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REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/monetary-policy-in-the-new-economy President's Message: Monetary Policy in the New Economy William Poole Last winter and spring, it seemed to many that the Fed's interest rate increases, designed to ensure that inflation remained under control, were having no effect. The economy was rolling merrily along, apparently oblivious to the series of rate increases that began in June of last year. The new economy, so the argument went, was unstoppable. Higher interest rates couldn't slow it down. Monetary policy wasn't working the way it had in the past. My short answer to this argument was "Nonsense." And, indeed, the unstoppable new economy argument disappeared several weeks ago, as evidence of the effects of higher interest rates became manifest. What can we learn from this episode? What changed so quickly? First of all, Fed decisions to raise the intended, or target, federal funds rate by 25 basis points in June, in August, and again in November of last year brought the level of that rate back to where it had been in the summer of 1998, before the Russian bond default and the Asian financial crisis. The 1999 rate increases, then, reflected the passing of the Asian crisis and not a stance of increased monetary policy restraint in any fundamental, longer-run sense. This year, the Fed increased the intended funds rate by 25 basis points in February and March and by another 50 basis points in May. These increases brought the intended rate to a level 100 basis points above the level prevailing in 1997 and 1998, before the Asian crisis. We should draw two lessons from this experience. First, the interest rate increases last year just kept up with the economic recovery following the Asian crisis. Did the rate increases have no effect? If a driver has his foot on the brake going down a steep hill but the car maintains a steady speed, are the brakes not working? Second, monetary restraint acts with a lag. The fact that the economy continued to demonstrate extraordinary strength last winter and spring was perfectly consistent with past experience. As monetary restraint took hold this summer, the economy became slightly less buoyant and more balanced. Employment growth slowed a bit and housing starts actually fell somewhat. Indeed, one economic indicator after another fell into line showing that the economy was continuing to grow, but at a little bit slower rate than earlier this year. All the while, inflation remained relatively low and stable, reflecting success in the Fed's efforts to achieve this fundamental policy goal. Monetary policy does affect the new economy after all. REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/is-federal-home-loan-bank-funding-a-risky-businessfor-the-fdic Is Federal Home Loan Bank Funding A Risky Business For The FDIC? Dusan Stojanovic , Mark D. Vaughan , Timothy J. Yeager Two government-sponsored enterprises—the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae)—have been the subject of much controversy of late. These institutions are government chartered but privately owned; both are charged with increasing the liquidity of mortgage markets by purchasing home loans from originating institutions. The source of the controversy is their rapid growth. Between 1992 and 1999, together Freddie Mac and Fannie Mae grew by nearly 300 percent —much faster than U.S. banking organizations of comparable size. Indeed, as a group, the top five U.S. bank holding companies grew by 165 percent over the same period. Another government-sponsored enterprise with a similar mission, the Federal Home Loan Bank (FHLB) system, has also posted impressive growth but without attracting much attention. Congress established the FHLB in 1932 to make collateralized loans—called advances—to thrift institutions.1 In the late 1980s, Congress opened Home Loan Bank membership to other depository institutions in the mortgage business. Now, the FHLB offers thrifts, commercial banks and credit unions a wide range of products and services designed to help fund mortgage loans, manage interest rate risk and meet the other challenges of an increasingly competitive banking environment. Between 1992 and 1999, the total assets of the FHLB system grew by 260 percent. At year-end 1999, system assets totaled $583 billion—larger than Freddie Mac, Fannie Mae and all U.S. banking organizations except Citigroup and Bank of America. The impact of the FHLB on the banking sector can be seen in the increase in the growth of membership and advances. As the table shows, between 1992 and 1999, the number of system members more than doubled, fueled by the opening of membership to commercial banks. Over the same period, advances outstanding to system members nearly quintupled. For community banks—the subset of commercial banks