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Business AN EIGHTH DISTRICT PERSPECTIVE SPRING 1988 District Employment Gains Continue in 1987 which account for more than four-fifths of the total employment, largely determined the growth of total payroll employment. Of these four sectors, the largest changes were in the services and manufacturing sectors. Employment growth in the 1980s has been fastest in the services sector, which is dominated by business and health services. Consumers have spent an increasing proportion of their rising incomes on services. Slower labor productivity growth in services than in goods-production has also contributed to services’ relatively rapid job growth. Although the expansion of District services employment slowed from Employment 6.1 percent in 1986 to 4 percent in 1987, the sector provided The table on page 4 shows that the average unemployment more new jobs than any other single sector last year. rate in 1987 fell from the previous year in both the District A turnaround of manufacturing provided the most dramatic and the nation. The District average jobless rate during 1987, employment development of 1987 in both the District and 7.2 percent, was the lowest of the decade. The jobless rate the nation. Manufacturers were aided by strong export fell in Arkansas, Kentucky and Tennessee, but edged upward demand for their products, as the declining exchange value in Missouri, which has enjoyed relatively low unemployment of the dollar made U.S. products relatively less expensive rates for several years. Despite last year’s decreases, the rates in many foreign markets. The real value of the nation’s in Arkansas and Kentucky remained stubbornly high, exceeding 8 percent in 1987. exports, dominated by manufactured goods, jumped 12.8 percent in 1987. The decline in unemployment rates is reflected in payroll District manufacturing employment grew 1.8 percent in employment growth of 2.6 percent in the District and 2.9 1987 following a 0.2 percent decrease in 1986. Similarly, percent nationally. District employment grew rapidly in the factory employment grew 1.9 percent in 1987 nationally and fourth quarter, expanding at a 4.1 percent rate. As the table fell 0.9 percent in 1986. The growth in 1987, though modest, on page 3 indicates, 1987 represents the third successive year of moderate employment growth in both the District and represents manufacturing’s first annual job gains since 1984. the nation. The table also shows that Tennessee has been The table on the bottom of page 3 shows that the gains in the star performer of the District states in recent years, with District manufacturing employment were concentrated in employment growth of 3.8 percent in 1987 and more than the food and kindred products and the textile and apparel 3 percent growth in the previous two years. Arkansas’ job industries. growth was also relatively rapid, rising 3.5 percent in 1987, Among District states, growth was particularly strong in and at a 6.3 percent annual rate in the final quarter of the year. Arkansas, in which manufacturing employment rose 4.7 Although the growth of District’s payroll percent during the year and at an 8.8 percent employment in 1987 was similar to that of annual rate in the fourth quarter. Arkansas’ 1986, the sources of growth varied. This can manufacturing gains were concentrated in the be seen in the figure on the next page. The transportation equipment industry, printing eight divisions of payroll employment are and publishing industry and food and kindred THE arranged in descending size, ranging from the products industry—in which poultry FEDERAL K1SIKM wholesale and retail trade sector, which producers grew rapidly. As the table on page RANK of employed almost a quarter of the District’s 3 shows, manufacturing employment also ST. LOLLS 1987 workforce, to mining, which employed increased substantially in Kentucky and less than 1 percent. The largest four sectors, Tennessee but fell slightly in Missouri. 