View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

M arch 1991

*

•iBRARY

SEP 27 2001

THE
FEDERAL
A RESERVE
J a RANK of
O r ST. IX)l IS

----------------------------------------------------------------------------*—

■
•

The Good Job-Bad Job Controversy Involving Services
* ■

Home Equity Loans: What Goes Up



.

.

:

x

'•

.
‘ <’ >
l) ;lT iyfr;.;: ifl -11

‘
II .....................

*
_; v

;

THE EIGHTH FEDERAL RESERVE DISTRICT

CONTENTS
NTENTS______________________________________________________________________________________
Agriculture
District Forest Industry: Growing to New Heights? ............................................................................................. 1
Business
Are District Services Jobs Bad Jobs?....................... ................................................................................................. 5
Banking and Finance
Home Equity Loans: Flexible Enough to Withstand a Real Estate Downturn?....................................... . .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

District Forestry
Industry: Growing to
New Heights?
By Jeffrey D. Karrenbrock
David H. Kellx provided research assistance.

F

rom Tennessee's Appalachian mountains, to
Arkansas’ Ouchita mountains and to the Mississip­
pi Delta in the South, much of the Eighth Federal
Reserve District is covered by forests.1 This vast
natural resource contributes to a wide variety of
employment and recreational opportunities, not to
mention the stabilizing influence it has on the en­
vironment. This article examines numerous aspects
of the forestry industry in the Eighth District. Prior
to identifying the importance of this industry and
the potential consequences of environmental re­
straints, however, the District forest itself is
described.

The District Forest
Forests account for a relatively large portion
of the District’s total land area. In 1987, about 44
percent of the District was classified as timberland,
that is, land which is capable of crops of industrial
wood and not withdrawn from timber utilization by
statute or administrative regulation. In the United
States, timberland accounts for only about 21 per­
cent of the total land area. As shown in table 1,
the percentage of timberland in Missouri, the Dis­
trict state with the smallest share, still exceeds the
national percentage.
Both private and public interests own timber­
land. Almost 90 percent of the District’s timberland
is owned by private entities, while 72 percent of
U.S. timberland is held by private entities. The
forestry industry is an important private owner in
the District, holding 25 percent of the total timber­
land in Arkansas and 17 percent in Mississippi.
Within the District. Arkansas and Missouri have
the largest percentage of timberland held by the
public, standing at 18 percent and 14 percent,
respectively, in 1987.
The District’s forests are composed of a mix­
ture of hardwoods and softwoods. Hardwoods are
usually broad-leaved, deciduous trees. Some com­
mon varieties include oak, hickory, birch, maple,
ash, walnut and cherry. Softwoods are usually




evergreens, having needles or scalelike leaves.
Some examples include longleaf, loblolly and
yellow pines.
The District’s forests consist primarily of
hardwoods, with larger shares of softwoods in the
southernmost District states. As shown in table 1,
hardwoods account for more than 90 percent of the
total growing stock in Kentucky and Missouri and
more than 80 percent in Tennessee, while the
forests in Arkansas and Mississippi are more even­
ly split between hardwoods and softwoods.2 On a
Districtwide basis, hardwoods compose 70 percent
of the growing stock, which compares to only 40
percent of the U.S. forest. District states contain
about 17 percent of the nation’s growing stock of
hardwood trees. In terms of the total volume of
hardwoods and softwoods combined, Arkansas and
Mississippi each have more than 19 billion cubic
feet of growing stock, more than twice as much as
the lowest state, Missouri.

Uses of Harvested Timber
Harvested timber can be classified into five
categories, sawlogs, pulpwood, veneer logs,
fuel wood and other products. Sawlogs are used for
making lumber and pulpwood is used for making
paper products. Veneer logs are used for making
veneer finishes and plywoods. Fuelwood is used
primarily for home heating. The “ other products”
category includes items such as cooperage, pilings,
poles, posts, shingles, charcoal and export logs.
All District states, except Missouri, (plus
Alabama, Louisiana, Texas and Oklahoma) are in
the U.S. Forest Service’s “ South Central” region.
In the South Central region, sawlogs and pulpwood
accounted for 40 percent and 38 percent of soft­
wood round wood products harvested.3 In the hard­
wood category, pulpwood, sawlogs and fuelwood
accounted for 41 percent, 35 percent and 21 per­
cent, respectively, of the total roundwood harvest.

Growth-to-Removal Ratios
The forestry industry is often concerned with
how timber supplies are changing over time.
Growth-to-removal ratios indicate whether timber
removal rates are faster or slower than timber
growth. A ratio of less than one would indicate
that timber resources are being harvested at a
faster rate than that at which they are growing.
For the United States as well as all District states,
the overall growth-to-removal rate of growing
stock timber (softwoods and hardwoods) is well
above one, as shown in table 1. Kentucky and

2

Selected Statistics of the Forest Industry

U.S.

Eighth
District

AR

KY

MS

MO

TN

T im b e rla n d as a P ercent
of T o ta l* Land A rea

21

44

50

47

55

27

49

P ercent of T im b e rla n d O w ned b y*
P ublic
P rivate
F orest In d u stry

28
72
15

12
88
13

18
82
25

8
93
2

10
90
17

14
86
2

11
89
10

P ercent o f G ro w in g S to ck*
H a rd w o o d s
S o ftw o o d s

40
60

70
30

55
45

92
8

51
49

92
8

81
19

V o lu m e of G ro w in g S to ck*
H a rd w o o d s (m .c.f.)1
S oftw o o d s (m .c.f.)

305054
450881

53140
22753

10655
8586

13500
1110

10069
9746

7334
601

11582
2710

G ro w in g S to ck G row th-toR em oval R a tio 2
All T im b e r
H ardw oods
S oftw oods

1.36
1.89
1.13

2.18
2.16
2.44

1.23
1.77
.92

2.12
2.15
1.71

1.24
1.81
.98

2.29
2.17
4.08

2.91
3.22
1.91

V alue of T im b e r P ro d u cts3
(m illio n dolla rs)
V alue o f A ll O th e r C rops
(m illio n d o lla rs)

—

...

413

...

593

...

265

...

...

1658

...

1253

...