that concentrate on local loan and deposit markets—the increases were even more impressive: Membership increased four-fold and advances increased sixteen-fold.2 Once the Gramm-Leach-Bliley (GLB) act of 1999—which includes provisions governing FHLB membership and collateral requirements—takes effect, nearly all of the nation's thrifts and commercial banks could boast membership, and total outstanding advances could well top $500 billion.3 Table 1 The Amazing Growth of Federal Home Loan Bank Membership and Advances 1992 vs. 1999 The Financial Institutions Reform Recovery and Enforcement Act of 1989 opened FHLB membership to commercial banks that hold at least 10 percent of their assets in mortgage-related products. Between 1992 and 1999, system membership more than doubled, and advances outstanding nearly quintupled. During this time, the number of thrift members dropped by 30 percent, because of a steep decline in the number of thrift institutions. Meanwhile, the number of commercial bank members rose by 312 percent, because of the changes in the membership criteria. Membership by Type of Financial Institution December 1992 December 1999 Percentage Change Number of members 2,291.0 1,611.0 -29.7% Percent of all thrift institutions 95.9% 98.2% Number of members 113.0 521.0 Percent of all large commercial banks 16.1% 76.5% Number of members 1,171.0 4,772.0 Percent of all community banks 11.0% 60.9% Total Members* 3,624.0 7,378.0 Thrift Institutions Large Commercial Banks (>$500 million, 1999 dollars) 361.1% Community Banks (<$500 million, 1999 dollars) 307.5% 103.6% Advances Outstanding by Member Type December 1992 December 1999 Percentage Change 72,331.0 237,952.0 229.0% 91.8% 60.9% 4,395.0 122,031.0 5.6% 31.3% 1,582.0 25,251.0 Thrift Institutions Advances ($ millions) Percent of Total Advances Large Commercial Banks (>$500 million, 1999 dollars) Advances ($ millions) Percent of Total Advances 2,676.4% Community Banks (<$500 million, 1999 dollars) Advances ($ millions) 1,495.6% Percent of Total Advances 2.0% 6.5% Total Borrowers** 1,554.0 5,089.0 227.5% Total Advances ($ millions) 78,780.0 390,025.0 395.0% *The Gramm-Leach-Bliley Act of 1999 defines a community financial institution as a bank that holds less than $500 million in assets. This threshold was used to classify institutions as large commercial banks and community banks for 1999. For 1992, the threshold was adjusted to reflect the 14 percent change in the Gross Domestic Product Deflator between 1992 and 1999. **This figure includes credit unions and insurance complanies. SOURCE: Federal Housing Finance Board, Reports of Income and Condition for U.S. Commercial Banks [back to text] Anatomy of the System Congress created the FHLB system to address a perceived defect in the nation's capital markets. At the time, no secondary market was available for mortgages; therefore, any thrift making a home loan had to hold it until maturity. Because thrifts were often "loaned up," some good borrowers were denied mortgages. The FHLB system enabled thrifts to lend to all creditworthy applicants and use existing mortgage loans as collateral to obtain additional funding from a regional Home Loan Bank.4 The scope of FHLB lending has grown considerably since the system's creation. Originally, only thrift institutions—savings and loan associations and savings banks—and insurance companies could join the FHLB system and obtain advances. Over time, as the bulk of mortgage lending shifted from thrifts to other depository institutions, Congress broadened access to advances. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 opened the FHLB to commercial banks and credit unions that held at least 10 percent of their assets in mortgage-related products. The GLB act of 1999 widened access further by eliminating the 10 percent membership condition for community banks and enabling these banks to post small business, small farm and small agri-business loans as collateral for long-term advances. GLB also lifted the cap on the amount of other real-estate-related assets, such as commercial real estate loans, that FHLB members can post as collateral.5 In essence, the FHLB system is a financial intermediary, borrowing funds in world capital markets and lending to domestic member institutions. The system obtains funding by selling debt instruments, which are joint obligations of the regional Home Loan Banks. Buyers include mutual funds, commercial banks and government bodies—both in the U.S. and abroad. At the end of 1999, consolidated obligations summed to $525.4 billion or 94.8 percent of system liabilities. Proceeds from debt sales are used to make advances from system members. At year-end 1999, advances outstanding totaled $395.7 billion or 67.9 percent of system assets. During that year, the FHLB earned $26.5 billion in interest income and paid $24.0 billion in interest