homes, and the lack of federal tax incentives to buy. Another argument against this continuing is that many of those who were in the market to buy already bought under the federal tax incentive program, resulting in
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a noticeable reduction in eligible buyers going forward. Although regional consumer sentiment for the quarter (discussed in the next section) improved over the first quarter, consumers are hardly chomping at the bit to buy over the next three to six months. Some in the real estate sector are concerned as well. Kevin King of King Realty said, “...the tax credit incentive did most definitely prop up the housing market, and I’m concerned about the rest of the year as well as the early part of next year.” Overall, employment activity has improved over last quarter, but is lethargic at best. We are still talking in terms of “it isn’t as bad as it was” versus discussing how good it is getting. Total MSA employment is down 2.3% from a year ago, but that beats the 2.9% gap reported last quarter. Unlike the first quarter where there was a more definite upbeat tone, national reporting in recent weeks has been more cautious, even fearful. Fed Chairman Ben Bernanke’s recent comments have had to address increased talk of double-dip recession and the potential of deflation – two things that were hardly in the conversation earlier. While Bernanke states that he did not think either of these were likely, one wonders what he mumbles quietly to himself. The 7.8% unemployment rate average for the quarter is .3% higher than this time last year. The preliminary unadjusted Fort Smith MSA rate was 7.9% for June. State and national rates declined in June, while the MSA remained unchanged from May. Month-to-month numbers are likely to continue to reflect this up and down pattern, although there is reason to believe that modest improvements will dominate the trend line. Taking a closer look at where most of the 2,750 jobs were lost between quarter two of 2009 and 2010, we find that they were spread over four of the six sectors: trade, transportation, and utilities (900), manufacturing (600), leisure and hospitality (600), and natural resources, mining, and construction (467). Health services added 200 jobs during the same period, while the government sector was unchanged.
Fort Smith Regional Economic Outlook, 2nd Quarter, 2010