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AN EIGHTH DISTRICT PERSPECTIVE Federal Reserve Bank of St. Louis Summer 1983 District Economy Mirrors Improved National Economy General Business Conditions On both a national and regional level, current in dicators of economic activity show a much brighter picture than in 1982. At the national level, the growth of inflation-adjusted GNP accelerated to a rate of 2.6 percent in the first quarter of 1983, and early indica tions are that it may exceed a 6 percent rate in the se cond quarter. This contrasts sharply to the decline in real GNP during 1982. The significant upturn in the indexes of general business for Eighth District states are consistent with these changes at the national level. The growth rates of these indexes were negative throughout 1982 in each of the four District states for which the index is available. Year-to-date 1983 growth rates, however, are all positive and range from 1.7 percent for Tennessee to 4.2 percent for Kentucky. Employment Nationwide, total payroll employment fell 2.4 per cent in 1982, while declining 3.0 percent in the District. In contrast, during the first part of 1983, payroll employment has been rising in both the United States and the District at roughly comparable rates. Despite this reversal in employment growth, unemployment in the District remains high by historical standards. Pro ductivity gains have kept the increase in employment below the increase in production, and some firms are still reducing their work forces. An encouraging sign, however, is the substantial reduction in unemployment that occurred in May, the month for which the most re cent data are available. Prices and Wages At the national level, the rate of change in the Pro ducer Price Index (PPI) was down significantly during the first part of 1983 (—1.7 percent, January-May). This is reflected in substantial recent reductions in the rate of price changes recorded in most key industries in the District (see page 3). Construction was the only in dustry in which prices have risen more rapidly in 1983 than in 1982. Wage increases have been tempered by reductions in overtime and other premium pay rates and by lower rates of actual and expected inflation. Increases averaged about 5 percent at an annual rate in the first half of 1983, compared with 7 percent in 1982 and 9 percent in 1981. SUMMER 1983 FEDERAL RESERVE BANK OF ST. LOUIS Retail Sales Major department stores reported sales in the March-May period that were nearly 10 percent higher than in the same period a year ago. Automobile sales improved at a number of dealers, and furniture, ap pliances, rugs and “Father’s Day’’ merchandise showed considerable strength. Sales of summer apparel did less well, perhaps because of wet and cool May weather. Agriculture Though crop planting in the District was delayed by adverse weather, it has had only a scattered detrimen tal effect. Despite these losses and reduced planting due to the payment-in-kind (PIK) program, total pro duction is expected to be relatively large. This is a con sequence of expected record or near-record per acre yields. Manufacturing and Construction Orders and shipments of manufactured goods have been increasing at most District firms since February. The gains were largest for consumer goods and for pro ducts sold to residential construction contractors. Firms producing business equipment and metals experienced little change in sales, but inventories at most firms sire either at or below desired levels. The level of both new and used home sales has been strong since February. May and June sales, however, did not maintain the pace set earlier in the year. The wet weather in May and increases in mortgage rates in early June appear to have contributed to the slowdown. Con struction activity, which has expanded in response to the demand for homes, has been boosted further by an in crease in orders for office buildings. District Business Executives Express Optimism A June Centerre Bank Economic Poll found that the business executives of mid-sized firms have become more optimistic about the future course of the economy. The survey covered 312 companies with an nual sales of $25 million to $300 million. Many of the firms polled are located within the Eighth District. The vast majority of the executives (82 percent) forecast improvements in their own businesses within the next six months, while only 2 percent expect declines. Two-thirds of the executives anticipate expanding the capacity of their operations within the next year, and 58 percent expect to modernize existing facilities. They indicate that the most pressing problems facing the economy are government spending and deficits, ex cessive government regulation and high interest rates. A Favorable Long-Run Outlook Automobile assembly will expand in the District in the near future. General Motors is building