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Business
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1988

1980s District Income Growth Trails National
Growth
PER CAPITA INCOME AS A PERCENT OF U S. AVERAGE

The level of per capita income in the Eighth Federal
Reserve District historically has been well below the national
average. This can be seen in the chart, which shows per
capita income for the District (as represented by the four
states that dominate its economy: Arkansas, Kentucky,
Missouri and Tennessee) as a percent of the U.S. level during
the postwar period.
The chart also shows two distinct episodes of economic
change. Per capita income in the District rose from about
three-fourths of the national level in 1950 to 85 percent in
1978, but subsequently has declined slightly. Why did the
gap between District and national per capita income narrow
before 1978, and what accounts for the District’s relative
slowdown in the eighties?

Interstate Differences

Changes in Per Capita Income
Components

It is clear from the chart that Missouri differs from the
other three states, both in the level of, and change in, per
A comparison of the national and District growth of
capita income. Income per person in Missouri has been close
various components of real per capita income identifies
to the national average throughout the postwar period, while
sources of differences. The table compares compounded
annual growth rates from 1978-87 with rates from the
income levels in Arkansas, Kentucky and Tennessee have
been considerably lower. In 1987, the three states ranked 47th,
previous nine-year period, 1969-78, to pinpoint which
41st and 37th in per capita income compared with Missouri’s
segments of the economy caused the slowdown in District
24th ranking. Per capita income in 1987 was $11,344 in
states.
Arkansas, $11,951 in Kentucky and $12,738 in Tennessee
Changes in per capita income can take place because of
compared with $14,536 in Missouri and $15,340 in the nation.
variations in population as well as income. From 1969
Although the levels of per capita income in Arkansas,
through 1978, the table shows that District population grew
Kentucky and Tennessee are relatively low, their expansion
at near the national rate. Thus, District gains in per capita
was largely responsible for the District gains
income relative to the nation during this
between 1950 and the late 1970s. The table
period were derived primarily from faster
shows that real per capita income grew
income growth. In the more recent period,
substantially faster than the nation in Arkansas,
both population and income grew slower in
Kentucky and Tennessee between 1969 and
the District than in the nation. To understand
THE
FEDERAL
1978. Since 1978, per capita income growth has
why District income slowed relative to the
RESERVE
BANK of
been near the national rate in Tennessee and
nation after 1978, let us examine the sources
ST.I jO IIS
Missouri, while well below the national
of regional income growth.
average in Arkansas and Kentucky.
Total personal income consists of (1)



SUMMER 1988

FEDERAL RESERVE BANK OF ST. LOUIS

Compounded Annual Growth Rates for Real Per Capita Income and Income
Components
United States
1969-78

Per Capita income

Population
Total Personal Income
Transfer Payments
Dividends, Interest and
Rent
Earnings
Mining
Transportation and
public utilities
Construction
Manufacturing
Finance, insurance
and real estate
Services
Trade
Government
Agricultural Services
Farm

2.1%
1.1
3.2
7.6

1978-87

0.9%
1.1
1.9
2.7

District
1969-78

2.8%
1.2
3.9
7.8

Arkansas

1978-87

1969-78

0.7%
0.6
1.3
2.8

3.5%
1.8
5.3
8.6

0.4%
0.7
1.1
2.5
4.9

2.4%
0.5
2.9
6.6

0.8%
0.5
1.4
2.7

3.2
2.7
1.0

-0.3
0.5
-0.9

5.4
4.6
2.5

1.6
0.7
-0.4

2.3
3.5
1.8
1.8
3.5
3.2

2.6
4.2
-0.5
0.8
-0.6
-8.4

4.7
4.6
3.9
4.5
4.3
-1.3

3.1
5.0
0.9
0.4
0.1
-0.9

4.5
3.5
3.8

-0.6
-2 .6
-1.5

5.0
5.3
4.3
4.3
3.0
5.2

2.1
3.4
-0.4
1.3
-3.7
-6.0

4.5
3.6
3.6
2.2
6.8
-0 .7

1.4
3.5
-0.5
0.8
2.8
-6.5

4.2
3.8
2.5

0.4
-0.6
-0.7

3.9
4.0
2.7
2.4
5.3
0.4

3.8
4.7
0.8
1.2

3.7
4.0
3.0
3.0
4.2
2.0

2.5
4.2

average in 1969 to 89 percent in 1978. By 1987, however,
earnings per District worker slipped to 87 percent of the
national figure. In addition to changes in industry mix,
relatively rapid pay increases within some District sectors
compared with their national counterparts had a slight effect
in narrowing the gap between District and national earnings
per worker before 1978. For example, in 1969 District mining
workers earned 96 percent of the national mining average.
By 1978, this percentage rose to 103 percent, but dropped
back to 95 percent by 1987.

