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Current Economic Conditions in the

Eighth Federal Reserve District
Little Rock 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

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, michael.r.pakko@stls.frb.org
Rubén Hernández-Murillo, 314-444-8588, ruben.hernandez@stls.frb.org

Little Rock Zone Report—September 17, 2008
Incoming information about economic activity in the Little Rock zone was mixed in the third quarter. Some contacts, including
those in general retail, agriculture, and the service sector, indicated signs of positive or improving conditions. Other sectors, including
auto sales, construction, and manufacturing, reported weakened conditions.

Consumer Spending

Real Estate and Construction

Retail sales reports for July and the first half of August were
mostly positive among general retailers but mostly negative
among car dealers in the Little Rock zone. About 88 percent of
the general retailers indicated that sales were up compared with
2007, and 86 percent reported that sales were higher than
anticipated. In contrast, 72 percent of car dealers reported
decreased sales. Forty-three percent of car dealers reported
increased sales of low-end cars relative to high-end cars and
57 percent of car dealers reported more rejections of finance
applications.

In Little Rock, year-to-date home sales in July were down by
21 percent from the same period a year earlier. For the same
period, year-to-date single-family housing permits were down by
35 percent. The industrial vacancy rate in Little Rock decreased
in the second quarter of 2008 relative to the first quarter.
Meanwhile, the suburban office vacancy rate decreased while
the downtown office vacancy rate increased. A contact in northeast Arkansas reported that commercial building was slow. A
contact in northwest Arkansas expects that tightened financing
requirements will lead to a softening of commercial real estate
development. A commercial construction contact in central
Arkansas reported that their backlog has decreased from 12
months to 6 months as projects have begun to dry up.

The sales outlook for September and October was mostly optimistic among the general retailers, with 75 percent expecting
sales to increase over 2007 levels. Among car dealers, 71 percent expect sales to remain below last year’s pace.

Manufacturing and Other Business Activity
Manufacturing in the Little Rock zone continued to decline
slightly in the third quarter of 2008. Firms in the sporting and
athletic goods manufacturing industry and plastic manufacturing
industry both reported plans to open a new facility in the zone.
Other contacts in the machinery manufacturing industries
reported plans to expand existing operations, and a firm in the
furniture manufacturing industry announced plans to move their
corporate headquarters into the Little Rock zone. In contrast,
contacts in the animal slaughtering and processing industry
and ship/boat manufacturing industry reported plans to lay off
workers and decrease operations, citing weak demand. A firm
in the iron and steel pipe manufacturing industry announced
that it will close a plant in the zone due to rising costs.
The service sector continued to expand. Contacts in the business
support services, customer/technical support services, and
transportation/warehousing industries reported plans to expand
operations and hire additional workers. A major computer
manufacturer announced plans to locate a new service center
in the Little Rock zone. In contrast, the merger of wireless cell
phone providers will reportedly result in a net decrease of
workers.

Banking and Finance
Contacts provided mixed reports on local banking conditions.
On net, loan demand across all categories was flat. Contacts
reported continued declines in commercial and industrial loans,
and modest declines in residential mortgage lending activity.
One contact noted that residential mortgage lending for small
homes picked up over the summer, but the decline in lending
activity for large homes has outweighed this increase. Reports
indicated a slight increase in consumer lending activity. However,
some contacts noted that tightened credit standards have limited
the increase in consumer loan volume. Contacts indicated little
to modest growth in deposits.

Agriculture and Natural Resources
Partly due to late planting this year, development of corn, soybeans, sorghum, cotton, and rice is behind the normal pace in
Arkansas. Since mid-July, corn, soybeans, sorghum, and cotton
conditions have deteriorated slightly, but conditions for rice have
improved somewhat. Currently, 18 percent of the soybean crop
is rated in poor condition, and less than 10 percent of the other
crops have that rating. As of August 1, yields for corn, soybeans,
sorghum, rice, and cotton in Arkansas were expected to range
from 2 percent lower to 4 percent higher than last year’s yields.
As of mid-August, 88 percent of the pastures in Arkansas were
in fair condition or better, 29 percentage points more than in
2007. Winter wheat yields were expected to be 41 percent higher.

During 2007, payroll employment growth
in the Little Rock MSA was stronger than
for the nation as a whole. Employment
growth slowed during the first part of 2008,
but has since rebounded. Over the threemonth period ending in July 2008, Little
Rock monthly employment growth averaged
0.15 percent, while U.S. employment
growth averaged –0.03 percent. Over the
past 12 months, employment in the Little
Rock MSA has increased by 3,700 jobs,
approximately 1.1 percent.

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

Little Rock Employment Growth by Sector
Year/Year Percent Change, July 2007–July 2008
Percent
5.0
4.0
3.0
2.0
1.0
0.0
–1.0
–2.0
–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

Between July 2007 and July 2008, employment growth has been strong in several
service-related sectors. Employment growth
in the leisure and hospitality sector exceeded
4 percent and employment in education
and health increased by 3 percent. Other
sectors with net job gains included information services, professional and business
services, other services, and government.
In contrast, manufacturing employment
contracted by 2.4 percent. Led by strong
job growth associated with the Fayetteville
shale play, employment growth in the natural resources, mining, and construction
category amounted to 2.5 percent.

Little Rock Zone—MSA Employment and Unemployment
Nonfarm payroll employment percent change,
July 2007–July 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
June 2008

1.08
1.18
0.24
2.70
0.19

–0.22
–1.59
–4.47
–1.33
–2.64

1.27
1.94
2.17
3.33
0.74

4.2
3.8
4.8
4.6
6.0

Little Rock Zone—MSA Housing Activity
Total building permits,
units year-to-date
Percent
change

Little Rock
1,876
Fayetteville-Springdale-Rogers, Ark. 1,747
Fort Smith, Ark.
403
Hot Springs, Ark.
39
Pine Bluff, Ark.
61
Texarkana, Ark.-Tex.
95
United States
604,303

House price index,
percent change,
2008:Q2/2007:Q2

–1.8
–18.0
–34.3
–38.1
69.4
–67.2
–32.0

July
2008

1.09
–2.09
1.80
4.93
0.21
3.36
–1.71

Total residential building permits through
July were lower than a year earlier in five
of the six MSAs in the Little Rock zone. In
Little Rock, permits fell by 1.8 percent. In
Pine Bluff, however, permits were up by
over 69 percent from the previous year. In
the second quarter of 2008, house prices
were up in five of the six MSAs. In the
Fayetteville-Springdale-Rogers MSA, prices
fell by 2.1 percent. In contrast, house price
increases in the other MSAs ranged from
0.2 percent (Pine Bluff) to 4.9 percent
(Hot Springs).

SOURCE: Bureau of the Census, Office of Federal Housing Enterprise Oversight.

Arkansas Coincident Economic Activity Index
Index (1992 = 100)
165
160
155
150
145
140
Arkansas

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, Arkansas has underperformed
the country as a whole since 2000. However, recent data show an increase in
economic activity relative to the rest of
the nation. In the 12 months ending July
2008, the Arkansas index rose 2.4 percent,
compared with an increase of only 1.1
percent for the nationwide index.

2008

SOURCE: Federal Reserve Bank of Philadelphia.

Arkansas Real Personal Income Growth
Percent Change, Year/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.

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.