expenses, leaving roughly $2.5 billion in net interest income.6 FHLB debt instruments offer a yield just above the yield on Treasury securities. For example, in early October 2000, the yield on FHLB debt maturing in five years was 6.63 percent, 66 basis points above the yield on a comparable Treasury security but 51 basis points below the yield on a comparable Citigroup security. The FHLB can borrow at a low interest rate because financial markets believe that the U.S. government will not permit default. This belief probably rests on the recent bailouts of two other government-created enterprises: the Farm Credit System in the 1980s and the Financing Corporation in the 1990s.7 Another reason the FHLB can borrow at low rates is the system's collateral policy. Regional Home Loan Banks insist that borrowers pledge assets such as mortgage loans that are worth more than desired advances. That way, if the member bank runs into trouble, the Home Loan Bank can avoid losses by taking possession of the pledged assets. Advances May Be a Godsend for Community Banking... Community bankers find FHLB advances attractive because the growth of loans has outstripped the growth of core deposits—the checking and savings accounts that stay in the bank despite changing economic conditions. Between 1992 and 1999, loan growth at community banks averaged 10.7 percent a year while core deposit growth averaged 6.3 percent. In contrast, core deposit growth kept pace with loan growth in the 1980s. The pickup in loan growth in the 1990s reflects the length and strength of the current economic expansion. Core deposits have lagged behind loans at community banks in recent years because of financial innovation. This innovation served up a menu of new products to smaller communities. In particular, many community bank customers have found money market mutual funds, which offer checking services as well as attractive interest rates, to be a cut above traditional checking accounts. These customers have also found stock and bond mutual funds to be superior to traditional savings accounts. As the gap between loan and core deposit growth widened in the 1990s, community banks turned to other funding sources, such as certificates of deposit of $100,000 or more (jumbo CDs). On average, community banks funded 7.7 percent of their assets with jumbo CDs at year-end 1992. By the close of 1999, that figure was nearly 12 percent. Funding with jumbo CDs requires more planning than core deposits. Many holders of jumbo CDs care only about the interest rate offered and move their funds around constantly in search of better rates. Because such "hot" money can be here today and gone tomorrow, community banks relying on jumbo CDs must have plans for obtaining funding in a hurry. As a funding source, FHLB advances are more dependable and convenient than jumbo CDs. Regional Home Loan Banks offer advances in a variety of maturities, from overnight to over 20 years. Moreover, regional Home Loan Banks customize the terms on advances to help their members manage interest rate risk. Best of all, members know that their regional Home Loan Banks will be there for them, providing funding as needed on a continuing basis. Between year-end 1992 and year-end 1999, community banks increased their reliance on FHLB funding from 0.2 percent of assets to 3.2 percent of assets. This number will undoubtedly increase now that the 10 percent mortgage test for community banks has been removed and the definition of eligible collateral for advances has been broadened. …But Not Necessarily for the FDIC Easy access to FHLB advances may end up costing the Federal Deposit Insurance Corp. (FDIC). Advances may cost the FDIC because they allow community banks to take more risks, and they give the FHLB first crack at the assets of failed community banks. Easy access to advances allows community banks to increase risk. Absent the FHLB, these banks would have to limit loan growth to core deposit growth or incur the extra costs of funding with jumbo CDs. Access to FHLB advances enables bankers to evade constraints on growth. Moreover, the ability to turn to the FHLB in a pinch can create a more relaxed attitude about other risks as well. A particular source of comfort is the absence of risk premiums on FHLB advances. The FHLB does not increase the interest rate on advances to risky members because its debt is backed implicitly by the federal government and its advances are backed explicitly by good collateral. In short, access to FHLB funding enables community banks to take risk without paying a price. And an increase in risk today makes it more likely that the FDIC will have to close the bank tomorrow. Advances may also cost the deposit insurance fund by weakening the FDIC's position in failure resolutions. As noted, advances are collateralized loans, and under bankruptcy law, collateralized claims