Tyson Foods made a $55,000 grant to the Samaritan Community Center in Springdale that will go toward its SnackPacks for Kids program. 

SnackPacks are designed to send home with students who might not have access to enough food over the weekends. The program supports public schools and Head Start programs in Benton, Washington, Carroll and Madison counties.

The program subsists on contributions from individuals and area businesses and provides food to 7,500 students across the four counties each week. Through the end of the 2015 school year and summer 2015, SCC anticipates it will distribute 343,847 pounds of food with this program.

The Walmart Foundation awarded a $693,750 grant to Mercy’s Behavioral Health Services. The money will be used to fund additional staffing and program ramp up.

Mercy is planning to hire 12 additional behavioral health providers including psychiatrists, nurse practitioners, social workers, therapists and psychological examiners. Three of those health professionals have already been hired.

”The Walmart Foundation grant is significant in helping us move forward to meet this need,” said Dr. Steve Goss, president of Mercy Clinic Northwest Arkansas. “Without a doubt it is a gaping hole in our community and to address it we have to come together. It’s why we are thankful for the Walmart Foundation’s support as we prepare to turn the tide on mental health needs in our area.”

The hire of Dr. Nick Ogle as Program Director of Behavioral Health is the first step toward ramping up the program.  Dr. Ogle has been on the faculty of John Brown University for the last eight years and is also one of the founders of the Joshua Center, which provides affordable counseling services in Fayetteville and Rogers. Dr. Ogle is busy developing a new outpatient model that places therapists throughout NWA in Mercy’s existing clinics.

“Access to quality mental health care is a challenge in many communities, and vital to helping people live healthy lives,” said Karen Parker, Senior Manager, the Walmart Foundation.

She adds that the foundation is pleased to support this issue.

According to Mercy’s community overview, among the adult population, depression and anxiety presents itself as the eighth most prevalent chronic disease. Mercy psychiatrists receive 50 self-referrals weekly and more than 500 internal patient referrals annually. Since 2012, Benton County alone has experienced a 9% growth rate, and the area anticipates continued growth.
 

“From children to adults and senior adults, the need for more behavioral health services shows itself to primary care and specialty physicians each and every day,” Dr. Ogle said. “Physical ailments often walk hand in hand with mental ones. To properly treat the patient, we have to be ready to provide both types of care. It allows the doctors to work closely together in a patient’s best interest.”

Criticism of Walmart U.S. stores was pointed during a conference Wednesday in New York City. The company needs to improve shopper experiences, fresh food quality, check-out speed, store in-stock levels, pricing, worker engagement and have cleaner facilities. But instead of a union leader, this criticism was coming from Greg Foran, the CEO of Walmart U.S.

As promised eight months ago, Foran sat down with retail sector analysts Wednesday and provided an update on what he considers necessary fixes to the retailer’s flagship business. Ruled by his core principle to tell the unvarnished truth, Foran did not mince words. He told the analysts that he’s made 116 unannounced store visits across the country over the past few months and spent time with night stockers, produce handlers backroom managers, and call centers listening to complaints and evaluating operations.

Foran said there are some bright spots in the retailer’s fleet of some 4,500 stores, calling out four stores in Boise, Idaho, as models for others to follow. He told analysts if they wanted to see where Walmart store operations are headed they need to visit Boise. 

He said too many times the back rooms are a mess overrun with inventory and the markdown cadence must be improved in the “fresh” categories. One single action recently applied to reducing prices as the expiration date approached is slated to generate $500 million in cost savings this year. 

Foran said stores are cluttered with too many modular and merchandise displays which is being dealt with. He said store managers have been given more leeway in store merchandising as a way to promote broader engagement among store labor. He cited recent changes made in a Las Vegas supercenter that focused on improving the fresh food experience, cleaning the store, and adding back labor where it made sense. 

“In four short months the store saw a jump from 25% to 45% of baskets purchasing produce, because the store made simple changes to their processes,” Foran said.

He said these types of improvements happen one store at a time and any given day Wal-Mart is only as good as a single store serving a single customer. Foran said this year is dedicated to improving store experiences for the customers, but the retailer is in no way taking its eye off of prices.

Wal-Mart was criticized by an Wolfe Research analyst who said to Foran that Wal-Mart’s price leadership is vanishing. The researcher suggested that rather than spend time on improving store experiences would it not be easier and more effective to just lower prices.

Foran responded that just focusing on lowest prices has not been enough to win back consumers who found the experience was lacking. He also said there are opportunities in price leadership but the retailer has lost some of its muscle for quick reactions in the past. He said the “Everyday Low Price” strategy is what works best and that is what Wal-Mart wants from its suppliers, as opposed to short-term promotional pricing.

He shared several areas his team is focusing on this year to improve the customer experience:
• Improving assortments of fresh and private label which is expected to take about 18 to 24 months. This requires more training for produce handlers and better price spreads on Great Value private label products.
• Teaching and training store workers, empowering more of them with shared data via technology applications used in stores.
• Cleaner stores with faster check-out times, which will be monitored on a regular basis.
• Better work flow on moving merchandise from back rooms to the floor.
• Faster and more convenient locations for online pickup orders inside the store, which is also be monitored.

“Our job at the Bentonville home office is to serve our stores, and let’s be frank we have slipped away from this. We have to empower our stores to make decisions,” Foran said.

He said store managers once juggled eight to 10 daily reports which now have combined into one with a dashboard component on a iPad that can be taken out into the store as most store managers rarely sit behind a desk. Foran said late last year Wal-Mart gave its store managers the discretion of matching online prices and more recently the retailer is adding department managers to supercenters, jobs that were eliminated in year’s past when the retailer went too far in cutting costs. He said managers are now more involved in floor space, modular design and merchandise configuration for their individual stores, giving them and their employees more sense of ownership.

Careful not to trample on predecessor programs, Foran told analysts that Project Reboot, a recent attempt by Walmart U.S. to revamp its sagging electronics department did not go far enough. He said the attempt to reallocate space did not garner the desired results. In addition he said some departments like electronics have become so cluttered with signs that it’s hard for workers to see shoppers just three aisles over. He said the excessive signage is coming down so shoppers and workers have a clear line of sight across the store.

Foran said there would be critics who don’t think there is enough new with Wal-Mart, but that is not the case. He said the principles he governs with date back to Sam Walton and Jack Shewmaker, who taught him a lot about store operations when he was coming up through the ranks at Woolworths in New Zealand.

He told the analysts that he’s not working for a better Wal-Mart just this quarter or next, but he’s aiming for a better Wal-Mart for the next two decades or more and that requires store operations be in tip-top shape across the entire U.S. fleet.

This priority on Wal-Mart store operations seems to be in sync with what consumers said in an informal poll conducted by The City Wire. Consumers from Arkansas, Texas, Oklahoma and New Jersey responded to a survey that asked where Wal-Mart needs the most improvement
• 60% said more checkers, a shorter checkout wait-time;
• 20% said cleaner, more organized stores, wider aisles, fewer empty shelves; and
• 10% more accurate pricing.

The bank concentration in Benton and Washington counties is one of the highest in the nation, with 180 branches operated by 31 different banks in the growing region of 500,000 residents. Contrast that with 35 banks running 180 branches in the Little Rock metro area with a population of around 902,000.

Thick concentration and hyper competition in the local financial sector has not deterred bankers like Donald Guinn, president of First National Bank Paragould, from making an estimated $15 million investment in the region.

Guinn and his team on the ground in Northwest Arkansas have already opened two of the five branches purchased last year from Simmons First for an estimated $12 million — Rogers and Bentonville. Simmons had acquired in a bankruptcy sale the assets of Metropolitan National Bank. The next branch opening will in Fayetteville and is slated by June 1. Guinn told The City Wire he has hired four lenders, two loan assistants, four customer service reps and five tellers for the two branches that are now open. He said the Springdale and Johnson locations would open later in 2015.

“When we get the five locations open by the year end, we will likely have a team of about 30 or so initially, adding more as the bank grows over time,” Guinn said.

