uafs economic outlook 4q 2011

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4th Quarter, 2011

UAFS.eduVol. 2, Num. 4

Fort SmithREGIONAL

Economic OutlookReport Sponsored by Arvest Bank

FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT

Sponsored by Arvest Bank Fort Smith Regional Economic Outlook, 4th Quarter, 2011

UNIVERSITY OF ARKANSAS - FORT SMITH COLLEGE OF BUSINESS

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.uafs.edu/cob/cbred, or contact us at:

Center for Business Research and Economic DevelopmentUAFS College of Business5210 Grand Avenue BI 218P.O. Box 3649Fort Smith, AR 72913-3649

Phone: 479-788-7938Fax: 479-424-6938E-mail: [email protected]

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.

Vol. 2, Num. 4 4th Quarter, 2011

From the Director ........................................ 1

Fourth Quarter Summary of Regional Economy ............................... 2-3

Consumer Sentiment in the Fort Smith Region .............................. 4-8

Review of Regional Retail and Auto Sales ..............................9-12

Sponsors ..............................................13-14

UAFS.edu

UAFS College of Business Sponsored by Arvest Bank 1

FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENTThis fourth-quarter issue of the Fort Smith Regional Economic Outlook Report coincides with the conclusion of our second year of operation at CBRED. When one is in the midst of collecting and studying a daily stream of economic data, it can be a challenge to keep things in perspective.

As we wrapped up content for this report, it felt like in many ways we’d been here before. Last year’s fourth-quarter report noted a decided optimism in markets and consumer attitudes as we closed out the year and moved into 2011. I looked back at the Dow Jones

Industrial Average for the past three years and noted that in each of these years, the Dow ended the year on an uptrend only to fall back in the second and third quarters.

In 2009, after a disastrous drop to below 6,500, the Dow rebounded to close the year at over 10,400. In 2010, the Dow rose to over 11,000 before dropping to below 9,600, but ended the year near 11,600. Last year brought a similar story with the Dow rising to 12,800, dropping to 10,900 before closing out the year at 12,200. So far in 2012, we’ve reached a high of 12,800. Perspective.

When looking at the U.S. economy from the perspective of this first week of February, the setup for the first quarter appears to be similar to last year in terms of the more positive tone exhibited in markets and consumer sentiment.

Like a rocket straining to escape gravity, our economy strains to finally escape those forces that have held it back. I recall that the rocket did get pulled back down in the second quarter of 2011 and we groaned our way through a hot summer, weather-wise, and a hot, volatile market as well.

As we look forward to the first quarter, the data seem to point to an economy that will continue to grow. For all the negatives of an election year, there does tend to be a more favorable wind for the economy during the election cycle, as no politician wants to jeopardize re-election chances by tanking the economy. So, the rocket will likely get overall support from fiscal and monetary sides this year.

Even with this more positive prospect in the broader context, regionally, our economic reality seems more tentative. The fourth quarter ended on a negative note relative to a year ago.

In this report, we review the performance of the Fort Smith area economy. Jobs data were the weakest link in the regional economy, showing year-over-year declines for each of the last three months of the year. On the other side, retail sales and home sales were positive, based on the latest three-month data. Auto sales closed out the quarter on a negative note, as did residential construction. Our survey of Fort Smith consumer sentiment for December improved from last quarter, after reaching a new low during the previous quarter. In the final section, we look at regional retail and auto sales over the past several years, examining the prospects for consumption going forward.

As we close out 2011 with this report, I want to again thank Arvest for their support of our work here in CBRED. Their commitment, along with our advertisers and subscribers, makes our work possible. We are truly partners in a common cause of making the Fort Smith region the best it can possibly be.

To our future.

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Kermit W. Kuehn, Ph.D.Director, Center for Business Research and Economic Development

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The Fort Smith regional economy ended the quarter on a more mixed note relative to the same period a year ago. Retail sales for September–November were up, as were home sales for the quarter, but auto sales and employment were down. The most recent economic activity index was for October and was estimated at 95.7, up slightly from 2010 levels for the same period.

Taking a closer look at the quarter, retail sales data revealed stronger results relative to last year, up 5.4% for the three- month period ending November 30, the most recent data available. Consumers continued to increase spending heading into late fall. The growing momentum in October and November suggests that December sales should reflect solid gains as well. This expectation is supported by Census Bureau data released January 12, which estimates sales nationally for December were up slightly over November, but up 6.5% over a year ago.

Area auto sales, however, did not support the general retail trend, moving lower for the quarter relative to a year ago. Sales were down 8.3% in the fourth quarter. The 6,788 new and used autos sold in the quarter were nearly 8% lower than the 7,354 units for the fourth quarter of 2010. January 2012 data reveal that unit sales were essentially the same as a year ago at nearly 2,500 units, while sales were up 8% from January 2011.

Overall, the regional consumer has continued to spend at higher levels than a year ago and sentiment has improved somewhat since last quarter. If sentiment should continue to improve, then the retail picture might be expected to strengthen into the first quarter of 2012 (see our full discussion of consumer sentiment in the next section).

