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Current Economic Conditions in the Eighth Federal Reserve District Memphis 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 Memphis 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 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 Memphis zone. These data are the most recent available at the time this report was assembled. For more information, please contact the Memphis office: Martha L. Perine Beard, 901-579-2400, email@example.com Economists: Michael Pakko, 314-444-8564, firstname.lastname@example.org Rubén Hernández-Murillo, 314-444-8588, email@example.com Memphis Zone Report—June 25, 2008 Economic activity in the Memphis zone continued to weaken during April and May. Most retailers and car dealers reported lower sales compared with the previous year. Residential home sales and construction continued to decline, but activity in commercial and industrial real estate showed no clear sign of weakening. Reports suggest that manufacturing activity continued to expand, while service sector employment showed mixed signs of recovering from the slowdown earlier in the year. Cool and wet weather conditions have caused delays in agricultural production. Consumer Spending Real Estate and Construction Retail sales for April and early May were mostly negative among general retailers and car dealers in the Memphis zone. Twothirds of the general retailers and 83 percent of the car dealers surveyed indicated that sales were down from a year earlier. Among general retailers, one-third noted that sales levels met their expectations, but the other two-thirds reported that sales were below what they had anticipated.Two-thirds of the general retailers and one-third of the car dealers reported that their inventories were too high, while 17 percent of the car dealers reported too-low inventories. Three-fourths of the general retailers with too-high inventories plan to use more discounting than usual. The sales outlook for the summer was mostly pessimistic among general retailers but optimistic among car dealers. During the first four months of the year, home sales in Memphis were down by 18 percent from the same period in 2007. Yearto-date single-family housing permits were down by 53 percent from the previous year. The industrial vacancy rate in Memphis rose slightly in the first quarter of 2008. Office vacancy rates rose in the suburbs but fell downtown. Commercial contractors in Memphis reported a positive business outlook for the next twelve months. Other contacts in Memphis reported that development of industrial projects had slowed. A contact in northeast Arkansas reported that light commercial construction is holding up well and is quite active in some locations. Manufacturing and Other Business Activity Manufacturing in the Memphis zone grew significantly in the second quarter of 2008. Firms in food manufacturing, motor vehicle parts, transportation equipment, steel, and furniture manufacturing industries all reported plans to open new facilities. Furthermore, manufacturers of fabricated metal, food, office supplies, and chemicals reported plans to expand existing facilities and operations. In contrast, contacts in furniture and plastic manufacturing reported plans to lay off workers and decrease operations. One firm in transportation equipment manufacturing announced that it will close a plant in the zone. Employment in some segments of the service sector started to show signs of renewed expansion: Contacts in the business support services reported plans to expand operations and hire additional workers. A firm in the transportation services sector announced plans to build a new facility and hire additional workers. Banking and Finance Banking conditions in the Memphis zone were mixed during the first few months of 2008. Contacts reported varying levels of demand for consumer loans, ranging from unchanged to a modest decrease. Reports on the demand for business loans were also mixed. A number of contacts, mostly in urban areas, reported a modest increase in commercial and industrial lending. Contacts in rural regions of the zone reported that a slowing economy has led to decreased business lending. Most contacts reported steady residential loan demand. Agriculture and Natural Resources Compared with 2007, farmers in Mississippi and Tennessee intended to plant fewer acres of corn and cotton, but more acres of soybeans this year. Farmers in both states planted more winter wheat in the fall. Wet and cool weather conditions