For now the veteran banker is commuting to and from Rogers each week from his home in Paragould. He said the family plans to relocate to Northwest Arkansas in the next three months or so after his daughter graduates from Greene County Tech High School in Paragould. Guinn said he works in the two NWA branches Monday through Thursday and then goes home on Friday to be with his family, a routine he’s carried out for the past seven months since the bank first launched it’s NWA expansion.

When asked why the conservative hometown bank of Paragould would venture out across the state, Guinn said First National Bank Paragould was ready for expansion with a strong balance sheet, flush with capital and one of the highest performance ratings in the country for banks of its size — $800 million in assets.

“Northwest Arkansas is the third fastest growing metro area in the nation, it’s no secret why we would want to be here. Opportunity came knocking last year with Simmons First and this gave us a chance to get five branches across the region, equipped and strategically placed in the right areas. It’s a good solid start for us,” Guinn said.

With just a few months under his belt in this competitive region, Guinn said he’s happy with the transition. He said the conservative bank will grow its business organically, not specializing in any one type of niche lending market.

“I’d just as soon talk to a customer about a car loan or small business loan as I would about a larger construction project. We make loans of all kinds — large and small — and because of our size we can do some bigger loans  — up to $21 million,” he said.

While the bank does a fair amount of agriculture loans in its home base of northeast Arkansas, he expects there will be more consumer and business loans made on this side of the state.

First National Bank Paragould grew its loan to $648.5 million as of Dec. 31, 2014, up 18% from 2013. Over the past three years when many of the banks in Northwest Arkansas were shoring up balance sheets and shedding assets to tweak capital requirements, FNB Paragould grew its loans by 26%, according to filings with the Federal Deposit Insurance Corp.

Guinn expects that growth will continue with the NWA expansion over the next few years. He said the bank has the infrastructure in place to support additional growth without compromising asset quality and capital reserves.

SNL Financial recently released its top 100 performance list for community banks with between $500 million and $5 billion in assets. FNB Paragould was one of only two banks in the state to make this list. Six key metrics including capital, loan growth and charge-offs, were considered for the list. FNB Bank ranked No. 79 out of the top 100 peer banks, and Magnolia Bank in southern Arkansas was only other Arkansas bank to crack the top 100. FNB Paragould has garnered a 5-star rating from Bauer Financial for 25 consecutive years, which puts it in an elite group of just 5% of all banks in the country, according to Bauer Financial. Of the31  banks doing business in Northwest Arkansas, eight also carry a 5-star Bauer rating as Dec. 31, 2014.

State revenues fell below projections in the March report, a dip caused by sales tax and individual income tax collections that did not meet expectations due to wintry weather that shut down Arkansas for several days in February, the state’s fiscal office reported Tuesday.

The state’s net available general revenue last month totaled $365.2 million, $21.3 million or -5.5 % below last year and $13.2 million or -3.5 % below forecast. However, year-to-date net available general revenues total $3.7 billion, $105.9 million or 2.9 % above year ago levels. After nine months into the fiscal year, net available revenue is above forecast by $81.4 million or 2.2 %.

“The one thing that I have been watching over the last several months is the sales and use tax collections came in below forecast and are growing slower than expected,” said Michael Pakko, chief economist at the University of Arkansas at Little Rock’s Institute for Economic Advancement.

However, Pakko said the significant thing about the March report is it is a snapshot of February, the shortest month of the year where Arkansas businesses and state government were also shut down for several days because of icy weather. March’s report reflects sales tax revenues collected in February.

“It is pretty clear that the weather put a damper on sales during the month, so it is likely a one-time occurrence,” said the UALR economist. “But, overall, I don’t see any underlying weakness in the Arkansas (economy).”

MARCH INCOME TAX COLLECTIONS DOWN, REFUNDS UP
Overall for March, individual income tax collections totaled $229.4 million, down 7% or $17.2 million compared to last year. That is also 7.2% or $17.7 million below forecast. State officials said individual withholdings fell 5% compared to the same period a year ago, reflecting shifts in payroll withholding rates.

However, individual income tax refunds for Arkansas taxpayers jumped 8.6% to $115.5 million, $8.6 million above year ago levels and $2.2 million above forecast. March sales and use tax collections, however, fell by $3.3 million or 1.8% to $179.8 million, and $5 million or 2.7% below forecast.

Corporate income tax collections in March rose to $75.4 million, an increase of $9.6 million from year ago, and $9.2 million or 13.9%. Tax refunds for Arkansas businesses totaled $3 million, up $1.6 million above year ago levels.

March tobacco tax collections, a smaller component of general revenue in annual terms, topped $17 million.

Year-to-date, Arkansas’ gross collections came in just below $4.6 billion, up by 2.6% or $115.4 million. Gross general revenues are above forecast by $56.8 million or 1.3 %.
Individual income tax collections for the year were up 2.1% to nearly $2.2 billion, or $45.8 million above last year’s collections, and $4.9 million or 0.2 % above forecast.

Collections for individual withholding are up 2.5 % from year ago levels.

CORPORATE TAX COLLECTIONS UP 10% FOR THE YEAR
For the year, Arkansas taxpayers have received nearly $350.1 million in tax refunds, up $9.2 million or 2.7% compared to last year and $7.8 million or -2.2% below forecast. Refund amounts below forecast add additional dollars to the state’s bottom line and net available fund for other budget matters.

At the same time, sales and use tax collections rose by 1.9 % or $30.3 million to nearly $1.65 billion year over year. That total is $13 million or 0.8% above forecast.

The bellwether corporate income tax collections totaled $337.6 million, an increase of $31.8 million or 10.4% for the year. Corporate income is above forecast by $35 million or 11.6%. Year-to-date corporate income tax refunds total $35.4 million, a decrease of $14.0 million compared to the same year-to-date period last year.

Pakko noted that the decline in individual income tax revenue versus forecast and year ago levels was partly due to the state’s first income tax rate change in decades, which also caused the shift in the payroll withholding rate from updates to the state withholding tax tables.

“We are still doing pretty good year over year, and I think once the tax season is done, we will be able to look back and get a better picture of what is taking place now,” Pakko said, noting that the still has a $81.4 million “buffer” of net available revenue above forecast.

Retailers are not the only companies pulling out all the stops to appease changing consumer demands. Several food companies that supply retail grocers are also busy shifting their businesses away from what may have historically been their core products.

Whether it’s soup, chicken or candy, some of the nation’s largest food suppliers are aggressively shifting resources into areas they believe consumers prefer.

Springdale-based Tyson Foods ponied up more than $8.5 billion last year to buy Hillshire Brands in order to gain bigger market share in branded meats and a leg up in the breakfast protein category, which is one of the fastest growing food segments.

“By investing in Hillshire Brands and its collection of leading brands, we have a unique opportunity to transform an important segment of our business, and position Tyson Foods to meet American consumers' growing demand for protein at breakfast and throughout the day,” Donnie Smith, president and CEO of Tyson Foods, said following the merger. 

Smith previously noted that Tyson was attracted to Hillshire in part because of the strength the merger would bring in the growing breakfast category, where the Springdale meat giant has been trying to capture market share with its own DayStarts products, a line that has since been discontinued.

The combined companies jumped over ConAgra taking the No. 2 market share ($3.3 billion) in the frozen value-added category, according to the meat companies. In terms of individual brands, Tyson has the No. 3 spot with $2.4 billion, and Hillshire ranks eighth at $1.3 billion.

Tyson Foods recently added production lines in three facilities to allow for more tray pack fresh chicken that Smith said is high demand by consumers. Smith expects chicken production to be up 3% in fiscal 2015, which began Oct. 1 for Tyson Foods. He said there are key changes in consumer behavior, including a move to more fresh chicken in the retail case and uptick in fully-cooked frozen sales.

“We see more people eating out with the relief they are getting in gas prices, which should benefit food service customers,” Smith said. “We also see a structural demographic change in demand as more Millennials enter the workforce they index higher toward chicken than previous demographics. We expect to see food service customers begin to offer more chicken promotion in the coming months as supplies come back up.”

