Ozarks economic outlook for 2010

As with any identifiable region, the Ozarks’ economy is a partly a product of adjacent economies interacting with internal and external forces. A survey of the metro areas that ring the Ozarks may give us a hint about what to expect for the future. The economic engines within the Ozarks also deserve a look. This long essay will yield the conclusion that 2009 will be a year of slow recovery, with stimulus funds providing the impetus.

Keep in mind that the economy of the Ozarks is influenced by the economies of surrounding areas, but is still distinct. For sobering evidence, look at this map of food stamp usage from June 2009, and you’ll see that the Ozarks region of Missouri is worse off than surrounding areas, even the Ozarks of Arkansas (which may have different criteria than Missouri for receiving food stamps; Missouri enrolls 98% of those eligible for food stamps, leading the nation). This map is consistent with my argument that tourism is impoverishing.

If the areas surrounding the Ozarks prosper, which results in more tourism, the Ozarks loses ground and we end up with more children on food stamps–this isn’t a prediction, but my opinion about what has happened repeatedly and will continue to be repeated unless the parents and children of the Ozarks improve their job skills substantially. Of course, some of those who are positioned to earn more than a basic wage from tourism may also prosper, but the grind of poverty will continue for many and will burden our schools, hospitals, courts and social service agencies, absorbing more of our taxes.

Starting with St. Louis, I’ll move clockwise in surveying the surrounding economies.

St. Louis (St. Louis and southern Missouri and Illinois)

The Federal Reserve Bank of St. Louis serves the 8th District of the Federal Reserve System, which includes the entire Ozarks area of Missouri, all of Arkansas, southern Illinois, western Kentucky and Tennessee and northern Mississippi. The St. Louis FRB publishes its “Burgundy Book,” an anecdotal commentary on trends, which is informed by the statistical work of the St. Louis FRB’s economists. The Burgundy Book’s reports are broken down by “zones” for St. Louis, Louisville, Memphis and Little Rock.

The St. Louis zone report for December 17, 2009,  is almost completely gloomy. Manufacturing employment declined by about 10% over the previous year, while service sector employment employment dropped by about 2%, with a drop in the St. Louis MSA of more than 3%. The only non-farm employment sector showing growth from October 2008 through October 2009 was in education and health services, with a gain of only 1.4%. For the zone, the unemployment rate stood at 10.3% in October 2009, with some tempering of the rate of new unemployment claims.

State income and sales tax revenues plummeted in 2009, which requires state and local governments to contract their spending and employment at a time when priming the pump would be desirable. Third quarter 2009 Missouri income tax revenues fell by 8% compared with third quarter 2008 revenues, while sales tax revenues fell by 6%. A $229 million contract was awarded to Massmann Construction Company of Kansas City for the construction of a new bridge over the Mississippi River. Such projects, many financed all or partially with stimulus funds from the American Recovery and Reinvestment Act of 2009, will bring relief to many.

Louisville and western Kentucky

The Burgundy Book report for the Louisville zone presents statistics which are similar to those of the St. Louis zone, showing few positive trends other than a decline in the rate of new unemployment claims.

Memphis and the Delta of Arkansas and northern Mississippi

While we think of the economy of this area as heavily agricultural, the Burgundy Report for the Memphis zone indicates expected new jobs in manufacturing, involving beverages, furniture, and plastic products, as well as business support and health services. Manufacturing unemployment, as a whole, continued to decline. Substantial drops in tax revenues in Tennessee and Mississippi will force a decline in services and public sector employment.

Little Rock (Arkansas other than the Delta)

The Little Rock zone shows more economic vitality than the remainder of the 8th Federal Reserve District, according to the Burgundy Book report for this zone. The October 2009 unemployment rate of 6.7% is at substantially lower than that of the rest of the 8th District. The employment figures show growth in the leisure and hospitality (4.7%), education and health services (2.2%) and information sectors, for the October 2008 to October 2009 period.

I point out the information sector growth, which is less than 1%, but still positive, because it is counter to the general trend for the information industry, in which newspapers and magazines are sharply contracting employment as advertising revenues plunge. Perhaps this growth has to do with Acxiom Corporation, with headquarters in Little Rock and an office in Conway, as well as around the world. Acxiom compiles profiles on consumers from public data and sells access to its data. Acxiom grew rapidly and was forced to contract and rationalize its operations after 2001, so that it was less vulnerable to a recession and well-positioned to assist other companies which were needing to become more efficient.

The current natural gas play in the Fayetteville shale, a geological formation that underlies a large area of central Arkansas, has created a huge amount of economic activity, some of which was shifted from the Arkoma basin of southwestern Arkansas and southeastern Oklahoma. Over the past few years, seismic crews, drilling rigs, pipeline construction crews and well-service trucks have been crawling all over this area. The extent of the natural gas supply and the lasting effects of the environmental damage are still hard to assess, but the infusion of cash into the area has been very substantial.

Arkansas is of course the base of corporate giants Walmart and Tyson Foods, both of which have the advantages of market dominance in items that are purchased by people rich and poor, technological sophistication, and beneficial relationships with governments. These behemoths give the Arkansas economy great stability.

