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J u n e 1990

An Economic Perspective on the 8th District

SEP 2.7 2001

TH E
FEDERAL
1RESERVE
RANK o f
ST. IX >1 IS
,

Mixed Results For Banks in 1989
t

Internationalization in the Eighth: The Role of Exports

.

Understanding Farm Income: Proceed with Caution



—

w x

h

.

1*

-U

THE EIGHTH FEDERAL RESERVE DISTRICT

CONTENTS_____________________________________________________________________________

Banking and Finance
Bank Performance in 1989: The Pluses and Minuses..............................................................................................1

Business
Eighth District Manufacturers Expand Exports........................................................................................................ 6

Agriculture
Potential Pitfalls of Interpreting Farm Income D a ta......................................................... ................................... 10

Statistics ............................................................................................................................................................14
Pieces of Eight—An Economic Perspective on the 8th District is a quarterly summary of agricultural, banking and
business conditions in the Eighth Federal Reserve District. Single subscriptions are available free of charge by writing:
Research and Public Information Department, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis,
MO 63166. The views expressed are not necessarily official positions of the Federal Reserve System.



1

Bank Performance in
1989: The Pluses and
Minuses
By Michelle A. Clark
Thomas A. Pollmann provided research assistance.

T

^ H L h e 1989 performance of commercial
banks in the Eighth Federal Reserve District, like
that of their national counterparts, was marked by
both positive and negative developments.1 In con­
trast to U.S. banks of comparable size, District
banks experienced an overall decline in profitabili­
ty, but improvement in asset quality in 1989. A
state-by-state analysis of the financial performance
and condition of banks in Eighth District states is
presented here.2

Statewide Performance
Arkansas
As table 1 indicates, Arkansas banks posted an
average return on assets (ROA) of 1.02 percent
and an average return on equity (ROE) of 11.89
percent in 1989.3 Earnings totaled $196.06 million
in 1989, up 12.7 percent from 1988 earnings of
$173.98 million, and the largest increase of the
District’s seven states. The average net interest
margin of 4.37 percent was down slightly from
1988, but was the highest margin in the District in
1989.
Profitability ratios rose in 1989 because of
decreases in the net noninterest margin and the
loan loss provision ratio. The net noninterest
margin declined because of a decrease in noninter­
est expense (overhead), from 3.24 percent of assets
in 1988 to 3.19 percent in 1989. The loan loss
provision ratio continued to decline in 1989, and
the year-end ratio of 0.33 percent was approximate-

Table 1
Earnings Analysis
United States and Eighth District States, 1987-89
United Eighth
States1 District

AR

IL

IN

KY

MS

MO

0.86%
0.99
-0 .2 3

0.98%
1.02
0.79

1.01%
1.00
0.94

0.80%
0.83
0.85

0.88%
0.86
0.64

TN

Return on Assets
1989
1988
1987

0.74%
0.72
0.54

0.88%
0.92
0.80

1.02%
0.95
0.91

0.59%
0.81
0.87

Return on Equity
1989
1988
1987

10.25
10.04
7.54

11.26
11.68
10.24

11.89
11.28
10.96

13.60
15.69
-3 .9 0

12.75
13.46
10.54

12.65
12.38
11.60

9.87
10.58
10.93

11.64
11.24
8.64

8.13
10.89
11.79

4.44
4.42
4.48

4.13
4.16
4.27

4.37
4.43
4.70

3.64
3.62
3.61

4.19
4.12
4.22

4.09
4.10
4.12

4.24
4.40
4.70

4.12
4.16
4.29

4.34
4.50
4.71

2.12
2.17
2.21

1.93
1.99
1.98

2.14
2.19
2.13

1.46
1.54
1.68

1.92
1.92
2.04

1.76
1.87
1.90

2.16
2.19
2.25

1.86
1.96
1.99

2.09
2.07
2.07

0.69
0.59
0.79

0.46
0.38
0.60

0.33
0.40
0.66

0.35
0.27
1.45

0.37
0.34
0.55

0.47
0.43
0.52

0.43
0.41
0.53

0.52
0.48
0.77

0.82
0.62
0.55

Net Interest
Margin
1989
1988
1987

Net Noninterest
Margin
1989
1988
1987

Loan Loss
Provision
1989
1988
1987

1Because all banks in the Eighth District have assets of less than $10 billion, this category includes only those banks in the
United States with assets of less than $10 billion to allow for a meaningful comparison.
NOTE: State data are for whole state, not just the portion located within the Eighth District.
SOURCE: FFIEC Reports of Condition and Income for Insured Commercial Banks, 1987-1989




2

Table 2
Asset Quality and Capital Adequacy Analysis
United States and Eighth District States, 1987-89
United Eighth
States1 District

IL

AR

IN

KY

MS

MO

TN

Nonperforming
Loans
1989
1988
1987

2.20%
2.10
2.40

1.60%
1.62
2.10

1.90%
2.10
2.94

2.170/o
2.40
2.63

1.41%
1.19
1.37

1.73%
1.53
1.68

1,420/o
1.48
1.57

1.57%
1.67
2.30

1.82%
1.41
1.44

0.83
0.87
0.89

0.67
0.73
0.70

0.56
0.75
1.24

1.37
0.83
0.73

0.60
0.54
0.66

0.65
0.61
0.64

0.69
0.65
0.84

0.70
0.90
0.73

1.03
0.93
0.60

8.25
8.12
8.11

8.71
8.72
8.72

9.40
9.21
9.14

7.63
8.03
7.86

8.36
8.29
8.28

8.72
8.78
8.86

8.87
8.61
8.55

8.54
8.60
8.45

8.37
8.35
8.33

Net Loan Losses
1989
1988
1987

Primary Capital
1989
1988
1987

’ Includes only U.S. banks with assets of less than $10 billion.
NOTE: State data are for whole state, not just the portion located within the Eighth District.
SOURCE: FFIEC Reports of Condition and Income for Insured Commercial Banks, 1987-1989

one-third its 1986 level. A decline in the ratio of
nonperforming loans to total loans from 1988 to
1989 allowed banks to lower their loan loss provi­
sion ratios.
As table 2 illustrates, the nonperforming loan
ratio of 1.90 percent in 1989, however, was still
well above the District average of 1.60 percent;
nonperforming real estate loans comprised almost
60 percent of total nonperforming loans at Arkan­
sas banks compared with the 49 percent average
for District and U.S. banks. The ratio of net loan
losses to total loans fell by more than a quarter in
1989 to 0.56 percent, the lowest charge-off rate
among District states.
For the third consecutive year, Arkansas banks
registered the highest primary capital ratio of
District states, averaging a ratio of 9.40 percent in
1989 compared with a District average of 8.71
percent. At year-end 1989, just three Arkansas
banks failed to meet the minimum primary capital
requirement of 5.5 percent.4