are settled first during failure resolution. Should a community bank fail, the FHLB would be in line before the FDIC.8 All other things equal, fewer losses for the FHLB system imply greater losses for the FDIC. And, because of its collateral policy, the FHLB has not lost a penny on advances in its history. (See "How the FHLB Could Cost the FDIC" for an example of how funding with advances could increase losses to the FDIC.) To be fair, the conditions needed to put the FDIC at serious risk are a long way from being met. At year-end 1999, the median leverage ratio at community banks was 10.8 percent, which is well above the 5 percent threshold that makes a bank well capitalized for regulatory purposes.9 Moreover, less than 5 percent of community banks posted capital ratios below this benchmark. Still, the losses from bank and thrift failures in the late 1980s and early 1990s dictate erring on the side of caution when assessing risks to the FDIC. What Now? A fair assessment of Home Loan Bank funding would have to go further than simply cataloguing threats to the FDIC. Another point to note is that revenue from FHLB advances promotes access to affordable housing and helps pay the costs for 1980s thrift failures.10 It is also important to ask if the original mission of the housing government-sponsored enterprises—to promote the liquidity of mortgage markets—has been accomplished. That said, the implications of FHLB advances for the FDIC should not be ignored. Even with the rapid consolidation of the banking industry, more than 7,800 banks—holding roughly $800 billion in assets—fit the Gramm-Leach-Bliley definition of a community financial institution in December 1999. Before the recent explosion in advances, early warning models used in bank supervision showed that small banks were more at risk for failure than large banks. With potentially so much at stake, bank regulators should keep a watchful eye on the use of Federal Home Loan Bank advances. How the FHLB Could Cost the FDIC This sidebar demonstrates how the use of Federal Home Loan Bank (FHLB) advances by a fictional bank could impose losses to the Federal Deposit Insurance Corp (FDIC). Initial Position The First State Bank of Nowhere uses capital contributed by the owners ($60) and funds deposited by customers ($270) to make loans ($300). The bank holds some cash ($30) to meet routine withdrawal requests. The sum in each deposit account is less than $100,000, so the bank's deposits are fully insured by the FDIC. The bank boasts a capital-to-asset ratio of 18.2 percent, more than three times the regulatory standard for well capitalized. Initial Balance Sheet for First State Bank of Nowhere Assets $ Liabilities and Capital $ Cash 30 Insured Depostis 270 Loans 300 Capital 60 Total Assets 330 Total Liabilities and Capital 330 Consider two possible economic scenarios for the First State Bank of Nowhere and the FDIC. Scenario 1 An economic shock hits First State's market, raising the unemployment rate and the loan default rate. Specifically, defaults reduce the value of First State's loan portfolio by 20 percent. The 20 percent loss translates into $60, which the bank deducts from the loan account and from the capital account. After the loss is recorded, First State's capital level is $0. The FDIC closes the bank, pays off the insured depositors ($270) and sells the bank's assets ($270). Because the value of First State's assets equals the payout to insured depositors, the FDIC suffers no loss. Balance Sheet for First State Bank of Nowhere—Scenario 1 Assets $ Liabilities and capital $ Cash 30 Insured Deposits 270 Loans 300 240 Capital 60 0 Total Assets 330 270 Total Liabilities and Capital 330 270 Scenario 2—Panel A No economic shock occurs, and good times continue. Because of the good economic climate, First State receives applications for $80 in new loans. The bank contacts its regional Home Loan Bank for funds. Specifically, First State arranges an $80 advance—pledging existing loans as collateral—and makes the new loans. As a result, bank assets grow by 24.2 percent, and the capital ratio falls to 14.6 percent. Balance Sheet for First State Bank of Nowhere—Scenario 2, Panel A Assets $ Liabilities and capital $ Cash 30 Insured Deposits 270 Loans 300 380 FHLB Advancs 80 Capital 60 Total Liabilities and Capital 330 410 Total Assets 330 410 Scenario 2—Panel B Not long after the new loans are booked, an economic shock hits First State's market, raising the unemployment rate and the loan default rate. As in Scenario 1, defaults reduce the value of First State's loan portfolio by 20 percent. The 20 percent loss translates into $76, which the bank deducts from the loan account and from the capital account. After the loss is recorded, First State's capital level is –$16. The FDIC closes the bank, pays off the insured depositors ($270), and—because the advances