CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
Vol. 1 Num. 1
1st Quarter, 2010
Fort Smith REGIONAL Economic Outlook Fort Smith Report
REGIONAL
ECONOMIC OUTLOOK Report
www.uafortsmith.edu
UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
1st Quarter, 2010
Vol. 1 Num. 1
From the Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 First Quarter Summary of Regional Economy. . . . . . . . . . . . . . . . . . . . . . 2 Consumer Sentiment in the Fort Smith Region . . . . . . . . . . . . . . . . . . . . . 4 Employment Trends and Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Sponsors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 The Fort Smith Regional Economic Outlook Report is published quarterly by the College of Business and the Center for Business Research and Economic Development (CBRED). Subscriptions are available for $200 per year. For more information, please visit our website at www.cob.uafortsmith.edu/cbred, or contact us at: Center for Business Research and Economic Development UA Fort Smith College of Business 5210 Grand Avenue BI218 P.O. Box 3649 Fort Smith, AR 72913-3649 Phone: 479-788-7938 • Fax: 479-788-7957 • E-mail: CBRED@uafortsmith.edu The Center for Business Research and Economic Development seeks to be the primary source of Fort Smith regional economic information, a catalyst for bold, innovative ideas and strategies for economic development in the area, and an active partner in the execution of sound, integrative solutions for regional prosperity and health.
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1st Quarter, 2010
UA Fort Smith
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
I
am very pleased to release this first issue of the Fort Smith Regional Economic Outlook Report. My hope is that it is the first of many that will provide the best quality and most useful information and analysis available on our regional economy.
From the Director
The Center for Business Research and Economic Development (CBRED), consistent with the mission of the University of Arkansas – Fort Smith, seeks to demonstrate in practical ways Kermit W. Kuehn, PhD our intent to be a valued partner Director, Center for Business in our region’s development, Research and Economic Development the kind of development that not only provides citizens abundant opportunities to make a good living but also to live a great life. We live in challenging times, and living a “good life” in an economic sense is increasingly difficult, and not simply because we are currently grinding through one of the most challenging recessions of recent memory. The issues we face as a community, state, and nation are many and complex, often originating from sources outside of our immediate control. While globalism or technology or politics are blamed by many as the reasons for this or that trouble, the reality is that these forces will likely continue to test the status quo of every industry, market, region, and community. It will bring both trouble and unimaginable opportunity. As a region, we want to partake of the right opportunities and face head-on our challenges – and do so every day. In this inaugural issue, we report on three areas of the Fort Smith regional economy: 1) review economic activity for the first quarter, 2) report on the results of the first Fort Smith consumer confidence survey, and 3) provide an overview of regional employment trends and prospects going forward. From our review of the first quarter results for 2010, it is evident that we’ve just concluded a challenging period. There are notable signs of improvement, particularly with March data. Improvements were evident in the housing sector, with home sales and new construction both showing improvement over last year. The unemployment rate eased over last month, though it is still higher than a year ago.
Our first survey of consumer confidence of Fort Smith consumers was conducted in March. We used the well-respected University of Michigan Survey of Consumers to measure consumer sentiment, which will allow us to benchmark local responses to the national survey. As we’ve often heard, approximately two-thirds of our economy depends on consumer spending. Consumer confidence has been demonstrated to relate to consumer behavior. We believe this information will be a valuable contribution to our understanding of the local economy. In the third section of this issue, we focus on employment trends over the past 20 years, noting which industry sectors have gained and which have lost, and then summarizing our prospects
going forward. We conclude this analysis with a discussion of the implications on our community of an emerging trend toward longer recessionary cycles. Finally, I want to thank Chancellor Beran for his strong commitment to regional economic development and the role CBRED can play in this, Dean Williams for his enthusiastic support of our work, and those organizations that have supported the production of this publication through their sponsorship and advertising dollars. Collectively, their vision of what we’re attempting to do here, and what it can mean to our regional economy, makes future research possible. To our future.