Illinois
After a substantial rebound in 1988, Illinois
banks recorded lower profitability ratios in 1989:
ROA of 0.86 percent and ROE of 13.60 percent,
compared with 0.99 percent and 15.69 percent in
1988.5 Despite the drop in profitability, Illinois
banks still achieved the highest ROE of all District
states.
Aggregate earnings fell 7.3 percent to $1.69
billion in 1989 primarily because of large additions
to loan loss provisions by the state’s largest banks,



most of which are not located within the Eighth
District. The loan loss provision ratio increased
from 0.27 percent in 1988 to 0.35 percent in
1989, a ratio substantially lower than the 1.45 per­
cent recorded in 1987 when the state’s biggest
banks set aside large sums to cover nonperforming
foreign loans. Unlike the loan loss provision ratio,
both the net interest margin and the net noninterest
margin showed improvement over 1988. The net
noninterest margin declined to 1.46 percent in
1989, as the state’s banks were successful in
lowering overhead.
Asset quality, as measured by the ratio of non­
performing loans to total loans, improved at Illinois
banks in 1989 because of a large decline in the
nonperforming loan ratio for the state’s two largest
banks. Nonperforming real estate loans as a per­
cent of total nonperforming loans rose in 1989, but
comprised little more than 21 percent of total nonperforming loans, less than half the District and
national averages. The net loan loss ratio, however,
rose more than 65 percent in 1989, primarily
because the state’s largest banks wrote off loans to
lesser-developed countries (LDCs) that they had
taken provisions for over the past several years.
Foreign loan losses made up more than 56 percent
of overall net loan losses in 1989.
For the third consecutive year, Illinois banks
recorded the lowest average primary capital ratio
of District states; the 1989 ratio of 7.63 percent
was down from the 1988 ratio of 8.03 percent par­
tially because of the large write-offs in 1989 that
reduced the allowance for loan losses, a compo­
nent of primary capital.

3

Indiana
Indiana banks earned $535.5 million in 1989,
up 1.6 percent from 1988 earnings of $527.3
million. Aggregate profitability ratios were down
from their 1988 levels, however, because asset and
equity growth exceeded earnings growth. Indiana
banks averaged ROA of 0.98 percent and ROE of
12.75 percent in 1989, ratios well above the District
averages. The net interest margin rose 7 basis
points as growth in interest income exceeded growth
in interest expense. The net noninterest margin re­
mained unchanged at 1.92 percent, a level identical
to the District average. An increase in the loan
loss provision from 0.34 percent of average assets
in 1988 to 0.37 percent in 1989 dampened Indiana
banks’ aggregate earnings.
Overall asset quality deteriorated at Indiana
banks in 1989 as both the average nonperforming
loan ratio and the average charge-off ratio increased
from 1988 levels. Nonperforming commercial and
industrial loans made up the the largest share of
total nonperforming loans at year-end 1989 at
slightly more than 46 percent; nonperforming real
estate loans rose to approximately one-third of
total nonperforming loans in 1989. Indiana banks
wrote off 60 cents for every $100 of loans on the
books at year-end 1989 compared with 54 cents in
1988. Consumer loan losses comprised the highest
share of net loan losses in 1989 at 43.5 percent.
Indiana banks on average were capitalized well
above the minimum standards in 1989. The
average primary capital ratio of 8.36 percent in
1989 was an improvement over the 1988 level, but
was once again below the District average. Only
two of Indiana’s 310 reporting banks failed to
meet the minimum primary capital ratio compared
with one out of 336 reporting banks in 1988.

Kentucky
Kentucky’s 335 reporting banks registered the
second-largest increase in earnings of District
states; earnings rose 9.1 percent in 1989 to
$389.68 million. Kentucky banks also recorded the
second-highest average ROA in 1989 at 1.01 per­
cent and posted the third-best ROE at 12.65 per­
cent. Despite the District’s second-lowest net in­
terest margin, Kentucky banks’ earnings rose in
1989 because of a sharp drop in the net noninterest
margin. The net noninterest margin of 1.76 per­
cent was the second-lowest margin recorded among
District states, and resulted from a rise in the
noninterest income ratio and a fall in the
noninterest expense ratio. A decline in asset quali­
ty prompted an increase in the loan loss provision,
which rose from 0.43 percent of average assets in
1988 to 0.47 percent in 1989.
After two years of improvement, asset quality
at Kentucky banks weakened in 1989. The nonper­



forming loan ratio increased more than 13 percent
in 1989 to 1.73 percent. Nonperforming real estate
loans to total nonperforming loans rose from 39.4
percent in 1988 to 42.9 percent in 1989, while the
share of nonperforming commercial loans fell from
47.5 percent to 39.2 percent. Net loan losses in­
creased from 0.61 percent of total loans in 1988 to
0.65 percent in 1989. Commercial loan losses once
again made up the greatest share of net loan losses,
followed by consumer losses and real estate losses.
One Kentucky bank fell short of the minimum pri­
mary capital ratio in 1989.

Mississippi
Mississippi banks earned $158.46 million in
1989, up just 0.2 percent from 1988 earnings.
Weak earnings growth coupled with relatively
strong asset growth (5 percent) led to lower pro­
fitability ratios for Mississippi banks in 1989: 0.80
percent ROA and 9.87 percent ROE compared with
ratios of 0.83 percent and 10.58 percent in 1988.
A lower net interest margin and higher loan loss
provision ratio accounted for the relatively flat earn­
ings growth at Mississippi banks. Interest income
as a percent of average earning assets rose 5.4 per­
cent, but the interest expense ratio increased 12.7
percent, leading to the decline in the net interest
margin. Although it fell slightly in 1989, Mississip­
pi banks still recorded the highest net noninterest
margin of all District states.
Asset quality continued to improve in 1989, as
the nonperforming loan ratio fell for the third con­
secutive year. Nonperforming real estate loans
made up slightly more than 46 percent of total
nonperforming loans in 1989, but unlike District
and national trends, the ratio declined from 1988
when it was more than 50 percent. Mississippi
banks’ charge-off rate increased to 0.69 percent in
1989. Commercial loan losses comprised the largest
portion of net loan losses (45.5 percent), followed
by consumer loan losses at 33.4 percent.
Mississippi banks improved their capital ade­
quacy in 1989 and registered the second-highest
average primary capital ratio among District states
at year-end 1989, 8.87 percent, compared with
8.61 percent in 1988. All of Mississippi’s 123
reporting banks met the minimum capital re­
quirements in 1989.

Missouri
Missouri’s banks increased their earnings 9
percent in 1989 to $500.67 million. Greater earn­
ings growth than asset growth boosted ROA from
0.86 percent in 1988 to 0.88 percent in 1989,
while ROE increased from 11.24 percent to 11.64
percent. The average net interest margin declined
4 basis points in 1989 while the net noninterest
margin declined more than 5 percent from 1988,

I
because of a drop in the ratio of noninterest ex­
pense to average assets. The loan loss provision
ratio edged above the District average to 0.52 per­
cent in 1989.
Overall asset quality improved at Missouri
banks in 1989 as both the nonperforming loan ratio
and the net loan loss ratio declined. The nonper­
forming loan ratio of 1.57 percent at year-end
1989 was the lowest ratio recorded in three years.
Nonperforming real estate loans increased from
38.5 percent of total nonperforming loans in 1988
to 55.8 percent in 1989, surpassing both District
and national averages. Other nonperforming loans,
which includes loans to foreign governments, de­
clined from 12.6 percent of total nonperforming
loans in 1988 to 4.1 percent in 1989 as Missouri
banks continued to decrease their exposure to LDC
debt. This decrease in exposure is also reflected in
the net loan loss data; the ratio of foreign loan
losses to net loan losses declined from 26.6 per­
cent in 1988 to less than 1 percent in 1989. The
ratio of real estate loan losses to net loan losses
almost doubled from 1988 to 1989, and stood at
27 percent at year-end 1989.
Despite increased profits and improved asset
quality, the average primary capital ratio for
Missouri banks fell slightly in 1989 to 8.54 per­
cent. Four Missouri banks failed to meet the
minimum primary capital ratio in 1989.