1157

P e rce n t of T otal O utput - 1986
F ore stry P ro d u cts Indu stry
L u m b e r & W ood P roducts
F u rn itu re & F ixtures
P aper & A llie d P roducts

1.7
0.6
0.3
0.8

2.7
0.9
0.6
1.2

4.9
1.9
0.6
2.4

1.4
0.5
0.2
0.7

5.0
2.4
1.5
1.1

1.5
0.3
0.4
0.8

3.0
0.7
0.8
1.5

E m p lo ym e n t (1,000) - 1989
F orestry P ro d u cts Industry
Lu m b e r & W ood P roducts
F u rn itu re & F ixtu re s
P aper & A llie d P roducts

1981.0
757.5
526.4
697.1

237.1
90.8
80.1
66.2

44.1
20.6
9.9
13.6

25.4
11.5
4.5
9.4

59.7
25.3
25.8
8.6

38.0
12.3
12.2
13.5

69.9
21.1
27.7
21.1

SOURCES: Timber data are from various U.S. Forest Service publications. Output figures were derived from U.S. Department
of Commerce, Bureau of Economic Analysis. Employment figures are from the U.S. Department of Labor, Bureau
of Labor Statistics.
1m.c.f. = million cubic feet
M issouri’s statistics are preliminary. Years used to calculate ratios vary across states.
31984 data
*1987 data

Missouri, in fact, exhibit annual average growing
stock growth in excess of twice the amount of
removals.
For the United States and all District states,
except Missouri, softwoods are being harvested at
a relatively more rapid pace, compared with their
growth rates, than are hardwoods. In fact, the
growth-to-removal rate of softwoods is less than
one in Arkansas and Mississippi, with most of the



harvesting in excess of growth occurring on timberland owned by the forestry industry.
Softwood growth-to-removal ratios of less than
one in Arkansas and Mississippi may pose a chal­
lenge for the industry in these states in the future.
The U.S. Forest Service projects increasing de­
mand for softwood products through the year 2040.
Whether the forestry industry in these states will
be able to maintain their share of the market for

3

this growing demand is questionable. Industryowned forest land is already intensively managed
and provides a disproportionate share of softwood
removals. For example, a study by the Arkansas
Agricultural Experiment Station indicated that in
1985, the forestry industry in Arkansas held 27
percent of the forest land in the state, but accounted
for more than 50 percent of the annual softwood
supply.4 Policy disputes and legal battles have cur­
tailed the supply of softwood from Arkansas’ public
forests. This implies that any significant increase
in softwood supplies must come from the private,
non-industrial sector. The above study notes,
however, that the incentives for the private sector
to invest heavily in future supply are not strong.
The expectation of future returns based on current
or appreciated prices is not high. Thus, this im­
plies that relative softwood lumber supplies in
some regions will decline in the future.

Value of Harvested Timber
Products
Although often ignored as an agricultural crop,
the value of timber production is large relative to
the value of all other crops in some states. Estimates
by the U.S. Forest Service, shown in table 1, in­
dicate that the value of harvested timber products
in Mississippi was nearly half as large as the value
of all other crops grown in the state. In Arkansas
and Tennessee, the value of harvested timber pro­
ducts was about a quarter of the value of all other
agricultural crops.

Forestry Products Industry and
the District Economy
The forestry products industry consists of
manufacturers of lumber and wood products, fur­
niture and fixtures, and paper and allied products.
The lumber and wood products sector includes out­
put from logging camps, merchant sawmills, lath
mills, shingle mills, plywood mills and veneer
mills, among other types of producers. The fur­
niture and fixtures sector includes output from
manufacturers of household and office furniture
made of wood.5 The paper and allied products sec­
tor includes output from the manufacturers of pulp
from wood, paper, paperboard, paper bags, paper
boxes and envelopes.
The forestry products industry accounts for a
relatively small portion of the District’s output and
employment. These sectors accounted for 2.7 per­
cent of the District’s output in 1986. As shown in




table 1, the relative importance of these industries
varies among District states, being most important
in Arkansas and Mississippi. Although these in­
dustries account for a relatively small portion of
each District state’s output, they are relatively
more important in the District’s economy than they
are in the nation’s economy. These three sectors
combined accounted for 1.7 percent of the nation’s
total output in 1986.
In terms of District employment, the forestry
products industry accounted for 237,100 jobs in
1989. This was about 3.5 percent of 1989 District
non-agricultural employment. Among District states,
the forestry products industry employed the most
people in Tennessee, followed by Mississippi and
Arkansas. In addition to having the largest number
of people employed in the forestry products indus­
try, Tennessee also experienced the largest absolute
employment growth (12,000 jobs) in the industry
between 1980 and 1989. Part of this growth may
be attributable to Memphis’ growth as a national
distribution center. As distributional activities in­
crease, the output and employment of area pro­
ducers of shipping and packing materials, such as
pallets and boxes, also expands.

Issues for the Future
Future changes in demand and supply condi­
tions will affect the level of output in the forestry
industry. Demand for wood products will likely
grow slowly for the foreseeable future.6 The sup­
ply of wood products, however, is more uncertain.
From now until about 2010, the volume of mer­
chantable softwood sawtimber available in the U.S.
is predicted to be inadequate to meet expected
demands. Part of this shortfall will be due to
restraints placed on timber harvesting because of
environmental concerns. Thus, with demand in­
creasing at a faster rate than supply, wood product
prices would increase.
On the demand side, long-term construction
needs are expected to boost lumber consumption
by 23 percent from current levels by the year
2040. Consumption of paper and allied products is
expected to more than double its 1986 level by
2040. In terms of wood fiber equivalents, demand
for softwood timber is expected to grow 35 per­
cent and for hardwood, 79 percent. This bodes
well for the District’s timber industry as the ma­
jority of its timber resources are hardwoods.
On the supply side, attempts to maintain the
habitat of threatened or endangered wildlife and
plants may require restricted logging activity and
thus lower rates of increase or lower overall sup­
plies of timber. Many of the current environmental
debates focus on issues that will have the largest
impact on softwood forests, especially those under

control of the national and/or state governments.
The spotted owl controversy, for example, largely
affects softwood forests. Some restrictions, how­
ever, also affect the logging of hardwoods. Private
forests can also be affected by these restrictions.
If we assume that softwood logging will become
more restricted, such actions would decrease the
supply of softwood timber and, assuming stable or
increasing demand for softwood timber, would im­
ply higher softwood timber prices. Higher soft­
wood prices would, first, encourage greater soft­
wood imports. (In 1987, the United States im­
ported about 23 percent of its total timber con­
sumption.) Most of the United States’ softwood
imports currently come from Canada and any addi­
tional supplies would also come from that country.
However, Canadian forests are also under en­
vironmental pressures, which are expected to result
in lower absolute levels or decreasing rates of in­
crease in softwood timber production. Thus, the
ability of Canada to continue to meet much of the
United States’ excess demand for softwood timber
is questionable.
Higher wood prices would also encourage
more recycling of wood and paper products. Cur­
rently, 21 percent of paper and paperboard produc­
tion uses wastepaper. If softwood prices rise, then
the relative cost of using recycled wastepaper will
fall and recycling will expand. The extent to which
the percent of paper and paperboard production us­
ing wastepaper will expand is uncertain. The U.S.
Forest Service, however, estimates that by 2040,
26 percent of paper and paperboard production
will use recycled wastepaper. Regardless of the
amount of increase, it will help to mitigate any
potential shortfall in wood supplies.
Higher softwood prices would also encourage
substitution among types of building material and
within types of wood materials. As softwood
timber product prices increase, other materials,
such as plastic, aluminum and steel, become
relatively more attractive for use in construction
projects. Thus, we would expect to see an increase
in the use of these products at the expense of soft­
wood products. The higher softwood prices would
also encourage the substitution of hardwood pro­

