CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
College of Business
www.uafortsmith.edu Vol. 1 Num. 2
2nd Quarter, 2010
Fort Smith REGIONAL Economic Outlook Report
Sponsored by Arvest Bank
UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS
Vol. 1, Num. 2
2nd Quarter, 2010
From the Director............................................... 1 Second Quarter Summary of Regional Economy.....................................2-3 Consumer Sentiment in the Fort Smith Region..................................... 4-7 Wage and Income Summary Trends........................................... 8-16 Sponsors......................................................... 17
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 $25 per year. For more information, please visit us on the web 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 BI 218 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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Fort Smith Regional Economic Outlook, 2nd Quarter, 2010
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
I
am thrilled to begin this report by announcing and welcoming Arvest Bank as our sponsor for the Fort Smith Regional Economic Report. Craig Rivaldo and his team proposed a partnership that not only underwrites much of the costs associated with producing this report, but also has given us the opportunity to broaden the audience that can access this information. This is great news!
From the Director
Kermit W. Kuehn, PhD Director, Center for Business Research and Economic Development
Here are a few of the things already in the works as a result: the Fort Smith Regional Chamber has agreed to mail this report each quarter to its members; two public semi-annual economic forums will be held; and reduced annual subscription rates for this report are now available. As I finish up this second quarterly report, the Kiplinger.com article has just recently come out. The report focused a spotlight on our community in ranking Fort Smith as the ‘least expensive’ city in the country. It certainly was big news in local media, and I was happy to report it to all my Facebook friends. The timing of this news item was particularly interesting to me as I had just concluded drafting the article for this report on regional income and wages, in which I referenced the same ACCRA cost of living index used in the Kiplinger report.
are, why we’re here, and where we would like to go. To do so will allow us to focus our modest resources on those few things that will positively affect the economic future of the Fort Smith region, and that includes income levels. In this report, three areas are discussed: a review of economic activity for the second quarter, a report on the results of the Fort Smith consumer confidence survey, and an overview of regional income and wage data. Second quarter results reveal an improved regional economy overall, with employment still dragging its feet. That’s what lagging indicators do, I suppose, though we might wish it were otherwise. All in all, the trend seems pointed upward, with residential real estate, retail and auto sales, and airport traffic numbers flashing green for the quarter. Our survey of Fort Smith consumer sentiment was conducted in June and registered an improvement over the first quarter as well. As indicated earlier, the final section reviews income and wage data for the MSA. I think you will find it an interesting overview, which includes comparisons to our neighbors in Northwest Arkansas. I conclude my introduction to this issue of the Fort Smith Regional Economic Report by again thanking our sponsors and advertisers for their support. We simply could not do the things we’re attempting to do here without their commitment. I am delighted to have Arvest join us in this endeavor. To our future,
Of course strategically and in a business sense, being a low cost environment is an important comparative advantage. It isn’t the only thing or even the most important thing, but it does matter. We rightfully point out this advantage at every turn. But in the end we want to sell comparative value, and that involves much more than simply being the lowest cost. We’re the least expensive for a reason, and this is part of the double-edged sword we face as a community overall. The discussion later in this report on area income and wages sheds further light on this challenge. Publicity aside, we want to be as clear as possible as a community about where we
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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
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
* Data as of June 30 except retail sales which includes March - May. Dollars are not inflation adjusted. Data not seasonally adjusted (NSA). Auto sales Arkansas only. Prepared by the Center of Business Research and Economic Development, UA Fort Smith College of Business.
A June Manpower Inc. survey of Arkansas employers found that there was a notable increase in the number of employers who intended to increase hiring during the third quarter. According to the report released June 8, 22% of employers surveyed indicated they thought they would increase their hiring during the third quarter, while 3% said they would reduce payrolls. A report specific to the Fort Smith MSA was not available for this quarter.
National manufacturing numbers for July, reported by the Institute for Supply Management, were down slightly from the previous month. The ISM index was 55.5 for July. Index scores that trend above 50 are interpreted as a growth mode for the sector. All this suggests that we will continue to see mixed results heading into fall. Employment improvement looks to be tough going forward, with the
UA Fort Smith College of Business
Summary of Regional economy
Table 1. Summary of Second Quarter Performance
prospect of some further recovery in manufacturing possible. Real estate, a strong positive up to this point, has the makings of a downturn moving toward the end of the year. The tone nationally in recent weeks is decidedly negative and this is not good for those hoping for a recovery with legs. The end result is a regional economy that continues to struggle, providing ample evidence for both the optimist and the pessimist to feed on.