Tennessee
Tennessee banks posted the sharpest decline in
profitability among District states: earnings totaled
$269.51 million in 1989, down 22.7 percent from
1988 earnings of $348.48 million. ROA and ROE
declined more than 25 percent from their 1988
levels, and the 1989 averages of 0.59 percent and
8.13 percent were well below District and national
averages. More than 10 percent of Tennessee’s
reporting banks recorded losses in 1989. The net
interest margin, net noninterest margin and loan
loss provision ratio all contributed to the decline in
profitabil-ity ratios. The loan loss provision ratio
increased by almost one-third to 0.82 percent in
1989, the highest ratio among District states by far.
Deteriorating asset quality was primarily
responsible for Tennessee banks’ poor performance
in 1989. Both the nonperforming loan ratio and the
net loan loss ratio increased substantially in 1989.
Nonperforming real estate loans climbed from 39.9
percent of total nonperforming loans in 1988 to
55.8 percent in 1989, primarily due to the delin­
quent commercial real estate loans of one
developer. Tennessee banks wrote off $1.03 for
every $100 in outstanding loans in 1989. Although
real estate loan losses to net loan losses increased
in 1989, commercial loan losses still made more
than half of net loan losses.



Equity growth surpassed by a small margin
asset growth of 4.7 percent at Tennessee banks in
1989, accounting for the slight rise in the average
primary capital ratio from 8.35 percent in 1988 to
8.37 percent in 1989. Eight Tennessee banks failed
to meet the minimum primary capital ratio in
1989, up from two banks in 1988.

CONCLUSION
Commercial banks in most Eighth District
states continued to outperform their national peers
in 1989, with higher earnings ratios, better asset
quality and higher capital ratios. Although ROA
and ROE declined on average for District banks in
1989 while they rose for U.S. banks of com­
parable size, the ratios were still well above nation­
al averages. Despite lower net interest margins,
District banks were able to generate higher pro­
fitability ratios than U.S. banks overall because of
lower overhead and loan loss provision ratios.
Asset quality as measured by the nonperform­
ing loan ratio generally improved at District banks
in 1989. As with banks across the country, nonper­
forming real estate loans made up a greater share
of total nonperforming loans at most District banks
in 1989 than in 1988. Although the net loan loss
ratio declined at the District level in 1989, it rose
in all states except Arkansas and Missouri as banks
wrote off loans they had taken provisions for in the
current and previous years. Finally, all District
banks had average primary capital ratios well
above the minimum standard.

5

RATIO DEFINITIONS
Return on assets ratio (ROA): a bank’s net in­
come divided by its average annual assets.
Return on equity ratio (ROE): a bank’s net in­
come divided by its equity capital. Equity capital
consists of common and perpetual preferred stock,
surplus, undivided profits and capital reserves and
cumulative foreign currency translation adjustments.
Net interest margin: the difference between in­
terest income and interest expense divided by aver­
age earning assets. Interest income comprises the
interest and fees earned from interest-earning assets,
and includes such items as interest and points on
loans, interest and dividends from securities
holdings, and interest from assets held in trading
accounts. Interest expense includes the interest paid
on all categories of interest-bearing deposits, the
expenses incurred in purchasing federal funds and
selling securities under agreements to repurchase
and interest paid on capital notes.
Net noninterest margin: noninterest income less
noninterest expense (overhead), usually a negative
value, divided by average assets. Noninterest ex­
pense is the sum of the costs incurred in the bank’s
day-to-day operations, which includes employee sal­
aries and benefits, expenses of premises and fixed
assets, as well as legal and directors’ fees, insurance
premiums and advertising and litigation costs. Non­
interest income includes income from fiduciary
(trust) activities, service charges on deposit ac­

FOOTNOTES
1The Eighth Federal Reserve District comprises the
following: Arkansas, entire state; Illinois, southern 44
counties; Indiana, southern 24 counties; Kentucky,
western 64 counties; Mississippi, northern 39 counties;
Missouri, eastern and southern 71 counties and the City
of St. Louis; Tennessee, western 21 counties. State
data presented in this article cover the whole state, not
just the portion of the state located within the Eighth
Federal Reserve District.
2A more detailed analysis of the financial performance
and condition of U.S. and Eighth District banks in 1989
is provided in the May/June 1990 issue of the Federal
Reserve Bank of St. Louis’ Review.
3Refer to the shaded insert “ Ratio Definitions” for a brief
description of the ratios presented in this article.
“Since 1985, banks have been required by the regulatory
agencies to maintain minimum standards of 5.5 percent
primary capital-to-total assets and 6 percent total
capital-to-total assets. By year-end 1990, these stan­
dards will be replaced by a new core capital-to-total
assets ratio (leverage ratio) and capital ratios based on
risk-adjusted assets, standards designed to adjust



counts, trading gains (losses) from foreign ex­
change transactions, gains (losses) and fees from
assets held in trading accounts, and charges and
fees from miscellaneous activities like safe deposit
rentals, bank draft and money order sales and
mortgage servicing. The net noninterest margin is
reported as a positive number, so smaller net non­
interest margins indicate better bank performance.
Loan (and lease) loss provision ratio: the provi­
sion for loan and lease losses divided by average
assets. The provision for loan and lease losses is
an income statement account that reduces a bank’s
current earnings.
Nonperforming loan and lease loss ratio: loan
and lease financing receivables that are 90 days or
more past due or in nonaccrual status divided by
average total loans. Restructured loans and leases
that fall into the 90 days or more delinquent status
or in nonaccrual status are included as well.
Net loan loss ratio (charge-off rate): loan losses
(adjusted for recoveries) divided by total loans.
Primary capital ratio: primary capital divided by
average adjusted assets (total assets less goodwill).
Primary capital is the sum of common stock, per­
petual preferred stock, surplus, undivided profits
(retained earnings), contingency and other capital
reserve, qualifying mandatory convertible instru­
ments, loan and lease loss reserves, minority inter­
ests in consolidated subsidiaries, less intangible as­
sets excluding purchased mortgage servicing rights.
(For the purposes of this article, only the goodwill
portion of intangible assets was deducted).

capital requirements to the risk of investment activity.
Through 1990, banks have the option of meeting the
primary capital/total capital standards, or the transition
capital requirements effective December 31, 1990, of
7.25 percent qualifying capital-to-risk-adjusted assets,
3.625 percent core capital-to-risk-adjusted assets and 3
percent leverage ratio. By year-end 1992, all banks will
be required to meet the 3 percent leverage ratio, an
8 percent capital-to-risk-adjusted assets ratio and a 4 per­
cent core capital-to-risk-adjusted assets ratio.
5Some performance measures at Illinois banks are skewed
by the results at the biggest Illinois banks, the eight
banks with assets of $1 billion or more, none of which
are in the Eighth District. For example, overall earnings
were negative for Illinois banks in 1987 because of huge
provisions the big banks took for loans to lesserdeveloped countries.

6

Eighth District
Manufacturers Expand
Exports

Figure 1

State Export Shares
Percent of U.S. Totel

Thomas B. Mandelbaum
Thomas A. Pollmann provided research assistance.