SOUP WOES
In January, the Campbell Soup Co. and Hershey Co. made announcements they were shifting resources away from their core product portfolios into ventures they view as having clear paths to growth and better aligned with consumer preferences.

Soup is a category that has struggled in recent years amid more competition in convenience categories. A wider variety of flavors and more health conscious products did not improve the company’s sagging soup sales.

“Soup makers have been introducing new varieties and supporting them with marketing efforts,” according to Euromonitor, a data marketing firm. 

But the marketing has not always helped. Euromonitor noted that marketing campaigns featuring Millennials using microwavable pouches in 2012 did not resonate with American consumers.

Even a No. 1 position in the soup category has not helped Campbell’s, which is why CEO Denise Morrison created a new organizational structure that will revolve around three business units – Simple Meals and Beverages, Global Biscuits and Snacks, and Packaged Fresh. She admitted that Campbell’s future growth lies elsewhere, and said the adoption of this new enterprise structure will be an important milestone for Campbell.

“This reorganization will help unlock the value of our brands and the growth potential of our business. It will drive focused investment on our largest growth opportunities. It is the logical next step in our ongoing effort to shift our company’s center of gravity, accelerate our growth trajectory and maximize value for our shareholders,” she said.

CANDY CHALLENGES
A more health conscious consumer today is not as likely to reach for the chocolate bar at the grocery checkout. Young Millennial parents who favor organic foods, fresh produce and locally sourced products are throwing a wrench in candy sales outside of the holiday seasons.

Hershey CEO J.P. Bilbrey noted in a Jan. 29 conference call with analysts that lackluster 2014 sales were a result of changes in consumer spending patterns and a more competitive snacking environment.

“Specifically, growth in snacking alternatives and an evolving retail landscape are impacting what consumers buy and where and how they make purchases,” Bilbrey said.

With that, Hershey announced it would acquire Krave meat jerky snack brands. Now the confectionery giant will have the opportunity to expand its snack product line to include protein-based snacks along with dips and spreads.

According to Euromonitor, jerky sales accounted for close to half of the $5.9 billion in sales of what the research company calls “other sweet and savory snacks,” or snacks other than chips, pretzels, nuts, popcorn and dried fruit treats. 

“It almost warrants its own category like chips or pretzels at this point, it’s getting so big,” said Matthew Hudak, a Euromonitor analyst.

Even so, analysts in the call raised concerns that the $250 million deal to expand into meat snacks could distract Hershey management away from its confectionery product lines.

“We will always be diligent to not distract ourselves from the core business that we’re in, but we’re also in the consumer products business, and have to make sure that we’re meeting (the needs of) what consumers are always desiring,” Bilbrey said in response.

Bentonville-based America’s Car-Mart has opened its 140th car dealership which is located in Carrollton, Ga., the company reported Thursday (April 2).


The Carrollton location marks the sixth corporate dealership in Georgia and also the sixth new opening this fiscal year.

CEO Hank Henderson said the buy here, pay here used car dealer would open two more lots before the end of April, which is also the company’s fiscal year-end.

The Northwest Arkansas housing sector continues its economic expansion at a steady and sustainable pace, according to the Arvest Bank sponsored Skyline Report that examined data from the second half of 2014. The report was made public on Thursday (April 2).

“We see a good level of activity everywhere throughout the market,” said Kathy Deck, lead researcher for the Skyline Report at the Center for Business and Economic Research at University of Arkansas. “Even though the number of building permits is down a little bit, we make up for it in the overall economic expansion. We had gotten down to a place where completed inventory was depleted. Our inventory numbers are now more consistent with the expansion we are seeing in the recovery.”

The report indicates that building permits declined 4.2% from the year-ago period, while home sales rose 8.3% during the same period. The sustainable absorption rate helped to push up home prices in Benton and Washington counties.

Benton County posted a 7.6% rise in its price per square foot in the back half of 2014. The average price-per-foot was $88.61 compared to $83.39 a year before. In Washington County the average price-per-foot increased to $89.30, a gain of 1.6% from the year-over-year period.

The sold price of existing houses on the market were mixed in Benton and Washington counties compared with the first half of the year.

Benton County: $188,084, up 8.2%
Washington County: $178,774, down 2.9%

In total, 3,691 existing homes were sold in Benton and Washington counties during the last six months of 2014, an increase of 8.3% from the 3,407 sold during the same time period of 2013.

Jennie Hill, senior vice president and real estate manager for Arvest Bank in Benton County, said that the increasing demand and cost of existing homes in the two-county market is an indication that the supply of newly constructed houses within the same average price range is behind the demand curve for the area.

From Great Value bacon and eggs to George branded apparel and MainStay home wares, Wal-Mart is the largest private label player in the U.S., according to Walmart U.S. CEO Greg Foran. But he’s not happy with being the largest.

“We can and should do more,” he told analysts Wednesday (April 1) in New York during an update on the retail giant’s U.S. operations.

He told the group he continues to try the Great Value brand for himself having recently eaten bacon and eggs which were “quite good.” He said that’s not the case with all the items he’s tried and one particular area of concern is the lack of price separation between Wal-Mart’s private label to national brands.

With respect to private label offerings at Wal-Mart Foran said: “Our customers love it, and it delivers on our promise, but we are not fulfilling our mission of ‘save money, live better’ if we don’t provide a more competitive price offering in some private label areas. We will sensibly lean into this opportunity, but never compromise on quality.”

Private label is 28% less expensive than similar national brands, according to IRI, a consumer products marketing and strategy company. A price study conducted in March by Raymond James & Associates found Wal-Mart’s Great Value basket to be 21.7% cheaper than the basket with comparable national brands, down from 23% savings in February and a 24.2% savings in March 2014.

PRICE FIRST
Wal-Mart began testing a lower cost private label in late 2013 under the brand “Price First” to better compete with low entry price retailers like the Dollar store chains and Aldi. The Price First products include pasta, peanut butter, baking mixes, mustard and other condiments totaling about 50 items including paper and other consumables that Wal-Mart debuted nationally in more than 2,500 stores late last year.

But on Thursday (April 2) Wal-Mart told The City Wire it is still testing Price First as the retailer continues to try different things and listen to its customers. For the most part, retail experts had approved of the Price First label as Wal-Mart continues to lose some sales to consumers on the most limited budgets.

Jason Long, CEO of Shift Marketing Group, said in 2014 that he would be interested to see if promotion of the lower priced label would ultimately pressure the suppliers of Great Value and national brands. From Foran’s recent comments on price separation, it appears Great Value — which is deemed to be “brand equivalent” – may undergo price tweaking for greater price separation from national brands.

It remains to be seen if this line will be expanded or even kept if Great Value prices are adjusted downward.

KICKSTART GROWTH
A recent report from IRI notes that consumers spend about $120 billion annually on private label products that give retailers an avenue to differentiate themselves in a highly competitive marketplace.

IRI noted that after several years of stagnation in private label sales, retailers and product manufacturers have struggle to find ways to kickstart growth. Whether that’s reworking product formulations like the “Great for You” Great Value products tweaked at Wal-Mart as part of a healthier food push or the successful “Simple Truth” organic line continually growing at Kroger, IRI expects private label expansion this year.

Research indicates that the perception around private label quality continues to improve with more than 80% of consumers convinced that private label products are as good or better compared to national brands, the IRI report noted.

Grocers like Wal-Mart have long offered a spectrum of private label products with a basic, better and best tiers. For instance, Sam’s Choice is deemed a premium tier at Wal-Mart as Kirkland is at rival Costco. Experts agree that truly successful private label launches are those that consumers don’t realize are store brands, such as Target’s Archer Farms.

FRESH AND ORGANIC
One of the emerging trends in private label offerings are in fresh produce as well as organics. 

Wal-Mart corporate spokesman John Forrest Ales said the MarketSide private label sold at Wal-Mart has added more than 50 organic produce items in the past year which are grouped together in the fresh produce area for easy identification.