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Consumer Sentiment in the Fort Smith Region
Introduction The Index of Consumer Sentiment (ICS) for the Fort Smith region was modestly higher for the second quarter ending June 30. The Fort Smith MSA consumer sentiment index was 64.5, up just over 2% from the first quarter score of 63.1. Regional results remain considerably lower than the 76 recorded in the University of Michigan (UM) national survey, which was also higher than the 73.6 in March. Two sub-indices were higher as well, consistent with the trend found in the national data. The Index for Current Conditions (ICC), a measure of consumer attitudes about their current economic situations, recorded a slight rise of .6% to 65.4. The Index for Consumer Expectations (ICE), which measures consumer feelings
about future economic conditions, was improved over last quarter as well, recording a 64, or a 3.4% increase. The UM results were higher over last quarter and higher than regional results. Area consumers continue to be more positive toward regional economic performance than national, both in terms of current conditions (FSICS) and future prospects (FSICE). Taking a Closer Look Consumer attitudes revealed a positive, though modest, improvement over the first quarter of 2010. While the ICS and sub-indices recorded gains over the March survey, a closer look at individual items contained within the index provides more insight into Fort Smith consumer attitudes.
Two items comprise the ICC: (1) people’s ratings about their current personal finances, and (2) whether the time is right to make major purchases (durables). Area consumers remain relatively subdued about their personal finances, where scores on their current personal finances are at best flat or slightly deteriorated from the first quarter (68 to 65). However, there does appear to be some pent-up demand for durable goods, as a noticeable increase in ratings of current buying conditions is recorded (98 to 102). National numbers have indicated this more strongly for some months, with monthly scores well above 120 for each month of 2010. Whirlpool’s steady rehiring of production employees in recent weeks seems to support this shift.
The ICE seeks to measure consumer attitudes going forward, in areas of personal finances Table 1. Overall Index and Component Scores by Fort Smith Respondents and national economic prospects. As to personal Qtr 1 Qtr 2 % Change finances, more consumers Indices UM* FS UM FS UM FS this period expect their personal financial Index of Consumer Sentiment (ICS) 73.6 63.1 76.0 64.5 3.3 2.2 circumstances to be better Index of Current Conditions (ICC) 82.4 65.0 85.6 65.4 3.9 0.6 a year from now than did so last quarter (89 to 95). Index of Consumer Expectations (ICE) 67.9 61.9 69.8 64.0 2.8 3.4 The same results were Index Components observed when asked about general business conditions Personal Finances – Current (ICC) 77 68 82 65 6.5 -4.4 a year from now, with Personal Finances – Expected (ICE) 112 89 116 95 3.6 6.7 index scores rising from 72 to 75. However, when Economic Outlook – 12 Months (ICE) 78 72 79 75 1.3 4.2 asked about longer-term Economic Outlook – 5 Years (ICE) 82 86 84 85 2.4 -1.2 conditions for the national economy, the results were Buying Conditions – Durables (ICC) 136 98 139 102 2.2 4.1 largely unchanged from *UM= University of Michigan Survey; FS = Fort Smith Survey last period. The score of Possible reasons for the relatively lower scores compared to the national results are discussed in detail in the first quarter 2010 report, which is available online under our Publications link http://cob.uafortsmith.edu/cbred.
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Fort Smith Regional Economic Outlook, 2nd Quarter, 2010
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
Fort Smith Scores
FS ICS Survey (Q1)
FS ICS Survey (Q2)
% Change Q1-Q2
FSICS
66.1
68.6
3.8
FSICC*
65.0
65.4
0.6
FSICE
66.8
70.6
5.7
CONSUMER SENTIMENT
Table 2. Index Scores of Fort Smith MSA Ratings
*Items included in the FSICC are identical to the ICC; thus, no change.
85 was one point lower than last quarter, when respondents were asked about general business conditions five years from now. The net result for the second quarter using the UM survey is that the regional indices revealed similar patterns in the Fort Smith survey as were observed in the national index, though index scores differed considerably. Consumer sentiment was improved over the first quarter. Relatively speaking, however, Fort Smith scores were generally lower than those from the national study. In examining regional scores provided through the UM website, ICS scores from the southern region have often trended lower than other regions of the country, but not to the extent observed here. If the trend continues, it seems more likely to reflect methodological differences than sample attitudes.
Results Specific to the Fort Smith Economy As was done last time, two items were modified to focus participants on the Fort Smith regional economy versus the national. These two items asked respondents to rate their expectations about the business conditions in the Fort Smith economy over the next year and in five years from now. The overall FSICS index and FSICC sub-index were impacted by the change. As can be seen from Table 2, scores were four points higher on the FSICS and over six points higher on the FSICC.