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
First Quarter Summary of Regional Economy
F
irst quarter economic data the tough nut to crack since turning for the Fort Smith regional negative in the first half of 2008. economy revealed a mixed While national reporting has turned but strengthening economy when decidedly more positive about the compared to the same period a economy for 2010, the prognosis year ago (See Table 1). A lackluster is for slow growth in terms of net employment picture continues to keep new jobs. Manufacturing numbers expectations of strong recovery more nationally have been up over recent subdued than what we would like. months, pointing toward positive The area economy generated 3,500 implications for our local economy fewer jobs than the same quarter a going forward. year ago. The economic activity index for January The 8.6% unemployment ended the quarter at rate average for the 95.3, down 2% from quarter is 1.1% higher “The regional the previous month than this time last year, economy shows and 3.9% below but March results dropped 2009 levels for the .5% from the previous some signs of same period. There month. This bouncing improvement, were notable areas up and down may of good news as continue for a time as the … but the tone well, suggesting the turnaround brings people is still negafactors important for back into the job market a recovery are moving who had previously tive on the jobs in the right direction. checked out due to lack of front.” employment opportunities Retails sales appear earlier in the recession to be lagging behind cycle. 2009 levels, but sales Taking a closer look at the and use tax receipts data are 60 days employment data, most of the 3,500 old, making it difficult to get a pulse on current consumer behavior. Retail jobs lost between the end of the first quarter 2009 and 2010 can be sales were off 9.9% from the same attributed to mainly three sectors: three-month period of November manufacturing (1,000); natural through January 2008-09. resources, mining, and construction Auto sales have shown some strength (1,000); and trade, transportation, and utilities (1,100). Health services relative to a year ago, up 3.6% over and government sectors grew the first quarter in 2009. This was approximately 450 jobs during the also true for residential real estate same period. activity, where first-quarter existing home sales were up 1.2% over last Looking at employment over the year, as were total new construction next few months, a Manpower Inc. permits, up 24.8% over 2009. As March survey of Fort Smith regional you will see from the discussion of employers found that there was a consumer sentiment for the quarter notable increase in the number of in the next section, Fort Smith area employers who intended to increase consumers are anything but optimistic hiring during the second quarter. when looking toward the next 3 to 6 According to the report released months. March 9, 16% of the employers Employment activity has really been
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UA Fort Smith
surveyed indicated they thought they would increase their hiring during the
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT second quarter, up from 3% who said they would during the first quarter, and up from 4% who indicated they would a year ago. Do read the article on employment trends contained later in this report where employment cycles are discussed further.
All this suggests that we can continue to expect mixed signals through the short term, barring any significant and unexpected news that jolts the economic landscape. The regional economy shows some signs of improvement, as evidenced by real
The Fort Smith Economy Table 1. Summary of First Quarter Performance Fort Smith Economic Activity Indicators
1st Quarter 2010
Base Year - Q1 2005
Sales
Retail Sales (MSA, Nov, Dec, Jan, 000's) Auto Sales (Seb., Craw., Frank. Counties, AR) Residential Construction (MSA) Residential Permits Value of Permits (000's) New and Existing Home Sales (MSA) Number Sold Value of Homes Sold (000's) Average Price of Homes Sold (Q1 Monthly Avg.) Employment (MSA unless noted, Q1 Monthly Avg.) Wage & Salary Employment (Total Nonfarm) Manufacturing Trade, Transportation, Utilities Government Education and Health Services Professional and Business Services Leisure and Hospitality Natural Resources, Mining, and Construction Financial Activities Information Services MSA Unemployment Rate (Q1 Monthly Avg., NSA) AR Unemployment Rate (Q1 Monthly Avg., NSA) U.S. Unemployment Rate (Q1 Monthly Avg., NSA) Airport Traffic (Fort Smith) Total Passenger Traffic
estate and auto sales, but the tone is still negative on the jobs front. Until the economy solidifies expansion, and employment prospects improve, we can expect short term performance of our economy to be unstable.