"Store brands have moved far beyond cheap generic knockoffs to become trusted, quality lines that can compete effectively with national brands. They usually have higher profit margins for retailers than name brands, help differentiate a retailer from competition and help build consumer loyalty," said David Sprinkle, research director for Packaged Facts. 

Researchers said natural and organic private-label brands have been around for a number of years led by Safeway's O Organics and Supervalu's Wild Harvest. Other retailers like Wal-Mart have been playing catch-up through its recent partnership with Wild Oats who is now suppling a line of organic food to Wal-Mart. The Wal-Mart-Wild Oats organic food items such as black beans and olive oil are at least 25% less expensive than the national organic brands the retailer carries. The initiative was expected to cover a broad variety of categories and be available in about half of Wal-Mart’s 4,000 U.S. stores. But so far, it has been slow going, according to Wal-Mart Chief Financial Officer Charles Holley. He said the program is still being rolled out.

Holley added 90% of Wal-Mart customers want access to affordable organic food products. He said because many of them are not willing to always pay a premium, sourcing the products customers want can be challenging. 

Meanwhile, grocers like Kroger and Aldi have developed popular private labels around the wellness focus of consumers. Kroger’s Simple Truth Organics and Aldi’s Simply Nature cross many food and beverage categories and are marketed as “natural, organic and free of artificial ingredients.” Kroger’s investment to build out its Simple Truth line in recent years resulted in $1.2 billion in sales in 2014, the grocer reported in February.

“Grudgingly slow” gains in the U.S. labor market, gains in business investment and increases in consumer spending during the fourth quarter of 2014 point to modest national economic growth in 2015, according to analysis that is part of The Compass Report.

Jeff Collins, an economist for The City Wire and former director of the Center for Business and Economic Research at the University of Arkansas, said the more stable economic outlook is allowing the Federal Reserve to end its monetary stimulus policies and begin setting the stage for short-term interest rate increases.

“Output growth has been solid over the last 3 quarters. This coupled with relatively strong employment growth has reduced the economic concerns of U.S. households and businesses,” Collins noted in his analysis of fourth quarter 2014 economic conditions. “Indeed, many economists expect output to grow between 2.5 to 3.0 percent for the foreseeable future barring unexpected shocks such as the extreme winter weather which significantly reduced output in the first quarter of the year.”

The quarterly Compass Report is managed by The City Wire, and is sponsored in the Fort Smith area by Arvest Bank. The report is the only independent analysis of economic conditions in Arkansas’ three largest metro areas. The report on the relative economic health of the three metro areas will be published Thursday (April 9).

BRIGHT SPOTS
The continued low prices for energy is nothing short of a “tax holiday for the consumer,” Collins said. Real personal consumption expenditures grew by 4.4% in the fourth quarter compared to an increase of 3.2% in the third quarter. He expects the demand will continue, with slowing growth in China and economic weakness in the European Union likely to result in low energy prices for the foreseeable future.

He also noted that retail sales continue to grow at an annualized rate of 2.5%.

“Despite the dysfunction in Washington and ongoing unrest in the Middle East, Americans are beginning to do what they do best, spend. This is evident in the consumption and retail data. As labor markets tighten income growth and eventually inflationary pressure are likely to occur. In the meantime, most Americans will enjoy lower gas prices, better employment prospects, and rebounding real estate values,” Collins noted in his analysis for The Compass Report.

Improved economic conditions have also allowed many households to reduce debt.

“Given the severity of the recession and pre-recession levels of household debt, most Americans have for the last several years been reducing spending and de-leveraging their balance sheets. Household debt payments as a percentage of disposable income reached a peak in third quarter 2007 (13.2%), but have been declining steadily since. In the third quarter, the most recent quarter for which data are available, the rate was approximately 9.9%,” Collins wrote.

Another positive is business investment. Collins said the outlook is for business spending to continue to grow through 2015 and to be especially strong in structures and equipment.

While not necessarily a bright spot, the U.S. labor market is improving with non-farm employment posting gains in 17 consecutive quarters. The economy created roughly 973,000 non-farm jobs in the fourth quarter after creating 717,000 in the third quarter of the year. Of the 372 MSAs in the country, only 14 posted rates above 10% in December and 158 had rates below 5%. No Arkansas metro area had a jobless rate above 7.2%.

However, growth in the labor force – number of people qualified to work – was essentially flat year-on-year. Collins said slow or no growth in the labor force “has been a persistent aspect of the recovery.”


KEY POINTS
Following are other highlights of Collins’ analysis of the national economy during the fourth quarter of 2014.

• Incomes and employment are expected to grow modestly through 2015. Housing, however, is expected to continue to accelerate given positive market conditions.

• According to the Bureau of Labor Statistics, the Consumer Price Index declined at a seasonally annualized rate of 0.4% in December. Falling oil prices were offset by modest increases in food, shelter, and medical services prices.

• Federal government expenditures, which had been steadily declining rebounded substantially in the third quarter only to decline precipitously in the fourth quarter.

• Employment growth has been and will continue to be relatively strong in the services, particularly in hospitality, retail trade, professional and business services, and education and health care services.

• The construction sector has recovered substantially. The sector added an estimated 294,000 jobs between December 2013 and December 2014.

• Employment in manufacturing has been growing slowly led by durable goods manufacturing.

ECONOMIC RISKS
The economy is on a more stable pattern, but serious risks lurk at the edges. Following are brief notes from Collins’ assessment of the risks.

• The U.S. economy remains heavily dependent on the consumer. While consumer confidence has improved significantly, consumers are still wary of taking on debt to finance increased consumption.

• Globally, demand has softened impacting global output growth and demand for U.S. exports. Growth in China continues to decline, reducing global output growth.

• The potential for Greek default and leaving the Euro Zone could negatively impact European economies and induce additional defections.

• While the unemployment rate has consistently improved, it does not adequately tell the entire story. Reduced labor force participation, high unemployment rates for young and minority workers remain persistent problems.

• The Federal Reserve is in the process of turning off the monetary spigot in response to stabilized growth. However many economists are concerned about the impact on inflation of prolonged easy money.

• Low oil prices are like a tax break, but how long will they last?

A growing global middle class will provide opportunities for American exporters, but domestic companies will need support to compete with foreign firms who receive help from their own governments, the chairman and president of the Export-Import Bank said in a speech at the Clinton School of Public Service Tuesday.

Fred Hochberg described the Export-Import Bank as “the official export credit agency of the United States.” It provides American companies with export credit insurance, meaning it will provide reimbursements if a foreign partner does not pay. It also provides working capital to American businesses and guarantees loans to foreign companies who want to buy American-manufactured goods. The bank is a government entity funded by income derived by the services it provides.

Last year, he said, the bank supported 164,000 U.S. jobs and returned $675 million to the U.S. Treasury.

Hochberg said that while the United States is the world’s second largest exporter – down from number one in 2002 – it’s only 144th in terms of exports as a percentage of its economy. At 14% – an all-time high – the United States is tied with Haiti and Rwanda.

Hochberg said the global middle class will grow by 200 million people each of the next five years, providing a market for American manufacturers. Only a small increase in export sales would have a major effect on the American economy.

“Those goods and services are going to be bought and sold and delivered, and I think we all prefer that those jobs be jobs here in our country,” he said.

UP AGAINST ‘CHINA INC.’
But to get there, American firms will need support because they are competing not only against foreign companies but foreign governments – “China, Inc.,” being one, as Hochberg described it. There are 59 entities like the Export-Import Bank worldwide, some of which, such as in Russia and China, are very aggressive in offering financing unmatched by the commercial markets. Since 1934, the Export-Import Bank has provided $600 billion in loans, guarantees and insurance. China has done more than that in two years.

“When China comes to the table to sell their goods, financing is always part of the package, and it’s a very attractive financing package that becomes integral to making their sale,” he said.

Hochberg said Arkansas exports financed by the bank have doubled since 2007, to about $707 million, including agricultural goods such as lumber and renewable energy. One example of an Arkansas-based company helped by the bank is lumber manufacturer BCH Trading in Hot Springs, which with help from a working capital guarantee has become an exporter and grown its business. The bank also has helped wind turbine blade manufacturer LM Wind Power’s Little Rock location finance exports.

