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Business AN EIGHTH DISTRICT PERSPECTIVE SUMMER 1984 Economic Expansion Continues in Early 1984 Economic activity in the Eighth District generally matched the robust pace of the national economy in early 1984. At the national level, real GNP, industrial produc tion and retail sales continued to expand at rapid rates. The unemployment rate fell to 7.5 percent in May and average hours worked in manufacturing increased. Despite the strong rise in economic activity, the pace of inflation increased only moderately as consumer prices rose at a 4.3 percent rate from January through April of this year compared with a 3.8 percent rate for 1983. In our District, the strength of the recovery varied from state to state. The indexes of general business, which combine measures of manufacturing output, non manufacturing output, retail sales, value of construction and farm income, rose in each of the states. The year-todate increase in business activity ranges from 8.8 percent in Arkansas to 5.2 percent in Missouri. The relatively rapid pace set by Arkansas is described in more detail on the next page. Retail Sales Year-to-date new car sales probably increased 15 percent to 20 percent over the same period a year ago. Dealers claim that sales would have been larger if sufficient popular models had been available. Sales of used cars and trucks also have been vigorous. Manufacturing Industrial activity continued to expand during the first four months of 1984. Orders were up, backlogs were in creasing, and some firms implemented capital spending plans. Most capital spending continued to be directed toward eliminating “ bottlenecks” or otherwise improv ing productivity, but some capital is now being spent on capacity expansion. A t some firms, inventories have been enlarged to handle the growing volume of new orders. Construction The amount of home, office, factory and other construc tion in the District was sizable in the first part of 1984 despite adverse weather that at times hampered activity. With the exception of Kentucky, the dollar amount of new construction contracts in the February-to-April period was greater this year than in the same period last year in each District state. Department store sales in the District continued to be above year-ago levels in each of the first four months of the year, and indications are that May sales continued the same pattern. Leading stores indicate that the yearEmployment to-date gain was in the 12 percent to 15 percent range. The gains were broadly based, with clothing and appli ances moving particularly well. Retailers indicate that, Reflecting the increases in sales and production, while inventories are higher than at this District employment rose in the first part time a year ago, they are, in most cases, of 1984, with the largest gains in the not burdensome since they will accom manufacturing, construction and service modate greater sales volume. industries. The unemployment rate, while still fairly high, has declined sharply in re THE FEDERAL Automobile sales have been strong. cent months. Respondents indicate that the RESERVE Several dealers reported all-time record average hours worked increased slightly. RANK of monthly sales in March, which were The number of temporary summer jobs is ST.LOITS broken again in April. Reports indicate somewhat more plentiful in 1984 than in that sales in May continued to be lively. 1983. FEDERAL RESERVE BANK OF ST. LOUIS SUMMER 1984 Outlook Employers generally are optimistic about the nearterm business outlook. An April survey of 257 District businessmen indicated that 73 percent expected the volume of activity to rise in the next three months, 18 percent anticipated little net change and only 9 percent expected a contraction. The strong rebound in real growth that has occurred during this recovery and the moderate rate of inflation.compared with recent past ex perience have been important contributing factors to this optimistic view. Spotlight on Arkansas Arkansas, with its heavy concentration of durable manufacturing, lumbering and other cyclically sensitive sectors, experienced a strong 9 percent annual rate of in crease in business activity in early 1984. This followed a rapid 11.7 percent increase during 1983, a sharp increase relative to other District states. The Arkansas economy, however, contracted sharply relative to the U.S. economy during the recession of 1981-82 (see chart). These more pronounced swings in Arkansas’ economy are not unusual. For example, the variation in the growth rate of personal income has been about twice as high in Arkansas as in the United States over the last 15 years. This also has been true of the variation in Arkansas’ growth rate of total employment as well as