FOOTNOTES
1The Eighth Federal Reserve District is shown on the
map on the inside front cover of this publication. For
this article, however, the entire states of Arkansas, Ken­
tucky, Mississippi, Missouri and Tennessee are referred
to as the Eighth District.
2Growing stock is a classification of timber inventory that in­
cludes live trees of commercial species meeting specified
standards of quality and vigor. Cull trees are excluded.
3Roundwood products are logs, bolts and other round
timber generated from harvesting trees for industrial or
consumer use.
4Much of the information in this paragraph is taken from
Kleunder, R. A., E.W. McCoy and J.K. Easterling. The



ducts for softwood products.
Given the District’s relative abundance of
hardwoods, the extent to which District states may
gain from this substitution effect would depend in
part on the technology available for substitution
among hardwood and softwood inputs. Hardwoods
can be interchanged with softwoods in some pro­
duction processes. The more easily the two wood
types are substituted, the larger hardwood produc­
tion response we would expect to see. The amount
of increase in hardwood timber harvest, however,
may be limited because non-industrial private
owners may be unwilling to harvest hardwood
timber, instead, preserving it for other purposes,
such as for viewing pleasure. The extent of ex­
panded production may also be limited because
hardwood forests are often located in terrain that is
difficult and expensive to access.
In short, U.S. timber supplies will come under
increased pressure in the next several decades as
timber demand expands and timber harvesting re­
strictions are likely to become more prevalent.
Whether or not this increased excess demand can
be met by larger imports or increased harvesting
from non-industrial private forests is questionable.
Thus, wood product prices are likely to rise, and
some substitution away from wood products can be
expected.

Summary
The timber industry is a key component of the
District’s agricultural economy. Whether the Dis­
trict’s timber industry will benefit from current en­
vironmental issues that largely restrict softwood
harvesting will depend on new technology that in­
creases the substitutability between hardwood and
softwood, the willingness of non-industrial private
timber owners to harvest their resource, and the
ability of hardwood product manufacturers to devel­
op and market new products, among other things.
Of course, new restrictions on harvesting of hard­
wood timbers may also arise, limiting potential
District economic gains.

Arkansas Forest Products Industry, Arkansas Agricultural
Experiment Station, Bulletin 908, January 1988.
5Data on this sector also includes employment and out­
put of metal furniture and fixtures, which obviously is
not part of the forest products industry.
6Much of the information in this section was taken from
the USDA Forest Service’s The Forest Service Program
for Forest and Rangeland Resources, May 1990 and the
American Forest Resource Alliance’s The State of
Timber Supply - Is the Nation Appropriately Positioned for
the 21st Century?, December 12, 1990.

5

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

in service-producing sectors are often
viewed as “ bad jobs,” especially when compared
with those in manufacturing. This issue is of con­
cern in the Eighth Federal Reserve District, where
the number of jobs in the “ other services” sector
rose by more than 572,000 between 1979 and
1990, while manufacturing employment declined
by almost 33,000.1 This job shift, which parallels
the national experience, reflects manufacturing’s
relatively strong productivity gains, as well as the
demand of consumers and businesses for increasing
quantities of services.
Even though the preceding changes can be
viewed as positive developments, this article in­
vestigates the validity of some of these “ good jobbad job” concerns by examining wage rates and
other potentially important characteristics of other
services jobs in the Eighth District and the nation.

What is a Good Job?
Most discussions regarding the quality of jobs
center around wages: how much is earned, on
average, and how many high- and low-paying jobs
are provided. To a large degree this focus is ap­
propriate: wages generally are considered the pri­
mary determinant of job desirability. When an in­
dividual compares two job offers, however, other
factors also influence the worker’s decision. For
example, job stability, the potential for advance­
ment, non-wage benefits and the chance of injuries
are a few of the characteristics that are potentially
important to workers.
According to one author, the perfect job is one
“ with varied duties, little stress, a product that can
be seen, problem solving tasks, recognition from
the public, flexible hours, high social status, and
security, along with high wages.” 2 Even though
one may disagree with this characterization of a
perfect job, the reality of the labor market is that
few such jobs exist. More importantly, the descrip­
tion reiterates the point that wages are just one,
albeit an important one, of the many characteristics
that affect workers’ job satisfaction.




Earnings o f Full-Time Workers
Studies indicating that earnings in the other
services sector are relatively low sometimes ignore
the depressing effect on wages of the large propor­
tion of part-time workers in the other services sec­
tors. As the table shows, when comparing only
full-time workers in the District (those working 35
hours per week or more), the median weekly earn­
ings in other services was $322, which is virtually
identical to the $325 median earnings in manufac­
turing. Workers in both sectors earned somewhat
less than the $338 non-farm median. Thus, while
other services earnings tends to be below average,
the disparity is not great, and when compared with
the manufacturing earnings, the disparity essentially
vanishes.
These comparisons refer only to earnings of
wage and salary workers, thus excluding earnings
of self-employed workers, some of whom are
high-income professionals in services industries.
Also excluded are non-wage components of com­
pensation, such as insurance and paid leave, which
tend to be relatively high in manufacturing. If they
were included, manufacturing jobs might compare
more favorably with jobs in services.
In part, the perception of other services jobs
as low-paying may stem from the sector’s heteroge­
neity. Earnings in some of the District’s other ser­
vices industries, such as the $200 median weekly
earnings in personal services, which includes laun­
dries and barber shops, are considerably less than
in manufacturing. On the other hand, professional
services workers earn $353 per week, substantially
above the level in manufacturing.
The table shows substantial variation among
the states in the region. In Missouri and Tennessee
the pattern of earnings is generally similar to the
District average: earnings in other services are
slightly less than those in the state’s manufacturing
sector and somewhat less than the median of all
non-farm industries in the state. In Arkansas, how­
ever, there is no substantial difference between
earnings in other services, manufacturing and the
all-industry median; weekly median earnings were
near $300 in each case.
Interestingly, in all three states, manufacturing
jobs, which are generally perceived as “ good
jobs,” paid less than the non-farm median. Manu­
facturing wages in these states were depressed by
the large presence of relatively low-paying non­
durables industries, such as textiles and apparel
production in Tennessee, rubber and plastics pro­
duction in Arkansas and Tennessee, and food pro­
cessing in all three states. To the extent that job
quality is indicated by median earnings, then, the
job quality of other services differs little from
manufacturing in these three states.

usrness

Are District Services
Jobs Bad Jobs?