We examine retail and auto sales in greater detail in the last section of this quarter’s report. Suffice it to say here, there remain significant challenges

to consumer spending as we move through 2012.

The residential real estate sector revealed a more mixed picture relative to the fourth quarter a year ago. Home sales were up solidly for the quarter, while residential construction activity was down from a year ago.

Home sales were up over 20% from 2010 levels for the quarter. Based on MLS data, 472 units were sold in the fourth quarter of 2011. The results reflect a solid rebound from the difficult market experienced in the last quarter of 2010. The sector still has some distance to go before reaching the 718 units sold in the 2005 base year.

We have to keep in mind that home sales dropped sharply after the federal incentives for first-time home buyers ended in June 2010.

Residential construction declined for the quarter, with new permit totals down

Fourth Quarter Summary of Regional Economy

Table 1. Summary of Fourth Quarter Performance

4th Quarter 2011Base Year - Q4 Last Year - Q4 This Year - Q4 % Change

2005 2010 2011* 2010-2011Sales Retail Sales (MSA, September, October, November, 000’s) $815,240 $858,082 $904,341 5.4% Auto Sales (Seb., Craw., Frank. Counties, AR, 000’s) $65,827 $71,642 $65,663 -8.3%Residential Construction (MSA) Residential Permits 209 107 101 -5.6% Value of Permits (000’s) $23,094 $16,383,000 $14,393,000 -12.1%New and Existing Home Sales (MSA) Number Sold 718 393 472 20.1% Value of Homes Sold (000’s) $80,579 $46,571 $56,364 21.0% Average Price of Homes Sold (Q4 Avg.) $112,227 $118,501 $119,415 0.8%Employment (MSA unless noted, Q4 Monthly Avg.) Wage & Salary Employment (Total Non-farm) 121,133 117,167 115,900 -1.1% Manufacturing 29,100 21,167 20,700 -2.2% Trade, Transportation, and Utilities 24,267 24,200 23,800 -1.7% Government 17,500 18,933 18,400 -2.8% Education and Health Services 14,200 16,200 16,033 -1.0% Professional and Business Services 11,133 11,833 11,733 -0.8% Leisure and Hospitality 8,400 8,667 8,867 2.3% Natural Resources, Mining, and Construction 7,000 7,167 7,600 6.0% Financial Activities 4,200 4,133 4,100 -0.8% Information Services 1,600 1,200 1,100 -8.3% MSA Unemployment Rate (Q4 Monthly Avg., NSA) 4.1% 8.0% 7.9% -0.1% AR Unemployment Rate (Q4 Monthly Avg., NSA) 4.5% 7.4% 8.0% 0.6% U.S. Unemployment Rate (Q4 Monthly Avg., NSA) 4.7% 9.1% 8.3% -0.8%Airport Traffic (Fort Smith) Total Passenger Traffic (Q4 Monthly Avg.) 16,799 14,885 14,949 .4%* Data as of February 1, except retail sales which includes September-November. Dollars are not inflation adjusted. Data not seasonally adjusted (NSA). Auto sales Arkansas only. Prepared by the Center for Business Research and Economic Development, UAFS College of Business.

UAFS College of Business Sponsored by Arvest Bank

CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT

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5.6% from last year. The 101 permits issued are less than half the 209 units issued in 2005.

The basic dynamics of the sector remain largely the same as they have been for the past couple of years. The differences are more in degree than in substance. Interest rates continue to reach record lows, inventories continue to be relatively high, and home prices continue to search for a bottom.

If consumer sentiment continues to improve through 2012, then we might expect home sales to continue to post respectable numbers. The drag on sentiment, however, is that consumer attitudes toward the Fort Smith economy were less upbeat in the most recent survey. Further, qualifying for loans has continued to be a challenge.

The key to all things discussed to this point revolves around employment and the prospect of jobs going forward. The regional jobs picture has taken a step backward in the fourth quarter, according to recent BLS data. Employment data revealed weaker numbers relative to the same period last year, recording a 1.1% decline for the quarter. Total MSA employment fell by an estimated 1267 jobs from a year ago. Taking a closer look at BLS estimates, we find that most of the jobs lost were in government (533), manufacturing (467), and trade, transportation and utilities (400) sectors. The biggest gainers were in mining and construction (333) and leisure and hospitality (200).

The 7.9% average unemployment rate for the MSA for the fourth quarter was a tenth lower than a year ago. The December non-seasonally-adjusted rate moved up a tenth of a percent to 8%. However, using the unemployment rate alone, adjusted or unadjusted, misses important underlying data. The slight rise in unemployment rate in December was due to the combination of a sizable decline in the labor force headcount as well as a significant decline in the number of people reported to have jobs. Recall that the unemployment rate is calculated by dividing the number of unemployed by the total civilian labor force.