“This state is very much looking outward and looking at global markets. … My sense is it’s pretty well positioned,” he said.

Earlier in the day, Hochberg visited Alexander-based laser company Power Technology and the North Little Rock Caterpillar plant. He was introduced at the Clinton School by Larry Walther, director of the Arkansas Department of Finance and Administration and a former Export-Import Bank board member alongside Hochberg.

CRITICISM OF THE BANK
Hochberg said 90% of the bank’s customers are small businesses – an assertion challenged during and after his presentation by David Ray, state director of the small government group Americans for Prosperity Arkansas. Ray said most of the money goes to large corporations such as Boeing and GE.

Ray said in an interview after the presentation, “The average American doesn’t really benefit from the Ex-Im Bank. The large beneficiaries of Ex-Im are a handful of very large corporations, many of them politically connected.”

He said the bank “puts taxpayers in a precarious position” with loans provided “at sweetheart interest rates,” some of which end up in countries “that aren’t exactly friendly to American interests.”

“Most of these companies that receive tens of billions of dollars from Ex-Im are successful American companies that will continue to be successful without the generosity of the taxpayer providing them, in essence, corporate welfare,” he said.

The bank is to be reauthorized by Congress later this year. Some in Congress oppose the reauthorization.

Asked by Ray about the percentage of dollars going to large corporations, Hochberg said during his presentation that capital goods like locomotives and airplanes are sold in a global market where companies are financed by foreign governments.

“I don’t want to send a U.S. company into a competitive situation where they are outmatched, outflanked, and having to compete, as I mentioned, with a foreign government,” he said.

In an interview after the presentation, Hochberg said almost 40% of the bank’s funding – about $10 billion out of $27 billion financed – is going to small businesses. Moreover, large corporations have many small business vendors.

“We’re about American jobs, purely about American jobs,” he said. “We’re not about playing favorites. We’re not about picking winners and losers. … I want to make sure that American workers and American companies are equipped to compete. And if we don’t give them the tools to compete, we’re going to lose those jobs overseas.”

Whether it’s underestimating supply chain costs, falling off trend or being kicked off the shelf by a knock-off product from larger suppliers, selling to the masses is not without its challenges. That was one of the major themes covered by industry veterans who spoke at the Selling to the Masses CPG (consumer packaged goods) School held in Bentonville on Wednesday (April 8).

Bill May, retired Wal-Mart buyer and merchandising manager, said selling to brick and mortar stores is more difficult as the largest suppliers which are growing through mergers and acquisitions are often allotted the majority of shelf space. He said prospective suppliers need to realize that if they get into a retail store than it likely means someone else has been kicked off the shelf. Also, innovative products may disrupt the status quo.

“Buyers are not interested in ‘Me too’ products,” May said.

Getting on the shelf was the easy part, said Rick West, CEO of Field Agent, who took a product to market only to lose his shelf spot from competitive trends to which he wasn’t paying appropriate attention.

“If you think getting on the shelf was the hard part, it might have been. Staying on the shelf is harder,” West said. 

He shared a personal story of how he took an idea to market for disposable man wipes after he found his friends using baby wipes on a canoe trip on the Buffalo River a few years ago when there was not a like product in the marketplace.

“We made it through the entire process of concept to prototype in three months and got on the shelf in six months time,” West said. 

West adds that while he was riding the wave for his one product, other larger suppliers expanded into this new category squeezing his product out. 

“The good news is that our product ranked No. 5 for the year, but bad news was that the buyer only kept the top three,” West said. 

He said not staying on top of expansions into the new category and not working toward expanding the scope of his product development were crucial mistakes that resulted to shelf displacement.

West also said small suppliers today have opportunities today that didn’t exist just five years ago. He said with the advent of 3-D printing, startups no longer have to rely on manufacturers to do everything. 

On the bright side, he said there are going to be items that can be sold at better margins that can be prototyped yourself. But he warns potential suppliers to be experts in the categories because “there will always be tons of folks trying to knock you off.”

“Once you put your idea out, and it starts to spread like crazy others will copy it. You need to look no further than Uber and Lift and other crowdsourcing taxi services that have cropped up around the country in the past two years,” West said.

May said suppliers who manage to get placement into retail stores often underestimate the priority they must give the supply chain, which is the metric that keeps the shelves replenished.

Colby Beland, vice president of sales and marketing at CaseStack, seconded that assessment. Beland spoke on the mistakes commonly made by small-to medium-size suppliers who underestimate their supply chain costs that can vary greatly between different retailers.

He said with Wal-Mart’s 42 distribution centers (DC) network there can be added costs to the supply chain as each DC supplies about 90 stores. If a supplier is in 10 stores in the West and the rest of the stores are east of the Mississppi River, Beland said that can mean some of the DCs are only getting one case per week, which is far most costly than a full truck load at other retailers who have fewer DCs. 

For suppliers with multiple products it can be more complicated as the pick, pack and fill pallet charges add to the costs. He said unless a supplier is willing to invest in overseeing the supply chain themselves with added personnel they likely need to partner with third-party service providers. May said there are a plethora of third-party service providers that can facilitate small suppliers with everything from product prototyping to shipping and replenishment to in-store merchandising. 

Beland said supply chain costs are rising from 4% to 10% each year, and when there are capacity restraints like the West Coast Port issues or a weather event, costs to move product will spike given that there are only so many trucks on the road.

He said suppliers must also be aware of penalties that can result when product gets clogged up in the supply chain. Whether it’s fines and fees from additional labeling requirements, missing the Must-Arrive-By-Date or not following pallet requirements, the fines demanded by retailers can be hefty and may be an unpleasant surprise for small suppliers operating on tight budgets.

Gov. Asa Hutchinson told a group of startup executives and entrepreneurs visiting Little Rock that one of his educational visions is for 20% of Arkansas students to eventually take computer coding classes while in high school.

“When that happens, we will be producing and putting 6,000 computer coders into the Arkansas economy every year. Does that not have the opportunity to provide a lot of ‘sauce’ to the entrepreneurial spirit of Arkansas? That is what I am excited about,” the governor told a touring delegation of tech and startup entrepreneurs at the downtown Little Rock Venture Center.

The group was in Central Arkansas at the invitation of the Venture Center, the Little Rock Chamber-created nonprofit startup accelerator that is one of the new tenants housed in the downtown Technology Center. The guest entrepreneurs were in town to talk with local officials about ways to further develop the region’s so-called “startup ecosystem,” organizers said.

In his 15-minute conversation and Q&A session with about 15 startup executives and tech innovators from across the U.S., Hutchinson told the story he now often tells in economic development and business settings of his recent interview with Wired Magazine about the state’s national leadership role in teaching computer coding at the high school level.

During the recent legislative session, state lawmakers passed a law that was part of Hutchinson’s legislative agenda mandating that computer coding be taught in high schools and charter schools across the state. The Arkansas House voted unanimously in early February to pass House Bill 1183 by Rep. Bill Gossage, R-Ozark, which Hutchinson has touted as his signature education proposal. The bill, now Act 187, also will create a temporary task force to explore avenues for the computer science course to be offered.

In addition, local school districts will be able to create their own classes or take advantage of the Arkansas Department of Education’s Virtual Arkansas course. The usual fee of $2,500 charged to districts to offer a Virtual Academy course will now be waived. On Wednesday at the Venture Center, Hutchinson also mentioned he has allocated $5 million to support his key initiative.

“I want to tell you how important this is to the state of Arkansas. We can’t grow our economy without entrepreneurs,” Hutchinson said. “We can’t grow our economy without new ideas, new investment strategies, startup businesses, new ventures and entrepreneurs taking risks.”

The governor added: “Our job is to make sure we continue to lead the nation.”

Before the governor talked with the group, Little Rock Mayor Mark Stodola welcomed the visiting delegation to the city and spoke about his administration’s efforts to bring the $22 million Little Rock Technology Park to the downtown area. He said he was proud of the fact that the city was able to approve a $22 million tax for the project in the middle of a recession.