Summing Up
In conclusion, from 1948 through the late 1970s, District
per capita income outpaced the national average. The gains
were largely due to a more rapid shift toward high-paying
sectors than occurred nationally, which boosted average
earnings per worker. Also, dividends, interest and rent grew
substantially faster in the District than in the nation.
The District’s relative income gains have stalled since 1978,
as transfer payments and dividends, interest and rent have
grown at near the national rate and earnings have grown
substantially slower, particularly in Arkansas and Kentucky.
Tennessee’s earnings growth, as well as total per capita
income growth, have been similar to the national average
since 1978, and have exceeded the national rate during the
current recovery. Unless the other District states follow suit,
and income growth returns to the faster pace characteristic
of the 1948-78 period, District per capita income w;H remain
well below the national average in future decades.
—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



1.0%
0.9
1.9
3.1

0.0

1.5
-3.0
-0.1

0.3
0.5
-0.8

2.8%
1.5
4.4
8.9

1978-87

5.2
1.2
-2 .7

5.4
6.0
4.6

3.5
3.2
1.3

0.0

1969-78

4.6
3.7
10.7

-1.7

5.7
4.7
4.0

transfer payments, (2) dividends, interest and rent, and (3)
earnings. While District transfer payments grew at near the
national rate in both periods, the pattern of growth of
dividends, interest and rent suggests that it contributed to
the rise and fall of District per capita income relative to the
nation. District dividends, interest and rent outpaced the
national average before 1978, but later grew more slowly.
The most dramatic slowdown, however, has been in
earnings, which includes wages, salaries and proprietors’
income. Earnings represent more than two-thirds of total
personal income during the period and has been the most
influential source of the altered trends in total income. Real
earnings in the District rose more rapidly than the national
average before 1978 (3.2 percent compared with 2.6 percent)
but grew much more slowly afterward (0.4 percent vs. 1.2
percent). This slowdown was particularly severe in Arkansas
and Kentucky, where real earnings have shown no positive
growth since 1978.
One factor that contributed to the rise of regional earnings
before 1978 and, thus, to higher per capita income, was a
shift in the District’s industrial composition toward higher­
paying sectors. This shift can be seen in the rapid expansion
between 1969 and 1978 of the four highest paying sectors:
mining, transportation and public utilities, construction and
manufacturing (see table). After 1978, however, growth in
these sectors fell back to near, or below, the national rates.
This shift in industrial structure toward higher-paying
industries in the 1970s contributed to a gain in the region’s
average earnings per worker from 85 percent of the national

0.3%
0.4
0.7
2.7

Tennessee

1978-87

4.4
0.4

4.7
0.4
-3 .2

0.0

2.8%
1.4
4.2
7.6

Missouri
1969-78

3.6
2.2
4.1

4.3
3.2
11.6

-2 .5

1978-87

4.7
-0.4
-4 .0

4.8
1.2
-0.6

0.0

Kentucky
1969-78

4.7
3.5
14.4

2.9
2.6
7.7

0.7
-0 .2
-6.0

1978-87

FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1988

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
P ayro ll 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
P erso nal In c o m e

United States
District
Arkansas
Kentucky
Missouri
Tennessee

1987

1/1988

- 0.3%
2.1
2.0
2.3

4.20/0
2.2
2.2
3.3

0.2%
3.2
1.8
4.8

1.0%
0.8
3.0
3.6

2.9%
2.9
3.4
2.4
2.5
3.5
2.1
1.3
3.9
2.4

2.0%
2.4
2.5
0.6
2.3
2.8
1.5
1.1
3.6
4.1

2.7%
2.4
1.6
2.9
2.2
2.3
2.0
2.2
3.2
3.0

1.9%
2.0
5.0
3.3
0.2
1.7

- 0.9%
-0 .3
2.3
-0 .4
-3.0
1.1

- 1.8%
-1 .7
-1 .7
-2.1
- 1.4
- 1.7

4.20/0
4.0
3.5
4.0
8.5

5.9%
2.2
-2 .2
2.1
6.2

6 .20/0

7.1%
6.8
3.7
6.9
6.9
8.1

5.6%
5.5
5.4
4.4
5.3
6.5

1/1988

3.9%
6.2
2.8
5.9
10.8
11.2
5.7
9.5
5.3
16.8
1/1988

1.9%
4.2
3.4
11.0
5.6
0.0
1/1988

9.3%
19.0
62.3
13.7
18.6

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




2.2
12.9
3.3
9.2

IV /1 9 8 7

10.6%
10.0
6.7
7.4
13.6
9.1

District Employment1
Key In d u stries

1985

1986

6.9%
6.1
6.4
4.3
6.3
7.1

Prices1

Current Quarter

Current Year

C urrent Q uarter

C urrent Year

1/1988

1/1987 - 1/1988

1/1988

1/1987 - 1/1988

-2.0%
2.1
3.9
16.7
-11.0
-7.1
13.6
-2.8
-32.5

2.4o/o
3.3
0.2
3.8
0.9
1.9
6.0
- 1.2
1.1

9.6o/o
2.5
3.3
- 1.4
4.5
4.6
11.9
9.9
6.2

6 .30/0

1.4
1.9
0.4
3.2
4.1
5.0
7.4
5.5

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

Average
1987

Average
1986

1/1988

IV /1 9 8 7

5.7%
6.5
7.7
6.8
8.2
6.2
5.4
6.3
5.8
5.0

5.9%
6.9
7.9
6.8
8.0
6.3
6.2
6.6
6.3
5.6

6.2%
7.2
8.1
7.1
8.9
7.0
6.2
6.9
6.8
5.9

7.0%
7.8
8.8
6.9
9.3
7.1
6.1
7.0
8.1
6.8

Current
Quarter

Previous
Quarter

Same Period
1987

Same Period
1986

1/1988

IV /1 9 8 7

1/1987

1/1986

$512.8
38.5
113.7
185.9
174.8

$529.7
57.0
116.0
169.1
187.6

$574.7
52.2
111.6
200.7
210.2

$509.0
68.7
108.4
160.3
171.6

$385.3
42.6
83.2
125.6
133.8

$421.9
26.8
110.9
122.1
162.1

$388.7
30.5
117.2
111.7
129.3

$350.1
38.1
71.9
138.9
101.2

(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 l 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 1985 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