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Current Economic Conditions in the

Eighth Federal Reserve District
St. Louis Zone
September 17, 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—September 17, 2008
The overall picture for the St. Louis zone is somewhat negative. Car dealers generally reported negative news, while general retail
was more mixed. Manufacturing and services saw job cuts. Home sales declined compared with sales in the corresponding period
of 2007, but commercial real estate performance was mixed. Lending activity was weaker, although consumer lending seemed to
hold its ground. The agriculture and natural resources sector continues to be strong.

Consumer Spending
Two-thirds of the general retailers and 83 percent of the car
dealers surveyed indicated that sales in late July and early
August were down compared with the same months in 2007.
Among general retailers, one-half noted that sales levels met
their expectations. One-third of car dealers reported increased
sales of used cars relative to new cars and 83 percent reported
increased sales of low-end cars relative to high-end cars. A
significant percentage reported more rejections of finance applications. One-third of the general retailers and 20 percent of
the car dealers expect their September and October sales to
increase over their 2007 levels, while 17 percent of the general
retailers and the other 80 percent of the car dealers expect
sales to decrease.

Manufacturing and Other Business Activity
Led by the auto manufacturing industry, manufacturing activity
in the St. Louis zone declined during the third quarter of 2008.
A major firm announced plans to close its assembly plant in the
St. Louis area and cut a production shift for other car models,
which resulted in significant job losses. Furthermore, firms in
the auto parts manufacturing industry announced plans to
close two plants and lay off employees due to weak demand.
However, one contact in the auto parts manufacturing industry
announced plans to expand operations into an existing building
and to hire additional workers for the space. The service sector
also continued to decline, with firms in the financial services,
health care services, business support services, and travel
assistance services all announcing plans to reduce their
workforce.

Real Estate and Construction
July year-to-date home sales were down in St. Louis by 16
percent compared with the same period last year. Also, compared with the same periods in 2007, July year-to-date single-

family housing permits declined by 41 percent. The commercial
real estate market in the St. Louis zone was mixed during the
second quarter of 2008, with a lower industrial vacancy rate
than in the first quarter. During the same period, the suburban
office vacancy rate decreased, but the downtown office vacancy
rate increased.

Banking and Finance
A number of contacts reported continued declines in commercial
and industrial lending activity. They noted that the availability
of credit to businesses has been limited due to tightened credit
standards. Reports also indicate some weakening of lending
activity in the residential mortgage loan category. One contact
noted that loan activity in this category was well below average
activity experienced during the summer months of the past
three years. Reports on consumer lending were mixed, with
most contacts reporting little to no change.

Agriculture and Natural Resources
Partly due to late planting this year, development of corn, soybeans, and sorghum is behind the normal pace in Illinois and
Missouri, as is cotton development in Missouri. Rice development
in Missouri is ahead of normal. As of mid-August, at least 90
percent of the pastures in Illinois and Missouri were in fair
condition or better, which was comparable to the end of May
but much better than the ratings in 2007. Also, compared with
August 2007, a higher percentage of the corn, soybean, and
sorghum crops in both states and cotton and rice in Missouri
were rated in fair condition or better. Conditions for these crops
have improved or stayed the same since mid-July (except for
cotton in Missouri, which declined slightly). Currently, at least
10 percent of the corn, soybeans, and cotton in Missouri are
rated in poor condition. Winter wheat yields were expected to
be 14 percent higher in Illinois and 16 percent higher in
Missouri.

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, this trend
has reversed. Although the recent threemonth average of employment growth has
generally been negative for both St. Louis
and the nation as a whole, St. Louis’s
recent growth exceeded the national rate
slightly. Over the three-month period
ending in July 2008, St. Louis’s monthly
employment growth averaged –0.02 percent, while U.S. employment growth averaged –0.03 percent.

Nonfarm Payroll Employment Growth
3-Month Average, SA, January 2001–July 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

Although job losses have lessened recently,
on a year-over-year basis St. Louis MSA
sectoral employment growth rates for July
2007 and July 2008 were mostly negative.
Most recent estimates show education
and health to have been the strongest
sector, at 1.4 percent, followed by government, at 1.2 percent. The largest decline
was in manufacturing, which lost 2.4 percent of its jobs. Natural resources, mining,
and construction; information; professional
and business services; and leisure and
hospitality all showed declines greater
than 1 percent.

