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Current Economic Conditions in the

Eighth Federal Reserve District
Louisville Zone
March 19, 2008

Prepared by the

Center for Regional Economics—8th District (CRE8)
Federal Reserve Bank of St. Louis

Eighth
Federal Reserve
District
I
ILLINOIS
ILL NO
ILLINO S
ILLINOIS

IN IANA
IN IAN
INDIANA
ND
NDIAN

Columbia
Jefferson City

St. Louis

MISSOURI
ISS UR
SSOUR
S
SO

Louisville-Jefferson County

Evansville
Owensboro

Elizabethtown

KENTUCKY
KENTUCKY
KEN UCKY
EN UC
N
NTU

Springfield
Bowling Green

Fayetteville-Springdale-Rogers
Jonesboro
Jackson

ARKA AS
ARKAN AS
RKANSAS
AN

TEN SSEE
TEN ESSEE
TENNESSEE
NNE
N

Fort Smith

Memphis

Little Rock-North Little Rock
Hot Springs
Pine Bluff

Texarkana

MISS SIPPI
MISS SSIPPI
SSISS PP

This report summarizes information on economic conditions in the Louisville zone of the Eighth Federal Reserve
District (see map above), headquartered in St. Louis. Separate reports have also been prepared for the Little Rock,
Memphis, and St. Louis zones and can be downloaded from the CRE8 web site (research.stlouisfed.org/regecon/).
The first section of this report summarizes information provided by various contacts within the District and is
similar to the type of information found in the Fed’s Beige Book (federalreserve.gov/fomc/beigebook/2008/).
The period covered by this section coincides roughly with the two Beige Book periods immediately preceding this
report. The second section includes government-provided data for the metro areas and states of the Louisville zone.
These data are the most recent available at the time this report was assembled.
For more information, please contact the Louisville office:
Maria G. Hampton, 502-568-9205, maria.g.hampton@stls.frb.org
Economists:
Howard Wall, 314-444-8533, howard.j.wall@stls.frb.org
Subhayu Bandyopadhyay, 314-444-7425, subhayu.bandyopadhyay@stls.frb.org

Louisville Zone Report—March 19, 2008
The overall pace of the economic activity in the Louisville zone has declined somewhat in recent months. Consumer spending has
slowed, and, despite the growth experienced in food manufacturing, the manufacturing and service sectors have both declined. The
residential real estate and construction sectors also declined, although commercial real estate remained strong and reports from the
banking sector were mixed. The agriculture and natural resources sector reported gains, with the increased value in agriculture
being mostly due to price increases of major crops.

Consumer Spending
Retail sales reports for January and early February were mostly
negative among general retailers and car dealers in the
Louisville zone. Two-thirds of each group surveyed indicated
that sales were down compared with the same two months in
2007. Food and essential items were strong sellers, while gift
items were moving more slowly. Half of the general retailers
and two-thirds of the car dealers reported that their inventories
were at desired levels, but the remaining contacts reported
high inventories. Two-thirds of general retailers and one-half
of car dealers expected sales to decrease in coming months.

Manufacturing and Other Business Activity
Overall manufacturing activity in the Louisville zone slowed
during the first quarter of 2008, although this was not uniform.
While firms in chemical manufacturing and furniture manufacturing reported plans to lay off workers, firms in food manufacturing reported plans to expand operations. Also, while some
motor vehicle parts manufacturers reported contractions, others
in Evansville, Indiana, reported expansions. Contacts in fabricated metal manufacturing reported mixed conditions. In the
service sector, signs of weakness appeared, with job losses
reported in health care services.

Real Estate and Construction
Compared with the same period in 2006, December 2007
year-to-date home sales in Louisville declined by a modest 3
percent. For January 2008, however, year-over-year home sales
declined by 20 percent. The housing slowdown has also been
indicated by a decline in building permits: December 2007
year-to-date single-family housing permits fell 7 percent compared with the same period in 2006. One contact described
current real estate conditions in Southern Indiana as “flat,
stagnant, and no growth,” Still, the general feeling among
contacts was the housing markets in the Louisville zone were
not faring badly relative to other regions.