Last Year - Q1 2009
This Year - Q1 2010*
% Change 2009-2010
$ 988,972 $ 86,835
$ 972,627 $ 65,975
$ 876,230 $ 68,317
-9.9% 3.5%
237 $ 22,122
149 $ 14,174
186 $ 22,307
24.8% 57.4%
522 $ 55,507 $ 106,335
401 $ 46,583 $ 116,167
406 $ 47,255 $ 116,392
1.2% 1.4% 0.2%
117,167 28,500 23,267 16,800 13,900 10,633 8,267 6,467 4,000 1,600
118,700 22,433 24,267 18,633 15,800 10,700 9,133 8,333 4,200 1,300
115,200 21,433 23,100 18,967 15,967 10,600 8,700 7,333 4,100 1,200
5.2% 5.8% 5.6%
7.6% 7.4% 8.8%
8.7% 8.4% 10.4%
1.1% 1.0% 1.6%
45,196
35,782
34,446
-3.7%
-2.9% -4.5% -4.8% 1.8% 1.1% -0.9% -4.7% -12.0% -2.4% -7.7%
*Data as of March 31 except retail sales which includes November - January. Dollars are not inflation adjusted. Data not seasonally adjusted (NSA). Prepared by the Center of Business Research and Economic Development, UA Fort Smith College of Business
STRONG, STABLE & ROCK SOLID With the ever changing needs of Fort Smith and the surrounding areas, one thing remains the same - the way we do business. Arvest helps growing families buy homes and local businesses finance growth. We currently operate more than 230 bank branches and over 320 ATMs in Arkansas, Oklahoma, Missouri and Kansas. Arvest Bank is strong and stable and ready to invest in our communities. Open 7 to 7 • arvest.com Member FDIC
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
Consumer Sentiment in the Fort Smith Region
T
4
he University of Michigan’s (UM) Index of Consumer Sentiment (ICS) survey is used to measure consumer attitudes on several economic themes. Collectively, these represent consumer optimism or confidence levels for any given period and can be used to compare any one period with other periods. Over time, trends emerge as to how consumers perceive these various factors, and these perceptions can be expected to affect consumer behavior in the future. One advantage of adopting this nationally respected survey is the immediate comparability of our regional results with national outcomes.
Current Conditions (ICC). The ICE “focuses on three areas: how consumers view prospects for their own financial situation, how they view prospects for the general economy over the near term, and their view of prospects for the economy over the long term” (University of Michigan).
The overall ICS score includes five core questions and constitutes a general measure of consumer sentiment for the period. These questions cover three general areas of consumer sentiment: personal finances, business conditions, and buying conditions. Two subindices within the ICS make up the Index of Consumer Expectations (ICE) and the Index of Current Economic Conditions or more simply, Index of
Fort Smith Consumer Confidence
As can be seen from Table 1, this difference was largely a result of the 20-point difference in Fort Smith respondents’ ratings of the current condition of the national economy, questions specific to the ICC. Fort Smith respondent ratings resulted in an index score of 61.9 relative to the national survey score of 82.4. This is notably lower than the national views. Fort Smith expectations about the future, as measured by the ICE, were also lower than the national survey results, but by a much smaller six-point margin, 61.9 versus 67.9, respectively.
The overall Index of Consumer Sentiment (ICS) for March indicated that Fort Smith consumers in the fivecounty Metropolitan Statistical Area (MSA) were more pessimistic about the nation’s economic condition than were those who participated in the University of Michigan national survey. The Fort Smith MSA consumer sentiment index
To put these scores in context, a score of 100 might be viewed as a neutral or mixed indication on the economy or specific issue in question – neither optimistic nor pessimistic. That is, for every person who rated an item positively, another person rated it negatively. Thus, index scores below 100 are indications of more
1st Quarter, 2010
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The ICC focuses on consumers’ views of their current financial condition and whether they feel secure enough about their financial situations to engage in major consumption activity. See the survey items in Table 4 in the About the Survey section of this publication.
was 63.1, compared to the 73.6 national response results on the same index.
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT pessimistic views on the issue and above 100 reflecting more optimistic views. However, a score of 65 is a more positive view toward that issue than a 50. This rating framework might be likened to people riding in a boat that is floating down a river, where some people are leaning over the side to the left (optimists), some sitting upright in the boat (neutral) and others are leaning off the right side of the boat (pessimists). If, for example, more riders start leaning to the left relative to those leaning to the right, the boat will likely be pulled to the left over time. So, too, is the result expected when consumer confidence goes up or down over time. Behavior will begin to reflect these expectations. The net result for March is that the national index suggests considerable pessimism at 73.6, but a marked improvement over the 57.3 of a year earlier. Relatively speaking, then, Fort Smith consumers were even more pessimistic than those surveyed in the national study. Since this is the first survey of this kind dedicated to the Fort Smith regional consumer, this is our only benchmark from which to compare Fort Smith responses. We cannot determine if local consumer attitudes are better or worse than previous periods. Each succeeding quarter’s results will provide a much richer insight into regional consumer perceptions. In taking a closer look at the individual items that comprised the indices for March, it is clear that the biggest component differences exist when it comes to expectations about personal finances and views about current buying conditions. Fort Smith respondents were noticeably more pessimistic about their personal finances a year in the future (score = 89) than those in the Michigan survey (score = 112). This tone seemed to be reflected in the two samples’ differing views of whether it was a good time to buy durables, such as furniture, major appliances, TVs, and the like. The Fort Smith item index was 98 versus the Michigan score was 136. Again, due to the fact that this is the first such survey and no prior data exists, no statement can be made as to whether
Table 1. March 2010 Index and Component Scores Indices Index of Consumer Sentiment (ICS) Index of Current Conditions (ICC) Index of Consumer Expectations (ICE) Index Components Personal Finances – Current Personal Finances – Expected Economic Outlook – 12 Months Economic Outlook – 5 Years Buying Conditions – Durables
UM* 73.6 82.4 67.9
FS 63.1 65.0 61.9
77 112 78 82 136
68 89 72 86 98
*UM = University of Michigan Survey; FS = Fort Smith Survey
these scores reflect improvements or declines in sentiment. It can be noted, however, that national results have been relatively stalled at current levels for the past six months, suggesting that there is a general angst among consumers as to future prospects and this can be expected to continue until more definite improvements in employment and household income trends are in place.
