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REGIONAL ECONOMIST | APRIL 1998
https://www.stlouisfed.org/publications/regional-economist/april-1998/learning-to-talk-fedspeak

President's Message: Learning to Talk Fed-Speak
William Poole
It is a great honor to have been appointed president of the Federal Reserve Bank of St. Louis recently. I am
keenly aware of all the responsibilities that come with this unique position, and I am eager to begin fulfilling
them.
The Bank's most important responsibility is to exercise its vote at the monetary policy table. There is the literal
table—the one in that imposing Board Room at the Board of Governors in Washington. Even more important,
however, is the public debate table. The St. Louis Fed has had a major influence on the nation's monetary
policy over the years because of the active role it has taken in both monetary policy and academic debates.
The Federal Reserve System has a lot to be proud of, and the superb state of the current economy justifies a
little crowing.
But the Fed's responsibilities are much broader than the policy process that determines the decisions of the
Federal Open Market Committee. The central bank has overall responsibility for the smooth functioning of the
nation's banking and payments system. Our aim is not to be noticed; if we are out of the news, you will know
that we are doing our job well. The role of the Fed in the examination and supervision of banks, the handling of
currency, the clearing of checks and the provision of other such services is vital to ensuring that banks are safe
and sound and efficient. The Fed is a regulatory agency, but our aim is certainly not to make life difficult for
banks. Rather, our goal is to provide oversight and necessary services so that banks themselves can give their
customers what they need and want. We should always remember that, in our vigorously competitive
economy, the interests of firms and consumers and regulators are essentially the same: High-quality products
and services and enhanced efficiency yields benefits for all.
A Reserve Bank presidency is a highly visible position. That position carries with it special responsibilities in
the community. As a new citizen of the Eighth Federal Reserve District, I will contribute wherever I can to
improving economic education and promoting economic development throughout the region. I know that
economic change often unearths many conflicting interests. Although the Fed has no legal responsibilities for
local economic development, I believe it does have a responsibility to act as an honest, impartial broker in
bringing people together to resolve policy disputes.
Those in positions of responsibility often talk of things that happen "on our watch." I will do my best to see that,
on my watch as St. Louis Fed president, the Bank will continue to faithfully execute its duties, while acting as a
leader by embracing and encouraging the innovation that will carry us into the financial world of the future.
(For a biographical sketch of William Poole, see the related story.)

REGIONAL ECONOMIST | APRIL 1998
https://www.stlouisfed.org/publications/regional-economist/april-1998/how-susceptible-is-the-united-states-to-the-asian-flu

How Susceptible is the United States to the Asian
Flu?
Kevin L. Kliesen
The financial straits that many East Asian countries find themselves in have received an extraordinary amount
of attention lately. Because the roots of these developments run deep and intertwine, any explanation will
inevitably fail to fully explain what transpired. Still, it appears that a significant part of this situation can be
attributed to a flight of financial capital spurred by a crisis of investor confidence in the ability of these nations
to implement needed domestic financial and political reforms. Although the situation is still evolving, and in
some ways improving, many economists believe that the forces unleashed by these developments will
adversely affect the U.S. economy. But is this necessarily so?

Diagnosis
Events in Asia began to make headlines last year when Thailand's currency—called the baht—lost about a
quarter of its value against the U.S. dollar between late June and the middle of July.1 Eventually, this loss of
confidence—if it may be called that—extended to the currencies of several other East Asian nations, including
the Malaysian ringgit, the Philippine peso and the South Korean won. Incredibly, between late July 1997 and
early February 1998, the Indonesian rupiah had lost more than 80 percent of its value against the dollar. As the
accompanying chart shows, over the last half of 1997, the dollar rose by almost 28 percent against a basket of
selected Asian currencies; against a larger basket of 131 currencies, the dollar rose by about a third as much
—9.5 percent.

Chart 1

The Value of the U.S. Dollar Against Selected Asian Currencies*

*China, Hong Kong, Indonesia, Korea, Malaysia, SIngapore, Taiwan and Thailand
SOURCE: Federal Reserve Bank of Dallas

Currency movements of these magnitudes are usually the byproduct of unsound domestic policies. In many
Asian countries, several observers have remarked that "crony capitalism" is what lies at the heart of the
problem, meaning that a considerable percentage of the foreign financial capital that flowed into Asia was
directed at the behest of state bureaucrats, rather than market forces. The situation was further exacerbated
by lax oversight of the financial system—oversight that failed to deal promptly with bad loans.2
Because most of these countries are heavily dependent on international trade, a sharp decline in the price of
their traded goods ultimately means a loss of purchasing power. In other words, less income (from exports) is
available to purchase imported goods, which are now also more expensive because of their depreciating
currencies. Thus, many of these countries expect to see their real consumption cut substantially.
There are myriad other avenues through which the Asian currency crisis can affect the U.S. economy. Of
these, two effects have received the most attention. The first, not surprisingly, is through international trade; the
second is through the U.S. price level. The prevailing view seems to be that the former will be detrimental to
the United States, while the latter will be beneficial. Conventional wisdom, however, suggests that the net
effect will be negative.

Trade Influenza?
Americans buy a considerable amount of goods from Asia—everything from cars to clothes to computer chips.
At the same time, U.S. firms ship a large amount of merchandise to Asia, including airplanes, chemicals,
machinery and agricultural products. Altogether, U.S. merchandise trade with Asia accounts for about a third of
total U.S. trade (exports plus imports). Japan is the region's largest U.S. trading partner, making up about 13
percent of total trade, with China (at about 5 percent) and South Korea (at 3 percent) farther back in terms of

importance. Clearly, then, economic stresses in Asia have the potential to disrupt economic activity in the
United States. But by how much?
The flow of goods and services across countries depends on several factors. The most important of these
factors is the price of goods, which is influenced by foreign-exchange movements.3 To see this, consider how
a change in the value of the dollar-won exchange rate would affect the dollar price of a personal computer
made in South Korea and sold to a U.S. retailer for 1 million won. If the prevailing exchange rate is 750 won to
the dollar—which is about where it was at the beginning of 1996—then the initial price of the computer to the
retailer would be about $1,300 (1 million divided by 750). If the dollar appreciates (or the won depreciates) to
1,700 won—which is roughly where it stood in early 1998—then the cost of the computer falls to about $600 (1
million divided by 1,700).
But a change in the dollar's value also affects the prices of U.S. goods that are shipped to South Korea. In this
case, U.S.-produced computers sold in Korea would now be roughly twice as expensive as before.4 In
addition, the stronger dollar may result in fewer exports of U.S.-made computers to countries in which both
countries' computers are sold—say, in Europe. The expected result of a dollar appreciation is lower U.S. net
exports (meaning more imports and fewer exports).5 In an accounting sense, then, the Asian currency crisis is
expected to reduce the growth of real GDP—perhaps by as much as half a percentage point or more this year,
according to several forecasts.6
This estimate, however, should be viewed cautiously for several reasons. For starters, if the U.S. dollar was
depreciating against the Canadian dollar and the Mexican peso at the same time it was appreciating against
the won, we would expect to see lower U.S. net exports to South Korea, but increased net exports to Canada
and Mexico. Thus, declines in the dollar against the currencies of other important trading partners may
potentially offset the dollar's recent strength against Asian currencies. Furthermore, many firms minimize risk
through binding trade contracts, which may prevent them from seeking out cheaper alternatives in the short
run. In light of all these considerations, it seems reasonable to assume that predicting future trade flows in the
face of considerable uncertainty is a risky endeavor.

