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Current Economic Conditions in the Eighth Federal Reserve District Louisville 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 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, email@example.com Economists: Howard Wall, 314-444-8533, firstname.lastname@example.org Subhayu Bandyopadhyay, 314-444-7425, email@example.com Louisville Zone Report—June 25, 2008 Overall economic activity in the Louisville zone continues to be weak, but the situation differs across sectors. Retail sales have been flat, but have improved since our previous report. Car dealers continue to see weaker sales than last year. Reports from the manufacturing sector are mostly negative, although the service sector continues to expand. Declines in residential real estate and construction have deepened while commercial real estate remains relatively strong. Although loan and deposit activity remain soft, the banking sector remains stable. Reports from the agriculture sector were generally very positive. Consumer Spending One-third of the general retailers and about 60 percent of the car dealers surveyed indicated that sales were down in April and May compared with the same months in 2007. Still, onethird of the general retailers and 40 percent of the car dealers reported increased sales. All car dealers surveyed noted that sales of used cars had increased relative to new ones, while about half reported recent increases in rebates and incentives. Also, two-thirds reported more rejections of finance applications. Two-thirds of the general retailers reported that their inventories were too high, and three-fourths of these retailers plan to use more discounting than usual. Two-thirds of the general retailers and one-third of the car dealers expect sales to be higher this summer than they were a year earlier. Manufacturing and Other Business Activity Manufacturing activity in the Louisville zone decreased during the second quarter of 2008. A firm in the apparel manufacturing industries reported plans to consolidate existing facilities and operations, which will allow the firm to hire additional workers. In contrast, contacts in the fabricated metal, furniture, and chemical manufacturing industries all reported plans to lay off workers and decrease operations. Firms in the plastic and motor vehicle parts manufacturing industries announced that they will each close a plant in the zone. The service sector continued to expand and experience job growth. Contacts in business support services, retail services, and financial services all announced plans to expand operations and hire additional workers. Real Estate and Construction The downturn in the Louisville housing market has gained momentum. Compared with the same period last year, yearto-date home sales were down by 14 percent in February and 18 percent in April. Permits for single-family homes were 39 percent lower in February and 40 percent lower in April. Com- mercial real estate activity has been relatively strong, with lower commercial and industrial vacancy rates in Louisville in the first quarter of 2008 than in the fourth quarter of 2007. A contact in Louisville reported that commercial and industrial construction continues at a strong pace, although there have been delays on several large projects. Other contacts in Louisville reported a stable volume of work among nonresidential construction contractors. Contacts in south-central Kentucky reported that commercial construction is relatively strong and that there are considerable projects in the pipeline. A contact in Danville, Kentucky, reported that while healthcare and school construction are in the works, speculative commercial projects are soft. Banking and Finance Bank contacts reported continued softening in consumer loan demand. A number of contacts noted the absence of the spike in loan activity that usually occurs at this time of year. Most contacts indicated that residential mortgage lending and commercial and industrial lending have been mostly flat. Almost all contacts noted little or no growth in deposits, but that higher market rates might attract more deposits in coming months. Agriculture and Natural Resources Farmers in Indiana and Kentucky intended to plant fewer acres of corn and more acres of soybeans this year than last. Farmers in both states planted more winter wheat in the fall. On the other hand, Kentucky farmers intended to plant fewer acres of sorghum and tobacco than in 2007. Frequent wet and cool weather conditions have caused delays in planting and crop growth. At the end of May, farmers were behind their normal planting pace for corn, sorghum, and soybeans. Also at the end of May, nearly all of the winter wheat and pasture land in Indiana and Kentucky was rated in fair condition or better— a significant improvement over the same period last year. Nonfarm Payroll Employment Growth 3-Month Average, SA, January 2001–May 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, May 2007–May 2008 Percent 4.0 3.0 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 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. Estimates for recent months, however, suggest that Louisville has experienced relatively larger job losses than did the country as a whole: Over the three-month period ending in May 2008, Louisville employment growth averaged –0.11 percent per month, while U.S. employment growth averaged –0.06 percent per month. Other Services Government Employment growth in the Louisville MSA between May 2007 and May 2008 varied a great deal across sectors. According to the most recent estimates, the strongest sectors were government and education and health, which saw increases of 3.1 and 2.2 percent, respectively. Other strong sectors were trade, transportation, and utilities and other services. On the other hand, four sectors—manufacturing, information, professional and business services, and leisure and hospitality— were each estimated to have lost more than 2 percent of their jobs over the period. Louisville Zone—MSA Employment and Unemployment Nonfarm payroll employment percent change, May 2007–May 2008 Total Louisville Bowling Green, Ky. Clarksville, Ky. Evansville, Ind. United States Goods producing Service providing Unemployment rate April 2008 0.30 1.44 0.35 2.18 0.30 –1.34 0.00 –2.98 –1.08 –2.49 0.65 1.82 1.16 3.32 0.84 5.3 4.5 5.6 4.3 4.8 SOURCE: Bureau of Labor Statistics. Louisville Zone—MSA Housing Activity Total building permits, units year to date Percent change –45.9 –56.3 –28.6 –30.7 –48.4 6.8 –34.6 April 2008 House price index, percent change, 2008:Q1/2007:Q1 2.73 1.93 3.22 3.01 1.65 5.24 –0.03 Louisville 1,226 Bowling Green, Ky. 149 Clarksville, Ky. 548 Elizabethtown, Ky. 115 Evansville, Ind. 198 Owensboro, Ky. 94 United States 321,015 Total residential building permits in April were substantially lower than a year earlier in every zone MSA except Owensboro. Louisville, Bowling Green, and Evansville all saw decreases of 45 percent or higher. House price indices, however, increased in all metro areas between the first quarters of 2007 and 2008, with especially strong increases in Owensboro. In contrast, the same house price index fell slightly over the period 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) 165 160 155 150 145 140 Indiana Kentucky 135 United States 130 2000 2001 2002 2003 2004 2005 2006 2007 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. Between January and April 2008, this trend became more pronounced. While the index for the United States rose by 0.26 percent, it fell by 0.19 and 0.23 for Kentucky and Indiana, respectively. 2008 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 0 Indiana –1 Kentucky –2 –3 2000 United States 2001 2002 SOURCE: Bureau of Economic Analysis. 2003 2004 2005 2006 2007 2008 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. Although Kentucky’s personal income growth has approached that of the country by the second quarter of 2007, it slowed substantially in the second half of the year and through the first quarter of 2008. Indiana’s personal income growth continued to lag the country’s and Kentucky’s over the period, but all three growth rates converged as they fell. 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