Beyond the Core Measures Beyond the seven questions specifically tied to the ICS, consumers were asked nine additional questions to better understand their views and expectations about inflation, personal spending, jobs, and income. The specific questions and scores for each are contained in Table 3.
Table 2. March 2010 Index Scores of Fort Smith MSA Fort Smith Scores On UM ICS Survey On FS ICS Survey
FSICS 63.1 66.1
FSICC* 65.0 65.0
FSICE 61.9 66.8
*Items included in the FSICC are identical to the ICC; thus, no change.
Opinions Specific to the Fort Smith Economy Two items were modified to focus participants on the Fort Smith regional economy versus the national economy. These two items asked respondents to rate their expectations about the business conditions in the Fort Smith economy over the next year and over the next five years. The overall FSICS index and FSICC sub-index were impacted by the change. As can be seen from Table 2, scores were three points higher on the FSICS and five points higher on the FSICC. These results suggest that there is more optimism toward the Fort Smith economy over the next 1-5 years than in the national economy as a whole. It is possible that recent announcements of new employers setting up shop in the Fort Smith region have boosted views of local prospects going forward.
Perceptions of the current U.S. economy are quite negative, with only 12% of the respondents indicating they thought the economy is better now than it was a year ago. Fifty-seven percent indicated it was worse. Seventy-seven percent of respondents indicated they expected overall higher prices over the next 12 months, with only three percent indicating they would decline. When asked about expected consumption over the next three months, results suggest that consumers expect to loosen purse strings somewhat, but only for general consumption. Far fewer consumers expected to increase more discretionary spending such as dining out or buying large-ticket items. Twentytwo percent expected to spend more on general household consumption over the UA Fort Smith
1st Quarter, 2010
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Table 3. Additional Consumer Sentiment Scores
Q11) Do you expect to spend more, about the same, or less per week in the next three months on dining out?
71
few exceptions. There are signs that consumer spending will increase in the near term but only in a very modest way. Dining out and spending on durables in the short term seem likely to be muted at best. This view is further supported by a larger proportion of people who see limited prospects for improving their income over the next year and perceive few job opportunities going forward.
Q12) In the next three months, do you expect to purchase a major household item, such as furniture, appliances, or TV?
37
About the Survey
Q13) Think about the Fort Smith area, how would you describe the availability of jobs today?
47
Q14) One year ago, were there more or fewer jobs available in the Fort Smith area than there are today?
95
Q15) A year from now, will there be more or fewer jobs available in the Fort Smith area than there are today?
78
Q16) What would you guess your total household income to be one year from now?
88
Survey Questions
Score *
Q8) Are current business conditions in the country better, about the same, or worse than they were a year ago?
56
Q9) During the next 12 months, do you think that prices overall will go up, or go down, or stay the same?
26
Q10) Compared to the last three months, how much do you expect to spend overall as a household in the next three months?