were secured with collateral—mails a check to the FHLB ($80). The FDIC then sells First State's assets ($334). The FDIC suffers a loss of $16, a sum equal to the difference between the payout to insured depositors ($270) and net proceeds from the asset sale (total proceeds minus the payoff to FHLB, which equals $254). Balance Sheet for First State Bank of Nowhere—Scenario 2, Panel B Assets $ Liabilities and capital $ Cash 30 Insured Deposits 270 Loans 380 304 FHLB Advancs 80 Capital 60 -6 Total Liabilities and Capital 410 334 Total Assets 410 334 Funding growth with advances rather than uninsured deposits increases losses to the FDIC. Suppose First State had used uninsured deposits to fund the new loans in Scenario 2. In this case, the FDIC would have closed the bank, paid off the insured depositors ($270) and sold the bank's assets ($334). The proceeds from the asset sale would have been divided among the uninsured depositors and the FDIC. The division of the proceeds would have reflected the percentage of total debt held by each debt holder. Uninsured depositors would have held 22.9 percent ($80/$350 = 22.9 percent) of the bank's debt, so they would have been entitled to 22.9 percent of the proceeds of the asset sale (0.229 x $334 =$76.49). Similarly, the FDIC, representing insured depositors, would have been entitled to 77.1 percent of the proceeds (0.771 x $334 = $257.51). In the end, the FDIC would have suffered a loss of only $12.49. This loss is equal to the difference between the payoff to insured depositors ($270) and the FDIC's share of proceeds from the asset sale ($257.51). Access to advances allowed First State to grow without paying a premium for additional funding. Without FHLB funding, the bank could have grown only by attracting insured or uninsured deposits. Attracting insured deposits is costly because customers demand services and returns comparable to those offered by large banks and mutual funds. Attracting uninsured deposits is costly because depositors demand compensation for the risk of potential losses ($3.51 in the example above, which is the difference between the $80 claim and the $76.49 share of asset sale). Paying these extra costs to attract funding would have forced First State to think twice before booking the new loans. Thomas A. Pollmann provided research assistance. Endnotes 1. For a history of the FHLB system through the early 1990s, see GAO (1993). [back to text] 2. The Gramm-Leach-Bliley Act of 1999 defined a "community financial institution" as a bank with less than $500 million in assets. The same standard is used to define a community bank in this article. [back to text] 3. Feldman and Schmidt (2000) estimated the likely expansion of membership and borrowing among agricultural banks. The same approach was used here. [back to text] 4. The 12 regional banks are located in: Atlanta, Boston, Dallas, Des Moines, Chicago, Cincinnati, Indianapolis, New York, Pittsburgh, San Francisco, Seattle and Topeka. [back to text] 5. See CSBS (2000), pp. 38-39, for a list of all GLB Act provisions that deal with the FHLB system. [back to text] 6. Data obtained from FHLB (1999). [back to text] 7. See Leggett and Strand (1997) for a discussion of the impact of these bailouts on the perceived default risk of government-sponsored enterprises. [back to text] 8. For a broader discussion of the absence of credit risk on FHLB advances, see Congressional Budget Office (1993), pp. 18-19. [back to text] 9. The regulatory leverage ratio is Tier 1 capital to assets. Tier 1 capital is a bank's core capital, which consists mostly of common stockholders' equity. [back to text] 10. The FHLB maintains two programs to help low-income individuals gain access to housing: the Affordable Housing Program and the Community Investment Program. In addition, the thrift clean-up legislation in 1989 dictated that a portion of the system's retained earnings, along with an annual assessment on the system's net income for the following 40 years, be used to help defray the cost of resolving failed thrifts. General Accounting Office (1993) contains a detailed discussion of these obligations. [back to text] References Conference of State Bank Supervisors (CSBS). "The Gramm-Leach-Bliley Financial Modernization Act of 1999: A Guide for the State System," Washington, DC, 2000. Congressional Budget Office (CBO). "The Federal Home Loan Banks in the Housing Finance System," (July 1993). Federal Home Loan Bank System (FHLB). "Financial Report 1999," March 29, 2000. Feldman, Ron J., and Jason E. Schmidt. "Agricultural Banks, Deposits and FHLB Funding: A Pre- and PostFinancial Modernization Analysis," Journal of Agricultural Lending (Winter 2000), pp. 45-52. General Accounting Office (GAO). "Federal Home Loan Bank System: Reforms Needed to Promote Its Safety, Soundness, and Effectiveness," GAO/GGD-94-38, December 8, 