Is a Strong Dollar Bad Medicine?
Because of its potentially adverse effect on a nation's trade balance—and thus employment in those industries
that either produce for the international market or compete with imports—many analysts believe that a stronger
dollar bodes ill for the United States. But a strong currency suggests that the monetary and fiscal authorities
are following reasonably sound macroeconomic policies, leading to rates of return on investment goods and
financial assets that exceed those of other countries. Conversely, a weak currency is usually the byproduct of
an anemic economy wracked with high and rising inflation. Moreover, a strong dollar acts as a control on costs,
forcing exporting firms to boost sales through efficiency gains and product innovations, rather than simply
through lower prices.
The outcome of a strong dollar that has received the most attention, though, is its effect on the prices of goods
and services consumed by U.S. residents. Specifically, many analysts assert that the stronger dollar will lower
the U.S. inflation rate, thereby enhancing the purchasing power of U.S. citizens. In fact, some analysts go so
far as to insist that, with inflation already at fairly low rates, outright deflation is possible. That outcome is
exceedingly unlikely.
For several reasons, a flood of cheap imports will probably cut the U.S. inflation rate very little—if at all. First,
more than half (about 60 percent) of the consumer price index—the basket of goods and services used to
measure the inflation rate—is made up of non-traded items (largely services). This means that, while currency
movements will have some effect on the prices of goods like camcorders and automobiles, they will have
virtually no effect on housing prices—the largest CPI component—or the prices of medical services, for

example. In any event, with imports of consumer goods and services accounting for only 8 percent or so of
total consumption expenditures, the inflation effect is likely to be small.
Second, unless the dollar continually appreciates, these price declines are one-time events. Moreover, if these
Asian currencies begin to retrace part of their initial declines as their economies recover and their financial
markets stabilize, the effects could begin to work in the opposite direction. Finally, and most important, it's
crucial to remember that inflation ultimately is a monetary phenomenon determined by domestic factors. This
means that today's inflation rate is largely a function of past money growth rates. It follows, then, that
tomorrow's inflation rate will mostly be determined by today's monetary policy; exchange rate movements can
have only small, temporary effects on it.

Prognosis
It's not entirely clear to what extent—if any—the evolving situation in Asia will harm prospects for U.S.
economic growth this year. Although there will probably be some impact on U.S. trade flows and on the prices
of imported goods, the magnitude of that impact is uncertain at this time. Clearly, it is unwise to ignore the
effects produced by events that have the potential to inflict some economic harm. That said, judging the effects
of events that are still unfolding is difficult to say the least.
Daniel R. Steiner provided research assistance.
Endnotes
1. At the time, Thailand was operating a dollar peg by keeping the value of the baht tied to the U.S. dollar.
When the dollar rose to a level that the Thais could no longer feasibly support, they were forced to
abandon the peg and thus let their currency "float," meaning the day-to-day value was determined in
the foreign exchange markets. [back to text]
2. See Krugman (1997). [back to text]
3. Other factors also come into play, including how sensitive firms and individuals are to changes in the
price of the good and what, if any, deterioration in overall economic growth is expected. [back to text]
4. In reality, the change in the price would be more complicated than this because the Korean computer
maker might use parts imported from the United States. If so, then the decline in the price of the
computer would not be as much because the U.S.-made components would now be more expensive to
the Korean producer. [back to text]
5. It is possible that the trade balance will not worsen in the short run because the United States is buying
the same goods at a cheaper price in dollars. In other words, the total value (price times quantity)
purchased may be less than before the appreciation. [back to text]
6. In the National Income and Product Accounts (NIPA) system, increased exports (U.S. production)
increases GDP growth, whereas increased imports (foreign production) reduces GDP growth. [back to
text]

References
Federal Reserve Board. "Testimony of Chairman Alan Greenspan Before the Committee on Banking and
Financial Services, U.S. House of Representatives," January 30, 1998.
International Monetary Fund. World Economic Outlook: Interim Assessment, World Economic and Financial
Surveys (December 1997).
Krugman, Paul. "What Ever Happened to the Asian Miracle?" Fortune (August 18, 1997), p. 26.

ABOUT THE AUTHOR
Kevin L. Kliesen
Kevin L. Kliesen is a business economist and research officer at the
Federal Reserve Bank of St. Louis. His research interests include
business economics, and monetary and fiscal policy analysis. He
joined the St. Louis Fed in 1988. Read more about the author and his
research.

REGIONAL ECONOMIST | APRIL 1998
https://www.stlouisfed.org/publications/regional-economist/april-1998/the-commercial-paper-market-whos-minding-the-shop

The Commercial Paper Market: Who's Minding the
Shop?
Dusan Stojanovic , Mark D. Vaughan
On Jan. 31, 1997, Mercury Finance Co.—a major player in the automobile lending business—surprised
financial markets by defaulting on $17 million in commercial paper. By the end of February, the amount in
default had ballooned to $315 million, representing 60 percent of Mercury's outstanding commercial paper and
30 percent of its outstanding debt. As the saga unfolded, some financial market observers expressed concern
that Mercury's default would send shock waves throughout financial markets, perhaps on the scale of the $82
million commercial paper default by Penn Central Railroad some 27 years earlier.
Despite the corporate sector's heavy reliance on commercial paper as a funding source, Mercury's default had
little impact on the market as a whole. Indeed, only companies involved in used car financing and other lowend lending activities were forced to pay higher default premiums on their commercial paper as a result of the
Mercury debacle. In contrast, Penn Central's bankruptcy so spooked commercial paper investors that the
Federal Reserve was forced to step in to calm market jitters. Was the Mercury Finance episode a fair test of
the resilience of the commercial paper market, or does the Federal Reserve still need to guard against the
potential fallout from a major commercial paper default?