100
*Lower scores reflect more pessimism while higher scores more optimism. A 100 reflects a neutral view.
next three months, while a nearly equal number expected to spend less. This ratio drops significantly when asked about dining out, with seven percent indicating they would increase spending in this area, while 36% indicated they would reduce spending. When it came to bigger ticket items, 74% indicated they did not expect to buy any household items such as furniture, appliances, and TVs over the next three months, while only 10% expected to make such purchases over the same period. Perceptions of the current availability of jobs in the Fort Smith area are quite negative, with 54% stating that jobs were hard to get now and another 45%
indicating there were few jobs available. The view was more mixed when asked whether there were more or fewer jobs now than a year ago, with 30% saying there were more jobs now and 34% indicating there were fewer. Finally, there were lower expectations regarding improved household income a year from now, with only 16% expecting an increase in their income ever the next year and 27% expecting a decline. This was confirmed by an earlier question on expectations about financial conditions going forward. It is difficult to sum up Fort Smith consumer sentiment in any other terms other than pessimistic, and that with
The Index of Consumer Sentiment (ICS) is based on one of several consumer surveys developed and carried out by the University of Michigan’s Survey Research Center and is a nationally recognized source for consumer-focused research. The ICS was first conducted in 1946 and has been continuously done since then. Thompson-Reuters News Service later partnered with the university to produce and report this information. While the consumer survey conducted nationally each month includes a broad range of questions presented to respondents via a phone survey technique, five items in the survey are used to calculate the index and readily accessible for comparison purposes by the public. Of the 3,000 surveys mailed to the five-county MSA, 212 were returned undeliverable, and 435 usable surveys were returned in time to be included in this analysis, for a return rate of 15.6%. As a result the confidence level exceeds 95% for this survey.
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CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT Explaining Differences in Results The University of Michigan has given us one year of free access to the current component scores until we have a stream of scores with which to compare consumer trends. Variation in scores between national and regional respondents could reflect any number of factors, some of which affect comparability. First, the differences in results may simply reflect the differences in attitudes between the Fort Smith and national sample. Another contributor could be due to the fact that the Michigan surveys are conducted by phone and require the respondent to answer ‘on the spot,’ while mail surveys are done more at the convenience of the respondent. Additionally, questions had to be modified somewhat for the paper survey. This difference in survey method is further complicated by a potential sample bias; that is, who actually responds to the survey under the two methods (phone and paper survey) is likely not the same. A phone survey may get 90% or more of the respondents
contacted to complete the survey on the phone. Response rates (15.6% in this survey) and who tends to respond is less controlled under a mail survey methodology. Finally, the timing of the surveys was different. The Michigan survey was conducted in early March while the Fort Smith survey was conducted during the third and fourth week of March. One notable economic event took place during the Fort Smith survey was the passage of the national healthcare legislation. While the impact, if any, of this or any of the factors discussed is unknown, it must be considered when interpreting this type of research. Index Items, Sub-Indices and Response Options Items 1 and 2 (listed below in Table 4) refer to personal finances, items 3 and 4, the economic outlook over the next year and 5 years, and item 5 to buying decisions. Each is provided below, along with the sub-indices to which they belong, and with the response options for each.
Table 4. Index and Sub-Index Questions with Response Options Index & Sub-Indices I
I C C
C I S
C E F S I C E
Question
Response Options
Q1) Would you say that your household is better off, about the same, or worse off now financially than you were a year ago?
Better Now Same Worse Now
Q2) What do you think you and your household's financial condition will be a year from now?
Better Now Same Worse Now
Q3) Turning to business conditions in the country as a whole, what do you expect during the next 12 months?
Good Times Some Good/Some Bad Bad Times
Q4) Looking further ahead as to business conditions in this country, what do you expect during the next 5 years?
Good Times Some Good/Some Bad Bad Times
Q5) In general, do you think this is a good time to buy major household items, such as a refrigerator, TV, or furniture?
Good Times Some Good/Some Bad Bad Times
Q6) Turning to business condition in the Fort Smith region, what do you expect during the next 12 months?
Good Times Some Good/Some Bad Bad Times
Q7) Looking further ahead as to business conditions in the Fort Smith region, what do you expect during the next 5 years?
Good Times Some Good/Some Bad Bad Times
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1st Quarter, 2010
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
Employment Trends and Prospects
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manufacturing employment has declined from 17.5% in 1990 to less than nine percent today. As can be seen from this, manufacturing not only has been an important component of the regional economy, but still is, with twice as many workers still employed in manufacturing organizations relative to national participation. Nonetheless, during this recession, manufacturing has dropped below Trade, Transportation, and Utilities as a sector percentage of total non-farm employment.
Fort Smith Sector Employment: 1990-2010
T
otal non-farm employment in the Fort Smith MSA has grown by nearly 32% from 1990-2010, from 87,900 jobs in January 1990 to 115,400 in February 2010. Employment had reached a high of just over 127,000 workers in November 2007 before recessionary forces kicked in. Nearly 12,000 jobs in the five-county area have been lost since the 2007 high.
the workers are employed in retail, 17% in wholesale, and the remaining 27% in transportation and utilities.