1987 was the fifth successive year of national and regional economic growth, making the current recovery the longest peacetime expansion of the century. The stock market crash in October shocked the nation, but growth continued through the end of the year. Though the growth of income and construction weakened slightly from 1986, employment continued to expand moderately. This article focuses on economic developments in 1987 in the Eighth Federal Reserve District. SPRING 1988 FEDERAL RESERVE BANK OF ST. LOUIS DISTRICT EMPLOYMENT GROWTH BY SECTOR Percent Change PERCENT A closure of a light truck assembly plant in St. Louis and intermittent layoffs of auto workers contributed to the decline in Missouri. Consumer Spending and Income The table on page 3 suggests that personal income expanded rapidly in the thrid quarter, growing at a 6.3 percent annual rate in the District and only slightly slower nationally. After adjusting for inflation, however, the third quarter growth rate was only 1.5 percent regionally and 1.1 percent nationally. In current dollars, income in the District grew at a slightly faster rate in the first three quarters of 1987 than the 5.4 percent growth for 1986. After adjusting for inflation, however, District income only grew at a 1.3 percent rate in 1987 compared with a 4.1 percent real gain in 1986. All three components of District real income—earnings, transfer payments and dividends/interest/rent—grew slower in 1987 than in 1986. Real income in Kentucky outpaced the other District states, but still only expanded at a modest 2.5 percent pace in the first three-fourths of 1987. During the same period, real income in Arkansas was virtually unchanged. The sluggish expansion of retail sales continued in 1987. After adjusting for inflation, retail sales grew 0.8 percent in 1987 compared with 0.5 percent in 1986. Sales were particularly weak in Missouri, where sales fell 2.3 percent. Construction After modest growth in 1986, construction activity leveled off in 1987. The real value of construction contracts issued in the District increased 0.3 percent last year while falling 0.4 percent nationally. District nonresidential building contracts grew moderately during the year due to strong expansions in Kentucky and Tennessee. These gains were offset by declines of the residential sectors in each of the four District states, mainly due to less construction of multifamily structures. In addition, District contracts for non building projects (such as roads, bridges and utilities) declined in 1987. Summary Indicators of District economic activity provide a mixed picture of economic performance in 1987. The expansion of real income continued in 1987, but at a slower pace than in the previous year. The real value of construction contracts was virtually flat in 1987. More positively, payroll employment grew at a moderate pace, allowing the unemployment rate to fall through the year. Aided by rising exports, the number of District manufacturing jobs increased in 1987 after falling for two years. The District’s vigorous employment growth in the year’s final quarter was particularly encouraging, given the shock of the October stock market crash. —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 SPRING 1988 FEDERAL RESERVE BANK OF ST. LOUIS EIGHTH DISTRICT BUSINESS DATA Rates of Change1 Current Quarter G en e ra l B usiness In d e x e s 2 A rka n sa s K e n tu cky M isso u ri T e n n e sse e P ayro ll E