These results affirm last quarter’s results in that there is noticeably more optimism toward the Fort Smith economy a year and five years from now than in the national economy as a whole. While it is difficult to determine why this is, it perhaps rests with raters having a clearer sense of local realities “…there is than they do with noticeably more national.
As a reminder, a score of 100 might be viewed as a neutral or mixed indication on the economy or specific optimism toward It is also possible issue in question – the Fort Smith that these results neither optimistic nor reflect what pessimistic. That is, for economy a year numerous national every person who rated and five years from polls indicate. The an item positively, electorate distrusts another person rated it now than in the national leadership to negatively. Thus, index national economy handle the economy scores below 100 are and as a result, local indications of more as a whole.” conditions appear pessimistic views on positive, relatively the issue and above speaking. This attitude 100 reflecting more may have a basis in fact. Leadership at optimistic views. However, a score of 65 the state and local level has managed is a more positive view toward that issue their respective budget adjustments in than a 50. Scores rising toward 100 and an orderly and controlled manner – in beyond suggest an expansion mode is in contrast to perceptions of national the economic future. Again, our primary budgetary mismanagement. Again, these interest is trend direction. Index is based on a proportion described as a ‘relative value’ and is calculated for each of the 16 questions in the survey by subtracting the percentage of negative responses from the percentage of positive ones and then adding 100.
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Table 3. Additional Consumer Sentiment Scores and Current Quarter Percentages Scores
Survey Questions
Q2 Percent
Q1
Q2
+
–
Q8) Are current business conditions in the country better, about the same, or worse than they were a year ago?
56
70
20
50
Q9) During the next 12 months, do you think that prices overall will go up, or go down, or stay the same?
26
28
3
76
Q10) Compared to the last three months, how much do you expect to spend overall as a household in the next three months?
100
99
19
21
Q11) Do you expect to spend more, about the same, or less per week in the next three months on dining out?
71
72
7
35
Q12) In the next three months, do you expect to purchase a major household item, such as furniture, appliances, or TV?
37
26
6
80
Q13) Thinking about the Fort Smith area, how would you describe the availability of jobs today?
47
58
5
48
Q14) One year ago, were there more or fewer jobs available in the Fort Smith area than there are today?
95
110
36
26
Q15) What do you expect the recently passed health care legislation will do to health care costs in the U.S.?
NA
29
9
79
Q16) What do you expect the recently passed health care legislation will do to your household’s overall health care costs?
NA
39
10
71
Q17) Do you expect the recently passed health care legislation will make it easier for you to get better health care?
NA
157
57
0
explanations are speculative and cannot be determined from these data. Beyond the Core Measures Seven additional questions were asked consumers in order to better understand their views and expectations about inflation, personal spending, job, and income. Three more items related to the recently passed health care legislation were included. The specific questions, comparative scores, and percentage breakdown of responses for each are contained in Table 3.
Perceptions of the current U.S. economy have improved over March readings, with 20% of the respondents indicating they thought the economy is better now than it was a year ago. Fifty percent indicated it was worse, an improvement over the 57% of last quarter. Seventy-six percent of respondents indicated they expected overall higher prices over the next 12 months, with only 3% indicating they would decline. Inflation versus disinflation or deflation is clearly the dominant expectation among area consumers.
When asked about expected consumption over the next three months, results were largely unchanged from last quarter with a score of 99. Consumers in this survey were more or less equally divided between those who expected to spend more over the next quarter and those who expected to spend less, 19% and 21%, respectively. When it came to specific purchasing activity, far fewer expected to increase spending on such activities as dining out or buying large-ticket items.
When it comes to dining out, this quarter’s score of 72 suggests that spending in restaurants would continue to be weak, reflecting a similar score of 71 from last quarter. Referring to Table 3, only 7% indicated they expected to spend more in this area versus 35% who indicated they would spend less over the next three months. When it came to bigger-ticket items, 80% indicated they did not expect to buy any big-ticket items such as furniture, appliances, and TVs over the next three months, up from the 74% of last quarter.
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Fort Smith Regional Economic Outlook, 2nd Quarter, 2010
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
Perceptions of the local job market have improved over last quarter, with both ratings of current availability and job improvement over last year noticeably higher than last quarter. However, current ratings of the availability of jobs in the Fort Smith area remain quite negative, with 48% stating that jobs were hard to get now and only 5% stating that they were plentiful. The index improved from 47 to 58 this quarter over last. There was a positive shift in perceptions about the job situation now over a year ago, with 36% saying there were more jobs now and 26% indicating there were fewer. The index moved into more job growth territory with a 110 score, a 15 point improvement over last quarter. While consumers in this survey view the jobs picture as still quite difficult, they also seem to sense that it is improving. There is as yet no dancing in the streets on this front. Views on Health Care Legislation Three questions asked respondents to give their views on the recently passed health care legislation. Items Q15-Q17 in Table 3 relate to this topic. The overwhelming majority of respondents felt that the legislation would drive up the cost of health care, both for the country and for themselves personally. Sevennine percent of respondents felt that U.S. health care costs would go up under the legislation and 71% felt that their household costs for health care would rise. This is contrary to the legislation’s stated outcomes. However, 57% of respondents felt that the legislation would improve their access to quality health care, with the remainder believing it would have no effect on their access.
