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Current Economic Conditions in the Eighth Federal Reserve District St. Louis Zone June 25, 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 (known as the Burgundy Book ) summarizes information on economic conditions in the St. Louis zone of the Eighth Federal Reserve District (see map above), headquartered in St. Louis. Separate reports have also been prepared for the Little Rock, Louisville, and Memphis 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 St. Louis zone. These data are the most recent available at the time this report was assembled. For more information, please contact the St. Louis office: Randy Sumner, 314-444-8644, randall.c.sumner@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 St. Louis Zone Report—June 25, 2008 Overall economic activity in the St. Louis zone has been mixed since our previous report. While consumer spending and activity in the service sector have slowed, manufacturing has expanded. Home sales have fallen, but the industrial real estate market has strengthened. The banking sector reports some positive response to lower interest rates, but uncertainty in economic outlook has had a negative impact. Weather conditions have not been the most favorable for agriculture, but the wheat crop has nevertheless been very good. Consumer Spending Sales reports for April and early May were mostly negative among general retailers and car dealers in the St. Louis zone. Half of the general retailers and two-thirds of the car dealers surveyed indicated that sales were down compared with the same months in 2007. Among car dealers, half reported recent increases in rebates and incentives, while the rest reported no change. One-third of the general retailers and one-half of the car dealers reported that their inventories were too high. The sales outlook for the summer was mixed: One-half of the general retailers and one-third of the car dealers expect sales to increase over 2007 levels, while one-third of the general retailers and one-half of the car dealers expect sales to decrease. Manufacturing and Other Business Activity Manufacturing in the St. Louis zone continued to expand in the second quarter of 2008. Firms in the chemical and steel manufacturing industries reported plans to open new facilities in the zone and to hire additional workers. In contrast, a firm in the weapons manufacturing industry reported plans to close a plant in the zone. The service sector continued to decline somewhat, as some job losses were reported in the financial services industry. Real Estate and Construction Compared with the same periods in 2007, February, March, and April 2008 year-to-date home sales were down (by 13, 16, and 17 percent, respectively). Also, compared with the same periods in 2007, year-to-date single-family housing permits declined (by 41, 42, and 40 percent, respectively). The firstquarter 2008 industrial vacancy rate in St. Louis decreased over the fourth quarter of 2007. Suburban and downtown office vacancy rates also decreased. Contacts reported that while overall commercial development has slowed, suburban office construction continues apace—especially in St. Louis County. Industrial contracting contacts reported that they are seeing market growth. Several local contacts expressed concern about the pipeline of projects, noting that stricter lending standards have slowed the financing process for developers and delayed projects still in the planning stages. Banking and Finance Contacts reported varying levels of loan activity in the residential mortgage loan category. One contact noted an influx of residential mortgage loan applications in the second quarter due, in most part, to lower interest rates. However, by early June, a spike in rates had slowed loan activity. Some contacts observed that commercial and industrial lending activity has stagnated in the region, citing an uncertain economic outlook as the likely cause. Reports continue to indicate tightening credit standards, most notably in the consumer loan category. Contacts indicated little to modest growth in deposits. Agriculture and Natural Resources Farmers in Illinois and Missouri intended to plant fewer acres of corn and more acres of soybeans compared with 2007. Farmers in both states planted more winter wheat in the fall. Frequent wet and cool weather conditions since our previous report caused delays in planting and crop growth. At the end of May, farmers in the St. Louis zone were behind their normal planting pace for corn, soybeans, and sorghum; and 91 percent of the winter wheat in Illinois and 85 percent of the winter wheat in Missouri was rated in fair condition or better—an improvement over the same time last year. About 98 percent of the pastures in Illinois and 93 percent in Missouri were in fair condition or better. For Missouri, this is a pronounced improvement over last year. Payroll employment growth in the St. Louis MSA has consistently underperformed the country as a whole in recent years. According to the most recent estimates, the recent reductions in employment have