m p lo y m e n t U n ite d S tates D istrict A rka n sa s L ittle R ock K e n tu c k y L o u isville M isso u ri St. Louis T e n n e sse e M e m p h is M a n u fa c tu rin g E m p lo ym en t U nited S tates D istrict A rka n sa s K e n tu cky M isso u ri T e n n e sse e R etail S a le s 3 1987 1985 1986 IV /1 9 8 7 5 .8 % 2.5 5.3 4.7 3 .2 % 2.5 2.3 2.5 0 .2 % 2.3 1.8 4.9 1.0% 0.8 3.0 3.6 2 .9 % 2.6 3.5 2.4 1.9 3.0 1.6 1.3 3.8 2.3 2 .0 % 2.5 2.5 0.7 2.3 2.8 1.5 1.2 3.6 4.2 2 .7 % 2.5 1.7 2.9 2.3 2.4 2.1 2.3 3.2 3.1 1 .90/0 1.8 4.7 2.6 -0 .2 1.8 -0 .9 % -0 .2 2.4 -0 .4 -3 .0 1.1 - 1.8 % -1 .6 -1 .6 -2 .0 - 1.4 -1 .6 IV /1 9 8 7 3 .9 % 4.1 6.3 4.1 2.7 6.7 3.6 4.3 4.7 4.2 IV /1 9 8 7 3 .9 % 3.8 8.8 2.0 -0 .8 6.4 IV /1 9 8 7 U nited S tates A rka n sa s K e n tu c k y M isso u ri T e n n e sse e - 3 .8 % 49.1 -2 0 .4 4.6 -9 .3 2 .0 % 14.0 3.5 2.1 6.5 6 .3 % 2.2 -2 .2 2.6 6.6 6 .4 % 2.2 12.9 3.2 9.5 P erso n al In co m e 111/1987 1986 1985 1 984 U n ite d S tates D istrict A rka n sa s K e n tu c k y M isso u ri T e n n e sse e 5 .8 % 6.3 4.3 8.0 6.8 5.2 5 .6 % 5.4 5.4 4.0 5.1 6.7 Prices1 District Employment1 Key In d u stries F a b rica te d M etal P ro d u cts E le c trica 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 a ch in e ry T ra n s p o rta tio n E q u ip m e n t Food and K in d re d P ro d u cts T e x tile and A p p a re l 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 8 .3 % 8.6 8.1 7.9 8.7 9.1 6 .9 % 6.2 6.5 4.3 6.4 7.2 Current Quarter Current Year C urrent Q uarter IV /1 9 8 7 IV /1 9 8 6 - IV /1 9 8 7 IV /1 9 8 7 1.5% 0.6 -0 .1 -4 .1 3.3 3.8 0.7 0.4 4.7 8 .2 % 1.8 2.2 6.6 -1 .5 3.8 3.5 6.5 8.3 1 9.7% 2.1 2.1 -2 .7 1.0 4.5 2.8 -3 .2 -6 .2 C urrent Year IV /1 9 8 6 - IV /1 9 8 7 3 .8 % 1.3 1.6 0.4 1.6 3.2 3.9 6.7 4 .2 3 EIGHTH DISTRICT BUSINESS DATA U n e m p lo y m e n t R ate U n ite d S tates D is tric t A rk a n s a s L ittle R ock K e n tu c k y L o u is v ille M isso u ri St. Louis T e n n e sse e M e m p h is C o n s tru c tio n C o n tra c ts 4 (m illio n s o f d o lla rs) Average 1987 Average 1986 7.2 6.2 % 7.2 7 .0 % 7.7 7.9 8.2 8.1 8.8 6.8 7.3 8.3 7.1 Current Quarter Previous Quarter IV /1 9 8 7 111/1987 5 .9 % 6 .0% 6.8 6.8 7.0 6.9 9.2 7.0 6.5 6.9 6.9 6.2 6.1 6.9 7.0 6.8 6.1 5.9 8.0 6.8 Current Quarter Previous Quarter Same Period 1986 Same Period 1985 IV /1 9 8 7 111/1987 IV /1 9 8 6 IV /1 9 8 5 $541.9 57.6 114.8 172.9 196.7 $ 500.5 53.3 102.9 155.7 188.6 $ 552.5 59.4 104.2 195.0 193.8 $479.9 68.3 104.9 123.9 182.7 $427.4 27.8 114.2 117.0 168.4 $ 426.2 32.2 96.9 148.9 148.2 $ 368.4 28.8 $ 336.9 43 .7 87.1 94.9 7.6 6.0 6.2 6.8 6.3 5.6 8.8 R e s id e n tia l C o n s tru c tio n D is tric t A rk a n s a s K e n tu c k y M isso u ri Tennessee N o n re s id e n tia l C o n s tru c tio n 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 101.8 119.6 118.3 111.2 NOTE: With the exception of employment and prices in key industries, all data are seasonally adjusted. Data for Arkansas, Kentucky, Missouri and Tennessee are used to represent the District. 1 All growth rates are compounded annual rates of change. The 1984 through 1986 growth rates compare the fourth quarter of the year listed with the fourth quarter of the previous year. 2Although each index is a comprehensive measure of economic activity, the Arkansas and Missouri indexes, computed by Southwestern Bell, are not strictly comparable to the Kentucky and Tennessee indexes, which are computed by South Central Bell. 3Sources: Arkansas from Southwestern Bell, Kentucky from the Kentucky Revenue Department, Missouri and Tennessee from the U.S. Department of Commerce. 4Excludes nonbuilding construction. Source: F. W. Dodge Construction Potentials, proprietary data provided by special permission.