1993. Leggett, Keith J., and Robert W. Strand. "The Financing Corporation, Government-Sponsored Enterprises, and Moral Hazard," Cato Journal (Fall 1997), pp. 179-87. REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/was-that-a-soft-landing-or-have-we-not-touched-downyet National and District Overview: Was That A Soft Landing, Or Have We Not Touched Down Yet? Adam M. Zaretsky By and large, the U.S. economy continues to demonstrate just how much thrust the current expansion still has left. Even after six hikes in the federal funds rate target since mid-1999, output has continued to grow at a rate that many economists consider too fast to sustain. In fact, output hasn't grown at what would normally be considered a sustainable rate—between 3 and 3.5 percent a year—since the second quarter of 1999. Just this year, second-quarter growth was more than half of a percentage point faster than it was in the first. Which begs the question: Has the economy really landed softly? Let's check with the pilot Mixed Cockpit Readings—The Output Gauge Because there are so many gauges to check, the pilot can't give a straight answer. Looking at the gauge marked "GDP" suggests the plane is still airborne. With growth at a 5.6 percent annual rate in the second quarter of 2000—following a 4.8 percent rate in the first—it appears that the flight is not only still airborne, but is, in fact, gaining altitude. Surprisingly, though, the engine that usually propels GDP growth—consumer spending—slowed substantially recently. In the second quarter of this year, consumers scaled back their purchases of big-ticket items, pulling the consumption growth rate down to just about 3 percent from 7.6 percent the quarter before. Businesses, on the other hand, kicked in the afterburners and drove investment spending growth up to an almost 22 percent rate—significantly faster than the 5 percent rate from a quarter earlier. Where did most of this spending go? Toward computers and software and toward inventories. In fact, second-quarter 2000 inventory growth is, but for the rate posted in the fourth quarter of 1999, the highest it's been since the beginning of 1998. Some market observers, however, will argue that rising inventories are a sign that a slowdown's possible if inventories are climbing only because production hasn't yet adjusted to fallen demand. Mixed Cockpit Readings—The Employment Gauge On the other hand, the gauge marked "Employment" seems to indicate a smooth touchdown, with possibly even some brake pressure already being applied. In August, payroll employment fell by 91,000 jobs, after a 40,000 job drop in July. That said, both of these declines came during a year in which an average of 268,000 jobs or so were created each month through June. The payroll numbers are only a part of the picture, though. In July and August, almost 450,000 temporary U.S. Census Bureau workers ended service—a figure that throws the reading off dramatically. During those two months, private firms added 173,000 new jobs. This reading is also distorted, though, because of a strike in the communications industry, which, had it not occurred, would have put another 87,000 workers on the payrolls, according to Bureau of Labor Statistics reports. These special circumstances, coupled with an unemployment rate that continues to hover around 4 percent, all suggest that there may not have been a touchdown yet. Mixed Cockpit Readings—The Inflation Gauge The gauge that the Fed pays the most attention to—the one marked "Inflation"—is probably the one that's most disturbing. During the first eight months of 2000, the CPI increased at a 3.4 percent annual rate. By this reading, the flight is seemingly way off course. For all of 1999, CPI inflation was 2.7 percent, which was up from 1998, when it was only 1.6 percent. Most of the recent increases, however, have come from rising fuel prices, which so far are rising at a 14 percent rate this year, a bit faster than the rate they were up for all of last year. Do these numbers mean that the Fed will continue increasing the fed funds rate in an attempt to, at least, level out the economy's flight path? Markets don't seem to think so. Traders in federal funds futures are betting that no further interest rake hikes will happen this year. Time will tell if the course corrections already put in place will work to keep the economy on course and inflation at bay. Paige M. Skiba provided research assistance. REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/the-district-economy-still-the-front-runner-or-just-partof-the-pack The District Economy: Still the Front Runner or Just Part of the Pack? Adam M. Zaretsky As the current U.S. economic expansion approaches its historic 10th anniversary, it doesn't appear to be winded yet. Of course, periods of slowdown have occurred on several occasions, but all have proved to be "pauses