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Current Economic Conditions in the Eighth Federal Reserve District Memphis Zone June 25, 2009 Prepared by the Center for Regional Economics—8th District (CRE8) Federal Reserve Bank of St. Louis Eighth Federal Reserve District ILL IL ILLINOIS IILLIN LINO NO OIS S IINDIANA IN N NDIIA ND IA AN N NA Columbia Jefferson City St. Louis MISS ISSOURI SSOUR S UR SO Louisville-Jefferson County Evansville Elizabethtown Owensboro KENTU KE KEN EN NTU N NTU UCKY UC C CKY KY Springfield Bowling Green Fayetteville-Springdale-Rogers Jonesboro Jackson ARKAN A R RK KA ANSAS AN AS AS TENNESSEE T TEN EN N ES NNE SS SE EE E Fort Smith Memphis Little Rock-North Little Rock Hot Springs Pine Bluff Texarkana MISS M IS SS SIS SSIPPI S PP SIP PI 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 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 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—June 25, 2009 Economic activity in the Memphis zone weakened further since the March report. Retail and auto sales declined in April and early May. Manufacturing and services continued to decline. Home sales and construction continued to fall, while banking conditions were relatively unchanged. Consumer Spending Real Estate and Construction Retail sales reports for April and early May were mostly negative among general retailers and car dealers in the Memphis zone. About 71 percent of the general retailers and 83 percent of the car dealers surveyed indicated that sales were down compared with the same months in 2008, while only 14 percent of the general retailers and 17 percent of the car dealers reported increased sales. Among general retailers, 17 percent noted that sales levels met their expectations and half reported that sales were below what they had anticipated. Among car dealers, half noted that used-car sales had increased relative to new-car sales and half noted an increase in low-end vehicle sales relative to high-end vehicle sales. All reported more rejections of finance applications. The sales outlook for the summer was pessimistic among general retailers but mixed among car dealers. All of the general retailers and one-third of the car dealers expect sales to decrease from their 2008 levels. Half of the car dealers expect sales to increase. The remaining car dealers expect sales to be similar to last year. Compared with the same period in 2008, April 2009 year-todate home sales in Memphis were down by 27 percent, while April 2009 year-to-date single-family housing permits declined by 60 percent. In Memphis, the first-quarter 2009 industrial vacancy rate was unchanged compared with the fourth quarter of 2008—as was the suburban office vacancy rate. During the same period, the downtown office vacancy rate increased slightly. A contact in Memphis noted a decline in demand for industrial distribution space in particular and did not expect to see any new building in the industrial market until mid-2010. Manufacturing and Other Business Activity Manufacturing activity in the Memphis zone declined during the second quarter of 2009, with a number of plants closing operations and fewer reporting plans to open or expand operations. Firms in auto parts, furniture, wood product, rubber tire, medical device, aluminum product, appliance, grain milling, and electrical equipment manufacturing announced job layoffs, often citing weak demand. Furthermore, firms in metal product, machinery, and auto parts manufacturing closed plants in the zone. In contrast, firms in biofuel, furniture, and steel product manufacturing announced plans to open new plants in the zone and hire additional workers. Economic activity in the service sector continued to decline, with a large number of firms announcing job layoffs in medical, information, and warehousing/ transportation services. Other firms in warehousing/transportation services, however, reported new opportunities for expansion. Banking and Finance Banking conditions in the Memphis zone remained relatively unchanged during the past three months. Most contacts indicated little to no change in consumer loan demand. About half of all contacts also reported little to no change in demand for business loans. Several contacts who reported a decline in business lending cited tightening lending standards and an unwillingness of businesses to take on new loans. All contacts reporting on commercial real estate lending indicated a decline in demand. Reports indicate a slight increase in deposits. Agriculture and Natural Resources Farmers in Mississippi and Tennessee planted less winter wheat in the fall of 2008 than they did during the fall of 2007. Frequent wet and cool conditions since early April delayed fieldwork throughout the zone. At the end of May, corn planting was finished in Mississippi but was slightly behind its 5-year average pace in Tennessee. Soybean planting and cotton planting were behind their normal pace in both states. Additionally, sorghum planting and rice planting were behind normal in Mississippi. Emergence for all of the crops in Mississippi (except corn) and in Tennessee was also behind their normal