Wal-Mart Stores said Wednesday (April 1) that 16,257 of its employees in Arkansas will receive a pay raise beginning with the April 4 pay period. The increase, part of the $1 billion pay and benefit raise the company announced Feb. 19, ensures that all employee pay is at least $9 per hour.

CEO Doug McMillon said in the February announcement that pay would rise to $9 an hour in April and $10 an hour by February 2016. Wal-Mart spokesman Scott Markley said approximately 500,000 U.S. employees will receive raises beginning with the April pay period.

Wal-Mart is also raising the average pay of department managers to $13 per hour and up to $15 by the following year. The plan includes providing workers more opportunities for training flexibility over their own schedules.

The information shared Wednesday by Wal-Mart noted that Arkansas employees will earn at least $1.75 above the federal minimum wage and $1.50 above Arkansas’ minimum wage. Federal minimum wage is $7.25 an hour. Arkansas’ minimum is $7.50, but will be $8 in Jan. 1, 2016, and rise to $8.50 on Jan. 1, 2017.

And according to Wal-Mart, the average hourly wage for a full-time company employee in Arkansas is $12.28, or a little more than $25,500 annualized. Arkansas’ mean annual wage as of 2013 was $37,340. Arkansas’ median household income in 2013 was $40,768.

“Starting wages are just one part of Walmart’s commitment to providing associates with clearer career opportunities,” the company noted in the statement. “Through its Opportunity initiative, Walmart is opening doors for existing and new associates by providing increased scheduling flexibility and control, and new training opportunities for continued growth and advancement beyond entry-level jobs.”

Critics have said Wal-Mart is moving ahead of a national trend toward a higher minimum wage. OUR Walmart, a labor funded group that pushes for better pay and benefits, has said Wal-Mart should move to a $15 an hour minimum wage.

Claire McKenna, of the National Employment Law Project, said Wal-Mart and other retailers raising wages to $10 per hour is antiquated given that many states and cities are already mandating higher minimum wages. McKenna said Costco’s base pay of $12 per hour and Ikea’s starting $11 wage are already setting higher standards than Wal-Mart, the nation’s largest private employer.

Discount retailer Dollar Tree said Tuesday (April 7) it expects to be able to complete its purchase of competitor Family Dollar in May, and it will have to sell about 340 Family Dollar locations to close the deal.

Dollar Tree said the Federal Trade Commission is almost finished reviewing the $8.5 billion acquisition and has identified 340 stores that it wants the company to sell in order to preserve competition for consumers. Dollar Tree said all or almost all of those stores will be Family Dollar locations. It said the stores have about $47.4 million in operating income.

The deal for Family Dollar was first offered in July. The FTC's review has lasted longer than the companies expected, as Dollar Tree had hoped to close the deal as early as March.

The National Retail Federation reports that import cargo volume at major retail container ports is expected to rise 8% in April over the same time last year. The trade group cites the ongoing recovery from a backlog of cargo that build up late last year between tensions over a new labor agreement.

“Progress is being made but there’s still a lot of cargo waiting to be loaded onto trucks and trains and moved across the country even after it’s unloaded from the ships,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “The situation is getting better but we’re still far from normal.”

The Pacific Maritime Association and the International Longshore and Warehouse Union tentatively agreed on a five-year contract in February. While ILWU leadership has recommended that members vote for ratification, votes won’t be counted until May 22."

Ports handled 1.2 million containers (20 feet long) in February, the latest month for which after-the-fact numbers are available and historically the slowest month of the year. That was down 10.3% from January and down 3.6% from February 2014.


March was estimated at 1.48 million containers, up 13.5% from 2014. April is forecast at 1.55 million containers, up 8% from last year. As operations normalize in the coming months exports are expected to be 1.57 million containers in May up 5.6%.

The first half of 2015 is forecast at 8.6 million containers, an increase of 3% over the same period last year, according to Hackett Associates a contributor to the monthly Global Port Tracker report.


“The disruption on the West Coast appears to be over and great measures are being taken to clear the backlog of ships sitting offshore,” Hackett Associates Founder Ben Hackett said. “Of course, all those ships being discharged are causing landside issues as workers try to get containers out of the terminal gates and onto trucks and rail.”

Drugstore giant Walgreens said Thursday (April 9) it plans to shutter about 200 stores or 2% of its U.S. footprint as part of a $1 billion cost savings plan over the next three years.

Walgreens operates about 8,232 stores in the U.S., a base it has been expanding rapidly to the tune of 500 new stores annually over the past decade. This shift in strategy comes on the heels of the $16 billion purchase of Alliance Boots last year. Alliance Boots operates the largest pharmacy chain in the United Kingdom. The company said no closures are slated for this European business unit.

The company hasn't finalized the list of the U.S. stores it will close, but Walgreen Co. President Alex Gourlay told analysts it was looking at locations where the population seemed to be moving away.

"This really is just getting the right stores in the right places," he said.

Walgreens also said it will reorganize its corporate operations and streamline its information technology and other functions. It expects these moves to add $500 million to its cost reduction goal.

The news was reported during the company's earnings call on Thursday in which the drugstore chain earned $2.04 billion, or $1.93 per share, in its fiscal second quarter.

Earnings, adjusted for one-time gains and costs, were $1.18 per share, which beat analyst expectations. Walgreens also announced a forecast for full-year earnings in the range of $3.45 to $3.65 per share.

Economic conditions in Arkansas’ three largest metro areas were relatively healthy in the fourth quarter of 2014. Small improvements were seen in the central Arkansas and Fort Smith areas, and overall solid numbers continuing for the Northwest Arkansas economy, according to The Compass Report.

The quarterly Compass Report is managed by The City Wire, and is sponsored in the Fort Smith area by Arvest Bank. The report is the only independent analysis of economic conditions in Arkansas’ three largest metro areas.

Compared to the fourth quarter of 2013, economic conditions were improved in Central Arkansas and the Fort Smith metro area, and down slightly in Northwest Arkansas. However, Northwest Arkansas remains by far the state’s most vibrant metro economy.

To underscore the impact of the three largest metro areas, for December of this year the unemployment rate for the rest of the state was 6.5%, down from 8.4% in December 2013. The statewide unemployment rate with the three largest metros added back in was 5.6% December-on-December.

Slow and steady improvements in the national economy should continue to help Arkansas’ economy in 2015, said Jeff Collins, the economist for The City Wire who gathers the extensive data used in The Compass Report. He is also a former director of the Center for Business and Economic Research at the University of Arkansas.

“Output growth has been solid over the last 3 quarters. This coupled with relatively strong employment growth has reduced the economic concerns of U.S. households and businesses,” Collins noted in his analysis of fourth quarter 2014 economic conditions. “Indeed, many economists expect output to grow between 2.5% to 3% for the foreseeable future barring unexpected shocks such as the extreme winter weather which significantly reduced output in the first quarter of the year.”

FORT SMITH REGION
The Compass Report for the Fort Smith area posted a C+ grade for the fourth quarter, unchanged compared to the C+ in the third quarter of 2014 and unchanged compared to the fourth quarter of 2013.

Gains in building permit values, sales tax collections and continued improvements in the region’s hospitality (tourism and travel) sector resulted in the slightly better than average grade. Decline in regional employment is the primary reason the region struggles to consistently trend toward the positive.

Non-farm employment in the metro area hit 116,700 in December, down from 117,300 in December 2013. The report also shows how many jobs have been lost since the Great Recession. In December the total number of employed in the MSA was an estimated 118,635. By contrast, total employment in December 2006, prior to the recession, was 130,702.

Sales and use tax revenue reported by the Arkansas Department of Finance & Administration were up quarter-on-quarter 5.5% after adjusting for the increased rate in Crawford County. Collections were particularly strong in October.

Although regional economic conditions have stabilized, Collins said the trends show that the overall labor market has “weakened.” He said the data make it hard to predict future patterns.