In this month’s data, we saw a significant decline in both the size of the labor force

and the number of people employed, resulting in a modest rise in the unemployment rate. December data are preliminary estimates and are likely to change. They do appear to be overstating the downside, based on local corporate announcements and anecdotal evidence observed.

SUMMARY AND ANALYSISAt the writing of this report, we find that the national data have been significantly more upbeat than the fourth quarter data suggests for the Fort Smith MSA. Employment data have been generally more positive, corporate earnings have been solid overall, stock markets have surged higher, and consumer confidence has recorded notable improvements. And, perhaps more than anything else, Europe has managed to stay off the front page of our newspapers for much of the new year — a positive boost in itself.

Yet, the forces that kept people on edge for the latter half of 2011remain on the table. Europe has likely gone into at least a mild recession and troubled financial systems of Greece, Portugal, Italy, and Spain flow in and out of the news.

The relative calm and upbeat tone we see in the U.S. markets would lead one to think we have our house in order and are moving comfortably toward a recovery. This is hardly the case, but in an election year Congress and the White House are focused on more important things — getting re-elected. A stark reminder that all is probably not well was the release of the Congressional Budget Office’s (CBO) in January which detailed key expectations for the economy, such as deficits, unemployment, revenues, GDP, and such, assuming different scenarios. It was not a pretty picture.

Assuming current legislation takes effect as scheduled (think mandatory $1.2 trillion automatic cuts, expiration of Bush tax cuts, etc.), the CBO estimated that the national unemployment rate will reach 8.9% this year and rise to 9.2% in 2013. And the deficit? Well, not good.

The point is that the macro-picture remains tentative.

On the monetary side, the Federal Reserve has supported the election year optimism by promising easy money and cheap money, well into 2014.

National manufacturing and non-manufacturing numbers for January, the most recent data reported by the Institute for Supply Management, were up relative to the October readings reported last quarter, and higher than December scores. The PMI (for manufacturers) recorded a 54.1 for January, while the NMI, which includes such sectors as professional services, information, and wholesale and retail trade, came in at 56.8. Index scores that trend above 50 are interpreted as a growth mode for the sector.

Arkansas employers’ hiring intentions for the first quarter of 2012 were flat, with 9% of employers indicating they intended to hire more people in the first quarter and 9% indicating they planned to decrease payrolls for the quarter. This paints a more subdued jobs picture for the first quarter of 2012 than was the case in 2011, where 13% of employers intended to increase staffing levels versus 5% who intended to cut them.

All told, expectations were lower for first quarter hiring intentions across state employers. No report specific to the Fort Smith MSA was available.

Where does that leave us in the Fort Smith regional economy as we move through the first half of 2012?

Consumer sentiment was more subdued toward the regional economy’s prospects going forward. December auto sales suggest that overall consumption may have contracted somewhat toward the end of 2011. This would be a reversal of consumer buying behavior of recent months.

We need to see December results. If sales did contract relative to 2010 and employment numbers remain weak, a more bearish outlook may be warranted going forward.

Our economy remains weak. Overall, employment is the key, and showed signs of weakening in the fourth quarter.

The regional battle continues between the forces for job losses, exemplified by Whirlpool and Trane, and those for job growth, such as Golden Living, Sykes, and AVS (Mulberry). This process is nowhere close to being complete.



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INTRODUCTIONThe Index of Consumer Sentiment (ICS) for the Fort Smith region rose in the fourth quarter, reversing the quarter-over-quarter declines of the past three surveys. The index for December, which measures consumer confidence for the Fort Smith MSA, was 58.3, an increase of 7.6% from the third quarter result of 54.2, but lower than the 64.5 reported for the fourth quarter of a year ago. The rise was consistent in direction with national results of 69.9 reported by the University of Michigan (UM) for December, which were up 17.7% from the previous quarter.

The two sub-indices for Fort Smith were also higher for the quarter. The Index of Current Conditions (ICC) for the Fort Smith region, a measure of consumer attitudes toward their current economic situations, increased by 6.8% to 58.4, while the national ICC rose by 6.3%. The Fort Smith Index for Consumer Expectations (ICE) score, which measures consumer feelings about

future economic conditions, recorded an eight percent improvement as well. National ICE scores jumped 28.7% from the third quarter.

UM national results (ICS) were pushed significantly higher due to the dramatic improvement in ICE scores, which is a component of the ICS. While national and Fort Smith consumers viewed current conditions similarly, there were clearly considerable differences in perception regarding expectations going forward. Overall, area consumers were more pessimistic than national respondents for the fourth quarter.

TAKING A CLOSER LOOKAs can be seen from Table 1, area consumer sentiment scores revealed more optimism in the fourth quarter relative to the third quarter of 2011. While the ICS and both sub-indices recorded improvements relative to the September survey, closer examination of results reveals that the overall positive

tone was not equally distributed across all items of the index.

Two items comprise the ICC: people’s ratings of their current personal finances and whether the time is right to make major purchases (referring to durable goods). Area consumers did report more positive attitudes this quarter regarding their current personal finances, up a modest 1.6% from last quarter. National numbers were 1.3% higher than the previous quarter.

