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Business
AN EIGHTH DISTRICT PERSPECTIVE
SPRING 1986

Growth and Instability of Eighth District
Manufacturing Employment
The objective of many state and local economic
development programs is to attract firms in fast-growing
manufacturing industries. Incentives ranging from tax
abatements to industrial revenue bonds have been used to
entice firms to locate in one area rather than another. Recent
interstate bidding wars for high-tech manufacturers, auto
assembly plants and transportation hubs are widely
publicized examples.
Although such industries may lead to rapid employment
growth in the intermediate term, growth is not the only
relevant criterion in evaluating the impacts of different
industries on a region’s economy. In particular, the instability
of employment in an industry may have adverse effects that
offset the benefits of employment growth. Employment
instability refers to fluctuations in an industry’s employment
around its long-run growth path.
These costs of employment fluctuations are widespread.
In times of economic downturn, unstable industries typically
lay off a disproportionately high number of their workers.
In addition to the costs imposed on state and local
governments providing unemployment compensation,
communities in which the unstable industries are located
are forced to bear the social costs associated with increased
joblessness. During recovery periods, the more rapid
employment and population increases associated with
unstable industries also may strain the community’s capacity
to meet the demands placed on its utilities and social
services, especially in nonmetropolitan areas.
This article examines the growth and stability of Eighth
District manufacturing industry groups and investigates
whether there is a trade-off between these two
indicators of industry performance.

Measures of Growth and
Instability: An Overview
Measures of employment growth and
instability for Eighth District manufacturing
industry groups are shown in the table on the
next page. For comparison, similar indicators



Eighth District Manufacturing Employment
1972

—

85

Thousands of Workers

for national subsectors are provided. Employment growth
is indicated by compounded annual growth rates from 1972
to 1985. The instability indexes measure the relative amount
of employment variation around the long-run growth trend
of employment for each industry. Since the value of this index
increases with greater variation, larger values indicate greater
instability. The numbers in parentheses indicate the ranks
of the industries, with the fastest growing and most unstable
subsectors ranked (1), and those exhibiting the least growth
and least instability ranked (15).

Which Industries Grew the Fastest?

Total manufacturing employment in the Eighth District
changed little between 1972 and 1985, decreasing from
1,384,200 to 1,382,720 persons. Throughout this period,
durables manufacturing employed slightly
more than half of all District manufacturing
workers. The chart shows the growth path
____
of D istrict durables and nondurables
manufacturing employment from 1972
THE
through 1985. Employment in the durables
FEDERAL
RESERVE
sector increased at a 0.28 percent annual rate
RANK o f
while nondurables employment declined at
ST. IX)L IS
a 0.33 percent annual rate (see table).
Nationally, similar rates for the durables and

SPRING 1986

FEDERAL RESERVE BANK
G r o w th a n d In s t a b ilit y o f M a n u f a c t u r in g E m p lo y m e n t b y S e c t o r , 1 9 7 2 - 8 5

U N IT E D S T A T E S

E IG H T H D IS T R IC T
Compounded Annual

Instability

Compounded Annual

Instability

Growth Rate

Index

Growth Rate

Index

0.11%

4.01

-0.01%

4.38

Durable goods
Lumber and wood products
Furniture and fixtures
Stone, clay and glass products
Primary metals
Fabricated metals
Machinery, except electrical
Electrical equipment
Transportation equipment
Instruments and miscellaneous

0.28
-0.61
-0.48
-1.23
0.58
0.02
1.32
-0.15
1.01
0.99

(11)
(10)
(13)
(6)
(8)
(2)
(9)
(3)
(4)

6.51
7.50
7.39
6.36
6.79
6.35
6.23
7.48
9.25
3.79

(2)
(4)
(6)
(5)
(7)
(8)
(3)
(1)
(9)

0.35
-0.29
0.26
-0.96
-2.74
-0.40
1.11
1.54
0.82
1.11

(9)
(6)
(12)
(14)
(10)
(4)
(2)
(5)
(3)