have caused delays in planting and crop growth. At the end of May, farmers in the Memphis zone were nearly finished with corn planting but soybean and cotton planting were behind normal. At the end of May, 91 percent of the winter wheat in Mississippi and 96 percent of the winter wheat in Tennessee was rated in fair condition or better—an improvement over the same time last year. About 92 percent of the pastures in Mississippi and 91 percent in Tennessee were in fair condition or better, far better than a year ago. Recent estimates indicate that Memphis employment has contracted more sharply than the national average in the first part of 2008. Over the three-month period ending in May 2008, Memphis monthly employment contracted at a 0.17 percent rate, while U.S. employment was down at a monthly pace of only 0.06 percent. Nonfarm Payroll Employment Growth 3-Month Average, SA, January 2001–May 2008 Percent 0.6 0.4 0.2 0 –0.2 United States Memphis MSA –0.4 –0.6 2001 2002 2003 2004 2005 2006 2007 2008 Memphis MSA Employment Growth by Sector Year/Year Percent Change, May 2007–May 2008 Percent 3.0 2.0 1.0 0.0 –1.0 –2.0 –3.0 –4.0 –5.0 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 Between May 2007 and May 2008, employment growth in the Memphis MSA was negative in goods-producing sectors and mixed in the service-providing sectors. According to the most recent estimates, expansion has been ongoing in education and health, leisure and hospitality, and other services, which saw employment increases of 0.6, 1.1, and 2.0 percent, respectively. Other service sectors, including information; financial activities; and trade, transportation and utilities were down over the past year. The number of jobs in the manufacturing sector fell by 2.3 percent. Employment in natural resources, mining, and construction was down by 4.1 percent. Memphis Zone—MSA Employment and Unemployment Nonfarm payroll employment percent change, May 2007–May 2008 Total Memphis Jackson, Tenn. United States Goods producing Service providing Unemployment rate April 2008 –0.28 1.12 0.30 –2.88 –2.08 –2.49 0.09 2.08 0.84 5.5 5.3 4.8 SOURCE: Bureau of Labor Statistics. Memphis Zone—MSA Housing Activity Total building permits, units year to date Percent change –65.1 –51.0 7.3 –34.6 April 2008 Memphis Jackson, Tenn. Jonesboro, Ark. United States House price index, percent change, 2008:Q1/2007:Q1 2.14 1.62 0.19 –0.03 1,146 119 133 321,015 SOURCE: Bureau of the Census, Office of Federal Housing Enterprise Oversight. Memphis Area Coincident Economic Activity Index Index (1992 = 100) 165 Arkansas 160 Mississippi 155 Tennessee United States 150 145 140 135 130 2000 2001 2002 2003 2004 2005 2006 2007 Total residential building permits in January were lower than a year earlier in two of the three MSAs in the Memphis zone. In Memphis and Jackson,Tennessee, permits fell by 65 and 51 percent, respectively, while permits fell by 35 percent nationally. House price indices increased in all of the zone cities during the first quarter of 2008. Prices were up 2.14 percent in Memphis, 1.62 percent in Jackson, and 0.19 percent in Jonesboro from a year earlier. Nationwide, house prices registered a small decrease over the same period. 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, Mississippi and Arkansas have underperformed the country as a whole since 2001, while Tennessee has tended to keep pace with the nation until recently. During the first four months of 2008, growth rates have slowed in the Memphis zone states. For April, the index grew by .01, –.06, and .11 percent in Tennessee, Mississippi, and Arkansas, respectively. 2008 SOURCE: Federal Reserve Bank of Philadelphia. Memphis Area Real Personal Income Growth Percent Change, Year-Over-Year Percent 12 10 8 Arkansas Mississippi Tennessee United States 6 4 2 0 –2 –4 –6 2000 2001 2002 SOURCE: Bureau of Economic Analysis. 2003 2004 2005 2006 2007 2008 Personal income growth in Arkansas has tended to keep pace with national income growth since 2004, while Tennessee has tended to be just below the national pace. Since Hurricane Katrina in the third quarter of 2005, Mississippi has experienced relatively erratic income growth. As of the first quarter of 2008, all three states were showing year-over-year growth in excess of the national average. Arkansas was up 1.9 percent, Mississippi was up 1.7 percent, and Tennessee was up 1.5 percent. For the United States as a whole, personal income growth was 1.4 percent over the same period. 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