CONSUMER SENTIMENT
These results suggest that while consumers view the current environment is better for buying things, they remain quite cautious in their plans to actually do so.
The results reveal a consumer who believes that health care costs will continue to rise, with a majority feeling it will result in better health care for them. About the Survey Of the 2,500 surveys mailed to the five-county MSA, 209 were returned undeliverable, and 357 usable surveys were returned in time to be included in this analysis, for a return rate of 15.6%. The confidence level as a result is between 90-95% for this survey. The 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. 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 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 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. For more information on the Consumer Sentiment Survey, methodology used and discussion regarding results, a more extensive narrative is provided in the first quarter 2010 report that is available online under our Publications link at http://cob.uafortsmith.edu/cbred.
Positive responses to the items Q9 and Q14 are reflective of negative sentiment regarding pricing and current versus year ago job availability; thus, scores are reversed to reflect sentiment-score consistency. That is, a pessimistic tone regarding inflation should have a lower score relative to a more optimistic tone, consistent with the other items in the table. So too with Q14.
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Wage and Income Summary and Trends
T
he relative competitiveness of the wage and income structure of a community is an important factor in attracting and retaining organizations, as well as making for a quality place to live and work. While organizations look at a host of factors when considering a location, wage structure would typically be one of them. This section examines Fort Smith MSA (FS MSA) income and wage data, both by earnings sector and major occupations, by comparing with national, state, and Northwest Arkansas MSA (NWA MSA).1 Inclusion of the NWA MSA was believed relevant due to geographic proximity and general interest in this regional comparison. Income data is collected by a number of government entities, which often use different sources, methods, and definitions for the data they collect. While this makes it more difficult to directly compare data across these entities, emerging trends and relative positioning of our state and region is of most importance here, and the data allow us to do this. Overview of Income We recognize already that income varies considerably depending on the
region of the country examined, states within regions, and even areas within individual states. In economic terms, communities are at least unique in some sense from one another. This is good news for communities attempting to develop strategic advantages relative to competing communities. In general, the southern region has historically had lower income and wage structures than many other parts of the
country. That and relatively “business friendly� labor laws have contributed their part to the general shift of jobs, particularly manufacturing jobs, from northern tier states to southern tier over recent decades. Within the southern region, Arkansas is consistently one of lowest income and wage locations in the country on virtually any dimension of income/wages used, whether per capita, household, or family income.
Table 1. Income and Wages by Selected Areas (2008) Area U.S. Kentucky
Per Capita
Median* Family
Income
% of Natl
Avg Wage/Job
$63,211
$40,166
100%
$56,116
52,064
31,936
80
46,728
Arkansas
48,098
32,257
80
44,232
West Virginia
47,951
31,634
79
46,600
Mississippi
46,413
30,383
77
42,949
Fort Smith MSA
46,604
30,714
76
33,104
NWA MSA
54,437
32,537
81
39,882
* Sources: Median Family Income data taken from the Census Bureau (CB), American Community Survey 2006-2008; remaining data in this table from Bureau of Economic Analysis (BEA)
The Fort Smith Metropolitan Statistical Area (MSA) includes the counties of Sebastian, Crawford, and Franklin in Arkansas and Sequoyah and Le Flore in Oklahoma. The Fayetteville-Springdale-Rogers MSA (NWA) includes the counties of Benton, Madison, and Washington in Arkansas and McDonald in Missouri.
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Fort Smith Regional Economic Outlook, 2nd Quarter, 2010
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
As stated at the outset, and as can be seen from Table 1, Arkansas is a lower income/wage environment relative to other states on both a per capita income and average wage per job basis, and the Fort Smith MSA is the third lowest relative to the seven MSAs in Arkansas. Figure 1 further demonstrates that over time the relative income levels in
Arkansas, and the Fort Smith MSA in particular, have been lower than other areas for some time. The states of Oklahoma and Missouri were added due to their border-state status relative to the MSAs of interest. Trend lines reveal that income levels in Arkansas and the MSAs have improved modestly relative to national averages. Fort Smith reached a plateau in 2004. The states of Oklahoma and Missouri have quite different trends. Relative to the U.S. average per capita income, Oklahoma appears to have had consistent income growth over the period, while Missouri has largely experienced a decline.