Two sectors that have grown significantly over the period as a percentage of non-farm employment, Manufacturing including during the current recession, Employment are Government and Education Manufacturing and Health Services. Government Manufacturing Employment Trade, Transportation, employment includes not only federal, Employment state and local and government Utilities but also Trade, public education suchTransportation, as K-12 and Trade, Transportation, and Utilities In viewing colleges and universities. Government and Utilities The rise of the Trade, Transportation, Figure 1, a noticeable upward trend can Taking a look at key sectors underlying Government from be detected, going from 13.7% in 1990 these broader numbers reveals significant and Utilities sector is due lessManufacturing Government Manufacturing significant growth in the sector as it is to 16.5% in February 2010. This trend shifts in how people make a living Employment Education and Health Employment from the decline of manufacturing. In was particularly evident during the most in the Fort Smith region (See Figure fact, this sector comprises 19.9% ofTransportation, recent decade. Services The sawtooth pattern 1). Manufacturing employment, once Trade, Education and Health Trade, Transportation, Education and Health MSA non-farm employment and in February observed in this trend line reflects the comprising nearly one-third of all jobs Utilities Services Professional and 2010, the same percentage it and wasUtilities in influence of teachers not on contract Services in the region, has declined to under 18% Business January 1990. Of the 23,000Government workers during the summer each Services year. of total MSA non-farm employment Manufacturing Professional and Government Professional and in this sector in February 2010, 56% of Manufacturing today. By comparison, overall U.S. Employment Employment
Jan-10 Jan-10
May-09 May-09
Jan-10 Jan-10 Jan-10
May-09 May-09 May-09
Sep-08 Sep-08 Sep-08
Jan-08 Jan-08 Jan-08
May-07 May-07 May-07
Information Information
Sep-06 Sep-06 Sep-06
Jan-06 Jan-06 Jan-06
May-05 May-05 May-05
Jan-10 Jan-10
May-09 May-09
Jan-08 Jan-08
Sep-08 Sep-08
May-07 May-07
Information Information
Sep-08 Sep-08
Natural Resources, Natural Resources, Mining and Construction Mining and Construction
Information Information
Natural Resources, Natural Resources, Mining and Construction Mining and Construction Financial Activities Financial Activities
Education an Services
Professional Business Se
Source: Bureau of Labor Statistics
Leisure and H
UA Fort Smith
Jan-10
Sep-08
May-09
Jan-08
May-07
Jan-06
Sep-06
May-05
Sep-04
Jan-04
May-03
Sep-02
Jan-02
May-01
Sep-00
Jan-00
May-99
Sep-98
Jan-98
May-97
Sep-96
Jan-96
Financial Act
May-95
Sep-94
May-93
Sep-92
Jan-92
May-91
Sep-90
Trade, Trans and Utilities
Natural Reso Mining and C
0.00
Jan-90
Manufacturin Employment
Government
5.00 Information Information
Jan-94
Jan-10 Jan-10
May-09 May-09
Financial Activities Financial Activities Information
Financial Activities Financial Activities
10.00 Financial Activities Financial Activities
Leisure and Hospitality Leisure and Hospitality
Leisure and Hospitality Leisure and Hospitality
Leisure and Hospitality Leisure and Hospitality
15.00 Natural Resources, Natural Resources, Mining and Construction Mining and Construction
Sep-04 Sep-04 Sep-04
Jan-04 Jan-04 Jan-04
May-03 May-03 May-03
Sep-02 Sep-02 Sep-02
Jan-02 Jan-02 Jan-02
May-01 May-01 May-01
Professional and Professional and Business Services Business Services
Leisure and Hospitality Education and Health Leisure and Hospitality Education and Health Natural Resources, TotalServices Non-Farm Employment Services Mining and Construction Professional and Natural Resources, Professional and Natural Resources, Business Services Mining and Construction Financial Activities Business Services Mining and Construction
