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Business
AN EIGHTH DISTRICT PERSPECTIVE
SPRING 1987

Eighth District Economy Continued to
Expand in 1986
1986 was a year of continued, but modest, growth for the
Eighth District economy during the fourth year of the nation’s
current economic expansion. In this advanced stage of a
business cycle, only modest growth in most sectors of the
regional economy was recorded. The expansion in some of
the District’s regions and industries, however, was quite
vigorous. This article describes the magnitude and nature
of the District’s economic growth in 1986.

Employment

Weakness of the region’s manufacturing sector constrained
District employment growth, with job declines of 0.4 percent.
This decline was considerably less than the 1.9 percent drop
in 1985, however, suggesting employment in the sector might
be stabilizing. Much of the District’s recent decline occurred
in Missouri where job losses in most manufacturing
subsectors contributed to a 3.1 percent drop. Employment
in the state’s transportation equipment subsector, particularly
important to the Missouri economy, dropped by 2.3 percent
with increases in aircraft manufacturing offset by losses in
auto production. Of the four District states, Arkansas enjoyed
the greatest expansion in manufacturing employment, with
a growth of 2.2 percent in 1986, as employment in the state’s
relatively large food-processing industry was especially
strong.
The declining exchange value of the dollar since early
1985 led to expectations of a manufacturing upturn, as import
prices were expected to increase and prices of domestic
exports dropped in foreign markets. A recent survey of
District manufacturers suggests that the shrinking exchange
value of the dollar had little effect on domestic producers
in 1986, however, as market-specific factors were more
important in influencing growth.

After a moderately strong expansion in 1984, District
payroll employment grew only 2.5 percent in 1985 (see table
on page 3). There was a modest improvement last year, as
payroll employment increased 2.9 percent. In contrast, the
growth of the nation’s work force slowed last year (see figure
on page 2). Tennessee was responsible for much of the
District growth in 1986, with 4.5 percent employment
growth. This state was one of the fastest growing in the
nation, with most sectors of its economy expanding sharply.
While Kentucky and Arkansas grew at rates near the national
average, Missouri was constrained by a weak 0.3 percent
gain in the St. Louis area, trailing the nation’s expansion.
The District’s total civilian employment in 1986 increased
slightly faster than the growth of the labor force and was
Construction
sufficient to allow a small drop in the District unemployment
The growth of District construction in 1986 was modest,
rate to 7.7 percent. Unemployment remained stubbornly
but represented a marked improvement over the stagnant
high, however, in Arkansas and in Kentucky (see table on
growth of the previous year. The real value of building
page 4). As the lower rates in Little Rock and Louisville
contracts was up by 2.6 percent, exceeding the nation’s 1.1
suggest, unem ploym ent is generally higher in
nonmetropolitan areas, where weakness in
percent growth.
agriculture- and energy-related business has
The real value of residential construction,
spurred by a jump in single-family home
contributed to the sustained high level of
building, increased a moderate 4.7 percent
joblessness.
Those industries that fueled the nation’s
in 1986 after a slight decline in 1985.
TH E
expansion — construction, services,
Missouri’s 14.5 percent growth led the
FEDERAL
KESEKNE
District states, spurred by a sharp jump in
wholesale/retail trade, and the finance,
lUNKot
insurance and real estate sector—also were
the St. Louis metropolitan area. Residential
S T .IX H iS
contracts in Arkansas, however, declined for
responsible for most of the D istrict
the third consecutive year.
employment growth in 1986.




FEDERAL RESERVE BANK OF ST. LOUIS

Housing permit data (for new privately owned units)
indicate an increase in single-family home building was
responsible for the District’s residential construction
growth last year. The number of single-family permits
grew by 23.9 percent in 1986, while multi-family permits
fell by 14.2 percent. Construction of single-family housing
was spurred by the lowest mortgage rates since the late
1970s. Widespread overcapacity and uncertainty regarding
tax reform contributed to the multi-family building
decline.
These two factors also contributed to sluggishness in
nonresidential construction. Overbuilding of office space
has been reported in the District’s major metropolitan
areas. Anticipation of repeal of certain tax shelters in the
federal tax reform prompted increased building in
IV/1985, borrowing from 1986 construction. The inflationadjusted value of District nonresidential construction
contracts awarded in 1986 declined 0.3 from the 1985
level. This decline was less severe than the nation’s 6.7
percent drop, however. As was true of the residential
sector, most of the District’s nonresidential construction
growth in 1986 was concentrated in M issouri, with the
greatest decline in Arkansas.

Consumer Income and Spending
Lower inflation last year allowed the expansion of District
real personal income to accelerate in 1986 over the previous
year’s growth. After adjusting for inflation, the 3.8 percent
growth between III/1985 and III/1986 exceeded the previous
year’s 2 percent gain.
The District’s 3.8 percent real income growth from m/1985
to III/1986 was similar to the nation’s, but the sources of
the growth differed somewhat. While real earnings, about
70 percent of the total, grew more rapidly in the District
than in the nation, the other major components of personal
income—transfer payments and dividends/interest/rent—
grew more slowly in the region.
District retail sales grew more slowly last year than in
1985, whether measured in current or constant dollars. In
current dollars, fourth-quarter sales grew by only 1.8 percent

SPRING 1987

Nonfarm Employment
Percent Growth 1985 and 1986
Percent

1985

1986

from the year-ago level, following a 6.9 percent increase
in 1985. As the table on page 3 shows, most of the slowdown
took place in Kentucky where sales dropped after a sharp
jump in 1985. Both sales and income grew more slowly in
Kentucky last year than elsewhere in the District. This
sluggishness is not surprising given the state’s relatively
heavy reliance on agriculture and mining, two struggling
sectors.
Consistent with national trends, sharp increases in District
car sales in September and December 1986 and moderate
gains in Christmas sales boosted District retail sales in the
second half of the year.