such other in dicators of economic activity as the growth in mortgage loans and housing permits. Despite this greater short-run variation, the average growth rate of the Arkansas economy does not differ ap preciably from that of the United States over longer-run periods. From the first quarter of 1970 through the first quarter o f 1984, the average grow th rate of Arkansas’ personal income was about 10.5 percent, while the national average was about 9.5 percent. This same pattern holds for the other indicators of economic activi ty mentioned above. While Arkansas’ economy tends to be more volatile than the U.S. economy, it does follow the national trend over the long run. —Norman N. Bowsher Relative Business Activity: Arkansas Vs. United States 1981 1982 1983 1984 Late st da t a plotted: U .S .-1st q u a r t e r ; A r k a n s a s - A p r i l Business—An Eighth District Perspective is a quarterly summary of business conditions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official positions of the Federal Reserve System.______________________________ FEDERAL RESERVE BANK OF ST. LOUIS SUMMER 1984 EIGHTH DISTRICT BUSINESS DATA Growth Rates1 Current Period G en eral B u siness In d e x e s 2 Year-to-Date 1984 1983 Feb-Apr A rka nsa s K e n tu cky M is s o u ri T ennessee 8.6% 4.1 4.8 7.5 R etail S ales 8.8% 6.3 5.2 8.2 11.7% 4.7 8.5 4.8 14.1% 3.3 -9 .1 11.9 19.9 11.0% 11.2 8.9 9.5 14.0 7.6% 7.3 11.4 4.5 8.1 6.6 4.7% 4.0 3.3 3.3 3.8 5.3 4.9% 4.4 5.3 2.1 5.3 4.7 5.1 1.7 3.6 6.3 3.2 3.3% 2.7 5.4 4.4 1.3 0.7 0.7 1.6 3.9% 6.9 3.3 3.1 8.5 2.7 3.6 1.2 8.7 4.3% 5.3 4.0 7.6 4.7 5.1 5.0 4.4 0.9 Jan-M ar U nite d S tate s A rk a n s a s 3 K e n tu c k y 3 M is s o u ri T ennessee 14.1% 3.3 - 9 .1 11.9 19.9 4th quarter ’83 P erso nal In c o m e U nite d S tate s D is tric t A rka nsa s K e n tu cky M is s o u ri T ennessee 10.8% 10.9 19.5 7.5 10.9 9.5 Feb-Apr Payroll E m p lo ym en t 4.9% 4.1 4.7 1.4 4.4 4.6 4.9 2.1 3.4 6.0 2.5 U nited S tate s D is tric t A rkansas L ittle R ock K e n tu cky E vansville, IN L o u is v ille M is s o u ri St. L ouis T ennessee M em ph is 1.9 3.7 2.2 Feb-Apr A verag e H o u rly E a rn in g s -M fg . U nite d S tate s A rkansas L ittle Rock K e n tu cky L o u is v ille M is s o u ri St. L ouis T ennessee M em ph is 2.7% 6.1 -0 .6 0.6 4.1 2.9 3.0 3.1 12.6 Employment1 Y ear-to -D a te 1984 S am e Period 1983 Prices1 Y e a r-to -D a te 1984 S a m e P eriod 1983 Key In d u stries F a b rica te d M etal P ro d u cts E le c tric a l and E le c tro n ic E q u ip m e n t N o n e le c tric a l M ach in e ry T ra n s p o rta tio n E q u ip m e n t Food and K indred P ro d u c ts T e x tile and A pparel P rin tin g and P u b lis h in g C h e m ic a ls and A llie d P ro d u cts C o n s tru c tio n 0.3% 11.2 12.1 12.5 - 3 .1 1.5 4.8 0.8 - 2 0 .0 - 9 .5 % 6.9 1.6 7.7 -8 .5 -3 .5 2.5 -7 .4 - 3 3 .8 3.0% 4.2 3.4 2.2 10.0 3.1 8.6 3.3 5.3 -2 .2 % 5.0 3.0 -0 .5 5.5 -0 .6 9.0 0.7 7.6 3 EIGHTH DISTRICT BUSINESS DATA Current Period*12 3 Unemployment Rate Feb-Apr U nite d S tate s D is tric t A rka nsa s L ittle R ock K e n tu cky E vansville, IN L o u is v ille M is s o u ri St. L o u is T en ne sse e M e m p h is 7.8% 8.7 8.6 6.8 9.3 9.1 8.8 8.3 9.2 8.7 8.0 Previous 3 Months 8.2% 9.2 8.8 7.1 9.8 9.0 9.0 8.8 9.6 9.5 8.5 Average Yearto-Date 1984 7.9% 8.9 8.8 7.1 9.5 9.3 9.0 8.5 9.4 9.0 8.2 Average 1983 9.6% 10.8 10.1 8.1 11.6 10.7 10.9 9.9 10.5 11.4 9.5 Construction Contracts4 (m illio n s o f d o lla rs ) D is tric t A rka nsa s K e n tu c k y E astern M is s o u ri W e ste rn T en ne sse e Feb-Apr $505.2 114.7 154.1 156.5 79.8 Housing Permits5 Feb-Apr D is tric t A rka nsa s K e n tu cky M is s o u ri T ennessee 6,726 920 1,190 1,972 2,645 $384.0 91.6 145.1 99.8 47.5 $466.2 110.2 143.9 139.9 72.3 $483.4 106.4 172.9 136.8 67.3 5,721 837 700 1,517 2,667 6,725 886 1,083 1,909 2,847 5,475 803 896 1,478 2,297 NOTE: With the exception of construction contracts and employment and prices in key industries, all data are seasonally adjusted. 1Data are presented as three-month averages to minimize distortions due to the large variability of monthly data. The current period growth rate is a comparison of the average of the current three months to the average of the previous three months. The year-to-date growth rate is from the average of the three months ended in December 1983. All growth rates are com pounded annual rates of change. 2Sources: Arkansas and Missouri from Southwestern Bell, Kentucky and Tennessee from South Central Bell. 3Sources: Arkansas from Southwestern Bell and Kentucky from Kentucky Revenue Department. 4Source: F.W. Dodge, Construction Potentials, McGraw-Hill Information Systems Company, proprietary data provided by special permission. 5Changing to state data during the transition to new area definitions.