Sep-06 Sep-06
Jan-00 Jan-00 Jan-00
Sep-00 Sep-00 Sep-00 Jan-06 Jan-06
Professional and Professional and Business Services Business Services
Sep-04 Sep-04
Jan-04 Jan-04
May-03 May-03
Sep-02 Sep-02
Jan-02 Jan-02
Education and Health Education and Health Services Services
May-05 May-05
May-99 May-99 May-99
Government Government
Sep-98 Sep-98 Sep-98
Jan-98 Jan-98 Jan-98
May-97 May-97 May-97
Sep-96 Sep-96 Sep-96
Education and Health Education and Health Services Services
Jan-08 Jan-08
Jan-06 Jan-06
Jan-04 Jan-04
May-03 May-03
20.00
Trade, Transportation, Trade, Transportation, and Utilities and Utilities
May-07 May-07
25.00
Government Government
Jan-96 Jan-96 Jan-96
May-95 May-95 May-95
Sep-00 Sep-00
May-99 Sep-04 Sep-04 percentage May-99 Jan-00 Jan-00 May-05 May-05
Sep-98 Sep-98
Jan-98 Jan-98
30.00
Trade, Transportation, Trade, Transportation, and Utilities asand a Utilities Percentage of
Manufacturing Manufacturing Employment Employment
May-01 May-01
35.00
Business Services Leisure and Hospitality Business Services
Sep-06 Sep-06
Sep-94 Sep-94 Sep-94
Jan-94 Jan-94 Jan-94
May-93 May-93 May-93
Sep-92 Sep-92 Sep-92
Figure 1. MSA Job Sectors
Sep-08 Sep-08
Jan-92 Jan-92 Jan-92
May-97 May-97
Sep-02 Sep-02
Jan-08 Jan-08
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
1st Quarter, 2010
Information
9
UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Table 1. U.S. Employment by Industry Sector, 1998, 2008, and 2018 (Projected)
Percent Distribution
Total Employment Non-Farm Employment Goods-producing, excl agriculture Mining Construction Manufacturing Services-providing Utilities Wholesale Trade Retail Trade Transportation/Warehouse Information Financial Activities Professional/Business Svcs Educational (private) Health/Social Assistance Leisure/Hospitality Federal Government State/Local Government
1998 100% 90.1 17.3 0.4 4.4 12.5 72.8 0.4 4.1 10.4 3 2.3 5.3 10.8 1.6 8.7 8 2 12.2
2008 100% 91.3 14.2 0.5 4.8 8.9 77.2 0.4 4 10.2 3 2 5.4 11.8 2 10.5 8.9 1.8 13.1
2018 100% 91.7 12.9 0.4 5.1 7.4 78.8 0.3 3.7 9.6 3 1.9 5.2 13.2 2.3 11.9 8.8 1.7 12.8
Average Annual Rate of Change 1998-2008 2008-2018 0.70% 1% 0.9 1 –1.3 0 2.4 –1.6 1.6 1.7 –2.6 –.9 1.3 1.2 –.9 –1.1 –.3 0.4 0.5 0.4 0.8 0.9 –.7 0.4 0.9 0.7 1.6 2.1 3.1 2.4 2.6 2.3 1.8 0.8 0 0.3 1.4 0.8
Source: Bureau of Labor Statistics
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CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT The “education” in Education and Health Services reflects private educational employment and is a considerably smaller portion of this sector relative to healthrelated employment. It is of little surprise to see health services increasing with the aging of the population and the general expansion of health services to this population. The sector has grown from 10.7% of non-farm employment in 1990 to nearly 14% today. One other sector that has exhibited consistent and reasonably strong growth over the 20 year period is Business and Professional Services, which is comprised of legal, accounting, and other consulting services. This sector grew from 6.4% of the non-farm workforce to 9.2% in the latest data, reaching a high of 11% in August 2007. Part of this growth can be attributed to continued outsourcing of white-collar jobs and the tasks in which they were involved. Services in areas of accounting, legal, human resources, and various consulting services have grown as a result. Of the remaining sectors, Financial Services and Information (largely print, broadcast, and digital media-related) have remained largely flat for the period, while Leisure and Hospitality and Natural Resources, Mining, and Construction have experienced modest growth. There was noticeable growth in the latter sector due to a burst in oil and gas exploration activity, as well as construction in the latter half of the 2000-2010 period leading up to the recession.
