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Current Economic Conditions in the

Eighth Federal Reserve District
Louisville Zone
March 18, 2009

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 website
(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/2009/).
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, maria.g.hampton@stls.frb.org
Economists:
Tom Garrett, 314-444-8601, tom.a.garrett@stls.frb.org
Subhayu Bandyopadhyay, 314-444-7425, subhayu.bandyopadhyay@stls.frb.org

Louisville Zone Report—March 18, 2009
The overall picture for the Louisville zone’s economy continues to be negative. While general retail activity was mixed, car dealers
continued to report mostly negative news. Manufacturing continued to decline and the service sector weakened. Real estate and
construction continued to be weak while banking activity was mixed. Agriculture and natural resources, on the other hand, continued
to be strong.

Consumer Spending
Although not strong, reports from general retailers were notably
more positive than reports from car dealers. About one-third
of general retailers and two-thirds of car dealers indicated that
sales were down compared with the same months in 2008.
Among car dealers, half reported an increase in sales of highend relative to low-end vehicles. Two-thirds reported lower
sales prices, while one-third reported more rejections of finance
applications and none reported fewer rejections. One-third of
general retailers and car dealers reported that their inventories
were too high, while 17 percent of the car dealers reported that
their inventories were too low. General retailers were more
optimistic about March and April 2009 than were car dealers.
One-third of the general retailers and 40 percent of the car
dealers expect sales to decrease over 2008 levels, while the
remaining general retailers and 20 percent of the car dealers
expect sales to increase.

Manufacturing and Other Business Activity
Manufacturing employment and output in the zone continued
to decline between December 2008 and February 2009. A
large number of firms, including several contacts in automotive
and auto parts manufacturing, reported plans to cut production
and lay off workers. Firms specializing in primary metals, fabricated metals, appliance, and electrical equipment manufacturing
all announced job cuts. A firm in the furniture manufacturing
industry announced that it will close a plant in the zone. However, a firm in the plastics and rubber-product manufacturing
industry reported plans to expand its operations and hire additional workers. The service sector has begun to show more signs
of weakness. A few contacts in education, information, and
government services reported job losses. On the other hand,
a contact in business support services reported plans to
expand operations and hire additional workers.

Real Estate and Construction
The residential real estate market continued to be weak. Compared with January 2008, January 2009 home sales were down
by 34 percent and January 2009 single-family housing permits

declined by 59 percent. The commerical real estate market
has fewer signs of weakness. Compared with the third quarter
of 2008, the fourth-quarter 2008 industrial and suburban office
vacancy rates decreased. The downtown office vacancy rate
increased, however. A contact forecasted a decline in commercial
construction led by a downturn in retail development. Another
contact reported fewer commercial projects, as business owners
are holding back in the uncertain environment. On the other
hand, an industrial construction contact reported that local
developers are planning to construct additional warehouse
space.

Banking and Finance
Bank contacts provided mixed reports on local banking conditions. Reports indicated weakness in the commercial and industrial loan and consumer loan categories. Contacts noted reduced
demand for these loans, as both businesses and consumers are
building cash reserves and cutting back on big-ticket items.
Reports indicated increased residential mortgage lending with
multiple reports of a substantial increase in refinancing activity.
Smaller banks reported recent lending opportunities to creditworthy borrowers who have been turned away by larger regional
banks because of lending moratoriums. Contacts also noted
tight lending standards across all categories of loans. Reports
indicate no change to slight increases in bank deposits.

Agriculture and Natural Resources
Coal production in Indiana and western Kentucky for 2008
increased by 3 percent from 2007 levels. The total value of
field crops in Louisville zone states decreased by 6 percent from
2007 to 2008; Indiana had a decrease of 12 percent, while
Kentucky had an increase of 19 percent. Changes in prices and
production were mixed across crops. For both states, the price
and production of corn decreased from 2007 to 2008, the price
and production of winter wheat increased, and the price of soybeans decreased while production increased. Also, in Kentucky,
the price and production of sorghum decreased, while the
price and production of tobacco increased.

Employment losses in the Louisville metro
area have been greater than for the country
as a whole during the last half of 2008,
while the opposite was true for the first half.
(See the table on the final page, which
provides recent benchmark revisions of
employment data.) For the period June
2008 to December 2008, average monthly
employment growth was –0.26 percent in
Louisville compared with –0.20 percent in
the United States. In January 2009, however, the decline in average employment
growth for Louisville (–0.46 percent) was
slightly less than that of the United States
(–0.53 percent).

Nonfarm Payroll Employment Growth
3-Month Average, SA, January 2001–January 2009
Percent
0.6
0.4
0.2
0
–0.2
–0.4

United States
Louisville MSA

–0.6
2001

2002

2003

2004

2005

2006

2007

2008

2009

Sector-specific employment growth in the
Louisville metro area between January
2008 and January 2009 was mixed. Six
sectors had positive, albeit usually small,
employment growth. The largest gain was
in the information sector, which experienced
an increase of 4.8 percent. Four sectors had
employment losses, with natural resources,
mining, and construction and manufacturing
experiencing losses of 10.2 percent and
11.9 percent, respectively. Job losses outweighed job gains across sectors, resulting
in a 2.6 percent decrease in total employment for the Louisville metro area during
2008.

