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Current Economic Conditions in the Eighth Federal Reserve District Little Rock 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 Elizabethtown Owensboro 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 Little Rock zone of the Eighth Federal Reserve District (see map above), headquartered in St. Louis. Separate reports have also been prepared for the Louisville, 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 Arkansas and the metro areas of the Little Rock zone. These data are the most recent available at the time this report was assembled. For more information, please contact the Little Rock office: Robert A. Hopkins, 501-324-8200, robert.hopkins@stls.frb.org Economists: Michael Pakko, 314-444-8564, pakko@stls.frb.org Rubén Hernández-Murillo, 314-444-8588, ruben.hernandez@stls.frb.org Little Rock Zone Report—June 25, 2008 The pace of economic activity in the Little Rock zone slowed during the second quarter of 2008. Residential real estate conditions continued to deteriorate while commercial and industrial real estate market activity has slowed since our previous report. Manufacturing activity decreased slightly, while the services sector expanded. Banking contacts reported an overall softening in loan demand. Consumer Spending Real Estate and Construction Compared with a year ago, retail sales for April and early May declined slightly among general retailers and car dealers in the Little Rock zone. Half of the general retailers and 40 percent of the car dealers surveyed indicated that sales were down compared with the same months in 2007, while one-third of the general retailers and 20 percent of the car dealers reported increased sales. Among general retailers, 60 percent noted that sales levels met their expectations, but 40 percent reported that sales were below what they had anticipated. Among car dealers, one-third noted that used car sales had increased relative to new car sales. One-third of the general retailers and 40 percent of the car dealers reported that their inventories were too high, while 17 percent of the general retailers and 20 percent of the car dealers reported the opposite. The sales outlook for the summer was mixed. Half of the general retailers and half of the car dealers expected sales to increase over 2007 levels, while the other half of the general retailers and one-third of the car dealers expected sales to decrease. In Little Rock, compared with the same periods in 2007, year-to-date home sales were down by 16 percent in February, 15 percent in March, and 17 percent in April. Similarly, yearto-date single-family housing permits declined by 30 percent in February, 37 percent in March, and 33 percent in April. The first-quarter 2008 industrial vacancy rate in Little Rock increased slightly over the fourth quarter of 2007. During the same period, the suburban and downtown office vacancy rates also increased. A contact in southwest Arkansas reported that commercial building continues although vacancies in new construction remain. A contact in northwest Arkansas reported that commercial construction slowed during the first quarter. A contact in central Arkansas reported that commercial real estate leasing has become sluggish. Manufacturing and Other Business Activity Manufacturing in the Little Rock zone weakened somewhat during the second quarter of 2008, with a large number of job losses caused by the closure of a major food manufacturing facility. Firms in the chemical, plastic, and fabricated metal industries reported plans to open new facilities in the zone. Contacts in the packaging and apparel industries reported plans to expand existing facilities and operations. Firms in these industries reported plans to hire additional workers, most notably in the apparel manufacturing sector. In contrast, contacts in the fabricated metal and wood product industries reported plans to lay off workers and decrease operations. Firms in the food manufacturing and electrical equipment industries announced that they will each close a plant in the zone. The service sector expanded since our previous report. Contacts in the business support services and healthcare industries reported plans to expand operations and hire additional workers. A firm in the financial services sector announced plans to reduce their workforce. Banking and Finance Bank contacts reported further deterioration of banking conditions during the second quarter of 2008. Most contacts reported softening of demand in all major loan categories, most notably in the consumer and commercial and industrial categories. A few contacts noted slight increases in demand for residential mortgage loans. Over half of the contacts reported tightening of credit