that refresh," so to speak. The same could be said of the economy of the Eighth Federal Reserve District, which for many years served as a leading indicator of the national economy.1 More recently, however, the District has lost this distinction as its growth appears to have fallen behind the rest of the country, at least on paper. If one looks beyond the paper, though, the District economy is as active today as it ever has been and mirrors the national economy quite well. The District Economy Takes the Lead... In the early 1990s, the District economy was at the front of the pack, leading the nation out of recession. The economic recovery came to the Midwest sooner than to other regions of the country, in part because the depth of the recession here was not as severe as it was, say, in the Northeast or on the West Coast. The usual indicators of an economic downturn still existed here—for example, relatively high and rising unemployment rates, and reduced consumer spending and business capital investment—but they turned around quickly in 1991 and 1992. In comparison, parts of the West Coast continued to experience recessionary conditions well into 1993. The Midwest's quick turnaround gave the District its front-runner status. One indicator of this status, though anecdotal, is that by mid- to late-1994, reports of shortages of certain types of workers were already beginning to crop up around the District. Construction workers, for example, were in particular demand at the time, especially as parts of northwestern Mississippi geared up for the building of riverboat casinos. Additional reports of difficulties in filling positions were soon arriving from other parts of the District and from other occupations and industries, so that by late 1995/early 1996, such reports were almost District-wide. The Eighth District was one of the first regions in the country to experience tight labor market conditions, which would soon become a nationwide phenomenon. Even today, almost six years after their first appearance in the District, tight labor market conditions remain the norm in many District areas, and are still an important note in almost all of the St. Louis District's reports for the Beige Book—a summary of current economic conditions that is compiled just before each Federal Open Market Committee (FOMC) meeting by every Federal Reserve Bank.2 ...And Then Drops Back to the Pack... The District lost its front-runner status as other parts of the country entered their expansionary phases with vigor. To almost any economist, the loss of this status is not surprising, especially when comparing different regions of a single, domestic economy. Eventually, the regions' economic growth paths converge so that they begin mirroring each other. That is, other regions of the country caught up with the Eighth District. In fact, a quick glance at some recent economic data shows that the rest of the nation might actually be growing faster than the District. To investigate this claim further, an economist would naturally want to compare rates of output growth between the nation and District. Unfortunately, this comparison isn't possible for the most current period because statelevel output data, Gross State Product, are usually about two years old when they are first released. Therefore, economists must look to the next best economic indicator: employment. Employment is normally believed to be the "next best" economic indicator because workers produce output, which, to most minds, is the definitive indicator of an economy's performance. Generally speaking, one could infer that higher levels of employment would lead to higher levels of output. Similarly, faster rates of employment growth would lead to faster rates of output growth. Although these are by no means perfect relationships, they can help gauge the District's economic performance relative to the nation's. As shown in the table below, District payroll employment growth rates, whether total or by major sector, have been slower than national rates since at least the last quarter of 1999. In fact, this trend goes back even further, to the fourth quarter of 1995.3 A natural conclusion from this observation, then, is that the District's economic performance—that is, output growth—has slowed relative to the nation's. And slower employment growth must also mean slower output growth, mustn't it? Table 1 Quarterly Payroll Employment Growth Rates Total Manufacturing Nonmanufacturing Quarter II/00 I/00 IV/99 II/00 I/00 IV/99 II/00 I/00 I/99 U.S. 2.8 2.6 2.2 0.1 0.0 –0.7 3.3 3.1 2.7 District 1.7 1.1 1.0 –0.5 –0.8 –0.6 2.2 1.6 1.3 SOURCE: Bureau of Labor Statistics If this were all the information that was available, a casual observer, or even a dedicated market analyst, might reach such a conclusion. However, the District's slower rates of employment growth do not exist in a vacuum. Whereas