^ ^ ^ n te m a tio n a l business activity has become in­
creasingly important throughout the United States.
This activity takes numerous forms involving vir­
tually all types of trade and investment flows.
State leaders have recognized this fact and have
become more involved in attempting to influence
these flows. According to the National Governors’
Association, for example, governors from 41 states
and territories made trips to 34 countries in 1989.
These visits, which generally include a delegation
of state government and business officials, are de­
signed to increase exports and attract investment.
The goal of this paper is not to assess the effective­
ness of these efforts but rather to highlight the im­
portance of one underlying reason for many of these
business trips, the export of manufactured products.
This article examines manufactured exports
from the Eighth Federal Reserve District since
1963, with an emphasis on changes that took place
between 1976 and 1986. District exports are first
described in the context of the overall regional
shift of U.S. export activity. A discussion of the
economic significance of exports in the Eighth
District and in District states and the composition
of these exports follows.

The Regional Shift o f Export
Activity
Export activity involving manufactured pro­
ducts has played an important, and growing, role
in the U.S. economy. In 1986, the value of direct
manufactured exports totaled almost $160 billion,
more than three times as much as in 1963, after
adjusting for price changes.1 The share of gross
national product accounted for by these exports
rose from 2.8 percent in 1963 to 4.3 percent in
1986.
Not all regions, however, have enjoyed the
rapid growth of manufactured exports found at the
national level. Export activity has shifted away
from the so-called Rustbelt in recent decades, mir­
roring the general shift of manufacturing activity.



The shares of U.S. manufactured direct exports
from the Middle Atlantic Census Region declined
from 21.3 percent in 1963 to 12 percent in 1986
while the East North Central Census Region’s
share declined from 29.9 percent to 23.3 percent.2
The export shares of all other Census Regions have
risen in that period, with the largest increase in the
Pacific Region, which includes the three Pacific
coast states, Hawaii and Alaska.
The Eighth District, which straddles several
Census regions, experienced export growth slightly
faster than the national average since 1963.3 The
District share of the U.S. total increased from 4.7
percent in 1963 to 5.6 percent in 1976 and 6.4 per­
cent in 1986. The District’s 1986 share was its
largest for any year in the 1963-86 period. As
figure 1 reveals, the District gain since 1963 has
reflected relatively rapid growth in Arkansas,
Missouri and Tennessee.
Real direct manufactured exports expanded
rapidly between 1976 and 1980 in both the nation
and the District. In subsequent years through 1986,
however, these exports declined slowly in the na­
tion and grew only weakly in the District. The lack
of substantial export growth in the first half of the
1980s is partly attributed to the strengthening ex­
change value of the dollar, which tended to increase
the price of U.S. exports in foreign markets. Other
factors, such as sluggish economic growth abroad
and rising levels of trade barriers, also hindered
export growth.
No consistent state or regional export data is
available after 1986.4 At the national level, how­
ever, manufactured exports have grown rapidly in
recent years. To the extent that the District share
of U.S exports has been stable, or has continued to
rise, District manufactured exports have also
expanded.

I
Table 1
Employment Related to Manufactured Exports
Export-Related Manufacturing
Employment
As a Percent of
Mfg. Employment
1986
1976

Level (thousands)
1976
1986
United States
Eighth District
Arkansas
Kentucky
Missouri
Tennessee

2125.4
119.2
14.7
25.6
40.7
38.2

2318.2
128.4
17.8
24.4
44.0
42.2

Total Export-Related
Employment, 1986

11.3%
8.7
7.8
9.2
9.6
8.0

12.6%
9.8
9.2
10.3
10.8
9.0

Level
(thousands)

As a Percent
of Total
Employment

4576.6
260.7
35.9
52.8
89.4
82.6

4.1%
3.7
3.5
3.4
3.7
3.8

SOURCE: U.S. Bureau of the Census. 1977 Census of Manufactures, and Exports from Manufacturing Establishments: 1985
and 1986.

How Export-Dependent is the
District Economy?

cluding both manufacturing and nonmanufacturing
workers, more than 260,000 District workers, or
3.7 percent of all civilian workers, held jobs related
to exports in 1986. As table 1 shows, the corre­
sponding national percentage of 4.1 percent was
slightly higher.

Despite relatively rapid growth to more than
$10 billion in 1986, District exports accounted for
a slightly smaller share of District economic activi­
ty than did exports at the national level. The value
of District direct exports in both 1976 and 1986
accounted for approximately 6 percent of total man­
ufacturing shipments compared with about 7 per­
cent nationally. In 1986, Missouri, with 7.3 per­
cent, was the only District state in which exports
as a percentage of shipments exceeded the national
average.
Employment data, shown in table 1, tell a
similar story. Export-related manufacturing employ­
ment accounted for less than 10 percent of manu­
facturing employment in 1976 and 1986 compared

Table 2 provides a more detailed picture of the
value of direct export shipments in 1986. It is
clear that the composition of state and District ex­
ports, shown in the first column for each area, dif­
fers substantially from the national average. The
most significant differences include the District’s
relatively higher export concentration in transporta­
tion equipment, chemicals and food and kindred
products and its smaller concentration in nonelec­

with more than 11 percent nationally. The number

trical machinery and electrical equipment.

of District manufacturing workers dependent on
exports rose from approximately 119,000 in 1976,
or 8.7 percent of manufacturing employment, to
128,000 in 1986, or 9.8 percent of manufacturing
employment. Export-related manufacturing employ­
ment includes not only workers producing goods for
export, but also workers in factories or manufac­
turers’ administrative offices furnishing intermedi­
ate material inputs or services to the exporting
plants. These supporting workers account for more
than half of all export-related manufacturing em­
ployment in both the District and the nation.
The total number of workers dependent on
manufacturing, however, goes beyond those in the
manufacturing sector. Nonmanufacturing workers
who supply services to export producers as well as
workers in wholesale/retail trade, mining and trans­
portation, communication and utilities firms who
facilitate the production and shipping of exports
are also dependent on manufactured exports. In­

The second column for each area in table 2 in­
dicates export orientation, that is, the percent of
each industry’s total shipments that was exported.
Wide variation in export orientation is evident
among District industries, ranging from 0.3 per­
cent for printing and publishing—indicating it pro­
duces almost exclusively for the domestic market—
to 10.6 percent for the transportation equipment
sector.
Whereas transportation equipment was the
leading export industry in both the District and the
nation, the District share was much larger. The in­
dustry’s $3.7 billion in direct exports accounted
for more than a third of all District direct exports
in 1986. This large share primarily stems from
Missouri’s export of motor vehicle- and aircraftrelated products. Of Missouri’s $4.3 billion total
direct exports in 1986, more than two-thirds origi­
nated in this sector. The rapid growth since 1976
of transportation equipment exports from Missouri




Which District Industries Export?