Figure 2 provides a breakdown of the five counties that make up the Fort Smith MSA (FS MSA) over the same 1997-2008 period. This graph paints a more revealing picture, one that reflects most MSAs where there is a dominant economic center. From this perspective, we see the considerable divergence in per capita income distribution across the five-county MSA. In Arkansas, Sebastian County income levels were 91% of the national average in 2008 while Crawford and Franklin Counties were 66% and 72%, respectively. Oklahoma counties of Le Flore and Sequoyah both recorded 65% for the same period. Combined, these data result
Figure 1. Comparison of Per Capita Income as Percent of U.S. Average (1997-2008)
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WAGE AND INCOME SUMMARY AND TRENDS
Table 1 provides selected comparison data on median family, per capita, and average wage per job for selected geographic areas of interest. The four states listed are consistently classified in the bottom four or five positions in the United States on many measures of income.
Every year since 2005, UA Fort Smith business graduates have placed in the top 25% or better in national testing. How do they do it? Their instructors are career business professionals, experts in their field.
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Figure 2. FS MSA Five-County per Capita Income as Percent of U.S. Average (1997-2008)
in an MSA income level of 76% of the national average noted in Table 1. Counties that comprise the NWA MSA reveal considerable variation as well and are summarized here: Benton (85%), Madison (57%), and Washington (80%) in Arkansas and McDonald (60%) in Missouri. This broad economic overview has demonstrated the relative competitiveness of the Fort Smith MSA in terms of income levels. We shift gears a bit as we now look at wages in the context of major earnings sectors. We will follow this discussion with an examination of wages in major occupational categories. Industry Sector Wage Comparisons Examining earnings by sector reveals distinguishing features of our region. The Bureau of Economic Analysis (BEA) released preliminary 2009 data as this report was being written. However, the latest data from the Census Bureau (CB) and the Bureau of Labor Statistics (BLS) are 2008. For consistency of presentation, 2008 data will be used. Significant differences observed in 2009 Fort Smith MSA data are discussed at the end of this section. Table 2 provides a side-by-side comparison of Fort Smith MSA sector
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income relative to national, state, and NWA data. From the table we see that for both MSAs, private sector jobs comprise approximately 85% of all earnings in the community, as a percentage of total non-farm earnings. Further, unlike national and state earnings where the government sector is the single largest non-farm sector, both MSAs’ largest sector was in the private sector as of 2008. The top five income sectors for Fort Smith were in Manufacturing, Government, Health & Social Services, Retail Trade, and Transportation, respectively. Table 3 contains the top five sectors for each geographic area listed in Table 2. One observation here on the data, based on earlier research on employment discussed in the first quarter report, is that earnings from the Professional, Scientific, and Technical sector for the Fort Smith MSA data would likely rank in the top 10 sectors, if not the top five, if data were available. They were not available for 2009 as well. From these data, we see that the “big three,” Government, Manufacturing, and Health/Social Services comprise 35-50% of all earnings, whether looking at national, state or MSA data. With the exception of the NWA MSA, these three areas were the top three in terms of earnings. The Management sector here reflects those organizations that
manage other enterprises. Investment and operating companies and consultant organizations would be examples. One possible explanation of this data from NWA is that his sector reflects the high density of management activities associated with Walmart and other corporate enterprises and their supplier operations. This feature of NWA may also explain some of the MSA’s overall higher per capita and average wage per job data, even with the inclusion of relatively low per capita income counties noted earlier. In general, the 2009 preliminary data do not significantly alter the observations made to this point. The impact of the recession on earnings in 2009 is evident, however, with the government sector proportion of total non-farm earnings growing with the contraction of the private sector. This is most noticeable in the Fort Smith MSA where relative manufacturing earnings have declined to 17.4% in 2009 from the 19.1% of 2008 as a proportion of non-farm earnings. Government and health services sectors comprised 17.1% and 12.3%, respectively, of non-farm earnings in 2009, up markedly from 2008. Part of the explanation for this is that there are fewer job losses in these two sectors relative to other sectors. Government employment doesn’t vary as wildly as private sector employment;
Fort Smith Regional Economic Outlook, 2nd Quarter, 2010
CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT
Sector
U.S.