pace. About 87 percent of the winter wheat in Mississippi and 91 percent of the winter wheat in Tennessee was rated in fair condition or better—a slight decline over the same time last year for both states. Recent estimates indicate that Memphis payroll employment has contracted less sharply than the national average. Over the three-month period ending in May 2009, Memphis employment contracted at a 0.31 percent monthly rate, while U.S. employment contracted at a 0.40 monthly rate. Nonfarm Payroll Employment Growth 3-Month Average, SA, January 2001–May 2009 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 2009 Between May 2008 and May 2009, employment growth in the Memphis MSA was negative in all goods-producing sectors and in most service-providing sectors. The service sectors to show expansion were the education and health services sector, for which employment increased by 1.6 percent, the “other services” sector (3.7 percent), and the government sector (0.2 percent). The biggest percentage job losses were in manufacturing (6.9 percent); natural resources, mining, and construction (5.2 percent); and information (5.6 percent). Memphis MSA Employment Growth by Sector Year/Year Percent Change, May 2008–May 2009 Percent 6.0 4.0 2.0 0.0 –2.0 –4.0 –6.0 –8.0 Total Nonfarm Natural Manufacturing Trade, Information Financial Resources, Transportation, Activities Mining, and and Utilities Construction Professional Education Leisure and and and Business Health Hospitality Services Other Services Government Memphis Zone—MSA Employment and Unemployment Nonfarm payroll employment percent change, May 2008–May 2009 Memphis Jackson, Tenn. United States Total Goods producing Service providing Unemployment rate April 2009 –2.47 –4.47 –3.95 –6.30 –12.23 –12.11 –1.95 –2.25 –2.44 9.0 9.9 8.6 SOURCE: Bureau of Labor Statistics. Memphis Zone—MSA Housing Activity Total building permits, units year-to-date April 2009 Memphis Jackson, Tenn. Jonesboro, Ark. United States 597 46 117 166,319 Percent change House price index, percent change, 2009:Q1/2008:Q1 –47.9 –61.3 –12.0 –48.2 –0.82 0.09 1.53 –3.35 SOURCE: Bureau of the Census, Federal Housing Financing Authority. 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 2009 SOURCE: Federal Reserve Bank of Philadelphia. Percent Change, Year/Year Percent Arkansas 12 Mississippi 10 Tennessee United States 8 6 4 2 0 –2 –4 –6 –8 2000 2001 2002 2003 SOURCE: Bureau of Economic Analysis. 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, Mississippi and Arkansas have underperformed the country as a whole since 2001, while Tennessee has tended to keep pace with the nation. Through most of 2008 and into 2009, 12-month growth rates slowed in all the zone states. For the 12 months through April 2009, the index declined by 4.4, 3.0, and 3.1 percent in Tennessee, Mississippi, and Arkansas, respectively. Over the same period, the index for the United States fell by 3.2 percent. Since Hurricane Katrina in the third quarter of 2005, Mississippi has experienced more volatile personal income growth than the nation as a whole, while Tennessee and Arkansas have tended to keep pace with the nation. As of the first quarter of 2009, Tennessee, Mississippi, and Arkansas experienced year-over-year growth rates of 0.3, 1.2, and 1.6 percent, respectively. For the nation as a whole, personal income grew by 0.05 percent over the same period. Memphis Area Real Personal Income Growth 14 Total residential building permits in April 2009 were lower than a year earlier in all of the three MSAs in the Memphis zone. Permits declined by 48 percent in Memphis, by 60 percent in Jackson, Tennessee, and by 12 percent in Jonesboro, Arkansas. House prices declined by less than 1 percent in Memphis in the first quarter of 2009 compared with a year earlier, increased by 1.5 percent in Jonesboro, and remained flat in Jackson. Nationwide, house prices were down by 3.4 percent over the same period. 2009 Bank Conditions in Eighth District Metro Areas Return on Average Assets St. Louis Little Rock Louisville Memphis Net Interest Margin St. Louis Little Rock Louisville Memphis Loan Loss Provision St. Louis Little Rock Louisville Memphis Nonperforming Loans St. Louis Little Rock Louisville Memphis 2008:Q1 (%) 2008:Q4 (%) 2009:Q1 (%) 0.66 1.04 1.45 0.21 –0.42 0.72 0.90 –0.55 –0.97 0.56 1.15 –0.65 3.54 3.85 4.34 3.02 3.40 3.98 3.89 3.10 3.06 4.21 5.01 3.05 0.63 0.38 0.54 2.37 1.48 0.87 0.43 2.89 1.56 1.23 1.06 3.54 1.62 1.14 1.28 3.02 2.44 1.53 1.34 4.99 2.96 2.33 1.70 6.12 NOTE: Variable definitions: Return on Average Assets = (Net Income/Average Assets) × 100 Net Interest Margin = (Tax Equivalent Net Interest Income/Average Earning Assets) × 100 Loan Loss Provision = (Provision for Loan Losses/Average Assets) × 100 Nonperforming Loans = (Nonperforming Loans/Total Loans) × 100 SOURCE: Reports of Condition and Income for Commercial Banks. For additional statistics and information on bank conditions in the Eighth District, see “Slump Persists for District and U.S. Banks.” Central Banker, Summer 2009, p. 3. Available at http://www.stlouisfed.org/publications/cb/2009/b/pages/quarterly_report.cfm.