The second item in the ICC, which asks whether this was a good time to purchase durable goods, was 11.5% higher than last quarter (78 to 87). National numbers were up 9.4% from last quarter on this item. While area consumers appear to view their current economic reality this quarter relative to last quarter in similar ways, their view of durable goods purchases registered a marked improvement over last quarter.

Consumer Sentiment in the Fort Smith Region

INDICESQ4/2010 Q3/2011 Q4/2011 % Change Q3-Q4

UM* FS UM* FS UM* FS UM* FS

Index of Consumer Sentiment (ICS) 74.5 64.5 59.4 54.2 69.9 58.3 17.7 7.6

Index of Current Conditions (ICC) 85.3 64.9 74.9 54.7 79.6 58.4 6.3 6.8

Index of Consumer Expectations (ICE) 67.5 64.2 49.4 53.9 63.6 58.2 28.7 8.0

INDEX COMPONENTS

Personal Finances – Current (ICC) 80 70 76 61 77 62 1.3 1.6

Personal Finances – Expected (ICE) 112 88 104 79 108 81 3.8 2.5

Economic Outlook – 12 Months (ICE) 79 80 39 57 70 65 79.5 14.0

Economic Outlook – 5 Years (ICE) 78 89 52 77 75 85 44.2 10.4

Buying Conditions – Durables (ICC) 140 96 117 78 128 87 9.4 11.5

Table 1. December 2011 Index and Component Scores

*UM= University of Michigan Survey; FS = Fort Smith Survey



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The ICE consists of three items and seeks to measure consumer expectations going forward in areas of personal finances and national economic prospects. As to personal finances over the next twelve months, there was slightly more optimism reported, with scores 2.5% higher than last quarter (79 to 81). National results were up 3.8% for this item. In percentage terms, 15% of respondents in the Fort Smith area felt their personal finances would be better off a year from now versus 34% who expected them to be worse.

When asked about prospects for the general economy over the next 12 months and over the next five years, Fort Smith area respondents reported more optimism about the short-term and medium-term prospects of the U.S. economy. Area consumer scores registered a 14% increase relative to last quarter when asked about prospects for the economy over the next 12 months (57 to 65). National scores jumped nearly 80%, rising from 39 to 70.

When looking at the five-year range, area respondents reported more optimism than last quarter with scores increasing 10.4% (77 to 85). National scores rose by 44.2% from last quarter.

To summarize to this point, regional consumers reported more optimism regarding their own personal financial situations with stronger optimism recorded when asked about prospects for the national economy going forward.

Relative to the prospects for the U.S. economy at large, Fort Smith scores for the quarter reflected noticeably less optimistic views of their own current and future financial picture. These results were in line with national respondents, where scores were little improved from last quarter when asked to consider their own personal finances going forward.

RESULTS SPECIFIC TO THE FORT SMITH ECONOMYFor each quarterly survey, we modify two items in the UM scale to focus participants on the Fort Smith regional economy versus the national economy. These two items ask respondents to rate their expectations about the business conditions in the Fort Smith economy over the next year and also five years from now. The overall FS ICS index and FS ICE sub-index are impacted by the change. As these items focus on future expectations as opposed to current conditions, the FS ICC scale is not affected (thus, is the same as ICC results in Table 1 for Fort Smith).

As can be seen from Table 2, Fort Smith respondents’ overall sentiment (FS ICS) and future prospects (FS ICE) of the regional economy were rated lower than the U.S. economy on the same dimensions (UM ICS). This is the first time Fort Smith consumers have characterized the regional economy’s prospects as less positive than the national economy as a whole. Scores from the unmodified scale are restated from Table 1 and are presented in the column labeled UM ICS.

Results for the fourth quarter reflected a one-percent decline in the overall index (FS ICS) and a decline of 5.5% in the FS ICE relative to last quarter. This decline in optimism was not consistent in direction with the ratings Fort Smith consumers gave the national economy. That is, Fort Smith expectations regarding the U.S. economy rose relative to last quarter, but expectations actually declined quarter-to-quarter when consumers were asked to rate the prospects for the Fort Smith economy.

Fort Smith Scores

UM ICS Survey (Q4/11)

FS ICS Survey (Q4/10)



% Change Q3-Q4

FSICS 58.3 65.7 57.2 56.6 -1.0

FSICC* 58.4 64.9 54.7 58.4 6.8

FSICE 58.2 66.1 58.7 55.5 -5.5*Items included in the FSICC are identical to the ICC; thus, no change.

Table 2. December 2011 Index Scores of Fort Smith MSA



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2 Neutral scores are not included in calculating index scores.

3 Positive responses to item Q9 are reflective of negative sentiment regarding pricing; thus, scores are reversed to reflect sentiment-score consistency. That is, a pessimistic tone regarding inflation should score lower relative to a more optimistic tone, consistent with the other items in the table.