Paper Points
Firms finance their assets with a mix of debt (borrowing) and equity (owners' capital). Debt can either have a
long or short maturity. A 10-year bond is an example of long-term debt, while commercial paper is an example
of short-term debt. More specifically, commercial paper is a short-term, unsecured debt instrument, used
mostly to finance current operations. Because it is unsecured, commercial paper is a financing option reserved
for only the highest quality firms. The typical issue matures in less than 45 days and is denominated in the
millions of dollars. Commercial paper is sold at a discount and pays face value at maturity, with the holder
receiving the capital gain in lieu of interest. Firms generally "roll over" outstanding issues; that is, they sell new
paper to pay off maturing paper.
From the issuer, or borrowing firm's, perspective, commercial paper is like an IOU. The issuer writes out a
promise to pay a sum—say $1,000—in a few weeks in return for an advance of, for example, $995 today. Of
course, because no collateral is offered, no one will accept the IOU unless the issuer is very creditworthy.
When the IOU comes due, the issuer then writes out another IOU—possibly to a different party—to raise the
funds to pay back the first lender.
Financial firms issue 78 percent of all commercial paper—25 percent of which is from finance companies. The
largest finance company issuers are subsidiaries of large industrial firms that facilitate purchases of parent
company products—sometimes called captive finance companies. As of June 30, 1997, the top three captive
finance companies—General Electric Capital Corp., Ford Motor Credit Co. and General Motors Acceptance

Corp.—collectively boasted outstanding commercial paper of about $110 billion, or nearly 13 percent, of the
market.
Of the nonfinancial firm issuers—which account for the remaining 22 percent of the market—industrial and
service firms use commercial paper as a source of working capital, while public utilities use commercial paper
to purchase raw materials (like nuclear fuels) and fund construction. In addition to using commercial paper to
finance conventional public works projects, state governments have found unconventional uses, such as
backing infrastructure and mass transit projects in New York and providing disaster relief funds after the 1996
Pennsylvania blizzard.1
Why would anyone hold an unsecured corporate IOU like commercial paper? From the lender's, or commercial
paperholder's, perspective, commercial paper is a highly liquid, low-risk asset. Commercial paper is considered
a liquid asset—one that can be converted to cash easily with little loss of value—because, as noted, the typical
issue matures in less than seven weeks. Commercial paper is also a low-risk asset—one that carries little risk
of default—because the typical issue has such a short maturity and is the liability of a high-quality firm. Money
market mutual funds are the largest investors in commercial paper, holding about 34 percent of all outstanding
paper, followed by households (13 percent), retirement and pension funds (8 percent), foreigners (8 percent),
and life insurance companies (7 percent).
The commercial paper market has grown by leaps and bounds over the past two decades. Between 1980 and
1996, the total amount of outstanding commercial paper jumped from $124 billion to $775 billion, which
translates into an 8.2 percent compound annual growth rate after adjusting for inflation. A look at changes in
the share of commercial paper in the money market is even more revealing (see Chart 1). In 1970, Treasury
bills accounted for 47 percent of the dollar volume of money market instruments, and commercial paper
accounted for just 20 percent. By 1997, however, commercial paper had overtaken Treasury bills to become
the largest money market instrument, totaling $959 billion, or 31.5 percent, of the market.

Chart 1

A Paper Chase: Principal U.S. Money Market Instruments

NOTE: Values are in constant 1997 dollars.
SOURCES: Flow of Funds Section, Board of Governors of the Federal Reserve System; Federal Reserve Bulletin; Economic Report of the
President

Financial innovation explains a large part of the growth of the commercial paper market. In times past, only the
bluest of blue chip companies could issue such unsecured debt. In recent years, however, the information
explosion in financial markets, coupled with increased competition in underwriting, has enabled more firms to
issue commercial paper. For example, better information about the issuing firms has enabled the market to
more accurately assess the default risk of a given issue. Liquidity enhancements, credit enhancements and
securitization programs, which are all discussed in greater detail below, have further reduced the risks to
commercial paper holders.

The Market for Commercial Paper
Middlemen called dealers play an important role in the commercial paper market. As late as 1980, dealers
sold, or "placed," 45 percent of all paper; by 1996, however, that number had climbed to more than 70 percent.
The growing importance of dealers can be attributed to financial innovation, which made commercial paper a
viable financing option for smaller issuers (who tend to rely on dealers to sell their paper), as well as
competition in underwriting, which reduced the transactions costs of selling issues.2
Dealers purchase commercial paper from issuers and immediately resell it to investors. Such underwriting
typically earns a spread of 5 to 10 basis points. Three investment banking firms—Goldman Sachs, Merrill
Lynch and Lehman Brothers—deal more than two-thirds of all commercial paper. Among bank commercial
paper dealers, J.P. Morgan, BankAmerica, Chase Manhattan, Citicorp, First Chicago and Bankers Trust are
the most prominent. That said, the amount of commercial paper placed by all six of them combined still lags
behind the amount placed by any one of the top three investment bank dealers.

One or more of the rating agencies—Moody's, Standard & Poor's (S&P), Duff and Phelps, or Fitch-rate most of
the outstanding commercial paper today. Ratings range from highest quality to paper in default. Almost all
commercial paper issues carry either a higher prime rating (S&P: A1+ or A1; Moody's: P1) or a lower prime
rating (S&P: A2 or A3; Moody's: P2 or P3). For example, 90.4 percent of all the issues rated by Moody's as of
June 30, 1995, held the highest rating (P1), and another 9 percent held the second highest rating (P2).3
Just like the market for any other security, supply and demand determine commercial paper yields. The yield of
a specific issue depends on the maturity length, the amount financed, the level of other money market rates
and the credit rating of the issuer. Because of default risk, however, commercial paper yields are higher than
yields on Treasury bills. Since 1991, the average commercial paper/T-bill spread for three-month instruments
has been slightly under 40 basis points. On Aug. 29, 1997, for example, the 13-week Treasury bill rate offered,
on average, a yield of 5.13 percent, while 90-day commercial paper offered an average yield of 5.55 percent.