“Data for the Fort Smith regional economy had been mixed for some time. The most recent numbers do nothing to shed light on the long-term prospects for the region. Finally, the data for the Fort Smith area economy suggest the region has not performed as well as other key metros but has performed similarly to the state as a whole,” Collins wrote.

Rodney Shepard, president and CEO of Arvest Bank in Fort Smith and the River Valley Region, said the Fort Smith regional economy was hit hard but has stabilized.

“I still remain encouraged. ... As a community, yes, we would like to see better numbers, but in this environment and in this economy, I see this as a positive,” Shepard said.

NORTHWEST ARKANSAS
Continued gains in employment, sales tax revenue and construction resulted in a solid grade of B for the Northwest Arkansas economy during the fourth quarter. However, the grade was down from a B+ in the third quarter and a B+ in the fourth quarter of 2013.

The Northwest Arkansas regional economy continues to grow but at a more moderate pace than in previous quarters. For example, nonfarm employment grew at the same rate as Central Arkansas where it had previously been adding employment at two to four times the rate of the state’s largest MSA.

Employment growth may be slowing but sales and use tax collections in Northwest Arkansas have definitely not stopped growing. Tax collection numbers show that Bentonville, Fayetteville, Springdale and Rogers have experienced growth quarter-on-quarter. In percentage terms, Bentonville experienced the strongest growth in collections (20.7%) while Fayetteville collected the most tax dollars of any of the four major municipalities ($9.6 million in the fourth quarter).

Collins expects the Northwest Arkansas economy to do well in early 2015.

“There is no reason to predict that growth will slow and will likely accelerate in the first half of 2015,” he noted in his analysis.

CENTRAL ARKANSAS
Economic conditions in central Arkansas, the state’s largest metro area, received a grade of C+ in the fourth quarter, better than the C in the third quarter and better than the C- in the fourth quarter of 2013.

Improvements in employment and impressive gains in the construction sector helped boost the grade higher. Non-farm employment stood at 350,900 in December, better than the 345,900 in December 2013. There were an estimated 18,700 jobs in the region’s construction sector in December, well ahead of the 15,900 in September 2013.

Collins said the area also benefitted from a 1.3% gain in retail activity in the region during the fourth quarter compared to the same period in 2013.

“Most recent economic data for Central Arkansas is encouraging. The local economy had struggled to gain momentum so the declining unemployment rate and growth in non-farm employment positive signs the region may be returning to trend. Whether this is an anomoly or a harbinger of things to come remains to be seen,” he said.

NATIONAL ECONOMY
“Grudgingly slow” gains in the U.S. labor market, gains in business investment and increases in consumer spending during the fourth quarter of 2014 point to modest national economic growth in 2015. Collins said the more stable economic outlook is allowing the Federal Reserve to end its monetary stimulus policies and begin setting the stage for short-term interest rate increases.

The continued low prices for energy is nothing short of a “tax holiday for the consumer,” Collins said. Real personal consumption expenditures grew by 4.4% in the fourth quarter compared to an increase of 3.2% in the third quarter. He expects the demand will continue, with slowing growth in China and economic weakness in the European Union likely to result in low energy prices for the foreseeable future.

He also noted that retail sales continue to grow at an annualized rate of 2.5%. (Link here for a more detailed report on national economic conditions and risks to the U.S. economy.)

DATA AND REPORT DOCUMENTS
Link here for the raw data used to prepare The Compass Report for the three metro areas.

Link here for more narrative about regional and national economic conditions.

UNDERSTANDING THE COMPASS REPORT GRADES
A key factor in understanding The Compass is in understanding the “grading” approach used to measure the current and leading economic indicators.

The strategy is to place the most recent data in historical context. Average values for the percent change over the referenced time period were calculated, as were standard deviations for each measure.

The more similar current values are to historic averages the more likely the indicator grade is to be a “C.”

The farther away the observed value, as measured by the standard deviation of the data, the more divergent the grade from “C.” In other words, “C” reflects no change in economic activity. The grades “B” or “A” indicate improvement above the historical average, and “D” and “F” indicate a decline in economic activity compared to the historical average.

REGIONAL GRADE HISTORY
FORT SMITH REGION– Fort Smith regional economy
4Q 2014: C+
3Q 2014: C+
2Q 2014: C
1Q 2014: C
4Q 2013: C+
3Q 2013: C+
2Q 2013: C
1Q 2013: C-
4Q 2012: C
3Q 2012: C-
2Q 2012: C-
1Q 2012: C-
4Q 2011: C-
3Q 2011: C
2Q 2011: C
1Q 2011: C-
4Q 2010: C-/D+
3Q 2010: C-
2Q 2010: C-
1Q 2010: C-
4Q 2009: D
3Q 2009: D
2Q 2009: D-
1Q 2009: D+

NORTHWEST ARKANSAS– Northwest Arkansas regional economy
4Q 2014: B
3Q 2014: B+
2Q 2014: B
1Q 2014: B-
4Q 2013: B+
3Q 2013: B+
2Q 2013: B
1Q 2013: B
4Q 2012: C
3Q 2012: B+
2Q 2012: B-
1Q 2012: B-

CENTRAL ARKANSAS– Central Arkansas regional economy
4Q 2014: C+
3Q 2014: C
2Q 2014: C
1Q 2014: C-
4Q 2013: C-
3Q 2013: C-
2Q 2013: C-
1Q 2013: C-
4Q 2012: B-
3Q 2012: C-
2Q 2012: C+
1Q 2012: C-

As mobile phones have become an extension of the body more consumers are gaining confidence in how they use these smart devices, especially when it comes to banking.

A new report from The Federal Reserve says 39% of phone owners with bank accounts use mobile banking, a 6% increase from last year. Of those surveyed, 94% use banking apps to check account balances and recent transactions, and 51% said they deposit checks on their smartphones, an increase of 13% from the previous year.

It’s not just the Millennial generation delving into mobile banking. East Texas resident David Reese, older than 50, said he doesn’t remember the last time he wrote a check. 

“I use mobile banking to pay all bills (including from my business) and have done so for over 10 years. I have never have had a single issue with any type of problem,” Reese told The City Wire.

The main reason cited by survey respondents for not using their mobile phones to conduct banking services and making mobile payments was fear of a security breach.  But that’s not the case for Reese or Richard Lobb of Philadelphia – also in his 50s – who uses a Bank of America app on his iPhone. 

Lobb said Bank of America would have to make up any losses from a security breach, and he’s confident the bank is aggressive about security. That said, the majority of consumers aren’t so sure, according to the report.

“Despite the increased prevalence of mobile banking and mobile payments, a significant share of consumers believe the technology to be unsafe or do not know how safe it is,” the report states.

Among all mobile phone users, 25% believed people’s personal information is “somewhat unsafe” when using mobile banking and 19% believed it is “very unsafe.” Another 15% of mobile phone users did not know how safe it is to use mobile banking, and only 7% said it is “very safe” to use mobile banking.

The survey indicates that despite the wide use of mobile phones for surfing the Internet and browsing e-commerce sites, the majority of consumers (70%) still question how safe it is to pay for a purchase using their phone. The report found 22% of respondents said they had made one mobile payment in the previous 12 months. This was up from 17% in the prior year.

The survey shows that while the underbanked make up 14% of consumers, 90% of that group has access to a mobile phone. The underbanked represent a higher incidence of mobile banking (48%) than the fully banked (37%).

The report cites “interest and adoption of the mobile payment services are poised for growth as a number of developments in technology and security take hold in the mobile financial marketplace.”

Recent efforts to enhance the security of mobile payment transactions and to apply emerging technologies to a payments context could shape consumers’ attitudes about and use of mobile payments in the coming years, according to the report. 

The payments industry is taking steps to enhance transaction security at various points in the process, including by working toward conversion to a “chip and pin” or “chip and signature,” system. To encourage merchants and card issuers to adopt this technology, the card networks have set a deadline of October 2015, after which they intend to shift liability for fraudulent transactions to the party that is not-compliant. 