been relatively steep in St. Louis. The threemonth average of national employment growth was negative beginning in April, but has been negative for St. Louis since February. Over the three-month period ending in May 2008, St. Louis monthly employment growth averaged –0.08 percent, while U.S. employment growth averaged –0.06 percent. Nonfarm Payroll Employment Growth 3-Month Average, SA, January 2001–May 2008 Percent 0.4 0.3 0.2 0.1 0 –0.1 United States St. Louis MSA –0.2 –0.3 2001 2002 2003 2004 2005 2006 2007 2008 St. Louis MSA employment growth between May 2007 and May 2008 was negative across nearly all sectors. According to the most recent estimates, the strongest sector was education and health, which saw an employment increase of 1.7 percent. The only other sector to see job growth was financial activities. Natural resources, mining, and construction lost 3.2 percent of its jobs, while manufacturing, information, professional and business services, and leisure and hospitality all saw job losses greater than 1 percent. St. Louis MSA Employment Growth by Sector Year/Year Percent Change, May 2007–May 2008 Percent 2.0 1.0 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 St. Louis Zone—MSA Employment and Unemployment Nonfarm payroll employment percent change, May 2007–May 2008 Total St. Louis Columbia, Mo. Jefferson City, Mo. Springfield, Mo. United States Goods producing Service providing Unemployment rate April 2008 –0.66 1.17 0.12 1.39 0.30 –2.63 –4.30 –3.88 –0.35 –2.49 –0.28 1.77 0.72 1.67 0.84 5.3 3.3 3.7 3.8 4.8 SOURCE: Bureau of Labor Statistics. St. Louis Zone—MSA Housing Activity Total building permits, units year to date Percent change –47.4 –36.4 –29.4 –30.7 –34.6 April 2008 House price index, percent change, 2008:Q1/2007:Q1 1.71 3.28 3.45 1.94 –0.03 St. Louis 2,138 Columbia, Mo. 253 Jefferson City, Mo. 36 Springfield, Mo. 673 United States 321,015 SOURCE: Bureau of the Census, Office of Federal Housing Enterprise Oversight. St. Louis Area Coincident Economic Activity Index Index (1992 = 100) 165 160 155 150 145 140 Illinois Missouri 135 130 2000 United States 2001 2002 2003 2004 2005 2006 2007 2008 Total residential building permits in April were lower than a year earlier in every MSA in the zone. For St. Louis the decrease was well above what was experienced by the country as a whole. House price indices, on the other hand, increased in all metro areas between the first quarters of 2007 and 2008 for all four metro areas. Columbia and Jefferson City, in particular, saw relatively strong increases in their indices. In contrast, the same house price index fell slightly over the period for the country as a whole. 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, labor market conditions began to soften in early 2007, several months before similar softening occurred nationwide. Between January and April 2008, however, this index performed somewhat worse at the national level. For the United States it rose by 0.26 percent, while the increases for Missouri and Illinois were 0.45 and 0.30 percent, respectively. SOURCE: Federal Reserve Bank of Philadelphia. Personal income growth in Missouri and Illinois had been weaker than in the country as a whole since 2003, and income growth in Missouri had been weaker than in Illinois through most of 2006 and 2007. For the second half of 2007 and into the first quarter of 2008, however, Missouri’s income growth has outpaced that of Illinois and the country as a whole, although growth has been roughly halved across the board over the period. St. Louis Area Real Personal Income Growth Percent Change, Year-Over-Year Percent 7 Illinois 6 Missouri United States 5 4 3 2 1 0 –1 –2 2000 2001 2002 SOURCE: Bureau of Economic Analysis. 2003 2004 2005 2006 2007 2008 2007 Population Estimates for Eighth District Metro Areas 2007 Population Large metro areas St. Louis, Missouri-Illinois Little Rock–North Little Rock–Conway, Arkansas Louisville/Jefferson County, Kentucky-Indiana Memphis, Tennessee-Arkansas-Mississippi Small and medium metro areas Bowling Green, Kentucky Columbia, Missouri Elizabethtown, Kentucky Evansville, Indiana-Kentucky Fayetteville-Springdale-Rogers, Arkansas-Missouri Fort Smith, Arkansas-Oklahoma Hot Springs, Arkansas Jackson, Tennessee Jefferson City, Missouri Jonesboro, Arkansas Owensboro, Kentucky Pine Bluff, Arkansas Springfield, Missouri Texarkana, Texas-Arkansas SOURCE: U.S. Census Bureau. Change since 2000 Percent change International migration Internal (domestic) migration 2,803,707 666,401 1,233,735 1,280,533 105,020 55,883 71,760 75,329 3.9 9.2 6.2 6.3 27,436 3,644 12,115 13,399 –35,697 25,220 24,698 3,086 116,001 162,314 111,610 349,717 435,714 289,693 96,371 112,660 145,686 116,402 112,104 101,484 420,020 134,215 11,835 16,648 4,063 6,902 88,669 16,523 8,303 5,283 5,634 8,640 2,229 –5,857 51,646 4,466 11.4 11.4 3.8 2.0 25.5 6.0 9.4 4.9 4.0 8.0 2.0 –5.5 14.0 3.4 2,549 3,000 –53 1,493 10,435 3,937 451 1,030 854 913 310 448 1,485 531 5,784 6,769 –1,207 –393 52,725 3,497 9,355 1,180 493 4,747 –1,022 –8,297 39,241 1,970
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