SURVEY QUESTIONS

Index Scores Qtr. 4Percentages2010 2011

Q4 Q3 Q4 % pos

% neg

Q8) Are current business conditions in the country better, about the same, or worse than they were a year ago?

60 35 42 7 642

Q9) During the next 12 months, do you think that prices overall will go up, go down, or stay the same?

27 173 22 3 82

Q10) Compared to the last three months, how much do you expect to spend overall as a household in the next three months?

95 98 100 23 22

Q11) Do you expect to spend more, about the same, or less per week in the next three months on dining out?

63 67 67 5 38

Q12) In the next three months, do you expect to purchase a major household item, such as furniture, appliances, or TV?

34 22 38 13 75

Q13) Thinking about the Fort Smith area, how would you describe the availability of jobs today?

44 45 42 2 59

Q14) A year from now, will there be more or fewer jobs available in the Fort Smith area than there are today?

73 50 46 9 63

Q15) Over the next 12 months, do you expect area home prices to increase, stay about the same, or decline?

NA NA 91 16 26

Q16) For the upcoming Christmas season, do you expect to spend more, about the same, or less than you did a year ago?

59 51 58 7 49

Q17) For purchases this Christmas season, do you plan to use more, about the same, or less CREDIT than you did a year ago?

37 NA 43 3 60

Table 3. Additional Consumer Sentiment Scores and Current Quarter Percentages



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This is a significant shift that will need verified in subsequent surveys.

BEYOND THE CORE MEASURESSeven additional questions were asked consumers in order to better understand their views and expectations about inflation, personal spending, jobs, and income. Three more items were included which asked consumers about home price expectations and pre-holiday spending intentions. The specific questions, comparative scores and percentage breakdown of positive-negative responses for each are contained in Table 3.

GENERAL ECONOMY AND CONSUMPTION INDICATORSPerceptions of the current business conditions in the U.S. economy (Q8) were up from September ratings, with seven percent of the respondents indicating they thought the economy was better now than it was a year ago. Sixty-four percent indicated it was worse.

Consumers continue to think that higher inflation will be the rule over the next twelve months (Q9), with 82% indicating this view. This perspective was less than the 86% who felt that way in the previous quarter, but still above the 76% that felt that way a year ago. Clearly higher prices remain the dominant expectation among area consumers, but this expectation has been declining in the past two quarters.

When asked about overall consumption expectations over the next three months (Q10), respondents in this survey indicated they intended to spend slightly more than respondents reported from last quarter (100 vs 98). Twenty-three percent of the respondents indicated that they would spend more overall in the first quarter 2012 versus 22% who intended to spend less. The percentage indicating they intended to spend more was the same as the previous quarter, while a slight decline was recorded for those intending to spend less.

When it came to specific purchasing activity (Q11), five percent expected to increase spending on such activities as dining out, while 38% indicated they would spend less during the 2012 first quarter. The index score for this item was unchanged from last quarter due to declines in the percentage of those who reported intentions to spend more being offset by those who intended to spend less. Spending intentions on dining out are still strongly biased toward the negative view.

Ratings regarding intentions in buying large-ticket items (Q12) improved noticeably in the fourth quarter, with 13% of respondents (versus 5% last quarter) indicating they expected to make such purchases in the first quarter and 75% (versus 83% last quarter) who did not. This suggests that we might expect some growth in purchases of large-ticket items as we move through the first quarter of 2012.

The data suggest that consumers were less negative towards spending activity when looking towards the first quarter. In particular, there appears to be some pent-up demand for larger ticket items. Results also suggest that consumers remain quite conservative in their intentions to spend over the next few months.

EMPLOYMENTFort Smith respondents continue to report less optimism about the regional job market than in the previous survey. Index scores of current availability of jobs and prospects for job improvement over the next year continued to drift lower from last quarter scores, which were in themselves lower than the previous ratings. Ratings of current perceptions of job availability in the Fort Smith area (Q13) indicated that 59% of the respondents felt that jobs were hard to get now (versus 57% last quarter) and only two percent stating that jobs were plentiful (down from three percent last quarter).

When asked about job prospects a year from now (Q14), respondent scores were again lower than last quarter, registering a 46 (versus 50). The percentage of respondents who felt job prospects would improve over the next year declined from 10% to 9%, while the number of people reporting that job prospects would be worse over the next year climbed to 63% for the quarter from 61% in September.

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Overall, survey participants continue to hold less optimistic views of the regional employment situation than those who participated in previous quarters.

HOME PRICES AND END-OF-YEAR SPENDINGThree questions asked respondents to rate their perceptions of housing prices over the next year, as well as holiday spending. Items Q15-Q17 in Table 3 relate to these themes.

Consumers were asked to rate their expectations as to area home prices over the next year. Sixteen percent of respondents indicated that they felt prices would be higher a year from now, while 26% indicated they would be lower.

Looking back at holiday spending, 49% of the respondents indicated they expected to spend less during the 2011 Christmas season than they did the previous year and 44% had planned to spend about the same as the previous year. Seven percent indicated they intended to spend more.