6

Level and Distribution of Weekly Earnings of Full-Time Workers, 198912
Percent distribution2
Median

Low

Middle

High

U n ite d S tates
T otal non-farm
M a n u fa ctu rin g
O th e r se rvice s

$400
406
387

8 .9 %
6.5
10.7

6 9 .2 %
70.0
68.9

2 1 .9 %
23.5
20.4

Eighth D istrict
Total non-farm
M a n u fa ctu rin g
O th e r services

338
325
322

8.9
5.5
12.9

68.6
73.3
67.1

22.5
21.2
20.0

A rka n sa s
T o ta l non-farm
M a n u fa ctu rin g
O th e r services

302
300
305

6.1
3.2
11.1

70.8
78.0
66.2

23.1
18.8
22.7

K e n tu cky
T o ta l non-farm
M a n u fa ctu rin g
O th e r services

362
394
322

11.6
5.3
17.0

64.6
68.4
64.1

23.8
26.3
18.9

M issouri
T otal non-farm
M a n u fa ctu rin g
O th e r se rvice s

365
355
350

10.1
5.9
12.0

65.9
71.0
65.1

24.0
23.1
22.9

T e n n e sse e
T otal non-farm
M a n u fa ctu rin g
O th e r services

320
313
310

5.9
4.4
8.7

69.4
76.2
67.8

24.7
19.4
23.5

includes wage and salary workers. Figures based on data from U.S. Bureau of the Census, Current Population Survey,
computer tape, 1990.
2"Low” refers to workers with earnings less than half the median for all non-farm workers in the region, “ Middle” are workers
with earnings from one-half to one-and-one-half the median and “ High” are workers with earnings greater than one-and-onehalf the median.

Kentucky is another story. Other services
workers received median earnings of $322, 11 per­
cent less than Kentucky’s all-industry median and
almost 19 percent less than in manufacturing. Ken­
tucky’s manufacturing sector is characterized by
large employment concentrations in several highpaying industries, including the production of pri­
mary metals, motor vehicle and tobacco products.
In addition to these high-wage manufacturing jobs,
Kentucky non-farm earnings are boosted by the
abundance of mining jobs.
The first thing that stands out when comparing
the District with the nation are the nation’s con­
sistently higher median earnings in all categories.
Looking beyond these differences, which in part,
reflect the lower cost-of-living in the region, it ap­
pears that U.S. other services jobs pay substantial­
ly less than U.S. manufacturing jobs. Other ser­
vices workers received median weekly earnings
that were 4.7 percent less than in manufacturing,



and were 3.3 percent less than median earnings in
all non-farm jobs.

More Low-Wage Jobs?
Some observers have contended that, com­
pared with the manufacturing sector, serviceproducing sectors provide relatively few middleincome jobs, but many low-income jobs, perhaps
offset by a few very high-paying jobs. Some pro­
ponents of this view believe that, besides generating
many “ bad” low-income jobs, the growth in other
services jobs is undesirable because it will lead to
a society in which a growing underclass increas­
ingly falls further behind a richer class.
The table provides some evidence supporting
the view that the other services sector offers fewer
middle- and high-wage jobs and more lower-paying

ones. The middle earnings range is defined as
weekly earnings from one-half to one-and-one-half
of median weekly earnings of non-farm workers in
the region; the low and high categories include
earnings lower and higher than the middle range.
In the Eighth District, 67.1 percent of workers in
the other services sector were in the middle earn­
ings range compared with 73.3 percent for manu­
facturing. The other services sector included pro­
portionately twice as many low-wage jobs than did
manufacturing (12.9 percent versus 5.5 percent),
and slightly fewer high-wage jobs (20 percent ver­
sus 21.2 percent).
Furthermore, all individual industries within
the District’s other services sector had a smaller
proportion of workers in the middle earnings range
and more in the low range than manufacturing. In
the personal services industry, more than a third of
workers made less than half the District median,
while less than 4 percent fell in the high earnings
range.
The distribution of earnings in the United States
and the four states shown in the table was general­
ly similar to that of the District: the other services
sector had more low-wage and fewer middle-wage
jobs than in manufacturing. In Arkansas and Ten­
nessee, however, other services had relatively
more high-wage jobs than manufacturing.
While this evidence suggests that in 1989, other
services included proportionately fewer middlewage jobs and more low-wage jobs, it does not
necessarily imply the employment shift from
manufacturing to other services will lead to a twotiered economy. A review of relevant research
concluded that while the distribution of earnings in
the United States had become somewhat more une­
qual since the late 1970s, shifts in the nation’s in­
dustrial mix played only a minor role in the in­
crease in inequality.3
More fundamentally, while a higher proportion
of other services jobs fall in the low earnings range,
it is not clear that such jobs are “ bad” jobs. Some
analysts suggest that if workers are paid based on
their skills and abilities, then the jobs are not
necessarily bad. The problem, if any, lies with the
skills of the workers rather than with the jobs.
Also, these jobs might provide valuable opportuni­
ties for new workers to acquire work experience
and skills.
On the other hand, factors other than workers’
skill level, such as an industry’s degree of unioni­
zation and its capital intensity also are thought to
influence wages. In some other services industries,
such as personal services, for example, there is
relatively little physical capital per worker com­
pared with manufacturing, which tends to reduce
productivity and, therefore, wages.
One important difference between manufactur­
ing and other services relates to how earnings are
related to formal educational achievement.4 Con­



siderable formal education is generally required to
get a high-paying job in service occupations. In
those other services industries with the highest
wages, such as professional services, educational
levels are high. In contrast, formal education is not
as important in manufacturing, where on-the-job
training appears more important. Thus, many
manufacturing workers who have lost their jobs,
but lack high levels of formal education, may find
it difficult to find services jobs with comparable
wage rates unless they first gain additional skills
through education or training.

