Economic Recovery Imminent Despite Manufacturing Losses (Jeffrey Collins Commentary)

It now seems likely that the worst recession since the Great Depression is nearing an end. Of course this is scant comfort to the nearly 15 million Americans unemployed or the thousands of business owners who have gone out of business during the 20-plus month recession.

As the Fed collects information about regional economies, the primary concern is a return to activity as usual. This is broadly focused on key sectors including residential and commercial construction, which have been at the forefront of the decline. Locally we focus on employment and by comparison to our neighbors and the state as a whole, Northwest Arkansas is performing well. However, compared to our historical performance, the same cannot be said.

Nationally, the unemployment rate has approached double-digits. The state rate has trended with the national rate but has been running roughly 2 percent below. Unemployment rates for key metro areas such as Fort Smith and Central Arkansas are currently at 7.7 percent and 6.7 percent, respectively. The four counties that comprise the Fayetteville/Springdale/Rogers metropolitan statistical area have an unemployment rate of 6.2 percent.

Both Central Arkansas and Northwest Arkansas benefit from diverse economies that do not rely on manufacturing for as large a percentage of non-farm employment as other areas of the state. For example, according to July data from the U.S. Bureau of Labor Statistics, manufacturing accounted for roughly 19 percent of non-farm employment in Fort Smith compared to 15 percent in Northwest Arkansas and only 7 percent in Central Arkansas. This is important because job losses have been heavily concentrated in the manufacturing sector. For example, in July of 2007, an estimated 188,800 Arkansans worked in the manufacturing sector. By July of 2009, that number had fallen to 162,800. Obviously the recession has had a negative impact on the sector during the period, but if we examine the data for July 2000, the long-term trend is stark. In July 2009, an estimated 241,100 Arkansans worked in manufacturing. We have lost roughly a third of the state’s manufacturing jobs in less than a decade.

For those employed in manufacturing in Northwest Arkansas, the tale is similar. In July of 2000 an estimated 36,100 people worked in manufacturing. In July of this year an estimated 30,100 people were employed in manufacturing. Comparing the two time periods for Fort Smith, 31,700 people were employed at the beginning of the decade but by July of this year, only an estimated 22,800 manufacturing jobs remain. So, while the percentage loss for Northwest Arkansas was a relatively small, 17 percent, in Fort Smith the percentage loss was about equal to the state as a whole (roughly 30 percent).

If we look to employment statistics for insight into what the post-recession economy will look like, it seems obvious that employment will be redistributed away from the goods producing sectors such as manufacturing and construction and towards the service sectors. Particularly strong gains have been made locally in business and professional services as well as education and health services. For example, comparing July 2000 to July 2009 roughly 9,200 business and professional services jobs have been added. This equates with a roughly 37 percent gain.

In education and health services, the growth has been equally impressive. From July 2000 to July 2009, the region added 7,400 jobs, an almost 56 percent gain.

It is a source of pride and to some degree surprise that Arkansas has weathered the economic storm that sent unemployment rates as high as 15 percent in Michigan. What remains to be seen is if the redistribution of employment has better positioned the state and its cities to take advantage of the recovery — a recovery, which now seems imminent.

Jeff Collins, Ph.D., is an economist and partner in Fayetteville’s Streetsmart NWA, which produces a quarterly report on real estate in Northwest Arkansas. For more information, call 479-575-9100.


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