Finally, consumers were asked about their intentions to use more or less credit during the holiday season (Q17). Three percent indicated they expected to use more credit versus 60% who indicated they expected to use less.

From these data, it seems that consumers participating in this survey held differing views as to the direction of home prices in 2012, with the bulk of respondents expecting prices to remain largely unchanged. Holiday spending intentions reflected a continuing restraint on spending and the use of credit, though there were some modest improvements from third quarter intentions. How regional consumers actually behaved during the holiday season will become clearer when retail sales figures come out. (Keep in mind that respondents were surveyed in the first week of December.)

Overall, results for this quarter suggest that area consumers were more optimistic relative to the lows observed in the third quarter. This was true across most measures used in this survey. The exceptions were notable, however.

Survey participants recorded declines in ratings of future prospects of the Fort Smith economy, both in terms of the next 12 months and over the next five years; this while ratings for prospects for the U.S. economy overall were solidly higher. Unlike previous surveys, respondents in this survey rated the regional prospects below national prospects. If these results persist in future surveys, this will reflect a significant change in regional consumer attitudes toward our own economy.

This attitude shift seems related to the more negative ratings of the regional jobs picture observed in these data. Ratings on items Q13 and Q14 were both lower again this quarter.

Beyond these notable exceptions, the picture one can draw from this quarter’s results is a more positive one when compared to the third quarter. On the consumption side, there was hardly strong evidence from which to conclude that consumption is going to improve dramatically in the first part of 2012. However, consumer intention to buy more durable goods in the first part of 2012 is good news. This more upbeat attitude toward the purchase of big-ticket items has some support from recent media reports that new car sales finished the year on a strong note.

While we can expect headline news to continue to test consumer moods going forward, it is the regional jobs picture that will likely have the biggest impact on consumer attitudes in 2012.

ABOUT THE SURVEYOf the 3,000 surveys mailed to the five-county MSA, 310 were returned undeliverable, and 318 usable surveys were returned, providing a return rate of 11.8%. As a result, the confidence level exceeds 90% for this survey.

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.uafs.edu/cbred.



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When assessing a regional economy, few statistics are more important than those that measure consumer demand for goods and services. The often-repeated statistic we read in financial reporting is that consumers comprise approximately 70% of all economic activity in the U.S. economy, and as a result, financially speaking, as the consumer goes, so goes the economy.

In this report we will review two aspects of consumer spending in the Fort Smith Metropolitan Statistical Area (MSA): retail sales and auto sales. Data used in the discussion of retail sales is taken from the Arkansas Department of Finance and Administration (DFA) and the Oklahoma Tax Commission (OTC). Auto sales data are from the DFA and will include only the counties of Sebastian, Crawford, and Franklin in Arkansas. Oklahoma data were not readily accessible at the time we (CBRED) started collecting and reporting auto sales. Therefore, our review of auto sales activity will be based on the three Arkansas counties within the MSA.

We will first examine Fort Smith MSA retail sales for the 2005-2011 period,

both in nominal (actual) dollars and in inflation-adjusted 2005 dollars. This will be followed by a look at auto sales for the three Arkansas counties for which we have data. We will compare new-versus-used sales in terms of dollars and units sold, in total and by county, for the 2005-2011 period. We’ll conclude with some observations regarding the sector.

RETAIL SALES

Retail sales numbers are calculated using monthly sales and use tax distributions made by the states of Arkansas and Oklahoma to their respective counties. Each county’s tax rate is used to calculate the revenue number for that county.

Figure 1 presents the total retail sales activity for the five-county Fort Smith MSA from 2005-2011. At the time of this writing, the data were unavailable for the December 2011 period. We used the preceding five-year average to estimate this data point. Data are presented in both nominal dollars (the actual dollars reported each year) and adjusted for inflation to 2005 dollars as measured by the Bureau of Labor Statistics’ Consumer Price Index (CPI).

In examining Figure 1, we see that retail sales grew modestly over the period reaching a peak in 2008 of nearly $4 billion. Recession effects brought that number down to just over $3.5 billion in 2009 after which a modest recovery has progressed. Sales for 2011 are estimated to exceed $3.6 billion, reflecting a modest recovery over the past three years.

Sales relative to each of the five counties in the MSA reveals a distribution largely built on population distribution, as would generally be expected. Sebastian County makes up approximately 62% of retail sales activity in the MSA, followed by Crawford (17%), Le Flore (9%), Sequoyah (7%), and Franklin (5%) counties.

When examining retail sales in real dollars, or inflation-adjusted dollars, sales have not only declined since 2008 but continue to decline in the MSA. Using a national measure of inflation on regional data must be viewed with some caution as regional costs can be expected to vary, but the measure does attempt to take into account broad inflationary trends at work in the economy.