Retailers like Wal-Mart are not buying the safety guarantee of the chip-based credit cards. Mike Cook, Wal-Mart's assistant treasurer and a senior vice president, said at a recent Electronic Transaction Association's Transact conference in San Francisco that Wal-Mart would have preferred a "chip and PIN" system that Europe and Africa have in place. He said PINS would protect cards from being stolen. Cook predicted the switch to chip-based credit cards in the U.S. will be a disappointment.

“The new ‘chip & signature’ program is barely an improvement on security and fraud. The fact that we didn't go to PIN is such a joke," Cook recently told CNNMoney.

Cook said PINs on debit cards were a major improvement to stop thieves decades ago. They'd do the same for credit cards which is why banks should use them for all cards. To make his case, Cook said not a single PIN debit card needed to be reissued in Target and Home Depot breaches. The card number was worthless to the individual thief and fraudsters, because they didn't know the PIN.

The latest security breach to make the news was at AT&T which is believed to have impacted 280,000 customers. AT&T agreed to pay a $25 million civil penalty, after the names or full or partial social security numbers of its customers were compromised. The breaches occurred at call centers used by AT&T in Mexico, Colombia, and the Philippines when employees accessed sensitive customer data without adequate authorization. Those employees took payment from third parties who were apparently interested in customer names and social security numbers so they could unlock stolen cell phones for sale on secondary markets, the FCC said.

Downtown development and raising expectations were at the core of discussions at the 2015 Compass Conference on Thursday (April 9) evening. Held at the historic Masonic Lodge in downtown Fort Smith, the unique venue provided a most-appropriate setting for the sixth annual event which focused on revitalization of Garrison Avenue.

Discussion during the event also included recruitment of new business, community engagement through unique festivals and events, and raising the bar for how Fort Smith is viewed throughout the state and by its own citizens.

Presented by The City Wire and title sponsor Arvest, the "Banking on Downtown Development" event brought together more than 125 business, civic and community leaders to hear from three of Fort Smith's biggest investors in downtown properties. These included Lance Beaty, Steve Clark and Rodney Ghan.

Owner of Beaty Capital Group, Beaty served as host of the conference, having recently acquired the Masonic Temple with plans to renovate it and open it up as an event venue. Prior to purchasing the Masonic Temple, Beaty successfully redeveloped the former Phoenix Village Mall property.

Clark is the owner of Propak Logistics. He is behind the renovation of the historic Friedman-Mincer building in downtown Fort Smith and is a member of the Central Business Improvement District (CBID). He also is a driving force in the recently announced “Festival of Murals” event planned for Sept. 6-13 in downtown Fort Smith.

Ghan, downtown property owner and developer, is renovating 822 Garrison Avenue, which is set to include a Jimmy John's on the first floor and rental properties above. He also serves on the CBID board.

THE PANEL DISCUSSION
The conference was structured to include a series of questions for the panel, posed by moderator Tim Allen, president and CEO of the Fort Smith Regional Chamber of Commerce. The discussion got underway with a few words from each of the panelists about their involvement in downtown projects and reasons why they opted to spend their money in that area.

"We talk a lot about our history and it seemed a bit hypocritical if we don't choose to invest in our history," said Clark. "You are not going to find a successful, thriving city that doesn't have a successful downtown."

He added later when asked why he invested in downtown: " I just felt like we had lost enough of our old buildings."

Referring to the Masonic Temple, Beaty expressed his desire to renovate a space that had played a part of his childhood.

"I remember visiting here as a kid. Based on our experience at Phoenix Expo, I knew we could take it, renovate it and really invigorate this building."

Ghan's words echoed the same enthusiasm.

"I am not from here, but coming over the bridge and seeing that sight is what sold Fort Smith to me and my wife. I just love it, which is why I am choosing to invest in the building and am making the move to downtown."

Allen then posed a series of questions related to downtown's potential for growth, as well as obstacles locals will need to overcome to see such progress come to fruition. Numerous comparisons were made between cultural business development in Northwest Arkansas versus the somewhat more stagnant economy that has plagued Fort Smith the last decade. Clark commented on how resistance to change and being unwilling to do the work to reverse the trend can contribute to the problem.

"Downtown plays a major role in livability and we can't just invest in it for history's sake. If we aren't prepped to do the things necessary to  really revitalize downtown ... fine. But, we can't get our feelings hurt when businesses and people choose to go elsewhere."

Providing quality housing and structuring the area for optimal "walkability" were also repeated topics in the discussion of ways the city can help overhaul downtown's image and attract potential business owners and residents. Beaty also cited the need for more support from city officials and leaders as a necessity for downtown development. Using examples of projects he has completed in NWA, he noted that leaders, including U.S. Rep. Steve Womack (then the Mayor of Rogers), were quick to ask what they could do to help.

"I haven't encountered that (offers of help from city officials) in Fort Smith. The endeavor of redeveloping downtown is the duty of much more than us three guys. We all need to come together as a business community if we hope to see real progress."

Talk also turned to the raising the level of expectation for Fort Smith and what its downtown and riverfront have to offer. Clark said when asked the difference between Northwest Arkansas and Fort Smith, he always enters into a discussion of expectations.

"Part of the role investors play is raising expectations," said Clark.

He further noted that Fort Smith residents need to shake off their negative perceptions of downtown in order for the expectations to rise.

Allen then asked if panelists were optimistic, pessimistic or neutral about the future of downtown Fort Smith. All were in agreement that their investments into the region signified their faith in the area and overall positive outlook about Garrison Avenue.

"I am reasonably optimistic that we should be able to do as well as everyone else and believe that we need just need to look at investing into what got us here in the first place," said Clark. "Foundational elements of a city start here downtown and we need to build out from there.”

Allen then shifted the discussion toward factors hurting the downtown region, including a large number of vacant lots. Acknowledging progress that has been made in recent years, Allen asked members for their thoughts on what the next step or "leap" was. Ghan was the first to respond.

"We three have taken the leap, as we have chosen to renovate and invest in downtown," said Ghan. "As we do this, people will start to see the value in developing or doing business in downtown."

Ghan also pointed out the need to seek dollars to help who want to take the leap, but need help doing so.

"There are opportunities for grants to help give individuals, entrepreneurs the chance to make something downtown. We need to pursue these more and give young entrepreneurs the chance to do something great with these places."

AUDIENCE QUESTIONS
The panel presentation was proceeded by the opening of the floor to audience members for questions. Audience members did not hesitate at the microphone, with several asking panelists about topics such as significance of the Marshals Museum, development of marinas along the river, and opportunities for engaging local youth and young adults.

"The youth are going to respond to the decisions today's leaders make," said Clark. "I wonder now why we don't have an event at the amphitheater every weekend. We need more than the few great ones we have every year. My hope is that when they see the new festivals and after they experience a few seasons of successful events, then they will be bought in, and 'wounds' will heal."

Beaty added that new events and venues, such as the Masonic Temple, would open Fort Smith up to other tourists and visitors.

"It is not just Fort Smith, it is Tulsa, Northwest Arkansas, and beyond," said Beaty. "We will draw the market to Fort Smith."

Following the audience questions, Beaty shared a little about the history of the Masonic Temple, as well as his plans for renovation and use of the venue. The 52,000 square foot property includes 900 fixed theater seats, with the space to bring in an additional 300 movable chairs. It will also have three separate banquet spaces. The Masonic Temple originally opened in 1929, just weeks before the devastating stock market crash. Over the years, the building, which includes more than 80 hand painted scenes and art motifs, has served in many capacities, most notably as a movie theater. Beaty plans to utilize the colorful theater to host comedy shows, concerts, and other performances following renovation.

"We expect to host between 36-48 shows annually," said Beaty.

COMPASS CONFERENCE AND REPORT
The annual conference is part of The Compass Report, which is the only independent economic analysis of Arkansas’ top three metro areas (Central Arkansas, Northwest Arkansas, Fort Smith region).

The report, produced and managed by The City Wire, measures four leading and four current economic indicators to provide a grade for a regional economy. Arvest Bank is the primary sponsor of the report, with Cox Communications and the Fort Smith Regional Chamber of Commerce signed on secondary sponsors.