Arkansas
FS MSA*
NWA MSA
100%
100%
100%
100%
Private sector
83.6
78.5
84.5
85.8
Government sector
16.4
21.5
15.5
14.2
Manufacturing
10.3
16.1
19.1
12.6
Health care & social assistance
10.1
11.6
11.3
8.1
Professional, scientific, & technical
10.5
4.2
NA
6.0
Finance & insurance
8.1
4.2
2.8
3.4
Retail trade
6.1
6.8
7.2
6.2
Construction
6.1
4.9
5.6
5.5
Wholesale trade
5.6
5.6
4.0
7.7
Administrative & waste services
4.1
2.7
3.0
2.6
Other services, except public admin
3.7
2.9
3.6
3.2
Transportation & warehousing
3.3
5.4
6.5
7.7
Information
3.6
2.1
1.5
1.3
Accommodation & food services
3.0
2.7
2.3
2.7
Management of companies
2.6
4.4
2.8
14.8
Real estate, rental & leasing
1.8
0.9
1.3
1.6
Educational services
1.6
0.8
NA
0.6
Mining & extraction
1.0
1.0
5.1
NA
Arts, entertainment, & recreation
1.2
0.4
0.3
0.4
Utilities
0.8
1.2
1.0
0.8
Total non-farm earnings
WAGE AND INCOME SUMMARY AND TRENDS
Table 2. Sector Earnings as Percentage of Total Non-farm (2008)
*Data for MSAs are often unavailable or are provided as estimates by the BEA. Estimates are used as actual data here. Highlighted figures reflect top ten sectors as percentage of total non-farm earnings for each geographic area examined.
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS hence, the relative security of government jobs. This pattern is largely true for healthcare-related employment as well. Comparisons of Wages by Occupation Whereas earnings sector data focuses on the sector a non-farm organization is most associated (i.e., Manufacturing), occupations may span all industries. It would be expected that accountants, for example, would be employed across sectors. This is less so for production workers. These data have been presented in terms of hourly wages, as opposed to annual (See Table 4). Table 5 provides an hourly annualized comparison for key wage levels to make the translation easier. A more detailed description of selected occupational categories is contained in the Notes on Analysis section at the end of this report. In examining the most recent wage data from the Bureau of Labor Statistics (BLS), the overall result for all occupations is not surprising based on earlier analysis of general income and wage structures. Arkansas wages overall are 20% lower than the national average, with Fort Smith MSA 24% lower than national levels and nearly 5% below the state average. Fort Smith wages are more than 11% lower than the NWA average. When looking into specific occupational subcategories, however, the data reveal some interesting variations. At the outset, however, most occupational categories for the Fort Smith MSA are
at or below national, state, and NWA hourly wage averages, as would be expected based on earlier discussion. There are notable exceptions in five occupational groups: Architecture and Engineering; Life, Physical, and Social Science; Community and Social Assistance; Legal; and Transportation and Material Moving. Architecture and Engineering and Legal seem particularly uncharacteristic. In taking a closer look at the subgroups that make up the Architecture and Engineer category, it is immediately evident that petroleum engineers comprise over 10% of the jobs in this occupational group and have an average salary estimate of over $96 per hour. The next two largest groups, mechanical and industrial engineers, average around $34 and $38 per hour respectively, more or less in line with other area data. No petroleum engineers were included in this category for the NWA data. With regard to Legal occupations, lawyers comprise the largest portion of employment in this group. BLS data indicate that Fort Smith lawyers earn an average of $57 per hour, whereas NWA MSA lawyers earn $45 per hour. One possible explanation for these differences is that the Fort Smith group is comprised of proportionally more mature members career-wise relative to the proportion of early-career attorneys than is the case in NWA. That is, members of this occupational subgroup are in the latter half of their
careers where higher incomes would be expected. The other possibility is that the specializations that make up the group, such as oil and gas attorneys, may command higher rates than others within the group. Note that this is not about their hourly billing rates but earnings. Life, Physical and Social Sciences is affected in the Fort Smith MSA data by the subgroup Psychologists (clinical, school and counseling) with an average hourly wage of just over $32 per hour, quite similar to NWA psychologist rates. However, the NWA data has a larger and more diverse subgroup mix than that included in the Fort Smith data, which reduces the impact of the higher rate subgroup in the NWA data. Finally, closer examination of Transportation occupations reveals that the largest Fort Smith subgroup, Heavy and Tractor-trailer Truck Drivers, averages just over $19.50 per hour, whereas NWA drivers average about $3 per hour less. Since this subgroup comprises 38%-41% of the employment in the Transportation category for both groups, this difference was a significant contributor to the variation in wages observed. From these data, it is not possible to know the reasons for each case where differences were noted. A 2009 report produced by the Arkansas Department of Workforce Services (ADWS) does support the higher wage structures noted here in engineering, legal, and sciences areas.2
Table 3. Top Five Sectors based on Earnings as Percentage of Total Non-farm (2008) Rank
U.S.
