Measuring Growth in Northwest Arkansas

Matt McGowan: Welcome to Short Talks from the Hill, a podcast of the University of Arkansas. My name is Matt McGowan. I’m a research and economic development writer here at the university. As director of the Center for Business and Economic Research in the Sam Walton College of Business, Mervin Jebaraj leads a team of researchers who provide applied economic and business research to federal, state and local government and businesses in Arkansas. Jebaraj has served as director of the center since April of 2017. He was assistant director for almost ten years before that. Jebaraj’s name is synonymous with economic analysis and forecasting in northwest Arkansas and the state. He frequently comments on economic conditions and policy implications and speaks about the same at conferences and events at the Walton College and the university in general. He is the go-to person for media inquiries about a variety of issues related to the economy and business in Arkansas. Welcome, Mervin, and thank you for being here.

Mervin Jebaraj: Happy to do it.

MM: You recently released the state of Northwest Arkansas Region report. I’m curious about how you do this. What goes into the making of this report?

MJ: Think back to maybe about 2010 or so. The Northwest Arkansas Council was developing strategic plans for the entire region. You know, one important component of the strategic plan is always trying to figure out how to benchmark what you’re doing. You can measure it against yourself, and we definitely do that. You also want to benchmark against other peer regions. And so we’ve gone through a couple of iterations, different iterations, and we’re now in our third set of benchmark regions. When we started comparing ourselves to ourselves, we always look like we’re doing well because we’re improving from one year to the next. So pat our shoulders and move on. That is probably not the best way to be. So we started out with one set of peer regions that were more like us in terms of size and makeup, and we’re now a region about 560,000 people. And so you look at regions that are about our size, under 500,000 when we started. And so you’re looking in places like Lexington, Kentucky, or places like that. And then we continued to do better than them in every metric we measured. So we measure employment, business formation, research, development activity, home ownership costs, commute times, airfares, a wide variety of metrics that are related to strategic focuses of the growth.

MM: And you don’t invent these…

MJ: These are all federal data sets, basically. When we compare ourselves to the first set, we were a lot better. So in let’s make this a little harder and try regional comparisons that are bigger than us. Think of Tulsa or Kansas City or Omaha, which is a little farther away than those two metro regions, but they’re larger metro areas, have a lot more people, a lot more businesses and so on. So, we wanted to compare ourselves to the larger metro areas that are near us. Again, we were outperforming them, you know, not in terms of size, but in terms of growth, which is really what you care about. Instead of just settling at that level, we decided to go for broke, if you will, and compare ourselves to really fast-growing, much larger regions. So now, in comparison to Austin, Texas, which we’re about half the size, Madison, Wisconsin, Provo/Orem, Utah, the Raleigh-Durham area. S these are significantly larger or much better performing regions. So we want to compare ourselves really to the best growing regions in the U.S. That’s what we are doing now in our report. Oddly enough, we fall somewhere in the middle of the pack in a variety of these indicators. So some were very… rarely lead these metro regions in any of the indicators. Sometimes we do. We did in median income growth this year. We outpaced all of the metro regions we compare ourselves to, and then we lead in things we don’t want to lead in – like home price appreciation here in northwest Arkansas outpaced even Austin, Texas, for example, this year compared to last year and this year compared to two years ago even. We want to compare ourselves to the best regions, and that’s what we’re doing in the report right now. And you have to understand that we probably won’t catch up to these regions in terms of size because they’re still growing as well, and they might always be larger than us. But now we have ourselves an aspirational set of peers. We want to be like these, as opposed to comparing ourselves to places that look exactly like us.

MM: I think the Austin example is pretty fascinating. I know just anecdotally, I was down there five years ago, and I was on the south side of town, and we turned around and looked back downtown, and I think there were like 25 cranes I counted in the downtown area.

MJ: They’ve built a lot of housing and as a result, their housing prices have come down.

MM: Well, this is about northwest Arkansas, not about Austin, but so let’s get to what you found. What did you find was the economic climate and forecast for northwest Arkansas. And can you say anything about the state.

MJ: Since the pandemic… So February of 2020, if you want to think of the, you know, not the world as being normal, but things were so normal here in the US and definitely in Arkansas. If you compare employment growth, for example, since that point in the state, we’ve added something like 70,000 jobs since February of 2020. And a little more than half of that came from Northwest Arkansas. So like the growth has been lopsided in the state. So the state is growing as a whole in large part because Northwest Arkansas is growing as fast as it is. Central Arkansas added about… close to about 20,000 jobs. Jonesboro, maybe around five, 6,000 jobs. And then Fort Smith with under 2,000 jobs. So, you know, again, the bulk of the growth is really coming from here in Northwest Arkansas. If you look at census population that we had in 2020 compared to the 2010 census, you know, that you could really account for the net population growth of the state from the population growth here. So a couple of caveats to that. Obviously, people are coming here from other states, But, you know, people are also moving here from other counties in the state as well. So, other regions are growing in the state, northeast Arkansas, where Jonesboro is, is growing, central Arkansas is growing slightly. Other regions are holding, you know, steady. Maybe about two thirds of the state’s counties are probably losing population or so. So, you know, the bulk of the population tends to be here, not just Northwest Arkansas, a few other counties around the state.