standards on all loans. Contacts reported little to no change in deposits. Agriculture and Natural Resources Frequent wet and cool weather conditions since our previous report delayed planting and crop growth. At the end of May, corn planting was finished in Arkansas. Additionally, planting of sorghum, rice, and cotton was nearly complete, although the pace for sorghum and rice was slightly behind normal. Planting of soybeans was behind its 5-year average pace, and emergence of the crop was even further behind. Emergence of sorghum, rice, and cotton was also behind the normal pace. In 2007, payroll employment growth in the Little Rock MSA was stronger than for the nation as a whole. The most recent estimates indicate that the number of jobs in Little Rock increased by 5,200, or 1.5 percent, during the year. In recent months, Little Rock employment growth has been stronger than for the country as a whole. Over the three-month period ending in May 2008, Little Rock monthly employment growth averaged 0.0 percent, while U.S. employment growth averaged –0.06 percent. Nonfarm Payroll Employment Growth 3-Month Average, SA, January 2001–May 2008 Percent 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 –0.1 United States Little Rock MSA –0.2 –0.3 2001 2002 2003 2004 2005 2006 2007 2008 Between May 2007 and May 2008 employment growth in the Little Rock MSA was very strong in several sectors. According to the most recent estimates, employment growth exceeded 3.5 percent in education and health and in leisure and hospitality. The natural resources, mining, and construction sector also grew at an above-average rate over the 12-month period. Countering these gains was a 2.4 percent decline in the number of manufacturing jobs. Little Rock Employment Growth by Sector Year/Year Percent Change, May 2007–May 2008 Percent 6.0 5.0 4.0 3.0 2.0 1.0 0.0 –1.0 –2.0 –3.0 Total Nonfarm Natural Manufacturing Trade, Information Transportation, Resources, Mining, and and Utilities Construction Financial Professional Education Activities and and Business Health Services Leisure and Hospitality Other Services Government Little Rock Zone—MSA Employment and Unemployment Nonfarm payroll employment percent change, May 2007–May 2008 Total Little Rock Fayetteville-Springdale-Rogers, Ark. Fort Smith, Ark. Texarkana, Ark.-Tex. United States SOURCE: Bureau of Labor Statistics. Goods producing Service providing Unemployment rate April 2008 0.90 0.86 0.32 1.42 0.30 –0.23 –2.27 –3.65 –3.90 –2.49 1.06 1.70 1.88 2.26 0.84 3.9 3.5 4.3 3.9 4.8 Little Rock Zone—MSA Housing Activity Total building permits, units year to date Percent change Little Rock 778 Fayetteville-Springdale-Rogers, Ark. 1,278 Fort Smith, Ark. 246 Hot Springs, Ark. 23 Pine Bluff, Ark. 49 Texarkana, Ark.-Tex. 53 United States 321,015 House price index, percent change, 2008:Q1/2007:Q1 –29.2 –1.9 –32.8 –36.1 133.3 –32.9 –34.6 April 2008 1.63 0.41 3.37 1.56 5.78 4.13 –0.03 Total residential building permits through April were lower than a year earlier in five of the six MSAs in the Little Rock zone. In Little Rock, permits fell by 29 percent, while falling by 35 percent nationally. In Pine Bluff, however, permits increased by 133 percent. House price indices increased in all zone metro areas between the first quarters of 2007 and 2008, and all outperformed the nation as a whole. SOURCE: Bureau of the Census, Office of Federal Housing Enterprise Oversight. 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, Arkansas has underperformed the country as a whole since 2000. Since 2007, this trend has become more pronounced. Compared with April 2007, in April 2008 this index rose by 1.7 percent nationally, but only 1.4 percent for Arkansas. Arkansas Coincident Economic Activity Index Index (1992 = 100) 165 160 155 150 145 140 Arkansas 135 130 2000 United States 2001 2002 2003 2004 2005 2006 2007 2008 SOURCE: Federal Reserve Bank of Philadelphia. Arkansas Real Personal Income Growth Percent Change, Year-Over-Year Percent 7 6 5 4 3 2 Arkansas 1 United States 0 –1 2000 2001 2002 SOURCE: Bureau of Economic Analysis. 2003 2004 2005 2006 2007 2008 Personal income growth in Arkansas has kept slightly ahead of national income growth since 2006. In 2007, however, the difference in growth rates increased. Yearover-year growth in the third and fourth quarters of 2007 was 4.9 and 6.0 percent in Arkansas, while the U.S. personal income growth in those quarters was 4.2 and 2.7 percent. In the first quarter of 2008, the most recent quarter for which there are data, year-over-year income growth in Arkansas was 1.9 percent, compared with a 1.4 percent growth in the nation as a whole. 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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