At Banks' Expense?
Banks have lost a large part of their traditional lending business to the commercial paper market. Large,
creditworthy corporate borrowers have increasingly turned to commercial paper because the interest costs are
lower than those on bank loans (see Chart 2). At the same time, finance companies have made great strides in
certain segments of the consumer loan market, such as automobile lending, by funding loans with commercial
paper and passing some of the savings on to customers. Over the last 10 years, commercial and industrial
loans have fallen from 32.4 percent of the U.S. bank loan portfolio to 26.6 percent, and—despite explosive
growth in credit card lending—consumer loans have remained relatively unchanged at 19 percent.4

Chart 2

More Nonfinancial Firms Fund with Paper:
Commercial Paper vs. Bank Loans, 1960-97

NOTE: Values are in constant 1997 dollars.
SOURCES: Flow of Funds Section, Board of Governors of the Federal Reserve System; Federal Reserve Bulletin; Economic Report of the
President

Ironically, although banks have lost business to the commercial paper market, the market could not operate as
it does without them since banks provide supporting liquidity and credit enhancements.5 In addition, banks
have been important behind-the-scenes players in the rise of asset-backed commercial paper programs.
As noted earlier, most maturing commercial paper is rolled over; that is, investors are paid off with proceeds
from a new issue, just as some consumers pay off one credit card with an advance from another. Rollovers
carry the danger that an unexpected circumstance might interfere with attempts to replace outstanding paper
with new paper—just as consumers "rolling over" credit card debt would be in trouble if a card issuer refused to
come through with a promised cash advance.
Commercial paper issuers reduce "rollover risk" by securing backup lines of credit from banks. These backup
lines, which are also called liquidity enhancements, give paper-issuing firms access to bank credit in exchange
for a fee. Usually, commercial paper issuers maintain 100 percent backing, though some large issues have
less than full backing. Backup lines usually contain a "material adverse change" clause, which allows
cancellation of the line if the financial condition of the issuing firm deteriorates. As a precondition for rating a
commercial paper program, credit rating agencies usually require a bank line of credit; hence, almost all
issuers have a line in place.
The actual credit rating awarded ultimately depends, however, on the creditworthiness of the issuing firm or, in
some cases, on the creditworthiness of a third party willing to act as a guarantor of the issue. In third-party
guarantees, a firm with a weak credit rating "leases" the credit rating of a stronger firm by purchasing a credit
enhancement. Such credit enhancements are irrevocable and can take a number of forms: standby letters of
credit purchased from commercial banks; parent company guarantees of their subsidiaries' commercial paper;
and insurance company indemnity bonds purchased by commercial paper issuers. Standby letters of credit are
currently the most popular form of credit enhancement, with about 5 percent of all commercial paper
outstanding backed by them.6 Standby letters back only a small percentage of current commercial paper
issues because the overwhelming majority of issuers are extremely creditworthy.
Securitization—the conversion of assets into marketable securities—has spread to the commercial paper
market.7 In April 1983, Standard & Poor's rated the first commercial paper issue backed by a package of
receivables. By the second quarter of 1997, approximately $160 billion, or 18 percent, of all outstanding
commercial paper was asset-backed, with Moody's predicting outstandings to reach $225 billion by year end.
The most frequent users of asset-backed commercial paper are Fortune 1000 corporations.
Banks sponsor most asset-backed commercial paper programs by forgoing the traditional creditor-lender role
and instead establishing separate business entities called special purpose vehicles. These special purpose
vehicles pool assets and issue commercial paper that is backed by the cash flows from underlying assets.
Assets usually consist of various types of receivables, such as credit card, auto and equipment lease, health
care and even small business loan. More recently, movie studios have packaged film receivables for sale as
asset-backed commercial paper. News Corp.'s 20th Century Fox helped finance both "Independence Day" and
"Romeo & Juliet" this way. Since most of the underlying assets are short-lived, special purpose vehicles are
structured as ongoing entities that continue to buy assets and roll over maturing commercial paper.
In bank-sponsored programs, the sponsoring bank evaluates receivables on behalf of the special purpose
vehicle and receives a referral fee for the analysis. The sponsoring bank also arranges for liquidity and credit
enhancements. Banks sponsor asset-backed commercial paper programs both to generate fee income and to
offer customers access to the commercial paper market.

Stemming Systemic Risk

Systemic risk is the risk that a shock to a major economic player—such as a large bank—or a major sector of
the economy—such as the commercial paper market—could shake the foundations of the financial system,
perhaps forcing the Federal Reserve to intervene as "lender of last resort." Such an intervention occurred after
Penn Central's paper default in June 1970. The Penn Central default caught the market by surprise, largely
because commercial paper ratings were in their infancy at the time. Investors, concerned that other companies
might also default, became skittish about holding any commercial paper. As a result, between June 24 and
July 15 of 1970, outstanding nonbank paper dropped almost 10 percent.8
The Federal Reserve took four steps to address the Penn Central crisis. First, it announced that it would
extend funds, in the form of discount loans, to member banks that were willing to lend to customers with
maturing commercial paper. Second, it suspended Regulation Q ceilings on large-denomination certificates of
deposit, thereby enabling banks to bid for funds to make commercial paper related loans.9 Third, it stepped up
its open market purchases of securities, which is the standard monetary policy tool to increase the amount of
funds available to the banking system for lending. Finally, then Fed Chairman Arthur Burns announced that the
Federal Reserve would directly or indirectly lend to firms that were unable to retire commercial paper. The first
three steps thwarted the crisis, making the fourth step unnecessary.
A meltdown on the scale of Penn Central is not as likely today because the commercial paper market is far
more sophisticated. Not only do market participants know the quality of paper issuers from lengthy personal
experience, but most commercial paper issues also now carry a rating. Moreover, if a major default were to
occur, the market would most likely be able to distinguish between good and bad commercial paper issues.
Finally, even if a surprise default—like the Mercury Financial one—spooked investors about segments of the
commercial paper market, firms in sound financial condition would be able to exploit bank lines of credit to
retire issues that couldn't be rolled over.
The Mercury default illustrates the maturity of the current commercial paper market, compared with the 1970
market. As noted, Mercury Finance Co., which was a major force in the sub-prime auto lending market,
defaulted on most of its outstanding commercial paper after its fraudulent accounting practices were
disclosed.10 Although Mercury's commercial paper was backed by $500 million in lines of credit, the fraud
allegations led participating banks to invoke the "material adverse change" clause and cancel the lines, which
prompted further defaults. The company eluded bankruptcy only by obtaining a loan—secured by all of its
assets—from Bank of America. Bank of America later renewed and extended the loan through January 1998.
The commercial paper market collectively yawned at the Mercury default; yields in a narrow segment of the
market were the only ones that showed pronounced movement. Dealer-placed, third-tier yields on seven-day
commercial paper increased 13 basis points on Jan. 29, in apparent anticipation of the Mercury default
announcement. Within three days, however, yields on this short-maturity, lowest-quality commercial paper
returned to their predefault levels. Yields on paper with higher ratings and longer maturities were consistently
unaffected by the default. As a result, the spread between the top tier and lowest tier paper widened by 8 basis
points on Jan. 29, but returned to within 3 basis points of the predefault spread in three days.
The Mercury experience, though comforting, does not demonstrate that the commercial paper market is
capable of withstanding a Penn Central-type shock, for a couple of reasons. For one, the economic climates in
which the two defaults took place were very different. Mercury Finance defaulted during a robust economic
expansion; Penn Central went bankrupt just as the economy was entering a recession. A Mercury-style default
in a weak economy might very well generate more serious financial market reverberations.
And perhaps more important, the scale of the two defaults was vastly different. The Penn Central default
amounted to .25 percent of a $33 billion commercial paper market. The Mercury default, though comparable to
Penn Central in inflation-adjusted dollars, represented just .04 percent of a $779 billion market. Put another
way, because of the rapid growth of outstanding commercial paper, the Mercury default was only about one-

sixth as large as Penn Central's when viewed relative to the size of the market. It's not clear how the market
would have reacted to a comparable .25 percent (nearly $2 billion) default of a $779 billion market.

