Full text of Pieces of Eight : Business : An Eighth District Perspective, Summer 1986

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Business
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1986

BEA Projects Gains in Eighth District
Per Capita Income
PER CAPITA INCOME

After more than a decade of stagnant per capita income
growth relative to national averages, a recent study predicts
that the Eighth District generally, and three of its primary
states in particular, will show marked improvements in per
capita income by the end of this century. Projections by the
U.S. Commerce Department’s Bureau of Economic Analysis
(BEA) suggest that real per capita income in the District
will grow at an average rate of 2.1 percent per year between
1985 and 2000, compared with the 1.8 percent predicted for
the U.S. average. This slightly faster growth in the District
will narrow the gap with per capita income nationally by
boosting the District average income (as represented by the
four states that dominate the District economy: Arkansas,
Kentucky, Missouri and Tennessee) from about 85 percent
of the national average throughout the 1973-85 period to 88
percent by the year 2000.

Methodology

employment growth and on historical migration patterns.
Finally, the projections were modified in various other ways,
including state-specific trends and events not reflected in
mathematical relationships.

How did the BEA arrive at these projections? First, it
Interstate Differences
derived national estimates of personal income using forecasts
of population, labor force, employment and productivity.
The chart, which depicts historical data as well as the BEA
Then, to arrive at various projections for individual
projections, shows that Missouri differs from the other three
industries, it took the largest component of personal
states, both in the level and the forecasted change in per capita
income—earnings—and distributed it based primarily on
income. Income per person in Missouri was close to the
employment projections for each industry made by the U.S.
national average throughout the 1973-85 period while the levels
Labor Department’s Bureau of Labor Statistics.
in Arkansas, Kentucky and Tennessee were well below. Per
With national estimates of earnings by industry, the BEA
capita income in 1985 was $10,180 in Arkansas, $10,585 in
then used statistical models that reflect the economic
relationships between each state and the nation as well as
Kentucky, and $10,934 in Tennessee, compared with $12,784
within each state itself to estimate earnings
in Missouri and $13,451 in the nation.
and employment for individual states.
In the next 14 years, the projected District
Projected state employment growth was
gain is due prim arily to increases
based on projections of national employment
in Arkansas, Kentucky and Tennessee.
growth and of the state’s competitive position
As the table shows, the compounded annual
THE
in each industry. Employment by industry
growth rate of per capita income in these
FEDERAL
RESERVE
was projected using 1969-83 data. Projected
states is projected to exceed the national
RANK of
earnings by industry were then derived from
rate through the end of the century, while
ST. ID l IS
the employment figures. State population
growth in Missouri is expected to match
projections were based on estim ated
the nation’s.



SUMMER 1986

FEDERAL RESERVE BANK

Compounded Annual Growth Rates of Per Capita Income Components, Historical and Projected
KENTUCKY
ARKANSAS
UNITED STATES
1973-85
1985-2000
1973-85
1985-2000
1985-2000
1973-85
Per Capita Income
Population
Total Personal Income
Transfer Payments
Dividends, Interest and Rent
Earnings
Manufacturing
Durables
Construction

1.5%
1.0
2.5
4.3
5.3
1.6
0.7
0.6
0.5

1.8%
0.8
2.6
2.8
1.8
2.8
3.1
3.5
2.6

1.5%
1.2
2.6
4.4
6.7
1.4
1.8
1.5
0.3

MISSOURI
1973-85
1985-2000
Per Capita Income
Population
Total Personal Income
Transfer Payments
Dividends, Interest and Rent
Earnings
Manufacturing
Durables
Construction

1.5%
0.4
2.0
3.7
5.1
0.9
0.7
0.6
1.1

1.8%
0.4
2.2
2.5
1.3
2.4
2.5
3.0
2.1

2.3%
0.7
3.0
2.7
2.3
3.3
4.1
4.5
3.0

1.3%
0.8
2.2
4.0
6.2
1.1
0.3
-0 .1
-0 .9

2.4%
0.2
2.6
2.4
2.0
2.8
3.3
3.8
3.1

TENNESSEE
1973-85

1985-2000

1.4%
1.2
2.6
4.8
5.9
1.5
0.8
1.8
0.3

2.2%
0.6
2.8
3.1
2.1
2.9
3.2
3.2
2.6

SOURCE: Growth rates for 1985-2000 are based on projections for the year 2000 from 1985 OBERS BEA Regional Projections, Volume 1.
U.S. Department of Commerce.

Projections of Per Capita Income
Components
In addition to the large earnings components mentioned
earlier, per capita income can be influenced by changes in
other sources of income (dividends, interest and rent, and
transfer payments) or by changes in population. The latter
point is especially interesting since a state with little change
in its economic environment could show increases in per
capita income from slower population growth alone.
The factors underlying the projected changes in per capita
income differ among states. To identify sectors responsible
for the growth, compounded annual growth rates for the
primary components of per capita income are presented for
each District state and the nation. In addition to the rates
based on the year 2000 projections, average growth rates
for the 1973-85 period are shown to provide a historical
perspective. Except for the population data, all growth rates
are based on real dollar figures deflated to their 1982 values.
In Missouri, particularly slow population growth is
expected to offset total personal income growth slower than
the national average; overall, these offsetting changes are
estimated to result in an average 1.8 percent annual growth
rate of per capita income that matches the nation’s. The
relatively slow projected growth of personal income is due
to below-average growth in each of the three components
of total personal income. Looking back at the chart, these
projections for the next 14 years are a continuation of the