Tulsa

Helpfully, today’s Tulsa World presents the outlooks for 2010 in several sectors. Putting it all together, soft energy prices will continue, so that part of the Oklahoma economy won’t experience much growth, though manufacturing of petroleum industry equipment will continue. The soft energy prices will allow some strengthening of the aviation industry. Climate change legislation and agriculture policy are of great interest, but not yet settled. The Oklahoma economy was not crippled by the spike in gasoline prices that started in late 2007 and continued through most of 2008. Though many people in Oklahoma felt the pain at the pump, the high prices brought money into the Oklahoma energy and government sectors.

Oklahoma’s diverse economy–with large military bases, oil and gas, gaming, agriculture, manufacturing and aviation–sheltered it from some of the worst effects of the downturn.

• In 2007 Google purchased 800 acres in Pryor, Oklahoma, for eventual construction of a data center (I had to go to bing.com to get this link which indicates that Google discontinued construction).
• In the past 10 years, the Cherokee Nation and the Quapaw Tribe both built huge casinos, which have created thousands of jobs. These and several small casinos are collectively large enough that the money they bring to the state from outside may offset the adverse local effects of gaming, at least economically.
• The continuation of wars in Iraq and Afghanistan pump money into the Fort Sill Army Base and the Tinker Air Force Base and the many industries that support these bases and supply the armed forces with provisions, equipment and munitions.

Kansas and Kansas City

The Kansas economy has much of the diversity that characterizes the Oklahoma economy. Both are “western” states, in that they have relatively low population density and a seemingly larger federal government presence in the economy, primarily as a result of the importance of agricultural legislation (the “farm bill”), federal support of military activities and aviation, and the conspicuousness of big federal programs.

The benefit to small states afforded by having two senators seems pertinent in this context. (In another context, the wrangling over the Senate version of the health care bill, look at the huge power wielded by Western senators Max Baucus, Harry Reid, and Ben Nelson, and Maine’s senator Olympia Snowe, collectively representing states with much less than 10% of the country’s population). When the stars are aligned (i. e., the President, the senators from the state, and the majority in Congress are all of the same party), the relative benefits seem to be huge.

What I’m talking about is such things as the $650 million National Bio and Agro-Defense Facility (NABF), under construction at Kansas State University by the Department of Homeland Security, which has the task of protecting America’s food supply from bio-terrorism. Infrastructure, whether publicly or privately financed, can bring about economic growth and stability.

BNSF’s construction of a 1,300 acre intermodal rail facility near Gardner, Kansas, southwest of the intersection of I-35 and US 64 in Johnson County, will provide an important hub for manufacturing and distribution, taking advantage of modern logistics. This project began as a private project, but apparently is in something of a holding pattern as it awaits the award of federal stimulus funds for a relatively small part of the projected total costs.

According to one analyst, the Kansas City economy will grow at a rate of about 2.4% in 2010.

The internal Ozarks economy

The Ozarks economy continues to bumble along at a low level and it will continue, because there is not going to be enough growth in surrounding areas to fuel a tourism boom. We don’t have the knowledge and labor base to build another sector.

The northwest Arkansas powerhouses of Walmart and Tyson Foods create great wealth built on harnessing low-wage labor, foreign and domestic. Springfield has a few national players–BassPro Shops, Hammons Hotels, O’Reilly Automotive, BKD–but they don’t have large local networks of manufacturers and suppliers, though there are some. Herschend Family Entertainment Corporation‘s headquarters is in Norcross, Georgia, though its flagship property, Silver Dollar City, is in Branson, where the percentage of the population on food stamps is nearly twice the national average and the percentage of children on food stamps is more than three times the national average.

The Ozarks lacks a technology infrastructure with the critical mass needed for growth. We have Acxiom, Jack Henry and Duck Creek Technologies. We have the Missouri University of Science and Technology and Arkansas Tech, and several other universities, colleges and technical schools. But I still have fingers left to count Ozarks technology entities.

Unfortunately, the food stamp map tells the story of the Ozarks economy: we look like the Mississippi Delta with hills and trees. The persistence of poverty has to do with our inability to bootstrap ourselves into having a productive labor force that will support economic activity that pays well. The challenge of the 21st century is how to get what we need from the huge amount of money we spend on K-12 and college education.

The Ozarks will continue to be a low-end retirement area and a vacation bargain. The compromises of Ozarks ecosystems will slow a bit until the larger economy eventually brings another wave of development. Public works projects, local government employment, and health care spending, all financed with taxes, will keep the economic gears turning, so that residents can continue to shop at Walmart and eat Tyson chicken.

I don’t mean to dismiss private capital and entrepreneurship, but right now I’m not seeing much life out there, though I know that a few businesses are doing well or at least in a position to survive.

While Ozarks banks are mostly strong, bankers tell me that they are not seeing many commercial loan applications that make sense. One regional banker told me that his bank would be interested in making a loan for construction of assisted-living facilities, but all the other sectors of real estate are overbuilt. What does that tell you about the Ozarks?