A Test for the Fed?
Since the early 1970s, the commercial paper market has matured considerably. Commercial paper is now one
of the more, if not the most, important instruments in the U.S. money market, thanks in large part to rating
systems and backup lines of credit. As a result, the market is well-equipped to deal with small- to moderatesized defaults.
Still, because no Penn Central-sized crisis has occurred in the past 27 years, the market remains essentially
untested. Although the insurance that banks provide against "rollover risk" reduces the probability that a
severe liquidity crunch could occur, the insurance also, however, transfers the liquidity risk from commercial
paper issuers to the banking system. This guarantees that any potential liquidity crisis would be much more
severe. It's this risk of a systemic shockwave that makes it necessary for the Fed to keep an eye on the
commercial paper market as it heads toward the $1 trillion mark.
Thomas A. Pollmann provided research assistance.
Endnotes
1. See Braverman (1997) for additional discussion. [back to text]
2. See Hahn (1993) for further discussion on the role of dealers in the commercial paper market. [back to
text]
3. See Carty and Lieberman (1995). [back to text]
4. Of course, this portfolio shift is not due solely to the rise of the commercial paper market. Over the past
decade, banks have become increasingly interested in holding mortgage loans for a number of reasons,
including the decline of the thrift industry. [back to text]
5. See Vaughan (1996). [back to text]
6. The difference between a standby letter of credit and a bank line of credit is that the standby letter
protects the commercial paper holder against default by the issuer, whereas the line of credit protects
the issuing firm against market-wide conditions that would prevent a rollover. For more details on
standby letters of credit, see Koppenhaver (1992). [back to text]
7. See Post (1992) and Kavanagh and others (1992). [back to text]
8. See Calomiris (1994) for further detail on the Penn Central default and the Federal Reserve's response
to it. [back to text]
9. Regulation Q imposed interest rate ceilings on certain types of bank deposits. [back to text]
10. "Sub-prime" generally refers to loans made to borrowers with very poor credit histories. [back to text]

References
Braverman, Melissa. "Trends in the Region: States Increasingly Turn to Flexible Commercial Paper Deals,"
The Bond Buyer (March 24, 1997), p. 28.
Calomiris, Charles W. "Is the Discount Window Necessary? A Penn Central Perspective," Review, Federal
Reserve Bank of St. Louis (May/June 1994), pp. 31-55.
Carty, Lea V., and Dana Lieberman. "Commercial Paper Defaults and Rating Transitions, 1972-1995," Moody's
Investors Service (December 1995).

Hahn, Thomas K. "Commercial Paper," in Instruments of the Money Market (Seventh Edition), Timothy Q.
Cook and Robert K. LaRoche, ed. Federal Reserve Bank of Richmond (1993).
Kavanagh, Barbara, Thomas R. Boemio, and Gerald A. Edwards, Jr. "Asset-Backed Commercial Paper
Programs," Federal Reserve Bulletin (February 1992), pp. 107-16.
Koppenhaver, George D. "Standby Letters of Credit," in Bank Management and Regulation: A Book of
Readings, Anthony Saunders, Gregory F. Udell and Lawrence J. White, ed., (1992) pp. 136-46.
Post, Mitchell A. "The Evolution of the U.S. Commercial Paper Market since 1980," Federal Reserve Bulletin
(December 1992), pp. 879-91.
Vaughan, Mark D. "Bullish on Banking: Thriving in the Information Age," The Regional Economist, Federal
Reserve Bank of St. Louis (January 1996), pp. 5-9.

REGIONAL ECONOMIST | APRIL 1998
https://www.stlouisfed.org/publications/regional-economist/april-1998/with-tailwinds-blowing-the-district-economy-sails-on

With Tailwinds Blowing, The District Economy Sails
On
Adam M. Zaretsky
Last year, real gross domestic product (GDP) in this country grew at a 3.8 percent annual rate—the fastest
since 1988. This rate is also faster than the nation's average GDP growth over the last five years (2.9 percent),
10 years (2.5 percent) and 20 years (2.7 percent). In addition to strong output growth, almost 2.75 million jobs
were created last year in the United States, which is about 425,000 more than were created in 1996. The 2.75
million figure is also greater than the nation's average job growth over the past five, 10 and 20 years. On top of
this, the nation's average unemployment rate in 1997 was 5 percent—the lowest since 1970. By all indications,
the U.S. economy is performing exceptionally well seven years after the trough of the last recession.
The Eighth District economy has been faring equally well.1 The District's 1997 unemployment rate, for
example, was 4.6 percent—the lowest ever recorded for the region. In addition, slightly more than 225,000
jobs (or roughly 8 percent of all jobs created nationwide) were created in the District's seven states last year.
That said, job growth is actually down from the year before, and the year before that. This is not surprising,
however, since sustained periods of low unemployment rates often lead to slowing job growth; when few
people are available for work, firms can't fill vacancies.
Output from the District states has also been strong. Gross state product (GSP), like GDP, measures the dollar
amount of the final goods and services produced in each state. Unlike GDP, though, GSP data are not
released with the same frequency, or as timely. In fact, the most recent GSP data released were for 1994.
Normally, GSP data have a two-year lag; this release, however, had a longer lag because the data were
recalculated using chain weights, rather than the fixed weights that had been used before.2

District Output in a Nutshell
In 1994, the seven states of the Eighth District produced more than $871 billion in final goods and services.
This amount represented almost 13.5 percent of all U.S. output. Sector by sector, though, the District has
strengths and weaknesses. For example, goods produced at District manufacturing firms made up a relatively
larger share of national manufacturing output (17.5 percent) than the District's overall contribution to national
output (13.5 percent).
To illustrate the relative impact of District sector contributions to national output, a concentration ratio, which is
the ratio between each sector's contribution and the District's total contribution, can be calculated.3 For
example, because the District's contribution to national manufacturing output was about 30 percent greater
than the District's entire contribution to total national output, the concentration ratio for manufacturing is 130.
The District's transportation and public utilities sector (TPU) followed manufacturing in its contribution to
national output. District TPU firms made up about 14.5 percent of national TPU output. The concentration ratio
for this industry shows that District firms contributed almost 9 percent more than the District's overall
contribution to national output.

