LITTLE ROCK — An analysis of the Fort Smith regional economy released this month shows that the June closure of Whirlpool Corp.’s plant was a severe blow and just another indicator the manufacturing sector is continuing to weaken in the region.
Closing the Whirlpool plant that once employed as many as 4,600 is causing a significant shock to the economy, according to a sector analysis of the Fort Smith Metropolitan Statistical Area released by the University of Arkansas’ Center for Business and Economic Development at Fort Smith.
The economy of the region has been changing for years — with the manufacturing sector shrinking and the service sector becoming more dominant, according to the report. The area studied includes Sebastian, Crawford and Franklin counties, and Le Flore and Sequoyah counties in Oklahoma.
The region’s shift follows national trends as many manufacturing jobs have been sent out of the country or are shifting to more skilled labor. Fort Smith has long been considered one of the state’s major manufacturing centers.
“It’s not going to work for us to ignore what’s happening in the rest of the country,” said Latisha Settlage, associate professor of economics at the University of Arkansas at Fort Smith, the report’s author.
The service sector includes a broad array of business types producing intangible goods. Settlage said she tells her students that if a worker does something for a consumer or provides information to them, they’re likely in the service sector.
Activities in the sector include financial services; health care, including doctors and dentists; information processing; real estate; rental and leasing services; and administrative and support services.
“We need to find our next niche, and I don’t think it will be manufacturing,” she said.
The report was compiled by the Center for Business and Economic Development’s using economic-impact model- ing software, along with information gathered by the U.S. Bureau of Labor Statistics, the U.S. Bureau of Economic Analysis and county business patterns from the U.S. Census Bureau. The sector analysis was part of the Fort Smith Regional Outlook Report sponsored by Arvest Bank.
GROWTH AND DECLINE
According to the report, 21,626 full-time jobs, or just more than 14 percent of total jobs, were linked to manufacturing in the metropolitan statistical area in 2010, the most recent year for complete data used. In 2007, 25,816 jobs, or 16 percent of total jobs, in the area were in manufacturing.
During the same periods the service sector was dominant in job creation.
In 2007, 65,999 jobs, almost 41 percent all jobs, were in the service sector in the Fort Smith region, and that proportion increased to just over 42 percent in 2010.
Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, said the shift away from manufacturing and toward the service sector can be seen statewide since 2007, right before the recession.
“Manufacturing is not the engine of job growth it once was,” he said.
Pakko added that the sector isn’t going away but now requires a new type of worker, one that can operate high-tech equipment and deal with automated systems, computers and robotics.
According to data from the Bureau of Labor Statistics, the state lost nearly 40,000 jobs between December 2007 and August. Of those, 32,600 were in the manufacturing sector.
HOPE IN HEALTH CARE
Service-sector jobs have risen steadily over the past five years in the state despite the recession, Pakko said.
Statewide, the business and professional services and leisure and hospitality services sectors saw small gains over the past five years. The government sector added nearly 10,000 jobs, but the largest gain came in education and health services with close to 18,000 jobs, according to data from the Bureau of Labor Statistics.
While food services/drinking establishments and employment services rank first and second in job creation in the sector for the Fort Smith area, according to the report, the better-paying segments are private hospitals, physician groups, dentists, other health practitioners.
Settlage, the UAFS economics professor, said recent events indicated that a cluster of health-care services could be a strong economic engine emerging to take the place of lost manufacturing strength in the Fort Smith region.
The area has three hospitals — two in Fort Smith and one in Van Buren — and multiple physician groups.
“Health care is huge in this region, and it is a growing piece of our economy,” Settlage said.
“We won’t see the number of jobs [as in manufacturing], but the higher-pay structure might help.”
Just this month, Mercy Fort Smith hospital began construction on a $42 million, 24 bed orthopedic hospital at its Mercy River Valley Campus. Mercy Fort Smith also intends to build five new primary-care clinics that will be located throughout the region, including the Fort Smith statistical area.
The new hospital and clinics are part of Mercy Health Systems’ $192 million master plan to recruit and retain doctors, build infrastructure and upgrade technology. The goal is to provide services so patients are not required to travel outside the community for treatment.