Are Part-Time Services Jobs Bad?
A relatively high proportion of wage and
salary employees in other services work part time.
In 1989, for instance, 24 percent of the nation’s
other services workers were on part-time sched­
ules, compared with 17.6 percent for all non-farm
industries and just 5.6 percent in manufacturing.5
Compared with full-time workers, those who
work part time tend to earn lower wages and are
less likely to receive pensions, health insurance
and other benefits. Thus, the abundance of parttime work in the other services sector has been
cited as evidence of low job quality. This is not
necessarily the case as many prefer the flexibility
and increased time for family and leisure that these
jobs allow. For these people, the greater availabili­
ty of part-time jobs in the other services sector is
one of its desirable characteristics.
To the extent that part-time schedules are un­
wanted by workers, however, the high proportion
of such jobs in other services is an undesirable in­
dustry characteristic. For the most part, this does
not appear to be the case: of all U.S. part-time
workers in other services, just one in five worked
part time involuntarily in 1989. This compares
with 23 percent of part-time workers in all in­
dustries and 41 percent of part-time manufacturing
workers.6

Comparative Stability
In contrast to many non-wage job characteris­
tics, employment stability is readily measurable.
As figure 1 clearly shows, employment in other
services is much more stable than in manufacturing
in the Eighth District, as is also true nationally. In
times of national recession (shaded in the figure),
manufacturing output and employment tend to
decline sharply as consumers postpone their pur­
chases, especially of durable goods like cars and
appliances. While other services employment is
also affected by recession — note its deceleration

8

Figure 1

Eighth District Manufacturing and Other Services Employment
Percent

Annual rate of change

Other
Services

V

Aw, 4

I

___ I I
72

74

l
76

i

I
78

in the mid-1970s and early 1980s — it is less sen­
sitive than manufacturing. Compared with manu­
factured goods, consumers are less likely to put off
the purchase of many kinds of services, like medical
procedures or haircuts.

Perilous Conditions?
Another measurable characteristic is hazards of
jobs in various industries. Hazardous jobs, which
often involve working with dangerous equipment
or materials, are widely viewed as less desirable
than those which do not entail such risks. Accor­
ding to one industry hazard indicator — the in­
dustry’s incidence of occupational injury and il­
lness — jobs in other services are much less hazar­
dous than average. In the other services sector,
51.2 workdays were lost due to injury and illness
per 100 full-time workers in 1989.7 This rate com­
pares with 78.7 lost workdays for all private sector



\

acturing

\
I

l

Ml * I \

1 Manu

V

1970

lfk/VAV

r' <

Ua

I
80

■
I

82

I

_1___ L .
84

86

i
88

i
1990

workers and 113 lost in manufacturing. While
there is undoubtedly wide variation among dif­
ferent types of occupations within the other ser­
vices sector, these figures suggest that, in general,
such jobs are relatively less hazardous than in
manufacturing or other sectors.

Conclusion
Like most simple questions, the one posed in
the title of this article has no simple answer. Most
fundamentally, it is not clear what constitutes a bad
job. If one considers the median pay levels among
full-time wage and salary workers in the Eighth
District, workers in the other services sectors earn
somewhat less than the non-farm average, but es­
sentially the same as those in manufacturing. The
median earnings data, however, hide the fact that
the District’s other services sector has relatively
larger shares of low-paying jobs and smaller shares

9

of middle-earnings jobs than manufacturing. How
these facts should be interpreted, however, is a
source of controversy.
Despite the relatively large number of lowwage jobs compared with manufacturing, workers
in the other services sector have the security of
working in a more stable industry and also ex­
perience a lower incidence of injuries and illnesses.
The lower wages in some other services jobs might

FOOTNOTES
1The other services sector is composed of health,
business, personal, professional, repair, legal and
miscellaneous services. For a more complete descrip­
tion see “ District Services: What They Are and Why
They Have Grown” by Thomas B. Maridelbaum in
Pieces of Eight (December 1990). Data for Arkansas,
Kentucky, Missouri and Tennessee are used to repre­
sent the Eighth District.
2Neal H. Rosenthal, “ More Than Wages at Issue in Job
Quality Debate,” Monthly Labor Review (December
1989), p. 7.
3Gary W. Loveman and Chris Tilly, “ Good Jobs or Bad
Jobs: What Does the Evidence Say?” Federal Reserve




be offset, in part, by these positive industry attri­
butes as well as by other job characteristics that
are less easily measured, but nevertheless con­
tribute to a worker’s evaluation of job quality.
Finally, the other services sector had a high pro­
portion of part-time workers; however, since most
of these employees worked part time voluntarily,
the abundance of part-time jobs is not in itself
undesirable.

Bank of Boston, New England Economic Review
(January/February 1988), p. 46-65.
4See John R. Swinton, “ Service-Sector Wages: the Im­
portance of Education,” Federal Reserve Bank of
Cleveland, Economic Commentary (December 15, 1988).
5U.S. Department of Labor, Bureau of Labor Statistics,
Employment and Earnings (January 1990), p. 199.
6lbid.
7See U.S. Department of Labor, Bureau of Labor
Statistics, Monthly Labor Review (December 1990), pp.
109-10.

g &Finance

10




Home Equity
Loans: Flexible
Enough to Withstand
a Real Estate
Downturn?
by Michelle A. Clark
Thomas A. Pollmann provided research assistance.

just one decade, home equity loans have
turned into one of the most successful new pro­
ducts ever offered by U.S. financial institutions.
Buoyed by rapid home price appreciation in many
parts of the country, home equity loan growth sur­
passed that of most other categories of loans in the
1980s. Although home prices rose more slowly in
the Eighth District than in New England and
California, District banks also experienced strong
growth in home equity lending in the 1980s. Re­
cent trends in the home equity loan market and
reasons for the popularity of these products among
consumers and bankers are explored below.

How a Home Equity Loan Works
Most people are familiar with the oldest type
of home equity loan, also known as a second mort­
gage. Traditional home equity loans (called closedend home equity loans) are paid out in full at the
time of origination and usually require repayment
of interest and principal in equal monthly install­
ments over a fixed time period. Closed-end loans
can be used for a variety of purposes; however,
they typically have been used for large, one-time
expenses, such as a home improvement project.
Although closed-end home equity loans are still of­
fered by many institutions, their growth since the
mid-1980s has been eclipsed by that of the more
flexible home equity line of credit.
A home equity line of credit (HELOC) is an
open-end revolving account secured by residential
equity, and works more like a credit card account
than a mortgage loan. A HELOC account allows
discretionary borrowing up to the amount of the
credit line, and can usually be accessed through a
special checking account or credit card. Most
HELOC accounts feature variable interest rates,
generally the prime rate plus 2 percentage points.
HELOC accounts are most often used to finance

