Posted on February 14, 2019
Clyde: If anything, things will only improve
By Caitlan Butler
Murphy USA CEO and President Andrew Clyde spoke about economic trends that can drive growth in El Dorado and Union County as well as predictions about how the economy will change in 2019.
Clyde was the keynote speaker at the El Dorado-Union County Chamber of Commerce’s first Economic Outlook Luncheon of 2019 on Tuesday.
First, Clyde discussed some key features one might see in a growing economy, how they change the economy and what results one might see thanks to the economic drivers.
Clyde said that in Union County, oil and gas has been a key economic driver that has brought capital and other industries to the area.
“In Southern Arkansas, [oil and gas prices] really influences our economy so much more than any other region of our state, and our economy is certainly more tied [to it] here,” Clyde said. “We live kind of by the ups and downs.”
Once other industries join the Union County fold, he said, any major turnaround work (scheduled events where a process unit at an industrial plant is taken offline for a period of time for renewal) brings a transitional labor force to the area, driving sales for local businesses.
Despite a transitional labor force’s temporary nature, Clyde said having those workers can still be beneficial to a region’s economy.
“We’re blessed to have this huge industrial community here that’s not just tied to oil and gas production and we’ve had some significant expansions and major turnaround work that’s happened over the years,” Clyde said. “The other thing I’ve learned is that one of the best economic indicators is port-a-potties. If you’re running out of port-a-potties … that means there’s a lot of work going on.”
Industrial expansion and new construction also help an area’s economy grow, Clyde said. Large projects that bring new jobs to a region can bring both transitional and permanent labor to the area, which Clyde said both drives local sales and grows employment, thus giving a municipality a bigger tax base and driving sales tax growth.
“We want things that are more permanent and sustainable, and what we’ve seen in the last few years is a lot of industrial expansion,” he said. “That’s great, because we not only get the transitional work and all the benefit from that, but we also get the permanent workers that are associated with those new lines of businesses and those businesses that are re-opening.”
After that, a city may start developing in other ways, he said. For example, Clyde said some ways development could occur would be with infrastructure improvements or tourist attractions like the Murphy Arts District.
Along with adding to the local labor force, investments in the city’s infrastructure and recreational opportunities also drive tourism, giving another boost to local businesses as well as making space for other enterprises like rental property development and retail and hotel businesses, Clyde said.
“There’s been a lot of infrastructure in our community,” Clyde said. “And I think our sales tax growth has been pretty solid in the last 12 and 24 months and so now you begin this virtuous cycle where we’ve made the investments and they’re starting to pay off and then we can start using that money to start making improvements across our communities in all the different parts of the community.”
At that point, he said, a region can generally establish a stable economy. They should have a qualified labor force and at that point can start to develop educational opportunities to further residents’ abilities.
“What happens usually is if the four-year programs are doing really well because of the economy, the two-year community college programs aren’t doing as well because you’ve got full employment and people aren’t having to go back and get re-trained,” Clyde said. “We’re bucking the trend here at South [Arkansas Community College], because we’re providing distinctive programs … that are in so high demand and in low supply because other community colleges aren’t offering those. We’re actually seeing really solid growth in both our four-year program and our two-year community program.”
A director of the Little Rock branch of the Federal Reserve Bank of St. Louis, Clyde is responsible for surveying local businesses about their outlook on the future of the local economy. Clyde said the surveys he gives are sent to large firms, with over 50 employees; medium firms, with between 11 and 50 employees; and small firms with fewer than 10 employees. He showed luncheon attendees the results from his most recent survey to give an idea of the community’s outlook on the local economy in 2019.
Asked how they expected economic conditions to change in 2019, both small and large firms mostly said they expected conditions to stay about the same. Medium-sized firms were the most optimistic, with 29 percent expecting conditions to improve somewhat in the next year.
“You can get a general sense of the outlook. It’s certainly more upbeat than downbeat,” Clyde said.
While most businesses that responded to the survey predicted overall sales would not change much this year, large firms were mostly optimistic that sales (in dollars) would increase in 2019.
Businesses were also asked how they predicted prices that are charged to customers might change. Most said they imagined prices would stay about the same, while some firms, including small, medium and large ones, said they thought they may be able to charge higher prices this year.
Only three respondents said they had to lower their prices in previous months.
“This is something the Fed (Federal Reserve Bank) is clearly looking at in terms of one of their dual mandate roles on stable prices. You know, some levels of inflation is desired; high levels of inflation, or runaway inflation, is not desired,” Clyde said. “This is one of the areas the Fed certainly keeps an eye on – ‘are those going to be normal price increases within a certain range or are businesses going to be able to pass those on in higher prices? Is it going to have a negative impact on the economy or a positive effect on the economy?’”
Most businesses said that they did not expect non-labor costs to grow in 2019, though 39 percent said they expected those expenditures to increase. No respondents thought those costs would decrease, though.
Local businesses generally thought labor costs would increase, with 55 percent of respondents, including firms of all sizes, saying so. Most respondents also said labor costs have trended upward in recent months, though 48 percent said their labor costs have stayed the same lately.
Businesses were torn on whether wages would also increase; 51 percent predicted wages would grow this year, while 49 percent think they will stay the same.
Arkansas’ minimum wage increased on Jan. 1 from $8.50 to $9.25 after voters approved a ballot measure in November to gradually increase the rate to $11 an hour by 2021.
“Wage growth is actually good,” Clyde said. “If you’re at full employment and labor supply is tight, you would expect to see wages and real wages actually growing and what you can see here is that most of the respondents believe wage-rates are likely to increase over previous years, or at worse stay the same.”
Clyde said that overall, the economic outlook for Union County in 2019 is good.
“One of the best measures of your economy, whether its growing, is are people spending capital where you need to get a return over some five-, 10-, 15-, 20-year basis, and certainly the industrial expansions we’ve talked about and the infrastructure investments were all good signs of that,” he said. “Generally, what I would say from your feedback … is we’ve got a strong economy here. … And as we get more diversified, that’s a good thing as well.”
Clyde finished by presenting comments from St. Louis Federal Reserve President Jim Bullard. He said both GDP and the labor market have grown, and that with inflation under 2 percent, the United States economy is doing well. While he said the general economy will slow this year, since the country is in a good position now, they will have some buffer from negative economic trends that arise.
Overall, Clyde was positive about economic trends in 2019, both locally and nationally.
“I think the overall view from the Fed is that, as a country, we’re in pretty good shape today,” Clyde said. “We’re in a much better place than we were a few years ago, both in terms of the economy and the tools that our Federal Reserve has to influence that.”
Caitlan Butler can be reached at 870-862-6611 or firstname.lastname@example.org.