Review of Regional Retail and Auto Sales

2005 2006 2007 2008 2009 2010 2011Nominal Dollars 3,291,711,663 3,498,362,584 3,616,567,646 3,996,917,202 3,546,866,645 3,568,848,643 3,636,148,7342005 Dollars 3,291,712,000 3,389,038,000 3,406,525,000 3,625,578,000 3,228,828,000 3,196,409,000 3,157,032,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Nominal Dollars

2005 Dollars

Retail Sales in Nominal and 2005 Dollars (2005-‐2011)

Million

s

Note: 2011 annual sales were esBmated by taking December 5-‐year average. Source: DFA & OTC

Figure 1. Fort Smith Retail Sales in Nominal and 2005 Dollars (2005–2011)

Mill

ions



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With these caveats in mind, it is evident that real spending continues to struggle in the regional economy. Adjusted sales rose to a high of $3.6 billion in 2008, but dropped to just over $3.2 billion in 2009 and dropped further in 2010 to just under $3.2 billion. Estimates for 2011 suggest they will drop even further in real terms.

Overall, we see that the improvement in retail sales for 2010 and 2011 have been modest, though certainly welcome. However, when making inflation-adjusted comparisons, a somewhat different story emerges. There remains considerable downward pressure on the retail environment.

AUTO SALESIn viewing auto sales data for Sebastian, Crawford, and Franklin counties of

Arkansas, we first notice the general decline in sales, both in terms of dollars and units, from 2005 until the end of 2011.

Consistent with the pattern observed in retail sales discussed previously, auto sales dropped significantly in 2009 but staged a modest but steady recovery in terms of sales over the past two years. However, the number of units sold reflects a more mixed picture in the recovery.

From Figure 2, it is clear that a recovery in sales and units took place in 2010 while the number of units sold actually declined in 2011.

Taking a closer look at the data, we see from Table 1 (right column) that auto sales reached a recession low of about $263 million in 2009 but recovered in

2010 ($282 million) and 2011 ($292 million). However, in looking at the total units sold during the same period, we see that after reaching a recession low of 32,200 units in 2009, units sold improved to 33,208 units in 2010 only to decline again to 32,320 units in 2011.

In sum, total unit sales have declined by nearly 5,000 units since 2008, a year that was itself 1,500 units lower than the 2005 high of 38,600 units. Recall this includes only three counties of the MSA.

When examining total new car versus used car sales for the three counties, we see that new car sales averaged close to 50% of all sales dollars and slightly over 20% of unit sales during the 2005-2008 period. This declined markedly during the 2009-2011 period, with new car dollar sales making up approximately 44% of

Figure 2. New and Used Auto Sales – Dollars and Units

Center For Business Research & Economic Development 2/9/12Auto Sales -‐ Crawford, Franklin, and Sebastian Counties -‐ ArkansasCOUNTY (All)

ValuesRow Labels Dollars Units2005 329727797 385722006 321856613.8 368322007 329503040.9 365762008 331663768.9 371352009 262932150.9 322002010 281611157.6 332082011 291988204 32320Grand Total 2149282733 246843

Table 2. New and Used Auto Units Sold (2005-‐2011)

28,000

30,000

32,000

34,000

36,000

38,000

40,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

MSA New and Used Auto Sales -‐ Dollars vs Units (2005-‐2011)

Dollars

Units

Sales in Units Sa

les in

Tho

usan

ds $$

Source: DFA

Sale

s in

Tho

usan

ds Sales in Units



11

RE

GIO

NA

L RE

TAIL A

ND

AU

TO

SA

LES

total auto sales and around 16% of total unit sales.

In sum, as sales continued to grow in 2011, in terms of dollars, the number of

units declined nearly three percent from 2010. This divergent result occurred as a result of new car sales making up a higher proportion of units sold relative

to used cars (from 15.2% to 17.2%). As the recession took hold, not only did unit sales decline overall, but the proportion of used cars sold grew.

*Percentages in this column reflect the proportion of new versus used vehicle sales in terms of dollars and units.