home improvement projects, but they are also
used for debt consolidation, medical expenses,
tuition payments or the purchase of a new car or
home appliance.
In 1980, less than 1 percent of all commercial
banks and thrifts offered HELOC accounts; today
about 80 percent of commercial banks and 65 per­
cent of thrifts offer these loans, with commercial
banks dominating in the number and volume of
outstanding credit lines. While a number of
regulatory and economic factors contributed to the
tremendous growth in this product during the
1980s, the major explanatory factor appears to be
the substantial increase in home prices from the
late 1970s through most of the 1980s.
These home price increases, especially in New
England, the Mid-Atlantic states and the West
Coast, dramatically improved the equity positions
of most households, regardless of how long they
had owned their homes. An example will show
how this can be true. Say a homeowner with a
house valued at $100,000 has $30,000 in equity
invested in that house and a $70,000 mortgage.
Suppose five years later this homeowner could sell
this house for $150,000. Assuming this apprecia­
tion is permanent, the homeowner (and her credi­
tors) would view this unrealized profit as equity or
household savings. Home equity loans allow the
homeowner to mobilize this household wealth
without selling the home; the homeowner borrows
against the equity in her home, which, because of
rapid home price appreciation, may exceed the
original mortgage. Data collected on the character­
istics of home equity loans bear this home price
appreciation story out: home equity lending is most
prevalent in states where home values are highest
and have appreciated the most.

Home Equity Loan Trends
It is estimated that during the second half of
1988, 6.5 million households (or 11 percent of all
U.S. households) had home equity loans, with the
proportion holding closed-end and HELOC ac­
counts roughly equal. This data does not reflect,
however, the substantial gain in popularity of
HELOC accounts over closed-end home equity
loans since the mid-1980s. In 1988, 63 percent of
all home equity loan originations were HELOC ac­
counts versus a 37 percent share for closed-end
loans. Because growth in HELOC accounts has
dominated that of closed-end loans during the last
several years and because HELOC accounts have
some features unique among loan products, they
will be the focus of the remainder of this article.
Prior to December 1987 for commercial banks
and December 1988 for savings institutions, HELOC
accounts were included in total residential mort­

11

gages when these institutions reported loan data to
their supervisory agencies. These old reporting
practices make it difficult to pinpoint total growth
in HELOC accounts during the 1980s.1 Since the
data have been reported separately, however, it is
clear that HELOC account growth has far sur­
passed that of most other types of bank loans, and
offering these loans has allowed many institutions
to substantially expand their retail banking activity.
As illustrated in table 1, HELOC accounts
make up a small yet rapidly growing share of total
loans at U.S. banks. At the end of September
1990, home equity lines of credit accounted for
3.05 percent of total loans nationally and 2.13 per­
cent of total loans in the District, both up more
than 30 percent from year-end 1988. For various
reasons, but mostly because home prices have not
appreciated much in the Midwest during the last
few years, HELOC accounts make up a smaller
proportion of District bank portfolios than they do
nationally. HELOC accounts are most prevalent in
the Northeast, where the median price of an ex­
isting home rose 122 percent between 1982 and
1990. In the Midwest, home prices rose a more
modest 34 percent during the last eight years,
slightly less than the national rise of 41 percent.
Led by banks in Illinois, Missouri and Tennessee,
District banks have experienced slightly faster
average growth in HELOC accounts since year-end
1988 than U.S. banks overall; yet, only in Illinois
and Tennessee are the September 1990 averages
close to the national average. In contrast, Arkansas
banks have much lower HELOC shares than
District and U.S. banks, with a September 1990
share of just 0.33 percent, less than one-quarter
the District average.

Why So Popular?
Climbing home values alone do not explain
why a homeowner would choose a HELOC ac­
count versus another type of consumer loan. Con­
sumers have cited two characteristics of HELOC
accounts which largely explain their popularity:
convenience and the continued federal tax deduc­
tion for mortgage interest expense. When banks
began heavily promoting HELOC accounts in
1986, most waived closing fees and did not charge
any fees to maintain the credit lines. As a result,
many households established accounts in anticipa­
tion of large future expenses, in much the same
way businesses apply for standby letters of credit.
The idea of being able to tap into a line of
credit, at any time, for any reason, and for any
amount up to the maximum, appealed to many
consumers. So too did the tax break HELOC bor­
rowers receive. The 1986 Tax Reform Act pro­
vided for the gradual elimination of the deduction




Table 1
Home Equity Lines of Credit as a Percent of
Total Loans

U nited S ta te s 1
Eighth D istrict
A rkansas
Illinois
Indiana
K e n tu cky
M ississip p i
M issouri
T e n nessee

9/30/90

12/31/89

12/31/88

3 .0 5 %
2.13

2.78%
1.86

2 .34%
1.56

0.33
2.78
1.92
2.08
1.03
2.76
2.78

0.33
2.25
1.84
1.94
0.89
2.26
2.51

0.29
1.59
1.54
1.68
0.78
1.93
1.97

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 In­
sured Commercial Banks, 1988-90

for most types of consumer interest expense; how­
ever, the deduction for interest on loans secured
by residential property, which include both types
of home equity loans, was not changed.
Because HELOC accounts have few restric­
tions on use and because they have features com­
mon to consumer installment loans and credit card
accounts, often at much lower interest rates, many
borrowers have substituted HELOC account draw­
downs for traditional consumer loans. Consumer
surveys indicate that many HELOC account holders
are foregoing auto loans, student loans and credit
card purchases in favor of borrowing against their
home equity accounts. One way to assess the extent
of this substitution is to examine the ratio of
HELOC accounts to consumer loans. For U.S.
banks with assets of less than $10 billion, this
ratio rose from 10.45 percent at year-end 1988 to
13.54 percent in September 1990, and for District
banks, from 7.38 percent to 10.21 percent. These
numbers support the assertion that borrowers are
using home equity loans to finance a variety of
consumer purchases.