MM: Is it important to say exactly where the job growth areas are? So you said 70,000 extra jobs statewide.

MJ: Statewide, yeah.

MM: Most of those in northwest Arkansas. What were we finding those to be in.

MJ: The sectors that you see the growth in in northwest Arkansas… You know, the largest sector is trade, transportation, utilities. It’s obviously retail trade. And we have a large company here that does that in particular and then transportation as well. Professional business services is the second largest industry in Northwest Arkansas in terms of employment and is usually the fastest growing one. It’s engineers, lawyers, accountants, marketing professionals. So it’s basically… you have the jobs that are at the major headquarters that you have here in Arkansas. Then you have all of these different companies that work with those companies that are here. And so these are those jobs, and then they’re also the jobs of all the companies that work with the companies that work with the headquarters that are here in Northwest Arkansas. So a third level, if you would think about it like that. So that’s where really that’s the, you know, fastest growing usually. And then leisure and hospitality grows fast. Obviously, there’s a lot more restaurants and bars and recreational activities here in Northwest Arkansas. And health care grows a lot here, not just for Arkansas, just because the more people you have, the more teeth that need to be cleaned and the more eyes that need to be checked.

MM: I want to move on to something that seems to be on the mind of most people. I would say I notice it when I go to the grocery store, and if I’m looking at buying a house, possibly in the future, I’m seeing that prices aren’t where they were ten years ago, even two years ago. The topic is inflation. And it’s my sense that things have kind of leveled out. It’s sort of static right now. Would that be the case? Is that true?

MJ: October inflation data, which was just came out here in mid-November, is exactly 0% growth in prices between October and September. So, you know, that’s probably headed very much in the right direction. We could use maybe a little… So what we have right now is disinflation, that is, or slower and slower rates of inflation. We’d really like some deflation, maybe, you know, price prices going down, but…

MM: They’re not going down?

MJ: They’re not going down. They’ve stopped growing at the pace that they were last year when it peaked, close to 10%. So growing at 3% is an improvement. We would like to be growing at 2 to 2 and a half percent. So we still have some ways to go in terms of how much the pace of inflation needs to come down. But you are right in thinking that the growth in prices has definitely slowed. But prices are still growing and that affects people because people, you know, have a very sticky picture of prices in their mind. They think if, well, if that if something cost a few years ago. That price is probably never coming back. People’s incomes have gone up. As I mentioned, you know, Northwest Arkansas has the strongest household median income growth, compared to the peer regions, incomes average wages are going up faster than the pace of inflation today. Things do cost more than they cost a couple of years ago. Certainly some things are a lot more expensive, but some things, you’ve seen price improvements in gas prices, for example, but homes are more expensive, home insurance is more expensive because homes are more expensive to build. But, you know, computers are cheaper, TVs are cheaper. So, you know, car prices have held flat, but they’re not cheaper. But it’s also hard to compare because cars today basically drive themselves. So it’s very hard to compare the car today than it was five years ago even.

MM: I’m glad you mentioned some consumer products. That makes me think about consumer sentiment. I mean, we’re heading into the holidays and the shopping intense shopping season. What is your sense of… considering that inflation is static… what is your sense of consumer sentiment right now?

MJ: So consumer sentiment is this weird thing, where you ask people how they feel about their household finances, and they feel great about their household finances. But then you ask people what they think about the overall economy, and they think the overall economy is doing terrible. And so it can be the two things, two thing can be true at the same time. A few households are doing well and most of the households are not. But it’s quite impossible for all the households to be saying, you know, generally a vast majority of households to be saying, our household finances are great, but then the economy is not doing well. So there’s this odd disconnect. We haven’t quite understood what’s broken psychologically for people where they have this disconnect between what’s going on their house and household, what’s going on the economy overall. And so it’s hard to really look at that. And, you know, we look at consumer sentiment things and look at expectations and say, okay, well, people think the economy’s growing. They will spend more money. But people haven’t thought that the economy is growing for a few years now, but they continue to go out and spend money. So I guess as long as people are spending money, which is what they’re doing, and as long as they’re telling us that their household finances are fine now, we would expect them to go out and spend money over the holiday season.

MM: Short Talks from the Hill is now available wherever you get your podcasts. For more information and additional podcasts, visit arkansasresearch.uark.edu, the home of research and economic development news at the University of Arkansas. Music for Short Talks from the Hill was written and performed by local musician Ben Harris.