Table 2
Composition of Direct Exports and Industry Export Orientation, 1986.
KENTUCKY
ARKANSAS
Percent
Percent
Export
of Total
of Total
Export
Exports Orientation1 Exports Orientation1
Manufacturing
Food and kindred
products
Tobacco products
Textile mill
products
Apparel and
textile
Lumber and wood
products
Furniture and
fixtures
Paper and allied
Printing and
publishing
Chemicals and
allied
Petroleum and
coal
Rubber and
plastic
Leather products
Stone, clay,
glass
Primary metals
Fabricated
metals
Nonelectrical
machinery
Electrical
equipment
Transportation
equipment
Instruments
Miscellaneous

4.8%

MISSOURI
Percent
of Total
Export
Exports Orientation1

5.2%

TENNESSEE
EIGHTH DISTRICT
Percent
Percent
Export
of Total
of Total
Export
Exports Orientation1 Exports Orientation1

7.3%

7.1
NA

14.6%
2.4

7.0
2.5

4.4%
NA

2.1
NA

9.9%
3.7

0.7

3.6

0.9

3.6

0.0

1.7

0.8

0.6

2.0

0.8

1.8

0.4

2.3

3.0

2.3

0.5

2.2

0.1

0.2
7.7

0.4
4.1

0.1
4.9

1.1
9.1

NA

NA

NA

15.2

16.2

2.2

7.1%

11.0%
1.5

4.2
6.6

7.0%
1.3

1.4

0.5

2.1

1.1

3.2

1.6

2.0

0.8

2.0

0.9

2.4

0.9

0.6

1.9

0.6

2.0

1.7

4.6

0.2
0.3

1.4
0.6

1.0
1.7

1.9
1.8

0.4
2.4

1.5
3.1

0.3
2.5

1.5
4.1

NA

0.3

0.5

0.3

0.4

0.2

0.3

0.8

1.1

17.8

8.8

7.5

6.6

31.2

12.3

17.0

10.1

13.2

10.6

4.3

NA

NA

0.5

5.2

0.3

1.4

0.5

3.4

2.0

2.5

3.5
0.5

3.4
2.5

2.4
NA

3.7
NA

1.3
0.5

4.6
3.4

2.3
0.5

2.6
3.1

2.0
0.4

3.4
3.2

1.9
0.4

4.0
7.2

0.2
1.1

0.6
1.2

1.6
2.6

5.3
2.0

0.9
1.2

3.5
3.5

3.4
2.6

6.3
3.5

1.7
1.9

4.7
2.6

1.0
2.1

2.7
3.2

4.5

2.8

1.7

1.6

2.5

3.1

2.8

2.8

2.6

2.7

3.3

3.8

7.9

5.3

17.0

9.1

5.3

9.4

15.6

10.3

10.7

9.1

20.4

15.6

9.8

3.8

6.2

3.6

6.2

7.0

7.8

4.8

7.0

4.9

11.4

9.2

4.8
2.6
0.8

5.5
7.8
4.1

22.5
1.0
Z

6.4
7.6
NA

67.2
1.0
0.2

12.7
9.4
2.3

10.3
2.5
1.0

6.8
12.5
3.6

35.9
1.6
0.4

10.6
9.9
3.4

22.6
5.3
1.0

11.5
13.8
6.1

3.5
22.7

SOURCE: Figures were computed from data in U S. Bureau of the Census. Exports from Manufacturing Establishments (January 1989).
NOTE: NA indicates that data are not available. Z indicates less than .05 percent.
’ Percent of each industry’s total shipments that were exported




6.0%

5.5%

4.0°/o
NA

UNITED STATES
Percent
of Total
Export
Exports Orientation1

3.6
10.6

9

contributed heavily to the state’s, as well as to the
District’s, faster-than-national export growth.
Almost 13 percent of transportation equipment
shipments produced in Missouri were exported in
1986, making the industry the state’s most exportoriented. In addition to those from Missouri, ex­
ports of transportation equipment from Kentucky
and Tennessee, including trucks and motor vehicle
parts, also were substantial in 1986.
Exports of chemicals and allied products ac­
counted for 17 percent of District exports and was
the region’s second-largest export industry in 1986.
While chemical exports from all four states were
considerable, more than half of District chemical
exports emanated from Tennessee. The $908 million
in chemical-related exports from Tennessee ac­
counted for almost a third of the state’s $2.9 billion
in direct exports. More than 40 Tennessee firms
are involved in exporting chemicals and allied pro­
ducts. They export a wide variety of products, in­
cluding pharmaceutical, industrial, organic and
agricultural chemicals. The rapid expansion of
chemical-related exports in Tennessee since 1976
were partially responsible for the state’s relatively
rapid export growth.
Reflecting the District’s sizable agricultural
sector, exports from the food and kindred products
industry are relatively larger than at the national
level. Poultry products from Arkansas and liquor
from Kentucky are among the primary processed
food products being exported.
On the other hand, exports from the nonelec­
trical machinery sector, which includes many ma­
jor capital goods, accounted for a substantially
smaller proportion of District exports than in the
nation. Nonelectrical machinery production plays a
smaller role in the region’s manufacturing sector
and is less export-oriented than at the U.S. level.
None of the products that dominate U.S. nonelec­
trical machinery exports, such as computers and
construction equipment, are produced extensively
in the region.
The importance of exporting to District state
economies goes beyond the number of jobs exports
generate. Reflecting its abundance of skilled labor
relative to the rest of the world, the United States

FOOTNOTES
1Direct export data represent the value of export ship­
ments. Data are from the Bureau of the Census’ Census
of Manufactures, 1963 and 1977 and Exports from
Manufacturing Establishments: 1985 and 1986 (January
1989).
2The Middle Atlantic Census Region comprises New
York, New Jersey and Pennsylvania. The East North
Central Region includes Ohio, Indiana, Illinois, Michigan
and Wisconsin.
3Arkansas, Kentucky, Missouri and Tennessee, whose
economies account for the bulk of Eighth District
economic activity, are used to represent the District.



tends to export goods that require skilled labor.
Wages, which are related to skill, tend to be higher
in those U.S. industries that are more exportoriented. Such an association was also found for
each District state.5 Some of the highest wage rates,
for instance, were earned in the states’ transporta­
tion equipment and chemicals industries, which were
among the most export-oriented.

Conclusion
Several developments suggest exports will con­
tinue to be a major source of economic activity for
District states; however, the future course of ex­
ports remain uncertain. The U.S.-Canada Free
Trade Agreement, recent Japanese commitments to
remove trade barriers and the development of mar­
ket economies in Eastern Bloc nations may provide
enhanced opportunities for exporting. The economic
integration of Europe after 1992 will most likely
aid exporters by creating a more uniform and more
rapidly growing market. Competition for sales to
this market from nations in Europe and elsewhere
in the world, however, is expected to intensify. It
is also likely that some U.S. manufacturers will shift
operations to Europe, making the net impact of the
European integration on U.S. exports uncertain at
this time. Finally the soon-to-be-completed Uruguay
Round of General Agreement on Tariffs and Trade
(GATT) negotiations should produce a more open
international trading environment.
Even if U.S. manufactured exports continue to
expand, some regions may not share in this growth.
Between 1976 and 1986, real direct exports rose
by almost 25 percent nationally but declined in the
Middle Atlantic and East North Central regions.
The District share of U.S. exports rose slightly
during this period, as exports from some of its
leading industries, particularly transportation equip­
ment, chemicals and food processing, captured
larger shares of the U.S. total. In light of the past
importance of skilled labor for U.S. exports, states
that are able to attract, develop and retain skilled
labor are likely to fare relatively better in the 1990s.

4A relatively new source of data, the “ Origin of Move­
ment of U.S. Exports by State” shown in the FT900
report published by the U.S. Census Bureau’s Foreign
Trade Division, provides insights into manufactured ex­
port activity beginning in 1987. See Tim R. Smith,
“ Regional Export Growth: Lessons from the State-Level
Foreign Trade Data,” Regional Science Perspectives,
(1990), pp. 21-38, for discussions using this series and
some of its limitations.
Correlations between an industry's 1986 average hourly
earnings and its export orientation in 1986 were .49,
.28, .51 and .40 for Arkansas, Kentucky, Missouri and
Tennessee, respectively.

10

Potential Pitfalls of
Interpreting Farm
Income Data
By Jeffrey D. Karrenbrock
David Kelly provided research assistance.