The Banker’s View
The popularity of HELOC accounts extends
to bankers too, although for different reasons.
From the banker’s point of view, the home equity
credit line has a number of attractive properties:
it is a high-yielding asset and one that is secured
by collateral (residential property), unlike many

12

Figure 1

Unused Home Equity Lines of Credit as a Percent of Home
Equity Lines of Credit Balances Outstanding, 1990

consumer loans. In addition, HELOC accounts are
attractive to bankers because they are easily pack­
aged with other banking products, allowing banks
to expand total retail services. HELOC accounts
are only profitable to banks, however, if they are
used. Since there was often no cost to borrowers
to set up HELOC accounts, no penalty for not us­
ing them and no minimum drawdown, many bankers
did not see a return on their marketing and start-up
costs for a number of years.
Based on consumer and banking surveys, it
appears more people who have opened HELOC ac­
counts during the last several years are currently
using them or are increasing their outstanding
balances than in previous years. This increased
usage is partially attributed to the elimination of
the tax deduction for consumer interest expense,
which is almost fully phased in, and to the lapsing
of many accounts opened several years ago that
have never been used.
Maintaining low levels of unused home equity
accounts relative to balances outstanding is a key



factor in making HELOC accounts profitable for
the bank. Unused home equity lines of credit, an
off-balance sheet item, represent a commitment on
the part of the bank to lend at a future date. In
recognition of that commitment, banks are now re­
quired to hold capital against a portion of those
unused lines of credit as well as credit line bal­
ances outstanding. An unused credit line represents
a burden to a bank because there is an “ expense”
(the capital requirement) and no return; the lower
the ratio of unused credit lines to outstanding
HELOC balances, all else equal, the more pro­
fitable the product is to the bank.
The ratios of unused credit lines to HELOC
balances outstanding at U.S. and District banks in
1990 are illustrated in the figure. District banks,
largely because of Tennessee banks, have a greater
ratio of unused HELOC accounts to outstanding
balances than U.S. banks overall. Tennessee banks,
on average, have more commitments to make
HELOC loans than actual loans on the books, an

13

indicator that this product is not as profitable in
Tennessee as elsewhere in the District and the
United States.
The relative safeness of HELOC accounts for
banks shows up in nonperforming loan statistics.
As illustrated in table 2, delinquency rates on
HELOC accounts are substantially below that of
traditional home equity loans and closed-end con­
sumer loans, both nationally and throughout the
District. Many analysts attribute the lower delin­
quency rate on HELOC accounts to borrower char­
acteristics; a number of consumer surveys have
shown, for example, that the typical HELOC bor­
rower is in a higher income bracket and is more
educated than the average home equity or con­
sumer loan borrower.2 These characteristics are
associated with lower delinquency rates, presum­
ably because wealthier people are less likely to run
into payment problems and more-educated bor­
rowers are less likely to make ill-informed choices.
Despite current low delinquency rates, a num­
ber of regulatory and structural characteristics of
home equity lending present risks to the lender.
The Competitive Equality Banking Act of 1987 re­
quired creditors, including banks, to establish a
life-of-loan cap on all adjustable rate mortgages; if
interest rates were to rise dramatically, a bank
may incur losses on capped loan products, includ­
ing HELOC accounts (called interest rate risk).
Unlike regular mortgage loans, HELOC accounts
are difficult to securitize (sell in the secondary
market) because of the inconsistency of their in­
terest and credit risk characteristics, the complexity
of their collateral structures and the uncertainty of
payment dates because of their revolving credit
nature. The inability to securitize HELOC accounts
means banks have to hold capital against them and
are unable to pass on some of the interest rate and
credit risk to secondary market participants.
The biggest risk to HELOC lenders, however,
is the effect of a decline in housing values. If a
decline is steep enough to cause a loss of house­
hold purchasing power, the bank is subject to the
risk of property abandonment and housing debt
default. Although any lender of funds backed by
residential property faces this risk, the treatment of
lien priority makes this risk especially significant
for HELOC lenders. If a homeowner defaults on
his mortgage and his HELOC, the bank holding
the HELOC is more likely to suffer losses because
HELOC accounts are typically secured by junior
as opposed to first liens. Given that a number of
regions are experiencing declines in home prices

FOOTNOTES
1Closed-end home equity loans are still reported with
other one- to four-family residential mortgages, making it
even more difficult to quantify the total amount of home
equity loans outstanding.




Table 2
Loans 30 Days or More Past Due as a Percent of
Loans Outstanding, Year-End 1989

H ELO C
a cco u n ts

T ra d itio n a l
hom e
e q u ity
loans

C o n su m e r
loans—
closed-end

U nited S tates

0 .7 8 %

1.85%

2.95%

A rkansas
Illinois
Indiana
K e n tu cky
M ississip p i
M issouri
T enn e sse e

1.26
0.73
0.59
0.61
0.25
0.94

2.15
1.11
2.35
3.07
2.39
1.49
2.21

2.12
1.81
2.68
3.58
3.06
2.65
3.13

—

SOURCE: Consumer Credit Delinquency Bulletin,
American Bankers Association

and these regions are the ones with the greatest
shares of home equity loans, it is likely that banks
will experience rising delinquency rates during the
next year.

Conclusion
Home equity loans, and in particular, home
equity lines of credit accounts, rank high on the
list of significant financial innovations of the
1980s. Their popularity among consumers has
generated some large profits and market shares for
banks aggressively promoting the products. The
flexibility of these loans has been their most
popular feature, and continued innovation will un­
doubtedly increase their appeal. The resiliency of
the product, however, rests in its ability to per­
form well in a time of declining home prices. The
current downturn in real estate markets in New
England and the Mid-Atlantic states offers the first
real test of this product’s staying power. For Eighth
District bankers contemplating a jump into the
market, what happens on the East Coast during the
next 18 months will surely provide food for thought.

2See the American Bankers Association 1990 Home
Equity Lines of Credit Report and The Survey Research
Center, University of Michigan National Survey of Home
Equity Loans, September 1989.




14

Eighth District Business
Level

Payroll Employment (thousands)
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
M anufacturing
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