Two other District sectors—construction, and wholesale and retail trade—contributed relatively more than the
District as a whole. Three of the four sectors (manufacturing, TPU, and wholesale and retail trade) held
similarly strong positions in 1990, according to the last GSP data set examined in this publication.4
With concentration ratios of less than 100, the remaining District sectors—agriculture and mining, general
services, government, and finance, insurance and real estate (FIRE)—contributed relatively less to national
output than the District's overall contribution. District firms in the FIRE sector, for example, contributed the
smallest relative amount to national output of any sector, making up only 11 percent of national FIRE output—
about 20 percent less than the District's overall contribution.
A sector's share of national output, however, doesn't say much about that sector's importance to District
output. For instance, although the region's FIRE sector made a relatively small contribution to the sector
nationwide, the services provided by these firms were responsible for about 15 percent of District output (see
chart). Only the manufacturing sector (at 23 percent), the general services sector (at 17.5 percent), and the
trade sector (at 17 percent) contributed more. Thus, relative size in the nation is not necessarily a good
indicator of relative size in the District. The agriculture and mining sector brings this point home. Although
District agriculture and mining operations made up less than 3 percent of the total District economy, these
same operations represented somewhat more than a tenth of the nation's total agriculture and mining output.
Construction's influence was similar. It made up only 4 percent of the District's economy, although the sector
represented about 14 percent of the nation's construction output.

Chart 1

Real Gross State Product by Industry-1994

District Growth Leads the Way
Examining the District's contributions and composition, however, provides only a snapshot of the economy in
1994. How did it behave getting there? Actually, rather well. District real output growth outpaced national
output growth every year from 1990 to 1994. In 1994 alone, District output grew at a 5.7 percent rate, while the
sum of all states' GSP figures (called national GSP) grew 4.2 percent.5
In fact, one could argue that the District led the rest of the country out of the recession earlier in the decade. In
1991, when the nation had just begun to recover from the economic downturn, the District states increased
output 0.4 percent. Although not exactly overwhelming growth, it is noteworthy when compared with the
nation's 1991 performance—a decline of 0.6 percent. The following year, 1992, was the watershed year,
though. The District economy took off, logging 4.3 percent real growth, with the national economy trailing
behind at 2.4 percent real growth. This District growth spurt, coupled with further gains in the following years,
helped push the region's share of the national economy up more than half a percentage point—to about 13.5
percent—between 1990 and 1994.

But Does Past Growth Predict Future Growth?
Because GSP data are available only through 1994, they can't help evaluate the current state of the District
economy. As noted earlier, recent employment growth in the District hasn't been as strong as in the rest of the

nation. In fact, not only have District payroll employment growth rates been getting smaller since their peak in
1994, they also have continued to hover below national growth rates. In 1994, for instance, District
employment grew 3.3 percent, while U.S. employment grew 3.1 percent. By 1997, District employment growth
had slowed to 1.3 percent, while national growth had waned to just 2.3 percent. One might be led to believe,
therefore, that this dramatic slowdown in District employment growth bodes poorly for the region's economy,
particularly in its importance to the national economy.
As in most economic analyses, however, there is another hand to consider. While employment growth rates
have been slowing in the nation and the District, unemployment rates have been falling, which is generally a
sign of economic strength. In 1992, when the District unemployment rate peaked at 7 percent, the national
unemployment rate peaked at 7.5 percent. By 1997, these rates had fallen to 4.6 percent in the District and 5
percent in the nation, leading one to conclude that the District continues to outperform the nation.
Which view is correct? In all likelihood, both are. Slowing employment growth probably implies that the District
economy will not be able to maintain its current pace of output growth indefinitely, as fewer and fewer workers
are available for newly created jobs. Eventually, the output growth rate will be forced to slow as the economy
reaches capacity. And shrinking employment growth is one indication that it is approaching—or may have
already surpassed—capacity. Falling unemployment rates are another indication of nearing capacity. Thus,
both views reflect a strong District economy, with some moderate slowing likely in the offing. And a moderate
slowing is not necessarily bad since it would give the economy a chance to catch a second wind and reallocate
resources, clearing the way for even more growth in the future.
Gilberto Espinoza provided research assistance.
Endnotes
1. In this article, District figures include state-level data for Arkansas, Illinois, Indiana, Kentucky,
Mississippi, Missouri and Tennessee. [back to text]
2. Chain weights attempt to overcome the problem of relative price changes in goods by using a weighting
of prices from the previous two years to calculate the dollar value of goods. Fixed weights, on the other
hand, use a single price from a designated base year to calculate the dollar value of goods. For a more
detailed description, see Kliesen (1996). [back to text]
3. The ratio is calculated by dividing the District sector share by the national sector share and multiplying
the result by 100. [back to text]
4. See Kliesen (1994) for an overview of the 1990 GSP data. [back to text]
5. National GSP differs from GDP in that the former is the sum of the individual states' GSP figures, while
the latter is a national figure only. Real GDP grew 3.5 percent in 1994.[back to text]

References
Kliesen, Kevin L. "Chained, Rested and Ready: The New and Improved GDP," The Regional Economist,
Federal Reserve Bank of St. Louis (January 1996), pp. 10-11.
__________. "District Economic Update: Will the Sailing Remain Smooth?" The Regional Economist, Federal
Reserve Bank of St. Louis (October 1994), pp. 12-13.

REGIONAL ECONOMIST | APRIL 1998
https://www.stlouisfed.org/publications/regional-economist/april-1998/news-bulletins-from-the-eighth-federal-reserve-district

Pieces of Eight: News Bulletins from the Eighth
Federal Reserve District
St. Louis Fed Gets New President
The Federal Reserve Bank of St. Louis has named William Poole as its new president, effective March 23. He
replaces Thomas C. Melzer, who resigned from the bank this past January after more than 12 years as
president.
Poole joins the St. Louis Fed after a 24-year career at Brown University in Providence, R.I., where he was the
Herbert H. Goldberger Professor of Economics. He has twice served as chairman of the economics
department at Brown and was director of the university's Center for the Study of Financial Markets and
Institutions for five years. He also was a member of the Shadow Open Market Committee, which is a group of
business and academic economists who meet twice a year to discuss current macroeconomic policy issues.
The committee presents its analysis to the general public.
Poole began his career in 1964 at the Federal Reserve Board of Governors, where he worked as a senior
economist until 1974. He was a member of the Reagan administrations' Council of Economic Advisors from
1982 to 1985. Poole has also served as a member of the Academic Advisory Panels of the Federal Reserve
Banks of New York and Boston.
Poole holds Ph.D. and M.B.A. degrees from the University of Chicago and a bachelor of arts degree from
Swarthmore College. In 1989, Swarthmore honored Poole with the Doctor of Laws degree.