Sector Growth Prospects Going Forward Employment forecasts for the U.S. and for the State of Arkansas suggest that the trend lines taking shape in Figure 1 will continue. Nationally, for the period between 2008 and 2018, the BLS predicts a continued decline in overall manufacturing employment (See Table 1). While the Arkansas Department of Workforce Services (DWS) concurs with the overall projection for the state, it estimates there will be some growth in areas of alternative energy production (including manufacturing). Within the services sector nationally, the most notable growth is expected in Business and Professional Services as more firms outsource tasks. This sector is expected to grow to 13.2% of nonfarm employment from 11.8% in 2008. Health-related employment is expected to continue growing as well, going from 10.4% to 11.9% of total non-farm employment over the 10 year period. Within the state and region, employment growth is expected in K-12 education and healthcare sectors. The gas and oil sector is projected to add jobs in the Fort Smith region as well, per the DWS estimates. The report also suggests that employment will grow in transportation and local government. In sum, employment opportunities in the intermediate term are projected to be in the service sector, with job growth
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strongest in healthcare, K-12 education, business and professional services, and state and local government sectors. In general, Fort Smith continues to have a considerable manufacturing base from which nearly one in five workers directly derives a living, and many more who do so indirectly. Recent recruitment successes bring some confidence that this fact will continue into the intermediate future. Prospects for Improved Employment While employment trends and projections provide a general framework for estimating local economic prospects, there are broader questions emerging that suggest more perplexing challenges loom going forward. Only one of these will be discussed here. Recessions are a recurring fact of life in a free market economy. While the economic turmoil caused by such cycles is painful, the adjustments made by organizations during these times amounts to a recalibration of the system, making it ready to grow vigorously again. Until recent recessions, these cycles were times when a community hunkered down and waited for the good times to return – which historically was relatively a short wait. However, recent recessions have begun to reflect longer and longer reloading periods where not only are the downturns lengthy, but recoveries are taking longer as well, especially when it comes to rehiring workers.
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Figure 2 illustrates this Many have referred to the point all too graphically. 2000-2009 period as the “The trend is The chart plots the last 11 jobless decade, where we recessions according to the ended the decade more or unmistakable; length of time between the less where we started it pre-recession employment – with about 130 million recent recessions high until post-recession people employed. During have taken longer employment once again that time, the population reaches that level of the had grown by 30 million. to unwind and relast 11 recessions. The The current recession grow employment trend is unmistakable; (red line) is over two recent recessions have years in the making and to previous levels, taken longer to unwind and appears to have recently much less exceed re-grow employment to reached the bottom. This previous levels, much less too fails to consider that those levels.” exceed those levels. The the current definition of long brown line reflects unemployed significantly the 2001 recession, where underestimates how many the job market took nearly four years to are actually not working who wish to be, recover to the same employment levels it or are involuntarily underemployed. reached before the recession.
A Different Kind of Challenge The impact of high and prolonged unemployment on a community has not been examined well, particularly as it pertains to long-term competitiveness. Each employer after each cycle is returning fewer workers to the employment roles relative to the dollars generated. Why is this? For the organization, recalibration of the system means the organization learned to live without the people they thought they needed, retooled processes to gain efficiencies, and outsourced tasks in order to ensure lower fixed costs going forward. Even with rehiring, the preference of more and more employers is to use temporary workers, which results in reduced employer commitment to them
Figure 2. Length of Recession Recovery Periods since World War II Percent Job Losses in Post WWII Recessions 1948
1953
1958
1960
1969
1974
1980
1981
1990
2001
2007
Percent Job Losses Relative to Peak Employment Month
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
-6.0%
Current Employment Recession
-7.0% 0 1 2 3 4 5 6 7 8 9 0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47
Number of Months After Peak Employment http://www.calculatedriskblog.com/
Image used with permission: www.calculatedriskblog.com
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CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT and lower costs to the employer while they keep them. For communities, hunkering down until the storm passes may seem a reasonable response for 12 to 18 months, but this is a very different matter if it lasts five to ten years. One implication is that reduced tax receipts (and investment capital in general) over a prolonged period risks the essential investments needed to maintain existing capabilities, much less propel growth into new areas. A second implication, arguably even more important, is the degeneration of human capital. Former Labor Secretary under President Clinton, Robert Reich, in a March 8 blog, summarized it like this: “Financial capital moves instantly around the globe to wherever it can earn the best return.
Human capital – the skills and insights of our people – is the one resource that’s uniquely American, on which our future living standards uniquely depend.” The market value of any region’s human capital is relative, and fleeting, but it is increasingly the key to a region’s competitive advantage. Infrastructure is a given to compete; human capital is the advantage. The market value of our human capital is diminishing each day an employee is not acquiring and refining his or her skills. It is probably even more significant for the long-term unemployed or underemployed. Maintaining relative economic growth while enduring lengthening recessionary periods may be one more feature of the economic environment that may need to be addressed going forward.
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