$95,734,705 17,499 $50,615,167 10,055 $15,019,517 3,075 48.9% 79.4%

$106,120,396 4,846 $47,812,493 2,369 $14,425,519 728 51.1% 20.6%

$201,855,101 22,345 $98,427,660 12,424 $29,445,036 3,803 $329,727,797 38,572

$97,110,468 16,888 $52,163,510 9,633 $14,932,932 2,951 51.0% 80.0%

$100,172,095 4,554 $43,852,055 2,111 $13,625,555 695 49.0% 20.0%

$197,282,563 21,442 $96,015,564 11,744 $28,558,486 3,646 $321,856,614 36,832

$98,960,178 16,820 $55,285,873 9,611 $15,737,002 2,799 51.6% 79.9%

$102,124,026 4,579 $43,795,393 2,117 $13,600,569 650 48.4% 20.1%

$201,084,204 21,399 $99,081,265 11,728 $29,337,571 3,449 $329,503,041 36,576

$99,604,912 17,284 $56,959,092 9,897 $13,895,271 2,650 51.4% 80.3%

$102,634,925 4,463 $45,266,860 2,115 $13,302,709 726 48.6% 19.7%

$202,239,837 21,747 $102,225,952 12,012 $27,197,980 3,376 $331,663,769 37,135

$85,025,373 15,651 $47,237,376 8,839 $12,981,972 2,632 55.2% 84.2%

$75,582,130 3,196 $31,302,757 1,399 $10,802,543 483 44.8% 15.8%

$160,607,503 18,847 $78,540,133 10,238 $23,784,514 3,115 $262,932,151 32,200

$95,112,636 16,439 $49,674,193 8,988 $14,880,056 2,737 56.7% 84.8%

$79,027,276 3,215 $32,145,191 1,377 $10,771,806 452 43.3% 15.2%

$174,139,912 19,654 $81,819,384 10,365 $25,651,862 3,189 $281,611,158 33,208

$94,931,235 15,504 $48,481,774 8,500 $15,702,079 2,773 54.5% 82.8%

$84,102,969 3,424 $35,806,070 1,562 $12,964,077 557 45.5% 17.2%

$179,034,204 18,928 $84,287,844 10,062 $28,666,156 3,330 $291,988,204 32,320

Table 1. Auto Sales by County and Sale Type

Year Sale Type

UsedNewTotal

2005

Dollars Unit Dollars Unit Dollars Unit Sales UnitSEBASTIAN CRAWFORD FRANKLIN TOTALS*

UsedNewTotal

UsedNewTotal

UsedNewTotal

UsedNewTotal

UsedNewTotal

UsedNewTotal

2006

2007

2008

2009

2010

2011

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We see that the historical 80/20 relationship of old versus new unit sales has begun to re-emerge, though quite slowly. While nearly 85% of all cars sold in 2009 were used cars, this proportion has declined to just under 83% in 2011.

Looking briefly at variations observed among the three counties, we see that about one in six cars sold in Sebastian County over the past three years was a new one. In 2005 and 2006, the ratio was closer to one in five. As a comparison, Crawford County data reveal that approximately one in nine cars sold during the same period was a new one, whereas the ratio was closer to one in six during 2005 and 2006.

SUMMARY AND DISCUSSION

Using retail and auto sales data, we attempted to take the pulse of consumer purchasing activity over the past seven years. This period included the pre-recession surge in activity, the recession decline, and the post-recession recovery. The overall picture we can draw from this is that the regional consumer has returned to the market, but in a much more muted fashion.

Nationally, there have been steady improvements in consumption in the latter part of 2011. The post-Thanksgiving surge in consumer buying activity, however, was less robust by year end than had been hoped. Consumers increased credit use and reduced savings rates in order to buy during the holiday season, neither of which was viewed as sustainable in the long term.

This broad improvement in consumption was particularly beneficial to the auto sector, to new car sales. After a low of 10.4 million new vehicles sold nationally in 2009, sales rebounded to 12.6 million units by 2011, and are expected to reach 13.5 million in 2012 (Edmunds.com). These numbers are still well below the 17 million units experienced in the years leading up to the recession.

Several factors have helped bolster new car-sale prospects in the near term, but central to growth has been pent-up demand. The average age of autos on the road now exceeds 10.5 years, up from 9.7 years in 2007 (Edmunds.com). New models and easier credit have also aided the sector’s recovery.

With that broad overview of the national trends in consumption, where are we headed regionally?

While retail sales in the region have steadily improved relative to post-recession lows, progress has been slow. When viewed in real-dollar terms, however, consumption has actually continued to drift lower since the 2008 high.

We see a similar improvement in auto sales dollars, largely associated with improvements in new car sales. Yet, overall, the unit sales, new and used, have demonstrated less consistency in growth in the post-recession period.

These data suggest that consumption in the Fort Smith region will be constrained for some time to come, with the distinct possibility of contraction in real terms. Whether this assessment turns out to be

accurate will depend on paychecks – the number of them and the size of them.

This is the crux of the matter and the central challenge to the regional economy – more and bigger paychecks. This is a formidable task. While jobs have been added to the MSA in recent months, the overall trend in job creation has been downward.

Most recent Bureau of Labor Statistics (BLS) data for December are troubling in this regard. The data are preliminary, so they must be used with caution. According to the BLS, the civilian labor force declined again in December. The BLS estimated the MSA labor force to be 130,064, levels that have not been seen since 2004. This number reflects the number of people who are either looking for work or already have work. That is, it is the number of people looking for a paycheck or who already have one.

When looking at non-farm payrolls for December, the BLS estimated that there were 115,000 jobs in Fort Smith. This was below the December 2010 level of 116,700 jobs and at levels not seen since December 2002. Again, the data is preliminary, but the trend direction is not.

Of course, the longer the recovery limps along, the more likely this rather subdued assessment of the regional economy will become reality.

We began this analysis with the statement, “as the consumer goes, so goes the economy.” The reverse is also true — as the economy goes, so goes the consumer.

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