Louisville MSA Employment Growth by Sector
Year/Year Percent Change, January 2008–January 2009
Percent
6.0
4.0
2.0
0.0
–2.0
–4.0
–6.0
–8.0
–10.0
–12.0
–14.0

Total
Nonfarm

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

Professional Education Leisure
and
and
and
Business
Health Hospitality
Services

Other
Services

Government

Louisville Zone—MSA Employment and Unemployment
Nonfarm payroll employment percent change,
January 2008–January 2009
Total
Louisville
Bowling Green, Ky.
Evansville, Ind.
United States

–2.63
–1.96
–2.74
–2.48

SOURCE: Bureau of Labor Statistics.

Goods producing
–11.39
–12.21
–7.17
–8.28

Service providing

Unemployment rate
December 2008

–0.77
0.83
–1.22
–1.39

7.6
6.3
6.7
7.1

Louisville Zone—MSA Housing Activity
Total building permits,
units year-to-date
Percent change
–50.6
–53.1
–65.2
–53.3
–33.3
–52.3

January 2009
Louisville
Bowling Green, Ky.
Elizabethtown, Ky.
Evansville, Ind.
Owensboro, Ky.
United States

House price index,
percent change,
2008:Q4/2007:Q4
0.80
2.64
–1.40
–2.29
–0.44
–4.47

117
15
8
21
12
36,250

Total residential building permits in January
were significantly lower than a year earlier
in every zone metro area, with most metro
areas seeing a decrease in excess of 50
percent. Owensboro fared slightly better,
with a decrease of about 33 percent. House
price indices decreased in three of the five
metro areas between the fourth quarters
of 2007 and 2008. House prices fell by
nearly 4.5 percent during the period for
the country as a whole.

SOURCE: Bureau of the Census, Federal Housing Financing Authority.

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 of economic
performance. According to this index,
Kentucky and Indiana have underperformed relative to the country as a whole
since 2001. This is partly due to losses in
the relatively larger manufacturing sector
present in Kentucky and Indiana. For 2008,
the index for the United States fell by 1
percent, while it fell by 3.6 and 5.9 percent
for Kentucky and Indiana, respectively.

2008

SOURCE: Federal Reserve Bank of Philadelphia.

Louisville Area Real Personal Income Growth
Percent Change, Year/Year
Percent
7

Indiana

6

Kentucky

5

United States

4
3
2
1
0
–1
–2
–3
2000

2001

2002

2003

SOURCE: Bureau of Economic Analysis.

2004

2005

2006

2007

2008

Personal income growth in Kentucky and
Indiana has tended to be weaker than the
country as a whole since 2004. However,
income growth in Kentucky approached
that of the country in 2007 and was greater
than national income growth during the
second and third quarters of 2008. Personal
income growth has been consistently
weaker in Indiana than in Kentucky since
2004. For the third quarter of 2008, personal income growth was negative for
the United States and Indiana while it
remained slightly positive for Kentucky.

Annual Revisions of the Metro-Area Employment Data
December 2007–December 2008
Original estimate
as of January 2009
Thousands
Large Metro Areas
Little Rock–N. Little Rock, Ark. –5.8
Louisville, Ky.–Ind.
–16.1
Memphis, Tenn.–Ark.–Miss.
–15.7
St. Louis, Mo.-Ill.
–23.0
Small and Medium Metro Areas
Fayetteville-Springdale–2.5
Rogers, Ark.
Fort Smith, Ark.-Okla.
–1.6
Texarkana, Texas-Ark.
1.2
Bowling Green, Ky.
–0.8
Evansville, Ind.-Ky.
–2.5
Jackson, Tenn.
–0.9
Columbia, Mo.
0.0
Jefferson City, Mo.
–1.0
Springfield, Mo.
0.1

Percent
change

Revised estimate
as of March 2009
Thousands

December 2006–December 2007
Original estimate
as of January 2009

Revised estimate
as of March 2009

Percent
change

Thousands

Percent
change

Thousands

Percent
change

–1.7
–2.5
–2.4
–1.7

–4.7
–16.9
–15.7
–19.8

–1.3
–2.7
–2.4
–1.4

5.2
6.9
5.4
2.0

1.5
1.1
0.8
0.1

5.0
4.3
–0.1
6.7

1.5
0.7
0.0
0.5

–1.2

–2.6

–1.2

0.9

0.4

1.2

0.6

–1.3
2.1
–1.3
–1.4
–1.4
0.0
–1.2
0.1

–1.4
0.9
–1.5
–4.6
–1.7
1.1
–0.7
–4.6

–1.1
1.6
–2.4
–2.6
–2.7
1.2
–0.9
–2.3

1.7
0.7
1.8
1.4
0.3
1.0
1.5
5.2

1.4
1.2
2.9
0.8
0.5
1.1
1.9
2.6

2.1
0.9
1.6
–0.2
0.0
–0.1
1.5
4.4

1.7
1.6
2.6
–0.1
0.0
–0.1
1.9
2.2

In early March of each year, the Bureau of Labor Statistics carries out a benchmark revision of state and local payroll employment
data using information from the more-comprehensive Quarterly Census of Employment and Wages (QCEW). The payroll employment
data are revised going back 21 months and the new numbers sometimes show a dramatically different view of local employment
experiences. This year, however, data revisions for Eighth District metro areas are relatively small. The revisions for the 2007 and
2008 calendar years are presented in the table. Note that the data for 2008 are subject to revision again in March 2010.