Reports in commercial real estate were rosier as industrial
vacancy rates in Louisville declined in late 2007, as did downtown and suburban office vacancy rates. More recently, contacts
generally reported continuing strength in this sector, at least for
now. For example, a contact in Evansville reported significant
commercial activity in the area but noted tighter underwriting
on loans and indicated that there are signs of a slight slowdown
in the near future.

Banking and Finance
Most bank contacts reported some softening in loan demand
in both the consumer and residential mortgage categories.
However, other contacts reported an increase in demand for
residential mortgage loans, citing a decrease in interest rates.
Contacts noted little change in deposits, but there were reports
that intense competition for deposits has forced the banks to
offer higher rates than desired. One typical response came
from a contact who described the pipeline for loans as stable,
with bankers across the region encouraging potential home
buyers and builders to enter the market to take advantage of
favorable interest rates.

Agriculture and Natural Resources
Total coal production for 2007 increased by 4 percent from
2006 levels. The total value of all field crops in Louisville zone
states rose by 25 percent from 2006 to 2007. Indiana had an
increase of 34 percent, while Kentucky’s value did not change—
perhaps because Kentucky suffered persistent drought during
the growing season. The increased values mostly reflect higher
prices of major crops in 2007 than in 2006, especially corn
(around 28 percent), soybeans (around 60 percent), and winter
wheat (around 60 percent), whereas total production increased
only for corn (in both states) and tobacco (in Kentucky).

Nonfarm Payroll Employment Growth
3-Month Average, SA, January 2001–January 2008
Percent
0.6
0.4
0.2
0
–0.2
United States
Louisville MSA

–0.4
–0.6
2001

2002

2003

2004

2005

2006

2007

2008

Louisville MSA Employment Growth by Sector
Year/Year Percent Change, Janury 2007–January 2008
Percent
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
–1.0
–2.0
–3.0
–4.0

Total
Nonfarm

Natural Manufacturing Trade, Information Financial
Resources,
Transportation,
Activities
Mining, and
and Utilities
Construction

Professional Education
and
and
Business
Health
Services

Leisure
and
Hospitality

Other
Services

Government

Although there were relatively dramatic
swings in employment growth in the
Louisville MSA during 2007, the most
recent estimates indicate that Louisville
outperformed the rest of the country over
the course of the year. (See the table at the
top of the final page, which provides recent
benchmark revisions of employment data.)
Estimates for recent months suggest that
this trend continues: Over the three-month
period ending in January 2008, Louisville
employment growth averaged 0.12 percent
per month, while U.S. employment growth
averaged 0.10 percent per month.

Employment growth in the Louisville MSA
between January 2007 and January 2008
varied a great deal across sectors. According to the most recent estimates, the
strongest sector was natural resources,
mining, and construction, which saw an
increase of 5.6 percent. Other strong
sectors were education and health; trade,
transportation, and utilities; and government. The manufacturing and information
sectors, on the other hand, were estimated
to have seen relatively large job losses of
2.9 and 1.9 percent, respectively.

Louisville Zone—MSA Employment and Unemployment
Nonfarm payroll employment percent change,
January 2007–January 2008
Total
Louisville
Bowling Green, Ky.
Clarksville, Ky.
Evansville, Ind.
United States

Goods producing

Service providing

Unemployment rate
December 2007

1.34
2.99
–0.71
1.37
0.89

–0.28
1.56
-6.94
-2.87
–1.48

1.69
3.37
0.89
2.85
1.35

5.4
4.0
5.4
4.2
4.8

SOURCE: Bureau of Labor Statistics.