St. Louis MSA Employment Growth by Sector
Year/Year Percent Change, July 2007–July 2008
Percent
2.0
1.5
1.0
0.5
0.0
–0.5
–1.0
–1.5
–2.0
–2.5
–3.0

Total
Nonfarm

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

Financial Professional Education
Activities
and
and
Business
Health
Services

Leisure
and
Hospitality

Other
Services

Government

St. Louis Zone—MSA Employment and Unemployment
Nonfarm payroll employment percent change,
July 2007–July 2008
Total
St. Louis
Columbia, Mo.
Jefferson City, Mo.
Springfield, Mo.
United States

Goods producing

Service providing

Unemployment rate
June 2008

–0.46
1.00
0.00
1.77
0.19

–2.19
–7.45
–4.76
–1.03
–2.64

–0.12
1.98
0.73
2.24
0.74

7.2
5.0
5.6
5.3
6.0

SOURCE: Bureau of Labor Statistics.

St. Louis Zone—MSA Housing Activity
Total building permits,
units year-to-date
Percent change
–45.2
–41.7
–38.2
–23.3
–32.1

July 2008

House price index,
percent change,
2008:Q2/2007:Q2
0.78
–0.48
3.68
1.65
–1.71

St. Louis
3,825
Columbia, Mo.
450
Jefferson City, Mo.
68
Springfield, Mo.
1,262
United States
604,303

Total residential building permits in July
were lower than a year earlier in every
MSA in the zone. For St. Louis the decline
was well above that experienced by the
country as a whole. The house price index
fell slightly for Columbia between the
second quarter of 2007 and 2008, but
increased in the other three metro areas
in the zone. Jefferson City, in particular,
saw a relatively strong increase. Over the
same period, in contrast, the index fell for
the nation as a whole.

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

United States
130
2000

2001

2002

2003

2004

2005

2006

2007

2008

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
in the St. Louis zone began to soften in
early 2007, several months before similar
softening occurred nationwide. Between
April and July 2008, this index has performed better at the national level. For
the United States it rose by 0.15 percent,
while it has decreased by 1.1 percent for
both Illinois and Missouri.

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/Year
Percent
7

Illinois
Missouri

6

United States

5
4
3
2
1
0
–1
–2
2000

2001

2002

SOURCE: Bureau of Economic Analysis.

2003

2004

2005

2006

2007

2008

Residential Mortgage Delinquency Rates for Eighth District States
Percent 90+ Days Delinquent or in Foreclosure, 2008:Q2
FRM (fixed rate mortgages) ARM (adjustable rate mortgages)
Prime
State
Missouri
Illinois
Indiana
Kentucky
Tennessee
Mississippi
Arkansas
U.S. total

Subprime*

All mortgages

Total

FRM

ARM

Total

FRM

ARM

3.1
4.7
5.7
4.0
3.7
5.0
2.7
4.5

1.5
2.3
2.9
1.9
1.7
2.5
1.5
2.4

1.1
1.4
2.2
1.4
1.3
1.9
1.0
1.3

4.7
6.3
9.2
6.4
6.4
10.1
6.1
6.8

13.2
20.1
18.5
15.8
12.6
16.1
11.4
17.9

7.2
11.3
12.3
9.9
7.8
11.6
7.8
9.6

20.8
27.9
27.8
26.1
20.4
25.1
18.1
26.8

NOTE: *The Mortgage Bankers Association divides the sample of conventional mortgages into prime and subprime categories based on whether the servicer handles primarily
prime or subprime loans. Therefore, there are some prime loans in the subprime sample and some subprime loans in the prime sample.
SOURCE: Mortgage Bankers Association, National Delinquency Survey/Haver Analytics.

One of the symptoms of the ongoing problems in the nation’s housing markets is a sharp rise in mortgage delinquencies and home
foreclosures. From the second quarter of 2007 through the second quarter of 2008, the percentage of mortgages with more than
three consecutive missed monthly payments or in foreclosure rose from 2.5 percent to 4.5 percent.
The table above summarizes the data for Eighth District states as of the second quarter of 2008. The data show that our region has
suffered along with the nation. In fact, three Eighth District states have had higher proportions of delinquencies than the national
average—Illinois, Indiana, and Mississippi. But the other states in the region—Arkansas, Kentucky, Missouri, and Tennessee—have
fared better than the national average. Arkansas, in particular, has experienced a much lower rate of delinquencies and foreclosures
than the rest of the country has.
For both the nation and the District, there are distinct differences in the pattern of delinquencies across various types of mortgages.
Fixed-rate mortgages (FRM) have lower delinquency and foreclosure rates than do adjustable-rate mortgages (ARM). Moreover,
the rate of delinquencies and foreclosure is much higher for subprime loans than for prime loans, and the rates for subprime ARMs
are much higher than the rates for subprime FRMs. These patterns are clear in each of the Eighth District states. In fact, those states
that have delinquency and foreclosure rates above the national average for all mortgages taken together tend to have rates above
the national averages for each category of mortgage loans as well.