A

JL JBL ecu rate information is a key element
in any decision-making process. Many businesses
and policy makers in the Eighth Federal Reserve
District and in the United States depend on accu­
rate farm income data. Farm equipment dealers
use farm income data to estimate potential demand
for their products. Banks use farm income data to
help determine clients’ ability to repay loans. Poli­
cy makers compare farm income to non-farm in­
come to see if current government programs are
helping to maintain farm incomes at a “ reason­
able” level.
The usefulness of farm income data is com­
plicated, however, by the existence of various
farm income measures. This article highlights the
differences in series designed to measure farm in­
come and, in the process, stresses why these series
are not always interchangeable for decision mak­
ing.1 Much of the discussion is couched in terms
of the potential pitfalls in comparing farm income
to non-farm income, but readers interested solely
in analyzing farm income also will find the discus­
sion useful.

Farm Income vs. Non-Farm
Income
The Department of Commerce calculates per­
sonal income in the National Income and Product
Accounts (NIPA) for both the farm and non-farm
sectors. Personal income is equal to nonfarm per­
sonal income plus farm personal income. Personal
income is the income received by households from
all sources, including wages and salaries, interest
and dividend payments, and transfer payments,
such as social security payments. The farm per­
sonal income estimate includes farm proprietors’
income, wages and salaries of farm labor, other
labor income, such as employer’s contributions to
health insurance, and net interest.
Farm proprietors’ income, the largest compo­
nent of farm personal income, is estimated in the
NIPA by adjusting the U.S. Department of Agri­
culture’s (USDA) net farm income estimate. This



adjustment is necessary because the method of
capital consumption allowance (that is, deprecia­
tion) used by the USD A differs from that used in
the NIPA. The relationship between NIPA’s farm
proprietors’ income and USDA’s net farm income,
along with the relationship between farm propri­
etors’ income and other income series discussed in
this paper, is shown in table 1. In short, the bulk
of NIPA’s farm personal income estimate depends
on USDA’s net farm income estimate. Therefore,
any problem associated with the USDA’s net farm
income estimate will influence NIPA’s farm per­
sonal income estimate.
Real per capita personal income for the farm
and non-farm U.S. population is shown in figure
1. Clearly, per capita farm personal income has
fallen short of per capita non-farm personal income
every year except 1972. On average, between 1960
and 1988, per capita farm income has been 69 per­
cent of per capita non-farm income. The difference
between the two figures, however, has changed
over the years. During the 1960s, per capita farm
income was about 57 percent of per capita non­
farm income, while in the 1970s this figure
jumped to 77 percent. The figure has since fallen
to about 73 percent during the 1980s.
One shortcoming of using farm personal in­
come estimates for this comparison can arise if
users assume that the farm personal income figures
represent the return to only farm labor and man­
agement. Recall that USDA’s net farm income
estimate is a key component of the farm personal
income estimate. In the USDA’s net farm income
figure, land rental expense and interest on real
estate debt are included as expenditures. However,
if a farmer owns his/her land, no imputed expense
is deducted from gross receipts to account for the
opportunity cost of using the land. This implies
that part of net farm income represents a return to
land as a factor of production and not returns sole­
ly to labor and management. Thus, personal farm
income overstates the return to labor and manage­
ment and ideally should be adjusted to account for
the opportunity cost of using owned land.

The Role of Off-Farm Income
The farm personal income figures discussed
above include only income earned from farming
operations and not any income earned by farm
household members not working on the farm. For
example, the income earned by a farmer’s spouse
working at the local bank would not be included in
the farm income figures, even though the spouse is
considered as part of the farm population. The
most important part of off-farm income is wages
and salaries, but interest, dividends, pensions, re­
tirement, transfer payments and non-farm business
or professional income are also included.

11

Table 1
Farm Income Data - Basic Accounting Relationships
Net Farm Income (USDA)
Plus:
Depreciation and other consumption of farm capital (USDA)
Monetary interest received by farm corporations
Less:

Capital consumption allowances with consumption adjustments (NIPA)
Other

Equals: Farm Proprietor’s Income1 (NIPA)
Farm Proprietor’s Income (NIPA)
Plus:
Farm component of wages and salaries (NIPA)
Farm component of other labor income (NIPA)
Farm component of net interest income (NIPA)
Equals: Farm Personal Income (NIPA)
Farm Personal Income (NIPA)
Plus:
Off-Farm Income (USDA)
Equals: Total Farm Income
1The complete title of this account is “ Farm Proprietors’ Income and Corporate Profits with Inventory and Capital Consump­
tion Allowances.” Only the non-corporate portion of the account was used in this study.

Figure 1

Real Per Capita Personal Income

1960

64

68

72

76

80

84

1988

SOURCE: Derived from data provided In the Economic Raport of tha Prasidant, February 1990,
and Aaricultural Statistics (USDA). various years.

When comparing the income situation of the
farm population to the non-farm population, it is
inaccurate to assume that the farm population de­
rives its income solely from the farm sector. Offfarm income has become an important part of farm
households’ total income and its omission clearly
puts a downward bias on the per capita farm in­
come estimate. In 1960, off-farm income accounted
for about 35 percent of total farm income. Since
1970, that number has held relatively constant at
around 45 percent.
Estimates of per capita total farm income and
non-farm income are shown in figure 2. These



new income series were calculated by switching
off-farm income, as estimated by USDA, from
non-farm personal income to farm personal in­
come. While per capita total farm income was
below non-farm income during the early 1960s,
per capita total farm income has been higher, as
well as more variable, than per capita non-farm in­
come since 1965. In fact, since 1965 per capita
total farm income has averaged about 28 percent
higher than per capita non-farm income. Even
after subtracting direct government payments to
farmers from total farm income, per capita farm
income has been higher than per capita non-farm
income since 1970, falling below only in 1983.
The preceding comparison, however, of per
capita total farm income with non-farm income is
not ideal. The off-farm income component of total
farm income understates the true return to the farm
population’s labor and management skills. The offfarm income figures only represent off-farm in­
come of the farm’s principal operator’s family.
Say, for example, that a farm is operated by a
father and his son, who does not live with his
father and has a family of his own. If the father is
the principal operator of the farm, then only offfarm income of his spouse and children living at
home are included in off-farm income. Off-farm
income of the son’s family is not included in
USDA’s off-farm income estimate.
Since off-farm income is a component of total
farm income, this understatement of off-farm in­
come causes the income position of the farm popu­
lation to be understated as well. On the other hand,
total farm income also includes net farm income,
which overstates the return to labor and manage-

12

Figure 2

Real Per Capita Income

derreport government transfer payments, such as
welfare and food stamp values. Thus, these aver­
age household income values may underestimate
the true level of income for both farm and non­
farm families and differences in the degree of un­
derreporting could make any relative comparisons
of income inaccurate.

Commercial Farmers vs. PartTime Farmers

I960
64
68
72
76
80
84
1988
SOURCE: Derived from data provided In the Economic Report o f th * President, February 1990,
and varioua USDA publications.

ment. Thus, within total farm income, two com­
ponents exist that may cause problems, one over­
stating and the other understating the returns to
farm labor and management.

Per Capita Income
Income

i/s.