C o m p o u n d e d A n n u a l R a te s o f C h a n q e

IV/1990

111/1990IV/1990

IV/1989IV/1990

19901

19891

110,205.0
6,888.2
922.9
250.0
1,473.9
487.3
2,325.4
1,181.2
2,166.1
472.5

- 1 .6 %
- 0 .4
2.1
2.8
-0 .9
2.3
0.3
0.6
- 1 .8
5.5

0.9%
0.8
2.5
1.6
1.8
2.1
0.4
-0 .1
-0 .1
2.1

1.8%
1.5
2.8
1.9
2.6
3.0
0.8
0.8
1.1
1.8

2.7%
2.9
3.0
3.0
3.8
4.1
2.2
2.3
3.0
1.5

18,798.0
1,456.9
231.3
282.8
426.7
516.1

- 5 .7 %
-3 .5
-2 .4
-3 .4
-5 .2
- 2 .7

- 2 .6 %
- 1 .3
1.0
- 0 .8
- 2 .4
-1 .7

1.9%
-0 .4
0.6
0.2
-1 .3
-0 .5

0.4%
1.9
1.6
3.4
1.2
1.9

- 1 .6 %
-3 .3
0.6
0.7
4.6
0.3
-2 .5

- 0.4%
- 2 .0
-0 .1
0.2
2.8
0.7
2.2

- 0.6%
1.4
0.3
0.4
3.4
1.4
2.8

- 4.8%
1.0
0.3
3.5
5.1
3.0
2.2

111/1990

11/1990111/1990

111/1989111/1990

19891

19881

$3,545.3
192.7
25.2
41.5
67.3
57.8

- 1 .3 %
- 2 .5
- 4 .6
- 2 .8
- 2 .9
-0 .7

0.7%
0.3
2.0
0.7
- 0 .7
0.3

2.7%
1.9
1.6
2.5
1.8
1.7

3.9%
2.8
2.5
2.8
1.7
4.4

IV/1990

111/1990

5.9%
6.2
7.2
5.9
5.7
4.9
6.2
6.4
5.9
5.2

5.6%
5.8
7.0
6.0
5.5
5.0
6.1
6.4
5.1
4.6

49.0
292.6
338.3
398.3
1,573.4
1,649.2
1,131.8

L e v e ls

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

1990
5.5%
5.7
6.8
5.8
5.7
5.0
5.7
5.9
5.3
4.7

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

1988
5.5%
6.5
7.7
6.4
7.9
6.3
5.7
5.9
5.8
5.2

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.
1Figures are simple rates of change comparing year-to-year data.
2Finance, Insurance and Real Estate
^Transportation, Communications and Public Utilities
4Annual rate. Data deflated by CPI-U, 1982-84 = 100.

15

U. S. Prices
L ev el
IV /1 9 9 0

C o m p o u n d e d A n n u a l R a te s o f C h a n q e
111/1990-

IV /1 9 8 9 -

IV /1 9 9 0

IV /1 9 9 0

19901

19891

Consumer Price Index
( 1982 - 8 4 = 100 )

Nonfood
Food

133.4
134.4

7.2%
4.0

6.4%
5.5

5.3%
5.8

4.7%
5.8

144.7
167.0
121.7

-13.4%
-13.8
-13.0

- 1 .1 %
1.0
-3 .6

1.6%
6.8
-4 .8

6.6%
6.8
6.6

174.0
187.0

7.2%
6.7

4.8%
5.1

2.7%
3.4

6.4%
4.9

Prices Received by Farmers
(1 9 7 7 = 100 )

All Products
Livestock
Crops
Prices Paid by Farmers
(1 9 7 7 = 100 )

Production items
Other items2

Note: Data not seasonally adjusted except for Consumer Price Index.
1Figures are simple rates of change comparing year-to-year data.
2Other items include farmers’ costs for commodities, services, interest, wages and taxes.

Eighth District Banking
Changes in Financial Position for the year ending
September 30, 1990 (byAsset size)
SELECTED ASSETS
Securities
U .S. Treasury &
agency securities
Other securities1
Loans & Leases
Real estate
Commercial2
Consumer
Agriculture
Loan loss reserve
Total Assets
SELECTED LIABILITIES
Deposits
Nontransaction accounts
MMDAs
$100,000 CDs
Demand deposits
Other transaction accounts3
Total Liabilities
Total Equity Capital

Less than

$ 1 0 0 m illio n •

$ 3 0 0 m illio n -

M o re th a n

$ 1 0 0 m illion

$ 3 0 0 m illio n

$1 b illio n

$1 b illio n

3.4%
6.1
- 5 .2
2.5
4.4
-4 .1
- 0 .5
11.5
0.3
1.5
1.5%
2.4
-5 .4
6.0
-5 .3
1.8
1.5
1.5

14.7%
20.7
-0 .2
5.3
11.5
-4 .4
-1 .4
15.0
9.0
7.8
8.3%
9.8
3.6
4.5
0.0
8.0
7.7
8.8

17.2%
24.6
0.1
5.6
10.1
-4 .3
12.2
19.9
3.4
7.5

22.2
-4 .5
3.1
15.8
-1 .9
3.7
-5 .3
17.9
4.1

9.2%
11.7
5.4
- 2 .8
-3 .6
12.8
7.7
5.7

7.8%
10.0
17.4
9.0
0.1
9.3
4.4
26.0

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
11ncludes state, foreign and other domestic, and equity securities
includes banker’s acceptances and nonfinancial commercial paper
includes NOW, ATS and telephone and preauthorized transfers




14.2%

16

Performance Ratios (by Asset Size)
III/90

EARNINGS AND RETURNS
Annualized R eturn on Average
Assets
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Annualized R eturn on Average
Equity
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Net Interest M argin1
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
ASSET QUALITY2
Nonperforming Loans3
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Loan Loss Reserves
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Net Loan Losses4
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks

Eighth District
III/89

United States
III/88

lli/90

III/89

ill/88

.83%
.91
.77
.57
.47
1.09

.85%
1.00
.88
.81
.06
1.12

.740/0
.85
.68
.75
.91
1.01

8.98%
11.07
10.36
8.57
9.41
11.14

9.20%
12.24
12.23
12.52
1.31
11.40

8.25%
10.85
9.76
11.87
18.85
10.42

4.09%
4.30
4.36
4.17
3.26
4.02

4.29%
4.45
4.38
4.14
3.39
4.14

4.25%
4.25
4.15
4.06
3.30
4.07

1.06%
1.03
1.04
.79

1.11%
1.08
1.04
.58

1.06%
1.01
1.07
.86

1.23

1.21

1.15

11.41%
12.35
13.19
11.82

11.82%
13.00
13.08
8.99

11.56%
12.16
13.46
12.80

—

12.30
3.99%
3.91
3.96
3.75

—

12.11
4.00%
3.98
4.11
3.59

—

11.68

3.91

3.92

3.95%
3.88
4.04
3.72
—
3.83

1.65%
1.85
1.55
1.94
1.76

1.65%
1.72
1.38
2.18
—
1.87

1.820/o
1.72
1.33
2.03
—
2.08

2.01%
2.04
2.50
3.04
4.78
1.89

2.16%
1.95
2.49
2.26
4.87
2.22

2.440/o
2.01
2.19
2.13
5.53
2.70

1.44%
1.49
1.39
1.76

1.47%
1.43
1.42
1.79

1.46%
1.36
1.32
1.82

1.51%
1.49
1.77
2.20
3.38
1.93

1.56%
1.46
1.62
1.80
4.24
2.04

1.63%
1.50
1.64
1.79
4.18
2.08

.35%
.42
.58
.99
1.37
.24

.42%
.38
.51
.62
.80
.32

.520/0
.44
.56
.74
.77
.47

—

—

—

1.61
.25%
.36
.33
.61

—

—

1.74
.23%
.32
.34
.59

—

1.75
.27%
.32
.29
.83

—

—

—

.16

.19

.25

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