5.16
7.26
5.81
5.25
6.32
5.56
5.81
5.37
5.88
3.43

(1)
(4)
(8)
(2)
(6)
(5)
(7)
(3)
(10)

Nondurable goods
Food and kindred products
Textiles and apparel
Paper and allied products
Printing and publishing
Chemicals and allied products
Leather and leather products

-0.33
0.21
-1.66
0.91
2.22
-0.80
-4.12

(7)
(14)
(5)
(1)
(12)
(15)

2.27
1.27
3.33
3.54
1.65
2.87
3.69

(15)
(12)
(11)
(14)
(13)
(10)

-0.23
-0.51
-1.83
-0.08
2.06
0.24
-4.06

(11)
(13)
(8)
(1)
(7)
(15)

2.44
1.67
3.25
2.90
2.02
2.20
4.08

(15)
(11)
(12)
(14)
(13)
(9)

Total Manufacturing

Note: Rank among the industry subsectors is shown in parentheses. Due to data limitations, data from Arkansas, Kentucky, Missouri and Tennessee are
used to represent the Eighth District.

nondurables sectors were observed.
The lack of growth of total manufacturing employment
in the District, however, hides the diversity of performance
of the individual manufacturing industries. By far, the
printing and publishing subsector expanded the fastest over
the study period, growing at a 2.22 percent annual rate.
Other relatively fast-growing subsectors include nonelectrical
machinery and transportation equipment. At the national
level, these subsectors also were among the faster-growing
subsectors.

Instability of Subsectors
Total manufacturing employment between 1972 and 1985
showed slightly greater instability in the Eighth District than
in the nation. At both levels, durables manufacturing
exhibited greater volatility of the durables employment in
the District as can be seen in the chart. The instability index
for durables manufacturing of 6.51 was substantially more
than that of the nondurables manufacturers. Of the 15
subsectors, each of the nine durables industry groups
exhibited greater instability, as indicated by the index, than
the five nondurables subsectors.
This pattern is not surprising as the demand for durable
goods—especially autos, large appliances and industrial
machinery—is typically quite sensitive to stages of the
business cycle.
Transportation and equipment employment exhibited the

most instability with an index value of 9.25. In contrast,
employment in the District food and kindred industries
showed few fluctuations between 1972 and 1985. This
stability was reflected in an index value of 1.27.

Are Fast-Growing Subsectors Unstable?
If there is a positive relationship between the growth and
instability of an industry, a trade-off may exist between the
benefits associated with its growth and the costs due to its
instability. This relationship can be investigated by comparing
the growth and instability rankings of the subsectors. At both
the District and national levels, however, the wide variety
of relationships between growth and instability of the
subsectors suggests no regular relationship exists between
the two indicators. This conclusion is supported by near zero
coefficients of correlation between the District subsectors’
ranks in growth and instability and between employment
growth rates and instability indexes. A similar lack of
association was found at the national level.
Although a general relationship was not observed between
growth and instability, several subsectors ranked among the
highest or lowest subsectors in both categories. These include
the transportation equipment industry group, which was the
third-fastest growing and most unstable of the subsectors.
Printing and publishing, however, which grew the fastest,
was among the most stable subsectors.
—Thomas B. Mandelbaum

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.
2




FEDERAL RESERVE BANK OF ST. LOUIS

SPRING 1986

EIGHTH DISTRICT BUSINESS DATA
Growth Rates1
Current Period
General Business Indexes2

Year-to-Date 1986

1985

Nov-Jan

Arkansas
Kentucky
Missouri
Tennessee

0.6%
1.2
-3 .9
2.7

Payroll Employment

0.6%
2.8
-5 .0
1.7

0.1%
2.0
- 0 .6
2.6

3.9%
12.1
12.9
11.3
4.5
10.9
20.9
9.6
7.8
- 0 .6

3.1%
2.3
1.3
1.3
3.1
3.1
1.6
1.1
3.1
2.5

6.0%
1.6
5.8
0.0
- 2 .0
17.5
5.7
4.0
- 1 .6

3.6%
4.0
2.8
2.4
1.4
0.9
2.8
3.6
3.2

Nov-Jan

United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis

3.6%
6.8
7.5
9.9
-0 .2
8.8
13.1
6.0
4.7
0.1
Nov-Jan

Average Hourly Earnings-Mfg.

