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Business AN EIGHTH DISTRICT PERSPECTIVE WINTER 1984-85 Economy Warming Down After Marathon Expansion After two years of expanding at a very rapid rate, economic activity at the national level is showing signs of cooling down. Growth in real GNP slowed to a 1.9 per cent annual pace in third quarter 1984, down from an average annual rate of 7.1 percent ovei the previous six quarters. As is typical of cooling-off periods, not all of the in dicators of economic activity are pointing in the same direc tion. For example, personal income and payroll employ ment at the national level grew fairly rapidly in October, at annual percentage rates of 7.1 and 5.7 percent, respec tively. On the other hand, during the same month, retail sales fell at an annual rate of 1.7 percent while the index of industrial production and the unemployment rate were roughly unchanged. The accompanying data and chart indicate that economic activity in the Eighth District is slowing as well. Growth rates in the general business indexes have slowed con siderably in recent months across all District states. While it is difficult to date exact turning points, three-month average growth rates in the range of 8-17 percent occurred with considerable frequency between fourth quarter 1982 and May 1984. Since that time, there has been a substan tial decline in these growth rates. In no state was the growth rate as high as 8 percent in the five months since May. personal income (8.5 percent) has been equal to the national growth rate during the first six quarters of the expansion. The growth rates for the District states, which range from 7.5 percent in Kentucky to 9.3 percent in Tennessee, have exceeded the national average in three cases while the growth rate for Kentucky fell below the national average over the same period. In some cases, the differences ap pear to be large; however, these are statistically insigni ficant. Consequently, by this indicator, it does not appear that the District has lagged behind the nation during the economic recovery or that the recovery has favored par ticular states as some have claimed. Rather, the conclusion appears to be that the economic recovery in the District has kept pace with the national recovery and has been roughly uniform across District states. Unemployment Unemployment rates for both the District and the nation began falling sharply at the end of 1982. Recently, however, the decline has tapered off. Currently, the District’s unemployment rate is higher than the national average and has been higher for the past four years. This reverses the relationship between the District’s and nation’s unemployment rates that had existed during the decade of the 1970s. Personal Income While unemployment rates in Arkansas, Kentucky and Tennessee have recently hovered in the 9 to 10 percent range, the unemployment rate in Missouri has declined to Personal income in each of the District states has advanced about 6.4 percent. Missouri’s unemployment rate had been rapidly since the trough of the recession. Chart 1 (next page) higher than the national average from January 1983 through plots annualized quarterly growth rates in personal income April 1984. Since April, the rate has declined sharply to for the District and nation, along with the average annual its current level. Though not as low, the growth rates over the period 1970-1984 unemployment rate in St. Louis has be (horizontal lines). For the District as a haved in a similar fashion and is presently whole, the pace of the advance in personal about equal to the national average. The cur income was particularly rapid in fourth THE rent unemployment rate in Litde Rock (about quarter 1983 and first quarter 1984. FEDERAL RESERVE 6.8 percent) is also low relative to the na However, during second quarter 1984, both RANK of tional average. However, unlike the growth rates declined to about their long-run ST. IjOITS unemployment rate in St. Louis, which had averages. generally exceeded the national average until The average annual growth rate in District FEDERAL RESERVE BANK OF ST. LOUIS WINTER 1984-85 C h art 1 PERSONAL INCOME GROWTH RATES PERCENT QUARTERLY DATA recently, Little Rock’s unemployment rate has been con sistently below the national average since September 1981. payroll employment