And the survey says...
At the end of last year, we surveyed a segment of Regional Economist readers to get a better idea as to who
you are and what you want out of the publication. Overall, we received a lot of positive feedback about RE, and
the vast majority of you are happy with the length of the articles, the writing style employed and the balance
between text and art.

Who You Are
More than 50 percent of you have an undergraduate or graduate degree in economics or business. About a
third of you are employed in banking or other financial services. Other heavily represented industries include:
education/research (20.4 percent) and nonfinancial business (18.6 percent).

What You Want
More than 90 percent of you expressed moderate to strong interest in articles about monetary policy and
inflation. Other popular topics include: national public policy issues like social security (88 percent),
international economic issues (78.2 percent) and banking and financial markets (76.6 percent).

Thanks to everyone who took the time to respond.

Fed Funds

Percent of State and Local Government revenue from the Federal Government (1994)
District State Rank amoung 50 States % of Revenue
Mississippi

4

24.1

Arkansas

8

21.9

Kentucky

11

19.5

Missouri

14

18.8

Indiana

17

17.6

Tenneee

23

16.8

Illinois

38

14.5

National Average

16.2

SOURCES: Morgan Quitno Press and U.S. Bureau of the Census

The Regional Economist • April 1998

District
Data

Selected economic indicators of banking,
agricultural and business conditions in
the Eighth Federal Reserve District

Commercial Bank Performance Ratios
U.S., District and State
All
U.S.

U.S.
District
<$15B1

AR

IL

IN

KY

MS

MO

TN

Return on Average
Assets (Annualized)
4th quarter 1997

1.30%

3rd quarter 1997

1.30

4th quarter 1996

1.25

1.35%

1.30%

1.27%

1.33%

1.26%

1.41%

1.30%

1.59%

1.38

1.34

1.32

1.14

1.35

1.29

1.46

1.28

1.60

1.35

1.33

1.32

1.06

1.30

1.28

1.46

1.38

1.43

1.40%

Return on Average
Equity (Annualized)
4th quarter 1997

15.67% 14.96% 15.19% 13.67% 14.75% 14.76% 14.65% 14.70% 14.90%

3rd quarter 1997

15.75

14.82

15.11

13.99

12.92

15.16

14.85

15.26

15.42

17.85

4th quarter 1996

15.28

15.01

15.06

13.81

10.49

14.42

14.61

15.23

16.77

17.34

18.56%

Net Interest Margin
(Annualized)
4th quarter 1997

4.34%

4.94%

4.53%

4.46%

4.56%

4.34%

4.45%

4.97%

4.60%

4.46%

3rd quarter 1997

4.36

4.89

4.46

4.44

4.35

4.34

4.38

5.00

4.48

4.46

4th quarter 1996

4.37

4.85

4.47

4.51

4.25

4.47

4.50

5.03

4.24

4.80

4th quarter 1997

0.95%

0.99%

0.97%

0.95%

1.09%

0.55%

0.65%

0.65%

0.85%

1.71%*

3rd quarter 1997

0.98

1.06

1.00

0.99

1.04

0.60

0.70

0.59

0.83

1.96*

4th quarter 1996

1.03

1.08

1.05

0.85

1.05

0.62

0.68

0.61

0.73

2.62*

4th quarter 1997

0.66%

0.84%

0.39%

0.25%

0.50%

0.19%

0.37%

0.31%

0.32%

0.62%

3rd quarter 1997

0.64

0.80

0.37

0.20

0.54

0.15

0.33

0.28

0.31

0.63

4th quarter 1996

0.59

0.73

0.36

0.24

0.47

0.29

0.37

0.33

0.30

0.52

4th quarter 1997

1.84%

1.83%

1.40%

1.36%

1.30%

1.25%)

1.41%

1.46%

1.43%

1.50%

3rd quarter 1997

1.88

1.88

1.42

1.35

1.43

1.30

1.51

1.47

1.38

1.43

4th quarter 1996

1.90

1.82

1.48

1.37

1.51

1.30

1.49

1.48

1.57

1.45

Nonperforming Loans 2
-r Total Loans

Net Loan Losses -r
Average Total Loans
(Annualized)

Loan Loss Reserve •¥
Total Loans

* Most of the elevation in Tennessee's nonperforming loan ratios is
associated with the acquisition by Union Planters National Bank in
Tennessee of Leader Federal, a Memphis thrift that specialized in
holding high-rate, nonperforming residential mortages.
1

U.S. banks with average assets of less than $15 billion are shown
separately to make comparisons with District banks more
meaningful, as there are no District banks with average assets
greater than $15 billion.

2

Includes loans 90 days or more past due and nonaccrual loans

NOTE: Data include only that portion of the state within Eighth
District boundaries.
SOURCE: FFIEC Reports of Condition and Income for all Insured
U.S. Commercial Banks

15

Commercial Bank Performance Ratios
by Asset Size

4th Quarter 1997
Earnings

Asset Quality

Return on Average Assets

Net Loan Loss Ratio

Return on Average Equity

Nonperforming Loan Ratio

Percent

Annualized

Loan Loss Reserve Ratio

Net Interest Margin

D = District

<$100 Million

$300 Million - $1 Billion

US = United States

$100 Million-$300 Million

$1 Billion-$15 Billion

1

Loan losses are adjusted for recoveries.

2

Includes loans 90 days or more past due and nonaccrual loans

3

Interest income less interest expense as a percent of average
earning assets

NOTE: Asset quality ratios are calculated as a percent of total loans.
SOURCE: FFIEC Reports of Condition and Income for all Insured
U.S. Commercial Banks

16

The Regional Economist • April 1998

Agricultural Bank Performance Ratios
U.S.

AR

IL

IN

KY

MS

MO

TN

Return on average assets (annualized)
4th quarter 1997

1.27%

1.31%

1.26%

1.22%

1.36%

1.39%

1.23%

1.14%

3rd quarter 1997

1.33

1.42

1.31

1.26

1.46

1.55

1.31

1.36

4th quarter 1996

1.22

1.35

1.19

1.10

1.42

1.36

1.23

1.17

4th quarter 1997

12.02%

12.21%

11.36%

12.12%

12.61%

13.95%

11.68%

11.23%

3rd quarter 1997

12.70

13.13

11.83

12.57

13.62

16.53

12.36

13.58

4th quarter 1996

11.89

12.57

10.89

10.86

13.57

13.86

11.83

10.98

Return on average equity (annualized)