trend between 1973-85 when growth in Missouri’s per capita
income also matched the nation’s due to slower-than-average
growth of both total personal income and population.
In Kentucky, projections for average income growth and
below-average population growth account for the forecasted
2.4 percent annual growth rate of per capita income.
Kentucky’s total earnings are projected to grow at the national
rate, spurred by above average gains in some of the higher­
paying industrial sectors, such as durables manufacturing
and construction. In 1985, average hourly earnings in these
two industries were 18 and 43 percent above the $8.58
average wage of all nonfarm industries nationally. The
projections represent a reversal of the 1973-85 trends in which
the growth of earnings in most sectors trailed the national
rate.
Faster-than-average projected increases in income
combined with slightly below-average population growth are
expected to be responsible for the gains in per capita income
in Arkansas and Tennessee relative to the nation. Relatively
rapid expansion of earnings in durables manufacturing is
projected in both states.
For a more complete description of the methodology as
well as detailed projections for states and metropolitan areas,
see 1985 OBERS BEA Regional Projections available from
the U.S. Government Printing Office.
—Thomas B. Mandelbaum

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 expressed are not necessarily official
positions of the Federal Reserve System.
Digitized for
2 FRASER


FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1986

EIG H TH D IS T R IC T B U S IN E S S D A T A
Growth Rates1
Current Period
General Business Indexes2

Year-to-D ate 1986

1985

Feb-Apr

Arkansas
Kentucky
Missouri
Tennessee

4.3%
9.9
1.0
8.2

Retail Sales3

3.6%
7.2
0.7
6.7

0.2%
1.6
0.2
2.7

4.3%
- 3 .8
-1 5 .2
23.1
- 1 .3

5.6%
2.3
12.6
1.9
7.8

3.2%
7.1
6.8
3.5
5.6
4.0
10.2
2.9
5.1
- 2 .0

3.1%
2.3
1.3
1.3
3.1
2.9
1.6
1.4
3.1
2.5

2.2%
3.0
6.1
3.9
3.1
11.4
2.0
3.2
- 1 .4

3.6%
4.0
2.8
2.4
1.4
0.9
3.6
3.6
3.2

Jan-Mar

United States
Arkansas
Kentucky
Missouri
Tennessee

4.3%
-3 .8
-1 5 .2
23.1
- 1.3
Feb-Apr

Payroll Em ploym ent

2.9%
5.6
4.7
0.8
5.6
4.0
7.1
2.3
4.3
-3 .1

United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
Average Hourly Earnings-Mfg.

Feb-Apr

United States
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis

1.0%
3.6
6.3
5.5
4.8
9.3
0.9
3.0
- 1 .4

Personal Incom e

4th quarter ’85

United States
District
Arkansas
Kentucky
Missouri
Tennessee

Employment1
(current period Feb-Apr)
Year-to-D ate 1986

Y ear-to-D ate 1985

5.2%
4.2
2.8
2.1
5.6
4.8

7.7%
6.2
7.9
4.6
6.5
6.4

Same Period 1985

1984

9.8%
10.0
11.5
10.2
9.5
9.8

Prices1
(current period Feb-Apr)
Year-to-D ate 1986

Sam e Period 1985

K ey In d u s trie s

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



-1.60/0
-5 .9
6.5
13.0
2.6

-7 .0
7.3
-0 .9
1.7

1.9%
-6 .3
-3 .1
-4 .2
-7 .6
-5 .2
1.9
-1 .8
-2 7 .1

0 .2 %

2.3
1.9
-0 .7
0.6

0.9%
2.6

2.7
3.2
-1 .4

0.8

0.6

6.2

9.4
1.5

0.1
-1 .4

1.1

3

EIG H TH D IS T R IC T B U S IN E S S D A T A
Current
Period*12
3
U n e m p lo y m e n t R ate

U nited States
District
A rkansas
Little Rock
K entucky
Louisville (December)
M issouri
St. Louis
Tennessee
M em phis

Previous
3 Months

Average Yearto-Date 1986

Average
1985

6 .9 %
8.3
8.8
6.5
10.1
7.4
6.3
6.8
9.6
6.6

7 .1 %
7.8
8.3
6.2
10.5
8.0
5 .7
6.5
7.9
6.8

7 .2 %
7.9
8.6
6.5
9.0
7.9
6.7
7.6
8.5
6.5

$ 6 8 0 .5
92.3
144.6
204 .6
239 .0

$ 7 9 6 .9
98.1
160.3
251 .5
287 .0

$ 8 3 3 .0
101.9
180.5
2 5 1 .6
299.1

Feb-A pr
7 .2 %
7.8
8.3
6.1
10.5
8.1
5.7
6.6
8.0
6.8

C o n s tru c tio n C o n tra c ts 4

(m illions of dollars)
D istrict
Arkansas
Kentucky
M issouri
Tennessee

F eb-A p r
$809.2
101.1
170.0
243.4
294.8

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
growth rate is from the average of the three months ended in December 1985. 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, Kentucky from Kentucky Revenue Department, and Missouri/Tennessee from U.S.
Department of Commerce.
4Source: F.W. Dodge, Construction Potentials, McGraw-Hill Information Systems Company, proprietary data provided by special permission.