Louisville Zone—MSA Housing Activity
Total building permits,
units year to date
Percent change
–54.3
–50.0
–50.5
–28.1
–28.6
20.0
–32.4

January 2008
Louisville
237
Bowling Green, Ky.
32
Clarksville, Ky.
98
Elizabethtown, Ky.
23
Evansville, Ind.
45
Owensboro, Ky.
18
United States
75,933

House price index,
percent change,
2007:Q4/2006:Q4
3.03
1.91
7.18
5.20
0.68
1.29
0.84

Total residential building permits in January
were substantially lower than a year earlier
in every zone MSA except Owensboro,
Kentucky. Louisville, Bowling Green, and
Clarksville, Kentucky, all saw decreases of
50 percent or higher. House price indices,
however, increased in all metro areas in
2007, with especially strong increases in
Clarksville and Elizabethtown, Kentucky.
Evansville, Indiana, was the only metro
area for which the house price index rose
more slowly than for the country as a whole.

SOURCE: Bureau of the Census, Office of Federal Housing Enterprise Oversight.

Louisville Area Coincident Economic Activity Index
Index (1992 = 100)
165
160
155
150
145
Indiana

140

Kentucky
135
130
2000

United States
2001

2002

2003

2004

2005

2006

The Philadelphia Fed’s coincident index
combines payroll employment, wages and
salaries, the unemployment rate, and hours
worked into a single index. According to
this index, Kentucky and Indiana have
underperformed relative to the country as
a whole since 2001. The recession of 2001
in these states was deeper and longer, and
the recovery and expansion were not as
strong. In 2007 this index rose by 2.4 percent nationally, but only 1.6 and 1.4 percent
for Indiana and Kentucky, respectively.

2007

SOURCE: Federal Reserve Bank of Philadelphia.

Louisville Area Real Personal Income Growth
Percent Change, Year-Over-Year
Percent
7
6
5
4
3
2
1
Indiana

0

Kentucky

–1

United States

–2
–3
2000

2001

2002

SOURCE: Bureau of Economic Analysis.

2003

2004

2005

2006

2007

Personal income growth in Kentucky and
Indiana since 2004 has tended to be
weaker than in the country as a whole.
Also, income growth over the period in
Indiana has been consistently weaker than
in Kentucky. By the second quarter of 2007,
however, Kentucky’s income growth began
to match the national rate. Indiana’s personal income growth continued to lag the
country’s and Kentucky’s into the third
quarter of 2007.

Metro Area Employment Growth
December 2006 to December 2007
Revised estimate as of March 2008
Change (in thousands)
Large metro areas
Little Rock–North Little Rock, Arkansas
Louisville, Kentucky-Indiana
Memphis, Tennessee-Arkansas-Mississippi
St. Louis, Missouri-Illinois
Small and medium metro areas
Fayetteville-Springdale-Rogers, Arkansas
Fort Smith, Arkansas-Oklahoma
Texarkana, Texas-Arkansas
Bowling Green, Kentucky
Evansville, Indiana-Kentucky
Jackson, Tennessee
Columbia, Missouri
Jefferson City, Missouri
Springfield, Missouri

Percent change

5.2
6.9
5.4
2.0

1.5
1.1
0.8
0.1

0.9
1.7
0.7
1.8
1.4
0.3
1.0
1.5
5.2

0.4
1.4
1.2
2.9
0.8
0.5
1.1
1.9
2.6

NOTE: These are the most recent benchmark revisions from March 11, 2008. See CRE8 Occasional Paper #2008-01 for a discussion
of these revisions (http://research.stlouisfed.org/regecon/occasionalpapers.html).
SOURCE: Bureau of Labor Statistics.

Foreclosures, 2007
Percentage of
households, 2007

Percent change
from 2006

Little Rock–North Little Rock, Arkansas
Louisville, Kentucky-Indiana
Memphis, Tennessee-Arkansas-Mississippi
St. Louis, Missouri-Illinois

0.95
0.60
2.14
1.28

15.52
–12.05
30.35
58.11

Arkansas
Ilinois
Indiana
Kentucky
Mississippi
Missouri
Tennessee

0.51
1.25
1.03
0.27
0.11
0.91
0.98

26.44
25.29
11.31
23.45
91.65
80.93
24.56

United States

1.03

74.99

SOURCE: Realty Trac.