Summary
Employment, construction and real income grew slightly
more rapidly last year than in 1985. This improvement is
encouraging in the fourth year of a recovery period,
particularly given the slight slowdown of employment and
construction growth at the national level.

—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.

2



SPRING 1987

FEDERAL RESERVE BANK OF ST. LOUIS

EIGHTH DISTRICT BUSINESS DATA
Rates of Change1
Current Quarter
G e n e ra l B usiness In d e x e s 2

Arkansas
Kentucky
Missouri
Tennessee
Payroll E m p lo y m e n t

United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
M a n u fa c tu rin g E m p lo y m e n t

United States
District
Arkansas
Kentucky
Missouri
Tennessee
R etail S a le s 3

United States
Arkansas
Kentucky
Missouri
Tennessee

1986

3.4%
0.4
3.4
1.5

2.3%
4.1
2.6
4.1

0.8%
1.4
2.4
2.6

2.6%
4.4
4.4
5.1

2.4%
2.9
2.4

2.9%
2.5
2.9
2.9
1.7
2.8
2.6
1.4
2.8
1.1

4.5%
4.5
3.8
3.7
5.3
4.0
4.6
4.3
4.2
5.1

-0 .6 %
- 0 .4
2.2
- 0 .4
-3 .1
0.9

-1 .2 %
- 1 .9
- 0 .9
- 2 .5
- 1 .4
- 2 .6

3.2%
3.3
2.6
4.8
3.5
2.6

6.4%
4.2
- 2 .6
2.7
5.4

5.5%
2.2
12.6
1.9
7.8

7.3%
2.4
0.2
9.1
10.9

1984

1983

IV /1 9 8 6

3.0%
2.2
2.7
0.4
2.2
4.4
-1 .2

- 0 .3
6.0
3.6

0.0
2.6
4.2
1.9
0.3
4.5
1.3

IV /1 9 8 6

0.8%
0.6
3.6
1.9
- 4 .9
3.6
IV /1 9 8 6

- 0.4%
6.6
-1 1 .6
- 9 .5
- 6 .3

1985
P erso n al In c o m e

United States
District
Arkansas
Kentucky
Missouri
Tennessee

111/1986

2.0%
4.1
1.6
3.7
2.6
7.3

6.2%
5.7
4.8
4.2
6.2
6.6

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%
6.6
7.1
4.6
7.1
7.3

8.4%
8.7
8.2
8.1
8.9
9.2

District Employment1
K ey In d u s trie s

1984

1985

IV /1 9 8 6

Prices1

C urrent Q uarter

Current Year

C urrent Q u arter

C urrent Year

IV /1 9 8 6

IV /1 9 8 5 - IV /1 9 8 6

IV /1 9 8 6

IV /1 9 8 5 - IV /1 9 8 6

2.4%
0.6
-2 .1
- 7 .6
- 0 .3
4.9

0.0
- 4 .6
- 9 .5

-1 .6 %
0.2
- 1 .0
- 7 .3
5.0
- 0 .3
1.0
-2 .1
7.2

1.1%
0.9
0.9
14.5
- 0 .4
- 0 .2
3.0
0.5
- 0 .3

0.6%
1.8
1.6
2.7
2.9
0.3
3.7
- 1 .5

0.0

3

EIGHTH DISTRICT BUSINESS DATA

U n e m p lo y m e n t R ate

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

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

Current
Quarter

Previous
Quarter

IV /1 9 8 6

111/1986

Average
1986

Average
1985

6.8%
7.6
8.9
7.7
8.3
6.1
6.4
7.3
7.9
6.9

6.9%
7.8
9.3
7.5
8.6
6.5
6.5
7.5
7.9
6.7

7.0%
7.7
8.8
6.9
9.2
7.0
6.1
7.0
7.9
6.8

7.2%
7.9
8.6
6.4
9.5
7.9
6.4
7.4
8.0
6.6

Current
Quarter

Previous
Quarter

Same Period
1985

Same Period
1984

IV /1 9 8 6

111/1986

IV /1 9 8 5

IV /1 9 8 4

$552.7
59.5
104.0
195.2
193.9

$532.4
63.2
108.9
152.2
208.1

$480.0
68.4
104.6
124.2
182.8

$457.0
68.6
90.5
131.5
166.4

$368.3
28.8
101.5
120.4
117.6

$399.2
53.8
112.6
127.0
105.8

$335.3
43.4
86.5
95.6
109.9

$392.7
36.1
72.7
146.7
137.2

(millions of dollars)
R e s id e n tia l C o n s tru c tio n

District
Arkansas
Kentucky
Missouri
Tennessee
N o n re s id e n tia t C o n s tru c tio n

District
Arkansas
Kentucky
Missouri
Tennessee

NOTE: With the exception of employment and prices in key industries, all data are seasonally adjusted. Data for Arkansas,
Kentucky, Missouri and Tennessee are used to represent the District.
1 All growth rates are compounded annual rates of change. The 1983 through 1986 growth rates compare the fourth quarter of
the year listed with the fourth quarter of the previous year.
2Although each index is a comprehensive measure of economic activity, the Arkansas and Missouri indexes, computed by Southwestern
Bell, are not strictly comparable to the Kentucky and Tennessee indexes, which are computed by South Central Bell.
3Sources: Arkansas from Southwestern Bell, Kentucky from the Kentucky Revenue Department, Missouri and Tennessee from the U.S.
Department of Commerce.
4Excludes nonbuilding construction. Source: F. W. Dodge Construction Potentials, proprietary data provided by special permission.




Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102