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Regional Economy Holding Steady
Tuesday, November 19, 2013 6:55 AM

The economy in Arkansas, Oklahoma and Texas is holding steady. Employment growth in Little Rock, Ark., for example, jumped above one percent for the first time in over a year due to stronger growth in the service sector. While the unemployment rate in the central part of the state settled back to 6.6 percent, labor markets in northwest Arkansas continue to outperform the rest of the state and nation as well.

Additionally, employment growth in Fayetteville was more than twice the national rate, and the unemployment rate remains steady at around 5.5 percent.

In Fort Smith, employment gains in the service sector (specifically transportation) offset the persistent declines in the goods-producing sector, which resulted in a significant increase in overall employment growth from 0.3 percent in the first quarter to 1.6 percent in the second quarter. Anecdotal evidence continues to indicate that a limited supply of workers at the prevailing wage could hinder employment growth and put upward pressure on wages. In fact, average hourly earnings are up over 4 percent from the same time last year.

In Texarkana, government employment continued to decline for the fourth consecutive quarter and gains in the goods-producing sector (particularly construction) were not enough to offset these losses. However, preliminary data from July indicate a reversal of the downward trend in government employment.

Strong gains in service-producing employment, especially in Fayetteville and Ft. Smith, accounted for much of the strength in employment growth in the second quarter. In the Little Rock MSA, employment gains were especially brisk in the trade, transportation, and utilities industry.

Home sales have continued to increase on a year-over-year basis. Compared with the same period in 2012, August 2013 year-to-date home sales were up 21.5 percent in Arkansas. Anecdotal evidence indicated that more people were looking for houses than current inventory of homes for sale could support, pushing up prices by 3.4 percent. Residential construction material prices (e.g., wood products) increased partly due to the stronger demand as building permits increased and builder confidence improved.

The office real estate market strengthened. In the second quarter, office vacancy rates further declined to 12 percent, while the nation’s vacancy rates remained at 17 percent. The improvement of commercial real estate construction remained modest.

Across Arkansas, mortgage delinquency rates were down in the second quarter of the year. The balance of loans in delinquency was 1.15 percentage points below its peak and remained well below the national average.

While credit card debt was down year over year in the state, the rate at which borrowers were deleveraging has been slowing. Evidence suggests consumers are becoming more comfortable with their credit card balances. Arkansas citizens continued to pay down their revolving lines of credit secured by home equity. However, it is important to note that they have much lower levels of home equity lines of credit balances than the nation overall.

Arkansas farmers expect to reap larger corn, sorghum, and soybean crops in 2013, but production of cotton and rice is expected to fall short of last year’s crops.

In Oklahoma, the pace of economic growth slowed slightly. Oklahoma payroll employment was up only 0.7 percent. The Oklahoma City metro area continued to lead job growth in the state, with employment more than 4 percent higher than before the recession. Tulsa has added jobs at a steady pace but employment remained below pre-recession levels.

Employment in non-metro areas has fallen recently, mainly due to a slowdown in local energy, manufacturing and government jobs. Statewide job growth was led by the leisure and hospitality industry, with jobs also added in construction, professional and business occupations. In contrast, jobs related to the energy sector declined, mostly in non-metro areas, and the information industry continued to shed workers. Most other industries posted flat year-over-year growth.

Even with the slowdown in employment growth, unemployment rates remained low throughout much of the state. Oklahoma currently has the nation’s 11th-lowest unemployment rate at 5.3 percent.

Labor force participation continued to edge higher, which likely indicated workers were more encouraged about finding employment. This has particularly, and, to a lesser degree, in Tulsa and non-metro parts of the state.

Regional manufacturing activity rose moderately in July and August, moving closer to national levels. The rise in monthly production came from both durable and nondurable goods-producing plants, with the biggest increase from metals and plastic products. Price indexes rose modestly, with a continued increase in future finished goods prices. Oklahoma manufacturing activity also picked up, likely due to the state’s high concentration in energy-related machinery manufacturing, which improved substantially from previous months.

Activity in the energy industry eased slightly, withy overall activity being lower than a year ago. The total state rig count through mid-August was 164, down from previous years but still up from the lows reached in 2009-10. National rig counts continued to rise, with the decline in Oklahoma generally attributable to a shift in drilling locations outside the state. Oil prices were at their highest level since March 2012, mostly due to two events, the tensions in the Middle East and a decline in U.S. crude oil inventories caused by increased global demand. Natural gas prices have been in a range of $3.60 to $3.70 per MMBTU but are expected to rise. Exports of liquefied natural gas are still in high demand, from countries like Mexico and China specifically, and both the U.S. and Canada are looking to capitalize on this growing segment.

In Texas, the economy has expanded at a moderate pace over the past six weeks. Employment growth was significantly slower in August than July. The real estate and energy sectors remain at high levels and continue to be the primary drivers of economic growth. However, the recently concluded government shutdown and continued fiscal uncertainty may be a drag on growth in the fourth quarter.

Employment grew in the first half of the year at a 2.4 percent annualized rate before declining slightly in the third quarter to 2.1 percent. First-half growth was above Texas’ long-term average but slower than in 2012. Austin and Houston have led other metros in job growth since the recession, but growth has slowed in 2013 compared with 2012.

The fastest-growing sector in Texas, energy, has seen annualized employment growth of 9 percent year to date. And while most service sectors have grown at a rate of 2 percent or better year to date, manufacturing employment has been weak.

Despite a stall in manufacturing employment in 2013 after strong growth in 2012, manufacturing activity remains robust. The production index of the Texas Manufacturing Outlook Survey (TMOS) points toward continued expansion, and the apparent disconnect between employment and activity reflects gains in productivity at current staffing levels.

The inventory of unsold homes in Texas has plummeted to just 3.8 months of supply, the lowest level since records began in 1990, with existing-home sales increasing 12 percent year to date through September. Growth in home sales has outstripped increases in housing construction.

The low supply of housing relative to demand has put upward pressure on prices. The Case-Shiller House Price Index for Dallas is up 6.2 percent this year. However, house price gains have been greater nationally because construction activity has expanded more rapidly in Texas than the U.S. As a result, several states, including Texas, show large declines in the proportion of mortgages that are underwater.

The real estate improvement has not been limited to the residential side. Commercial real estate activity has also been brisk. Office vacancy rates continued to improve in most major Texas cities through the second quarter, except for San Antonio, which faces headwinds from the government sequester. Industrial vacancy rates have also dropped across all Texas cities and the nation.

Texas exports declined 2.8 percent in August following a large 4 percent increase in July. However, Texas exports are up 6.3 percent year to date, exceeding the U.S.’s 2.1 percent increase. Texas exports are also much improved over last year, when they were down 1.6 percent for the full year.

The future indexes of the Texas Business Outlook Surveys continue to be in positive territory, indicating continued moderate growth. The Texas Leading Index continues to improve, and the employment forecast is for job growth to come in between 2 and 2.5 percent in 2013.

 

(Source: Compilation from Arkansas, Oklahoma, and Texas State Comptrollers and Federal Reserve Bank Reports, Nov. 15, 2013)