Arkansas
NWA MSA
Sector
%
Sector
%
Sector
%
Sector
%
1
Government
16.4
Government
21.5
Manufacturing
19.1
Management
14.8
2
Professional Svcs
10.5
Manufacturing
16.1
Government
15.5
Government
14.2
3
Manufacturing
10.3
Health/Social
11.6
Health/Social
11.3
Manufacturing
12.6
4
Health/Social Svcs
10.1
Retail
6.8
Retail
7.2
Health/Social
8.1
5
Finance/Insurance
8.1
Wholesale Trade
5.6
Transportation
6.5
Wholesale Trade
7.7
Transportation
7.7
5
12
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Average Hourly Wage
Occupations
U.S.
Arkansas
FS MSA
NWA MSA
$20.90
$16.65
$15.88
$17.69
Management
49.47
38.33
36.99
43.07
Business & Financial
31.68
25.08
23.55
27.64
Computer & Math Science
36.68
27.55
24.58
29.33
Architecture & Engineers
35.38
29.27
38.63
26.04
Life, Physical, & Social Science
31.57
25.17
26.87
24.30
Community & Social Services
20.55
16.93
18.38
16.65
Legal
46.07
31.52
35.53
29.91
Education, Training & Library
23.81
19.36
18.83
19.65
Arts, Entertainment, Sports, & Media
24.87
18.07
15.74
19.29
Healthcare Practitioner & Technical
33.51
28.92
27.83
30.65
Healthcare Support
12.84
10.71
9.98
11.57
Protective Services
20.07
15.25
14.28
17.06
Food Services
10.04
8.65
8.52
8.99
Building, Maintenance, & Grounds
12.00
10.04
10.10
10.84
Personal Care & Service
11.87
9.45
9.22
10.26
Sales & Related
17.32
13.99
12.69
15.64
Office & Administrative Support
15.86
13.46
12.70
14.25
Farming, Fishing, & Forestry
11.53
13.74
10.78
12.80
Construction & Extraction
20.84
16.31
15.77
16.08
Installation, Maintenance, & Repair
20.30
17.30
17.02
17.03
Production
16.01
13.78
13.15
12.80
Transportation & Material Moving
15.47
13.86
15.64
13.98
All Occupations
WAGE AND INCOME SUMMARY AND TRENDS
Table 4. Hourly Wages by Occupations (2008)
Table 4. Hourly Wages by Occupations (2008) Hourly
Annual
Hourly
Annual
$9.62
$20,000
$21.63
$45,000
12.02
25,000
24.04
50,000
14.42
30,000
28.85
60,000
16.83
35,000
36.06
75,000
19.23
40,000
48.08
100,000
*Computed assuming 52 wks/yr, 40hrs/wk
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UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Wage Growth and Prospects In concluding this review of income and wages in the Fort Smith MSA, a discussion of prospects going forward would be useful. Continual improvement in relative income of regional households is important to strengthening the economic health and potential of the community. One thing is clear from this report: to this point, wages and income levels are lower than most other economic areas of the state and country. This is good news as well as bad news. The good news is that on the dimension of wage competitiveness, Fort Smith is relatively well-positioned to retain and attract employers to the area. However, this criterion is typically not the sole or even most important criteria used in location selection. It is a valid selling point for the area nonetheless.
first quarter of 2009. This means that the cost of living in the Fort Smith area was 83.7% of the U.S. average of 100. So for every $100 spent for housing, food, utilities, transportation, and the like by the average person in the United States, Fort Smith area residents paid $83.70. Fayetteville residents paid $89.30. While a 15% lower cost structure does not make up for a 20+% lower per capita income structure, it does recognize another important feature of the region – lower cost of living. Of course, all this is consistent with the well-publicized Kiplinger.com report which cited Fort Smith as the least expensive community in the nation.
What are the prospects for improved wages and overall income levels going forward? Figure 3 charts the growth rates of U.S. per capita income since 1990 in terms of actual (also referred to as nominal dollars) “For the short The bad news is and 2008 inflationthat being near term, then, adjusted dollars. While the “poorest” incomes have increased pressure to and/or “lowest” markedly over the suggests there is increase wages period in terms of limited economic actual dollars, they have is largely noncapacity overall remained largely flat in in the community, existent.” real buying-power terms whether that is since 1999. The drop measured in terms in inflation-adjusted of consumption or income in 2007-08 is to investment. It also suggests that there be expected as increased unemployment is a significant portion of the population during the recession drives down per living on a thin economic base. It capita income. It dropped again in the does not say there are no pockets of 2009 BEA data just released. The trend, significant economic capacity. however, is unmistakable – real income has barely kept pace with inflation. There is additional good news; while wages in Fort Smith tend to be lower For the short term, then, pressure to than most areas, so too is the cost to increase wages is largely non-existent. live in the Fort Smith area. The ADWS As the current recession drags on, report referenced earlier in discussions particularly as it pertains to relatively of occupational wages compared the high rates of unemployment, low cost of living indices for each of the inflation, and an uncertain investment Arkansas MSAs using the ACCRA environment, wage pressure will be Cost of Living Index3. The Fort Smith minimal, except for selected skills region registered the lowest index score and experience. among all with an index of 83.7 for the 2009 Arkansas Labor Market and Economic Report, Labor Market Information and Occupational Career Information, Arkansas Department of Workforce Services.