Household

The two measures of income discussed above
were given in terms of average per capita income.
Per capita income figures were calculated by di­
viding the respective income figure by the total
farm or non-farm population. Some analysts, how­
ever, prefer to use average family or household in­
come statistics as they are readily available for a
wide variety of household descriptions. Research
has shown that the average farm household’s total
income far surpassed the average income of all
U.S. households during the early 1970s.2 Farm
household income fell below the U.S. average
income during the late 1970s and early 1980s,
but has surpassed the U.S. average level again
in the late 1980s. Indeed, in 1988, the average
U.S. farm household income was more than 20
percent greater than the average income of
American households.
While household income measures provide an
alternative means for analyzing income levels, they
too have shortcomings. First, the household in­
come figures say nothing about the average family
size of the different groups being compared. Se­
cond, these household income figures are based on
surveys and the accuracy of the income estimates
is only as accurate as the numbers reported. The
Census Bureau has noted that people tend to un­



The preceding farm sector income figures are
based on a very broad definition of the farm sec­
tor, where a farm is defined to be any rural place
selling $1,000 or more in agricultural commodities
per year. Anyone living on such an establishment
is considered part of the farm population. Many of
these farms could more accurately be described as
part-time farms. Agricultural commodity sales of
$1,000 could be achieved by raising and selling
two butcher steers or growing and selling 10 acres
of corn. Neither of these enterprises would be a
full-time job.
Specific income characteristics of farms by
commodity sales category are shown in table 2.
The figures reveal that the $40,000 sales level
marks a distinct difference in farm characteristics.
For example, there is a sharp decline in the per­
cent of total sales accounted for by farms with
sales less than $40,000. Although these small
farms account for 68 percent of all farms, they
only account for about 10 percent of farm com­
modity receipts. Furthermore, these smaller farm
operators rely substantially more on off-farm in­
come than on farm income and work fewer hours
per week than do the large farm operators. Farms
with sales below $40,000 could perhaps be more
accurately classified as part-time farms, while
those farms with sales over $40,000 could be con­
sidered commercial farms.
Referring to table 2 again, the average net
farm income of commercial farms, using USDA’s
net farm income series, in 1988 ranged from
$15,155 to $200,766. The average net farm in­
come of part-time farms ranged from $4,065 to
$5,717. When off-farm income is added to net
farm income, the total income of commercial farm
households rises to a range of $34,684 to $229,757
and part-time farm household income rises to a
range of $31,910 to $46,934.
These income figures by sales category reveal
that when analyzing the income situation of the
farm sector, it is important to specify whether or
not those people who rely almost solely on farm­
ing for their income are being discussed or if any­
one, however minutely involved in agriculture, is
included. If the average income of all farms is be­
ing used to make a decision, then it is important to

13

Table 2
January 1, 1989, Financial Characteristics of U.S. Farms by Sales Category

Average Per Farm
Government Payments
Net Farm Income
Off-Farm Income
TOTAL INCOME
Hours worked per week1

$250,000$499,999

$100,000$249,999

$40,000$99,999

$20,000$39,999

$10,000$19,999

$9,999
or
Less

35,455
200,766
28,991
229,757
59

26,481
61,196
19,993
81,189
59

15,942
34,093
20,580
54,673
55

7,038
15,155
19,529
34,684
49

2,833
4,619
27,291
31,910
35

1,065
5,717
41,217
46,934
28

155
4,065
31,869
35,934
17

2.0
33.1
31.8
13.6

4.0
17.7
20.8
20.6

11.7
25.1
26.7
36.4

14.0
13.6
12.8
19.3

11.0
4.4
4.2
6.0

11.9
2.9
1.8
2.4

45.4
2.9
1.5
1.3

All
Farms

$500,000 +

5,113
15,534
28,895
44,429
32

100
100
100
100

Percent of U.S.2
Farms
Livestock Sales
Crop Sales
Government Payments

1Farm operator average.
2Numbers may not add to 100 due to rounding.
SOURCE: Derived from data taken from Financial Characteristics of U.S. Farms, January 1, 1989. Economic Research Service,
USDA. Agriculture Information Bulletin No. 579.

Conclusion
realize that this figure is well below the average
income of those farms that produce the majority of
U.S. agricultural output. Many large farm opera­
tions that rely mainly on farm income, have total
income levels that are substantially higher than the
average American household.

The question that remains unanswered, how­
ever, is: What is the per capita income of these
large farm operations? Unfortunately, farm popula­
tion estimates by sales category size are not avail­
able. It is common, however, for large farms to
support two or three generations of a family and
the number of people depending on income from
these commercial farms could be large. Thus, even
though the overall profit level from these commer­
cial farms is generally relatively large, whether or
not the per capita income levels provided from
these farms is larger than non-farm per capita in­
come is uncertain.

FOOTNOTES
1This article does not discuss all of the income series
available. The USDA estimates several other income
series that address some of the problems mentioned in
the text. See the USDA’s Economic Indicators of the
Farm Sector: National Financial Summary.



The ideal definition of farm income depends
on the intended use of the information. This article
has pointed out that farm income data users should
scrutinize the components of farm income esti­
mates before using them. Many farm income sta­
tistics have shortcomings of which users should be
aware. For example, the USDA’s net farm income
estimate includes returns to some land, labor and
management and includes returns from farm opera­
tions that could be classified as part-time farms.
The USDA’s off-farm income estimate is only for
the principal operator’s family and may exclude a
significant amount of income earned by a second
family also depending on the farm for part of their
income. When comparing household or family in­
come levels, users should remember that no dis­
tinction is made between the average family size of
the different groups. Similarly, when discussing
the income levels of large and small farms, users
should not assume a one-family-to-one-farm rela­
tionship holds for all sales categories.

2Kalbacher, Judith Z. and Nora L. Brooks. "Farmers Are
Part of American Mainstream,” Choices, First Quarter
1990. The American Agricultural Economics Association

14

Eighth D istrict Business
Level

Compounded Annual Rates of Change
IV/1989-

1/1990
Payroll Employment

1/1990

1/ 19891/1990

19891

19881

(thousands)

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

110,214.0
6,904.0
910.8
250.0
1,471.3
482.0
2,333.3
1,189.7
2,188.6
466.6

3.0%
4.3
4.8
5.1
6.7
4.1
2.8
2.5
4.0
3.3

2.4%
2.6
3.1
3.0
3.7
4.0
1.5
1.7
2.6
1.9

2.8%
2.9
3.0
3.0
3.8
4.1
2.2
2.3
3.0
1.5

3.3%
3.5
3.5
3.5
4.1
3.1
2.8
2.3
4.0
7.3

19,409.7
1,479.4
230.5
284.2
437.0
527.7

- 2 .1 %
0.9
2.8
-1 .1
0.0
2.0

- 1 .3 %
0.4
0.0
0.7
-0 .6
1.3

1.1%
2.0
1.6
3.6
1.2
1.8

2.0%
3.2
3.1
4.5
2.3
3.4

- 0 .2 %
-5 .6
0.7
1.5
4.4
2.6
3.1

- 4.8%
1.0
0.3
3.5
5.1
3.0
2.2

- 5 .3 %
0.3
0.5
4.3
6.3
3.7
2.4

1989’

1988’

2.7%
2.2
2.0
2.5
1.9
2.4

3.4%
2.8
2.9
2.8
2.1
3.6

1988

1987

5.5%
6.5
7.7
6.4
7.9
6.3
5.7
5.9
5.8
5.2

6.2%
7.2
8.1
7.1
8.8
6.9
6.3
6.5
6.6
5.7

Manufacturing
Employment (thousands)
United States
District
Arkansas
Kentucky
Missouri
Tennessee