5.0%
1.9
4.1
1.4
-1 .1
14.2
7.3
5.6
-1 .8

United States
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis

Retail Sales3

Oct-Dec

Year-to-Date 1985

- 3.7%
-8 .4
23.8
- 5 .4
0.5

United States
Arkansas
Kentucky
Missouri
Tennessee

1984

5.6%
2.3
19.2
2.9
7.8

7.6%
2.3
0.1
9.1
10.9

4.3%
4.0
2.0
2.7
4.2
5.6

9.9%
10.7
12.2
11.2
10.2
10.1

3rd quarter ’85

Personal Income

2.6%
3.5
2.0
3.2
2.3
6.0

United States
District
Arkansas
Kentucky
Missouri
Tennessee

Employment1
(current period Nov-Jan)
Year-to-Date 1986

Same Period 1985

Prices1
(current period Nov-Jan)
Year-to-Date 1986

Same Period 1985

Key Industries
Fabricated Metal Products
Electrical and Electronic Equipment
Nonelectrical Machinery
Transportation Equipment
Food and Kindred Products
Textile and Apparel
Printing and Publishing
Chemicals and Allied Products
Construction



-1 .6 %
- 1 1 .5
5.0
15.9
-6 .6
-8 .7
17.7
2.8
-6 .7

- 2.8%
-1 0 .7
3.7
-2 .2
-8 .2
-6 .7
8.6
-2 .6
-4 6 .7

-0 .5 %
2.1
1.5
-2 .6
8.1
0.8
8.2
2.8
-2 .8

- 0.4%
3.6
4.3
2.7
2.8
-0 .2
10.8
0.4
1.7

3

EIGHTH DISTRICT BUSINESS DATA
Current
Period*1*3
Unem ploym ent Rate
U n ite d S ta te s
D is tric t
A rka n sa s
L ittle R ock
K e n tu c k y
L o u is v ille (D e ce m b e r)
M isso u ri
St. Louis
T e n n e sse e
M e m p h is

Previous
3 Months

Average Yearto-Date 1986

Average
1985

7 .1 %
8.1
9.4
7.1
9.7
8.5
6.4
7.6
8.2
6.7

6 .7 %
7.6
8.2
6.4
10.3
N.A.
5.8
5.7
7.5
6.6

7 .2 %
7.9
8.6
6.5
9.0
8.0
6.7
7.6
8.0
6.5

$ 9 3 9 .7
118.3
203.3
274.5
343.5

$759.8
89.0
131.4
275 .7
263 .7

$ 8 3 3 .0
101.9
180.5
251.6
299.1

Nov-Jan
6 .9 %
7.9
8.8
6.5
10.1
8.1
6.2
6.5
7.5
6.6

Construction Contracts4
(m illio n s o f d o lla rs)
D is tric t
A rka n sa s
K e n tu c k y
M isso u ri
T e n n e sse e

Nov-Jan
$680.5
92.3
144.6
204.6
239.0

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 1985. All growth rates are compounded annual rates of change.
zSources: Arkansas and Missouri from Southwestern Bell, Kentucky and Tennessee from South Central Bell.
3Sources: Arkansas from Southwestern Bell, Kentucky from Kentucky Revenue Department, and Missouri/Tennessee from U.S.
Department of Commerce.
4Source: F.W. Dodge, Construction Potentials, McGraw-Hill Information Systems Company, proprietary data provided by special permission.




Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102