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Current Economic Conditions in the

Eighth Federal Reserve District
Memphis 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 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, martha.l.perine@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

Memphis Zone Report—September 17, 2008
Economic conditions in the Memphis zone continued to soften during the third quarter of 2008. Manufacturing activity decreased
across a broad range of industries, and the service sector showed signs of weakness in some areas. Reports from retailers and car
dealers indicated reduced sales for July and the first half of August, compared with sales a year ago. Residential real estate market
conditions have continued to deteriorate since our previous report, but commercial real estate market conditions showed no signs of
weakening. Reports from banking contacts were mixed.

Consumer Spending

Real Estate and Construction

Reports of retail sales for July and the first half of August were
mostly negative among general retailers and car dealers in the
Memphis zone. About 83 percent of the general retailers and
all car dealers surveyed indicated that sales were down compared with the same months in 2007; the remaining 17 percent
of general retailers reported flat sales. Among the general
retailers, 25 percent noted that sales levels met their expectations, but the other 75 percent reported that sales were below
what they had anticipated. About 83 percent of car dealers
reported more rejections of finance applications. Half of the
general retailers and two-thirds of the car dealers reported
that their inventories were too high; most of the remaining
contacts reported that their inventories were at desired levels.
The sales outlook for September and October was mostly
pessimistic among both general retailers and car dealers.

Compared with the same period in 2007, year-to-date home
sales in Memphis declined by 20 percent in July 2008 while
year-to-date single-family housing permits declined by about
56 percent. The second-quarter 2008 industrial vacancy rate
in Memphis decreased over the first quarter of 2008. During
the same period, the suburban office vacancy rate increased
while the downtown office vacancy rate decreased. A large
commercial contractor reported that 2009 contracts are on track
to beat record-breaking 2008 revenues. A contact reported
that commercial construction in Jackson and Madison counties
in Tennessee remains strong compared with 2007, but believes
that tornado damage from February 2008 is a primary driver.

Manufacturing and Other Business Activity
Manufacturing in the Memphis zone declined during the third
quarter of 2008, with job losses in a broad array of industries
and a large number of plant closures. A firm in the aerospace
product manufacturing industry reported plans to hire additional
workers due to increased demand. In contrast, a contact in the
auto parts manufacturing industry reported plans to lay off
workers and decrease operations. Firms in the appliance, structural metals, apparel manufacturing, plastics products, animal
slaughtering/processing, auto parts, and building supplies
manufacturing industries announced plans to close plants in
the zone and lay off workers.
The service sector showed signs of weakness in some areas.
Contacts in the transportation and warehousing industry, financial services, and business support services reported plans to
expand operations and hire additional workers. However, firms in
the health care assistance, education, architectural, and technical consulting services industries announced plans to cut jobs.

Banking and Finance
Banking conditions in the Memphis zone were mixed during
the third quarter of 2008. Contacts reported varying levels of
demand for consumer loans, ranging from unchanged to a
modest decrease. All contacts reported decreases in the demand
for business loans. A number of contacts also expressed concern
over tightened lending standards. Most contacts indicated little
to no change in the demand for residential mortgage loans. One
contact noted that residential mortgage lending activity was
surprisingly brisk because of increases in refinancing activity.
All contacts reported a steady increase in deposits.

Agriculture and Natural Resources
The development of soybeans and cotton is behind the normal
pace in Mississippi and Tennessee, as is the development of
corn in Tennessee and of sorghum and rice in Mississippi. Corn
development in Mississippi is on par with its normal pace. Crop
conditions have deteriorated since mid-July for all of the aforementioned crops except sorghum. As of August 1, yields for
corn, soybeans, rice, and cotton in Mississippi were expected to
be lower than last year’s yields. Yields for corn, tobacco, cotton,
and soybeans in Tennessee were expected to be higher than
last year’s yields.

Recent estimates indicate that Memphis
employment has contracted more sharply
than the national average throughout 2008.
Over the three-month period ending in
July 2008, Memphis monthly employment
contracted at a 0.18 percent monthly rate,
while U.S. employment fell at a monthly
pace of only 0.03 percent.

Nonfarm Payroll Employment Growth
3-Month Average, SA, January 2001–July 2008
Percent
0.6
0.4
0.2
0
–0.2
–0.4

United States
Memphis MSA

–0.6
2001

2002

2003

2004

2005

2006

2007

2008

Between July 2007 and July 2008, employment growth in the Memphis MSA was
negative in all goods-producing sectors
and in most service-providing sectors.
Expansion remains ongoing, however, in
the education and health services sector
as well as in the “other services” category,
which saw employment increases of 0.4
and 2.8 percent, respectively. Employment
in natural resources, mining, and construction; manufacturing; information; and
professional and business services were
all down by 1.9 percent or more.

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

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

Memphis Zone—MSA Employment and Unemployment
Nonfarm payroll employment percent change,
July 2007–July 2008
Total
Memphis
Jackson, Tenn.
United States

Goods producing

Service providing

Unemployment rate
June 2008

–0.72
1.13
0.19

–2.24
–2.07
–2.64

–0.50
2.11
0.74

7.3
6.9
6.0

SOURCE: Bureau of Labor Statistics.

Memphis Zone—MSA Housing Activity
Total building permits,
units year-to-date
Percent change
–57.9
–44.0
37.8
–32.1

July 2008
Memphis
Jackson, Tenn.
Jonesboro, Ark.
United States

House price index,
percent change,
2008:Q2/2007:Q2
0.98
–1.68
1.03
–1.71

2,237
210
368
604,303

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

2008

Total residential building permits in July
2008 were lower than a year earlier in two
of the three MSAs in the Memphis zone. In
Memphis and Jackson, Tennessee, permits
fell by 58 and 44 percent, respectively,
while permits fell by 32 percent nationally.
House price indices increased from yearearlier levels in two of the zone cities in the
second quarter of 2008: Prices were up by
about 1 percent in Memphis and Jonesboro,
while prices declined by 1.7 percent in
Jackson. Nationwide, house prices declined
by 1.7 percent 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 had tended to
keep pace with the nation until recently.
Through most of the first half of 2008,
growth rates have slowed in Mississippi
and Tennessee. For July, the index grew
by –0.08, –0.10, and 0.20 percent in
Tennessee, Mississippi, and Arkansas,
respectively.

SOURCE: Federal Reserve Bank of Philadelphia.

Memphis Area Real Personal Income Growth
Percent Change, Year/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.

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.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102