is close to the national average, the accompanying tabular data indicates that the growth rates for individual states and cities has been far from uniform. Payroll Employment In Summary After getting off to a fairly slow start in the initial phase of the expansion, the average growth rate in District payroll employment had been about equal to growth at the national level from January 1983 through February 1984. District payroll employment either fell or grew slowly in March, April and May, while employment at the national level con tinued to grow at a fairly brisk pace. Since May, growth in District payroll employment has bounced back. While recent data indicate that the average growth rate in District Economic activity at both the District and national level appears to be cooling down following a brisk recovery that began in fourth quarter 1982. Currently, most indicators of economic activity are advancing at rates that conform more closely to their long-run trends rather than at the rapid rates that marked the earlier phase of the expansion. Con sequently, despite the slowing, the outlook for the near future remains encouraging. —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. Views ex pressed are not necessarily official positions of the Federal Reserve System. 2 FEDERAL RESERVE BANK OF ST. LOUIS WINTER 1984-85 EIG H TH D IS T R IC T B U S IN E S S D A T A G ro w th R a te s 1 Current Period General Business Indexes2 Year-to-D ate 1984 1983 2.1% 4.5 3.8 6.5 12.0% 4.7 8.6 4.8 7.3% 1.1 4.9 8.4 6.5 11.0% 11.2 9.0 9.5 13.8 5.3% 5.8 5.3 5.5 5.5 6.5 7.5% 6.9 8.2 4.2 7.6 7.4 4.1% 2.8 3.2 0.6 2.9 1.1 2.8 1.5 2.9 4.0 2.1 3.4% 2.6 5.4 4.3 1.3 0.7 0.7 1.3 1.9 3.7 2.2 3.1% 4.5 3.8 3.0 2.2 5.5 7.3 3.6 3.9 4.2% 5.3 4.0 7.6 4.7 5.1 5.0 4.4 0.9 Aug-Oct Arkansas Kentucky Missouri Tennessee 1.6% 0.9 -0 .8 3.7 Retail Sales July-Sept United States Arkansas3 Kentucky3 Missouri Tennessee -3 .8 % -8 .8 1.2 -1 7 .2 -6 .3 Personal Incom e 2nd quarter ’84 United States District Arkansas Kentucky Missouri Tennessee 8.8% 7.9 0.5 10.8 6.4 11.2 Payroll Em ploym ent Aug-Oct United States District Arkansas Little Rock Kentucky Evansville, IN Louisville Missouri St. Louis Tennessee Memphis 3.2% 1.6 3.5 1.5 1.4 1.2 0.4 2.4 3.4 0.1 2.9 Average Hourly Earnings-Mfg. Aug-Oct 2.2% 4.0 1.8 0.1 - 5 .4 8.9 10.9 6.9 -1 .9 United States Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee Memphis E m p lo ym en t1 Year-to-D ate 1984 P ric e s 1 Same Period 1983 Y ear-to-D ate 1984 Sam e Period 1983 Key Industries Fabricated Metal Products Electrical and Electronic Equipm ent Nonelectrical M achinery Transportation Equipm ent Food and Kindred Products Textile and Apparel Printing and Publishing C hem icals and Allied Products Construction 2 .8 % 2 .6 % 3.0% 7.2 9.0 3.2 6.8 2.7 0.5 9.0 6.0 3.0 -0 .8 1.1 2.1 12.2 17.4 -2 .4 6.4 2.7 -1 .6 4.3 2 .8 1.6 5.8 1.9 2.5 - 0 .6 % 4.6 2.5 -0 .3 3.4 1.7 6.3 2.2 5.1 3 EIG H TH D IS T R IC T B U S IN E S S D A T A C urrent P erio d *12 3 Unemployment Rate Aug-Oct United States District A rkansas Little Rock Kentucky Evansville, IN Louisville Missouri St. Louis Tenn essee M em phis 7 .4 % 8.5 9.1 6.7 9.6 8.2 8.8 6.6 7.6 9.4 7.3 P revious 3 M onths A verag e Y earto -D ate 1984 A verag e 1983 7 .4 % 8.4 9.2 7.0 9.4 8.9 8.9 7.2 7.9 8.6 7.5 7 .6 % 8.6 9.0 7.0 9.5 8.8 9.0 7.5 8.4 9.0 7.7 9 .6 % 10.8 10.1 8.1 11.6 10.7 10.9 9.9 10.5 11.4 9.5 $633.1 128.6 202.2 212.1 90.2 $ 5 4 5 .9 121.8 179.9 164.2 80.0 $ 4 8 3 .4 106.4 172.9 136.8 67.3 Construction Contracts4 (millions of dollars) District Arkansas Kentucky Eastern Missouri W estern T enn essee Aug-Oct $564.8 130.5 205.4 148.7 80.2 NOTE: With the exception of construction contracts and employment and prices in key industries, all data are seasonally adjusted. 1Data 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 grpwth rate is from the average of the three months ended in December 1983. All growth rates are compounded annual rates of change. 2Sources: Arkansas and Missouri from Southwestern Bell, Kentucky and Tennessee from South Central Bell. 3Sources: Arkansas from Southwestern Bell and Kentucky from Kentucky Revenue Department; Missouri and Tennessee are seasonally adjusted by this Bank 4Source: F.W. Dodge, Construction Potentials, McGraw-Hill Information Systems Company, proprietary data provided by special permission.