Ryan Gehrig, president of Mercy Fort Smith, said the area needs many more physicians to meet average supply and the hospital has a goal of adding 80 over the next three to four years.
He said there is heavy recruiting competition for doctors, so to make the cut, the system needs the best facilities, the latest technologies and a well-trained work force.
Ryan noted that while physician positions will clearly be well paid, each one requires three to five support-staff spots that are high-earning jobs.
He added that the University of Arkansas Fort Smith and the Arkansas Tech University health-services degree programs are vital parts of the equation, since they provide well-trained workers.
MORE PAIN
The Whirlpool plant had been downsizing for years and employed just 900 when it closed in June. But as a direct result of the closing, an additional 900 jobs in related industries — such as suppliers, truck and transportation and employment services — are predicted to be lost. The report indicates that other impacts from the job losses will hit businesses like restaurants, doctors and other health-care, real-estate and retail concerns.
“It’s gone and it’s going to hurt,” Settlage said of the plant.
Regional unemployment is up, she said, and higher than the state average. It will likely stay that way for the short time until the impact of the job losses settles.
According to data from the Bureau of Labor Statistics, the unemployment rate for the statistical area in July was 8.5 percent, up from 7.7 percent in June. The state’s unemployment rate was 7.3 for July and has hovered around that rate since March.
UALR’s Pakko said that on the basis of Bureau of Labor Statistics data on the state’s metropolitan statistical areas since 2007, Fort Smith leads them all in job losses.
The Texarkana, Jonesboro and Fayetteville statistical areas all show some job growth over the past five years from a high of 4 percent to a little less than 1 percent. The Little Rock, Pine Bluff, Memphis and Hot Springs statistical areas all saw declines in a range from 2 to 8 percent, while Fort Smith saw a 13.2 percent drop.
“The Fort Smith area has been hard hit since the recession,” Pakko said.
DOWN BUT NOT OUT
But while manufacturing is slowing in Fort Smith, it’s not totally out of the picture.
Rheem Manufacturing, which makes air-conditioning units, employs 900 workers and has nearly 300 salaried positions at its plant that opened in 1970. The company recently moved 250 jobs from Fort Smith to its operations in Mexico. Baldor Electric Co. employs 1,150 people, building electric motors and other devices.
Poultry production, also part of the manufacturing sector, creates a lot of jobs, but they tend to be low-paying, Settlage said. In 2010, poultry processing was the largest employer in the manufacturing sector, with just over 6,000 jobs, according to the report.
Hope for the city’s manufacturing sector getting some help this year was dashed in April when a wind-turbine plant built by Mitsubishi Heavy Industries Ltd. was mothballed before a single job was created. Mitsubishi has been tangled up in legal battles with its key U.S. competitor, General Electric Co., over patents.
Sonia Williams, a spokesman for Power Systems Americas Inc., said there are no current plans to open the plant, which is located in Chaffee Crossing, the industrial area located at what was once Fort Chaffee.
While the plant is sitting idle, Ivy Owen, executive director of the Fort Chaffee Redevelopment Authority, is confident Mitsubishi will eventually find a way to use the facility.
In the meantime, Chaffee Crossing is forging ahead. In August, the authority won the “redevelopment project of the year” award from the Association of Defense Communities.
In 1995, about 7,000 acres from the Fort Chaffee military base were declared surplus and were handed over to the public for redevelopment. Since then, with most of the development coming in the last five years, Chaffee Crossing has added three other manufacturing plants — Graphic Packaging International, Mars Petcare, and Umarex USA — and 350 residential properties in five developments. Owen said that, combined, the manufacturers employ about 900 workers.
“Traditional manufacturing is gone,” Owen said, describing companies that rely heavily on manpower and unskilled workers.
He said Chaffee Crossing’s manufacturers fill a niche, with fewer laborers and a work force that is more highly trained and skilled in the use of technology.
He said that while it’s regrettable the Whirlpool workers lost their jobs, those who seek retraining will likely find positions with manufacturers like those in Chaffee Crossing.
“I’m talking high-wage jobs,” he said. “There won’t be as many, but they’ll be quality.”
Business, Pages 72 on 09/30/2012