Net interest margin (annualized)
4th quarter 1997

4.63%

4.46%

4.15%

4.60%

4.57%

5.11%

4.47%

4.32%

3rd quarter 1997

4.62

4.46

4.16

4.56

4.60

5.08

4.48

4.43

4th quarter 1996

4.53

4.41

4.16

4.54

4.62

5.10

4.57

4.49

4th quarter 1997

0.20%

0.16%

-0.50%

0.24%

0.18%

0.33%

3rd quarter 1997

0.14

0.08

-0.05

-0.61

0.15

0.24

0.11

0.02

4th quarter 1996

0.31

0.09

0.12

-0.20

0.26

0.77

0.38

0.25

4th quarter 1997

1.19%

0.67%

0.65%

2.63%

1.27%

1.26%

1.29%

0.01%

3rd quarter 1997

1.32

0.68

0.71

3.43

1.70

0.89

1.65

0.34

4th quarter 1996

1.46

0.85

0.69

1.84

1.75

2.54

1.50

0.00

Ag loan losses •=• average ag loans (annualized)
0.00%

-0.08%

Ag nonperforming loans 1 -r total ag loans

1

Includes loans 90 days or more past due and nonaccrual loans

NOTE: Agricultural banks are defined as those banks with a greater than average share of agricultural loans to total loans.
Data include only that portion of the state within Eighth District boundaries.
SOURCE: FFIEC Reports of Condition and Income for Insured U.S. Commercial Banks

U.S. Agricultural Exports*

U.S. Agricultural Exports by Commodity

Monthly Data

Commodity

Oct

Livestock & products

Dec

Year-to-date

Change from year ago

1.01

.99

.92

11.06

Corn

.35

.37

.44

5.17

-38.0

Cotton

.15

.22

.29

2.71

-1.0

Rice

.09

.09

.09

.93

-9.0

2.1%

1.23

1.11

.89

7.38

1.0

Tobacco

.13

.11

.13

1.55

12.0

Wheat

.38

.33

.34

4.10

-35.0

5.53

5.48

5.24

57.25

-5.0

Soybeans

1

TOTAL
1

U.S. Crop and Livestock
Prices

Nov

Dollar a m o u n t s in billions

Includes commodities not listed here

Indexes of Food and Agricultural Prices
Growth 1

Level

Prices received by U.S. farmers

2

IV/96

III/97-IV/97

IV/96-IV/97

107

111

-3.7%

-3.9%

IV/97

HI/97

106

Prices received by District farmers3
Arkansas

131

141

139

-24.8

-5.5

Illinois

110

113

121

-10.2

-9.3

Indiana

108

112

117

-13.5

-7.7

Missouri

104

107

108

-9.6

-3.1

Tennessee

N.A.

N.A.

137

N.A.

N.A.

Prices paid by U.S. farmers
Production items

115

116

115

-3.4

0.3

Other items

116

116

115

0.0

0.9

Consumer food prices

159

158

156

2.1

1.7

Consumer nonfood prices

162

161

159

2.1

1.9

1

Compounded annual rates of change are computed from unrounded data.
Index of prices received for all farm products and prices paid (1990-92=100)
Indexes for Kentucky and Mississippi are unavailable.
N.A. — Not Available

2
3

NOTE: Data not seasonally adjusted except for consumer food prices and nonfood prices

17

Selected U.S. and State Business Indicators
Compounded Annual Rates of Change in
Nonagricultural Employment

United States
TV/1997 HI/1997 IV/1996
Labor force
(in thousands)
136,813 136,379 134,944
Total nonagricultural
employment
(in thousands)
123,487 122,575 120,452
Unemployment rate
4.7%
4.9% 5.3%

3.0

HI/1997 11/1997 IH/1996
Real personal income*
(in billions)
$4,291.8 $4,263.7 $4,154.5

Arkansas
TV/1997 III/1997 IV/1996
Labor force
(in thousands)
1,237.0
Total nonagricultural
employment
(in thousands)
1,109.8
Unemployment rate
5.0%

1,246.0 1,239.6
1,105.4 1,091.1
5.3% 5.5%

IH/1997 11/1997 III/1996
Real personal income*
(in billions)
$31.2

$31.3

$30.5

Illinois
TV/1997 III/1997 IV/1996
Labor force
(in thousands)
6,150.9
Total nonagricultural
employment
(in thousands)
5,824.4
Unemployment rate
4.7%

6,141.1

6,117.1

5,787.8 5,724.3
4.6% 5.2%

IH/1997 11/1997 HI/1996
Real personal income*
(in billions)
$210.5

$209.0

$203.4

Indiana
TV/1997 III/1997 IV/1996
Labor force
(in thousands)
3,116.1
Total nonagricultural
employment
(in thousands)
2,875.6
Unemployment rate
3.6%

3,121.5

3,055.0

2,863.5 2,834.6
3.4% 3.7%

HI/1997 11/1997 HI/1996
Real personal income*
(in billions)
$86.5

$86.1

$84.5

18

The Regional Economist • April 1998
B m

-

i

'

f f l

" " " " "

Kentucky
IV/1997 III/1997 IV/1996
Labor force
(in thousands)
Total nonagricultural
employment
(in thousands)
Unemployment rate

1,936.0

1,926.4 1,876.9

1,726.2
4.9%

1,719.4 1,687.9
5.3%
5.7%

III/1997 11/1997 III/1996
Real personal income*
(in billions)
$50.8

$50.5

$49.3

Mississippi
IV/1997 HI/1997 IV/1996
Labor force
(in thousands)
1,281.2
Total nonagricultural
employment
(in thousands)
1,112.8
Unemployment rate
5.5%

1,276.6 1,262.6

1,110.3 1,093.6
5.5%
5.9%

HI/1997 11/1997 HI/1996
Real personal income*
(in billions)
$31.4

$31.3

$30.6

Missouri
IV/1997 III/1997 IV/1996
Labor force
(in thousands)
2,888.6
Total nonagricultural
employment
(in thousands)
2,653.5
Unemployment rate
4.0%

2,857.4

2,921.9

2,642.0
3.7%

2,593.2
4.8%

IH/1997 11/1997 HI/1996
Real personal income*
(in billions)
$81.1

$80.8

$78.8

Tennessee
IV/1997 HI/1997 IV/1996
Labor force
(in thousands)
2,762.4
Total nonagricultural
employment
(in thousands)
2,601.4
Unemployment rate
5.1%

2,764.4

2,769.3

2,589.0
5.3%

2,546.8
5.1%

HI/1997 H/1997 III/1996
Real personal income*
(in billions)
$77.0
Total
I Manufacturing

I

$76.6

$74.7
Government

Construction

General Services

Finance, Insurance
and Real Estate

Transportation, Communication
and Public Utilities
I Wholesale/Retail Trade

NOTE: All data are seasonally adjusted. The nonagricultural employment data reflect the most current benchmark revision.
* Annual rate. Data deflated by CPI, 1982-84=100.

19