a major new plant, while Ford and Chrysler are expanding their existing facilities. Because of this expansion, a number of auto supply firms have moved into the District and more are expected. Although it is still an infant at present, the high-tech industry is likely to make a substantial contribution to the District’s economy in the longer run. Monsanto Co., Mallinckrodt, Inc., Ralston Purina Co., and Anheuser-Busch are conducting research into genetics and other biologically oriented activities. Also, the Missouri Botanical Garden is involved in biotechnical research. In addition, the engineering departments of Washington University and the St. Louis, Columbia and Rolla campuses of the University of Missouri are involved in high-tech research. The McDonnellDouglas corporation is building a major microelec tronics center. The St. Louis Regional Commerce and Growth Association is currently coordinating efforts to build an “innovation center” in St. Louis and a “research park” in St. Louis County. The state of Missouri, the major hospitals in the St. Louis area, and other universities are cooperating in this enterprise. Because of the diversified nature of industry in our District, future aggregate economic activity in the re gion will likely match the national trend. The current national outlook is for continued expansion in output and employment throughout 1983. Consequently, Dis trict prospects remain bright for the rest of the year. —Norman N. Bowsher and G.J. Santoni Business—An Eighth District Perspective is a quarterly summary of business conditions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. FEDERAL RESERVE BANK OF ST. LOUIS SUMMER 1983 EIGHTH DISTRICT BUSINESS DATA Current Period Growth Rates1 Year-to-Date 1983 1982 General Business Indexes2 Arkansas Kentucky Missouri Tennessee Mar-May 2.6% 2.6 3.5 0.5 2.1% 4.2 3.6 1.7 -2 .4 % - 1 .5 -1 .2 -2 .8 Retail Sales United States District Arkansas3 Missouri Tennessee Jan-Mar 1.3% 6.0 3.7 5.2 8.3 1.3% 6.0 3.7 5.2 8.3 5.2% 11.0 9.1 14.3 8.3 Personal Income United States District Arkansas Kentucky Missouri Tennessee 4th quarter ’82 5.4% 5.2 7.9 9.1 2.3 4.7 5.3% 4.7 3.3 4.7 4.7 5.3 5.3% 4.7 3.3 4.7 4.7 5.3 0.9% 0.7 3.1 2.7 2.1 -5 .9 1.9 -0 .3 -0 .5 -2 .4 % -3 .0 -2 .4 -1 .3 -3 .1 -4 .1 -4 .6 -2 .2 -2 .8 -4 .1 -3 .5 Payroll Employment United States D istrict Arkansas Little Rock Kentucky Evansville Louisville Missouri St. Louis Tennessee Memphis Mar-May 1.6% -0 .8 2.0 2.0 -0 .7 14.5 2.1 -1 .5 -1 .0 -1 .2 -3 .8 Average Hourly Earnings-Mfg. United States Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee Memphis Mar-May 2.1 % 5.8 9.0 8.1 8.0 6.7 5.2 5.9 -2 .2 Employment1 Year-to-Date 1983 Same Period 1982 Key Industries Fabricated Metal Products Electrical and Electronic Equipment Nonelectrical Machinery Transportation Equipment Food and Kindred Products Textile and Apparel Printing and Publishing Chemicals and Allied Products Construction - 8.0% 7.1 8.0 3.5 -3 .7 2.0 2.2 -1 .4 -1 7 .2 -15.4% -1 6 .0 -1 4 .2 -0 .5 -4 .2 -1 2 .2 -2 .4 -2 .4 -1 9 .4 0.0 -1 .5 4.0% 5.6 9.7 7.1 7.0 4.0 4.5 5.1 3.8 5.3% 6.5 6.6 5.2 3.1 6.5 6.5 6.3 4.0 Prices1 Year-to-Date 1983 -1 .3 % 4.0 2.6 -0 .4 4.9 0.0 8.2 0.7 6.5 Same Period 1982 1.6% 5.4 6.0 0.3 6.4 1.9 13.7 2.1 2.9 3 EIGHTH DISTRICT BUSINESS DATA Current Period1 Previous 3 Months Average Yearto-Date 1983 Average 1982 Unemployment Rate United States District Arkansas Little Rock Kentucky Evansville Louisville (Feb-Apr) Missouri St. Louis Tennessee Memphis Mar-May 10.2% 10.6 9.2 7.3 10.4 10.9 10.7 10.2 10.8 12.0 9.9 Construction Contracts4 (millions of dollars) District Arkansas Kentucky Eastern Missouri Western Tennessee Mar-May $498.7 107.1 188.1 124.7 78.8 $287.8 67.6 103.0 77.7 39.4 $422.7 93.4 155.4 109.9 64.0 $398.9 77.3 132.8 144.0 44.8 Housing Permits Little Rock Louisville St. Louis Memphis Mar-May 408 195 906 451 112 329 871 385 297 260 898 418 144 158 531 221 10.5% 11.1 9.8 7.8 11.0 10.6 12.8 9.8 10.8 12.3 10.0 10.3% 10.6 9.3 7.4 10.4 10.7 10.9 10.0 10.7 12.0 9.9 9.7% 10.4 9.7 7.6 10.7 9.8 11.7 9.3 9.9 11.6 9.5 NOTE: With the exception of construction contracts and employment and prices in key industries, all data are seasonally adjusted. 1 Data are presented as three-month averages to minimize distortions due to the large variability of monthly data. The current period growth rate is a comparison of the average of the current three months to the average of the previous three months. The year-to-date growth rate is from the average of the three months ended in December of 1982. All growth rates are compounded annual rates of change. 2 Sources: Arkansas and Missouri from Southwestern Bell, Kentucky and Tennessee from South Central Bell. 3 Source: Southwestern Bell. 4 Source: F.W. Dodge, Construction Potentials. Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri 63166
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