2
The ACCRA COLI is a recognized index that measures relative costs of one urban area to another, produced by C2ER-the Council for Community and Economic Research. Using the ACCRA COLI, a July 30, 2010 article on Kiplinger.com lists Fort Smith as the least-expensive city to live in the article Cheap Living in these Ten U.S. Cities.
3
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Nationally, with five applicants for every job vacancy, it is a buyer’s market. Employers have many qualified applicants to choose from in most cases. This looks to continue well into the 12-24 month range, due to the significant risks still present in the broader economy. While the Fort Smith region has not been affected to the degree other parts of the country have, forces for recovery are still weak and this means that wage growth will be minimal. For the intermediate and long term, prospects are not much better. The same factors that have kept wages flat for the past decade can be expected to continue. The sourcing of work from all parts of the globe is seen as essential for most companies to remain competitive. Further, technology has continued to reduce the number of workers required to produce products and services. Absent any social/political backlash, this is unlikely to change. Implications and Issues Changing the basic earnings structure of a community is no easy task. For the Fort Smith region, manufacturing offers some of the best wage opportunities for a good portion of the eligible
workforce. This sector has declined steadily over recent decades and projections are this trend will continue.
products and processes requiring a highly specialized and skilled workforce likely move to Fort Smith? No. And vice versa, would a highly skilled biotech workforce move here? Not likely.
Successful recruitment of manufacturers slows this trend, but with diminishing effect. One comment What is more likely to have success recently heard in this regard was that are strategies that work to extend “$100 million dollars doesn’t buy what our reach into it used to,” referring related industries to number of jobs and occupational created. Pedaling “For the domains where harder just to stay intermediate and prospects for growth in the same place in employment does not appear to long term, ...[t] and better wage be a viable long he same factors structures are term strategy, more likely. As an economically that have kept example, a decision speaking, for any wages flat for the might be made to community. target the alternative past decade can The fact is every energy sector by be expected to community has a using the Mitsubishi workforce (and thus wind turbine project continue.” wage structure) of as a selling point. a certain character Regardless of the precisely because of its economic history. It is awkward at focus, transitioning to something else best to attempt to switch or transition implies intent to do so and assumes one into some other type of economy, has a fairly clear idea as to what he/she is transitioning to. It also assumes a even if one wanted to. It simply is community has options to choose from. not part of the existing landscape These conversations seem to be only in and community experience. Would their infancy. a biotech firm with sophisticated
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Figure 3. U.S. Per Capita Income (1990-2008)
15
UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS Notes to Analysis Wage and income data are collected by several agencies, state, and national. The key federal entities include the Bureau of Labor Statistics, the Census Bureau, and the Bureau of Economic Analysis. As stated earlier, each entity defines their terms somewhat differently, making direct comparison difficult. Data collection sourcing and methods vary as well. For example, the BEA will use more business reporting and government sources to develop its estimates, and these are collected at a particular moment in time, whereas the Census Bureau uses more primary collection methods such as calling households and mailing surveys, which continue on an ongoing basis. The net result is that individuals self-reporting income, for example, is quite different than what a business will report on state and federal forms.
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Earnings Sector and Occupation Category Descriptions Most sector categories are relatively straight forward as to what is contained within, but others less so. As noted above, BEA sector definitions are not always the same as the BLS. Earnings sector information is categorized according to the primary activities of the establishment. Two sectors in Table 2 might need some clarification: Management of Companies and Other Services. Management of companies includes establishments that invest in and/or have a controlling decision-making role in other companies. An example would be venture capital firms.
nicely somewhere else. Examples of this category include personal care, religious, machine repair, laundry, pet care, advocacy, and grant writing. Occupational categories in Table 4 seem relatively straight forward as to what types of occupations are included under each heading. But as we saw in our comparison with NWA MSA, the sub-grouping mix that makes up a category can significantly affect the wage averages of the category for an MSA.
Other Services category is truly a hodge-podge of establishments involved in activities that don’t fit
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