District Nonmanufacturing
Employment (thousands)
Mining
Construction
FIRE2
Transportation3
Services
Trades
Government

Real Personal Income4 (billions)
United States
District
Arkansas
Kentucky
Missouri
Tennessee

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

49.8
307.2
339.9
398.9
1,550.6
1,662.0
1,120.1
IV/1989

$3,554.1
194.9
25.1
41.6
69.0
59.2

5.0%
12.2
1.5
1.2
5.5
6.2
4.8

111/ 1989IV/1989
4.3%
3.4
4.9
2.9
4.8
1.4

1/1990

IV/1989

5.29/0
5.7
6.4
5.5
6.0
5.4
5.8
5.9
5.1
4.4

5.3%
5.7
7.0
6.1
5.7
5.2
5.6
5.7
5.2
4.6

IV/1988IV/1989

2.6%
2.0
1.2
2.5
2.1
2.1
Levels

1989
5.3%
5.8
7.2
6.3
6.2
5.6
5.5
5.5
5.1
4.7

Note: All data are seasonally adjusted. On this page only, the sum of data from Arkansas, Kentucky, Missouri and Tennessee
is used to represent the District.
’ Figures are simple rates of change comparing year-to-year data.
2Finance, Insurance and Real Estate
^Transportation, Communications and Public Utilities
“Annual rate. Data deflated by CPI-U, 1982-84 = 100.




15

U. S. Prices
Level

Compounded Annual Rates of Change
IV /1 9 8 9 -

1/1989-

1/1990

1/1990

1/1990

127.7
131.0

7.5%
11.8

152.0
170.7
132.3

14.3%
12.6
15.2

168.0
181.0

7.5%
6.9

19891

1988’

4.9%
6.7

4.7%
5.8

4.0%
4.1

1.5%
7.4
-5 .3

7.0%
6.6
7.4

8.8%
2.7
18.3

2.4%
3.4

5.3%
4.4

6.9%
4.4

Consumer Price Index
(1982-84 = 100)

Nonfood
Food

Prices Received by Farmers
(1977 = 100)

All Products
Livestock
Crops

Prices Paid by Farmers
(1977 = 100)

Production items
Other items2

Note: Data not seasonally adjusted except for Consumer Price Index.
’ Figures are simple rates of change comparing year-to-year data.
2Other items include farmers’ costs for commodities, services, interest, wages and taxes.

Eighth D istrict Banking
Changes in F inancial P osition fo r the y e a r ending
D ecem ber 31, 1989 (b y A s se t Size)

SELECTED ASSETS
Securities
U.S. Treasury &
agency securities
Other securities
Loans & Leases
Real estate
Commercial1
Consumer
Agriculture
Loan loss reserve

Total Assets
SELECTED LIABILITIES
Deposits
Nontransaction accounts
MMDAs
$100,000 CDs
Demand deposits
Other transaction accounts2

Total Liabilities
Total Equity Capital

L ess than

$ 1 0 0 m illio n -

$ 3 0 0 m illio n -

M ore th a n

$ 1 0 0 m illion

$ 3 0 0 m illio n

$1 b illio n

$1 b illio n

- 5.9%
-4 .4
-1 0 .5
-1 .5
0.2
-2 3 .6
-0 .4
2.8
-2 .9
-2 .3
- 2.4%
-1 .0
-1 8 .5
4.5
-7 .6
-4 .8
-2 .5
-0 .9

8.6%
11.5
-3 0 .2
11.5
13.1
3.0
11.9
31.3
16.3
11.9
12.4%
14.4
-2 .1
13.4
6.2
8.5
11.9
12.0

2.8%
7.7
-3 5 .8
10.9
22.6
7.9
2.1
24.2
18.3
8.6
8.0%
10.3
2.3
2.4
-0 .4
8.4
8.4
11.1

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
includes banker’s acceptances and nonfinancial commercial paper
includes NOW, ATS and telephone and preauthorized transfers




18.8%
30.0
-3 6 .2
9.7
20.8
2.1
9.2
-18.1
25.4
7.9
5.9%
10.9
19.5
-4 .2
-5 .3
1.5
8.0
25.3

16

P erform an ce R atios

(b y A s s e t s iz e )
U n ite d S ta te s

E ig h th D is tric t
IV /8 9 _________ IV /8 8 _________ IV /8 7

EARNINGS AND RETURNS
Annualized R eturn on Average
Assets
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u l tu r a l b a n k s

1 .0 0 %
1.01
1.02
.60
—

.96%
.97
.99
.82
—

.880/0
.95
1.07
.51
—

1.10

1.05

.73

10.96%
12.54
13.05
9.34

10.65%
11.99
12.75
12.46

9.940/0
11.80
13.68
7.96

IV /8 9

IV /8 8

IV /8 7

.75%
.91
.80
.65
.06
1.03

.64%
.78
.67
.75
.95
.91

.50%
.73
.49
.50
-.6 7
.65

8.240/o
11.43
11.16
10.25
1.37
10.64

7.20%
9.94
9.64
11.78
18.96
9.64

5.79%
9.52
7.01
8.01
-1 5 .4 0
7.13

4.170/o
4.34
4.29
4.07
3.37
4.02

4.140/o
4.23
4.17
4.04
3.63
3.99

4.24%
4.18
4.15
3.96
3.35
3.95

1.96%
1.98
2.29
2.23
4.66
2.00

2.21%
1.94
2.26
2.08
4.59
2.33

2.62%
2.18
2.39
2.40
5.42
3.16

1.55%
1.49
1.60
1.93
4.07
1.99

1.59%
1.47
1.62
1.74
3.75
2.05

1.65%
1.52
1.75
1.93
4.39
2.12

.66%
.61
.76
.94
1.58
.56

.79%
.66
.79
.96
1.10
.75

1.09%
.79
.94
.84
.90
1.35

Annualized R eturn on Average
Equity
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u ltu r a l b a n k s

—

11.26

—

11.07

—

7.82

Net Interest M argin1
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u ltu r a l b a n k s

3.92%
3.93
4.02
3.56
—

3.89%
3.87
3.90
3.66
—

3.95%
3.95
3.96
3.64
—

3.81

3.79

3.80

1.55%
1.64
1.40
1.67

1.68%
1.63
1.28
1.67

2.05%
1.90
1.50
2.47

ASSET QUALITY2
Nonperforming Loans3
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u ltu r a l b a n k s

—

—

—

1.65

1.93

2.52

1.44%
1.43
1.42
1.64

1.46%
1.36
1.35
1.60

1.47%
1.32
1.29
2.18

Loan Loss Reserves
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u ltu r a l b a n k s

—

—

1.68

1.84

.43%
.52
.51
1.03

.50%
.50
.43
1.20

—

1.83

Net Loan Losses4
L e s s th a n $ 1 0 0 m illio n
$ 1 0 0 m illio n - $ 3 0 0 m illio n
$ 3 0 0 m illio n - $1 b illio n
$1 b illio n - $ 1 0 b illio n
M o r e th a n $ 1 0 b illio n
A g r ic u ltu r a l b a n k s

—

—

.42

.48

.74%
.65
.71
.69
—

1.16

Note: Agricultural banks are defined as those with 25 percent or more of their total loan portfolio in agriculture loans.
interest income less interest expense as a percent of average earning assets
2Asset quality ratios are calculated as a percent of total loans.
3Nonperforming loans include loans past due more than 89 days, nonaccrual, and restructured loans.
4Loan losses are adjusted for recoveries.




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