the payroll employment data have been indicating that growth is slowing, unemployment rates in District states and metropolitan areas have been at or near historic lows. And on top of this information is anecdotal evidence about the struggle many firms around the District continue to face finding and retaining qualified employees. Altogether, these tidbits and statistics paint a picture of a thriving regional economy without enough qualified workers available to fill all of its vacant jobs, which are therefore not counted as newly created jobs. Consequently, the slowing that is evident from the District's employment data reflects more of a saturation of the regional labor market than an economic slowdown. To get behind the scenes, examine the average number of jobs created each month, which paints a slightly different picture. Between 1998 and 1999, this average fell in both the nation and District. In fact, the District number went from about 29,000 per month in 1998 to around 19,500 per month in 1999—an almost 33 percent decline. But during the first half of 2000, the District was averaging about 21,800 new jobs per month—a bounce back of 12 percent. District firms have thus been able to fill some of their vacancies. In the nation, average monthly job growth in 2000 has rebounded 15 percent. On another frontier—residential construction—the District has certainly held its own over the years. As with the rest of the country, 1999 was a record-breaking year for the number of new building permits issued in the District. And this occurred in an environment of rising mortgage and interest rates! Nonetheless, higher interest rates have had their effect—new permit growth slowed in the latter half of last year. In fact, by the first half of 2000, the number of new permits issued in the District was off by 6.5 percent from a year earlier, while nationwide they were off only 3.7 percent. Construction activity, however, has not waned as much as might be expected, as builders now attempt to catch up with their backlogs. Fewer new permits today, which indicates slower activity tomorrow, should also help to ease the labor strains this industry has been experiencing for many years now. ...But May Get a Second Wind At the end of the day, the District economy continues to perform as well as the rest of the country, with only a few signs of some slowing from its rapid pace. Rising interest rates have slowed housing sales and new housing construction, but this is happening nationwide, too. District firms' ongoing inability to fill vacant jobs is showing up in the data as slower employment growth, even though there has been some resurgence in that growth this year. Still, these unfilled jobs might be holding back some output production. Unfortunately, the output data to confirm this won't be available for two more years. Paige M. Skiba provided research assistance. Endnotes 1. For puproses of this article, the "District" comprises the whole states of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. [back to text] 2. Beige Book reports can be viewed online at the St. Louis Fed's website, www.stlouisfed.org, by clicking first on "publications" and then "beige book." From this page, the national summary of the Beige Book and the individual reports of the 12 Federal Reserve Banks can be read. Reports back to 1996 are archived here. [back to text] 3. This statement is not necessarily true in the manufacring and nonmanufacturing sectors for every quarter. Since late 1995, there have been quarters (here and there) in these sectors during which District employment growth outpaced national employment growth. [back to text] REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/cleared-for-takeoffst-clair-county-ill-weathers-newairports-initial-turbulence Community Profile: Cleared for Takeoff—St. Clair County, Ill., Weathers New Airport's Initial Turbulence Stephen P. Greene On Jan. 5, 1998, Tom Brokaw introduced America to MidAmerica St. Louis Airport on the NBC Nightly News. But if first impressions count for anything, viewers' perceptions of the new $330 million airport in St. Clair County, Ill., were about as positive as their feelings toward airline food, long layovers and lost luggage. "What if they built an airport and nobody came?” were the words Brokaw used to open the report, which was part of the show's "Fleecing of America” series. The network lambasted MidAmerica, which had officially opened two months earlier, by describing it as a waste of federal tax dollars, particularly since Lambert St. Louis International Airport was in the middle of a multimillion-dollar expansion. Almost three years later, the "white elephant” label—which local officials never considered justified—may be starting to subside. In August, PanAm launched passenger service at MidAmerica Airport, 25 miles east of downtown St. Louis in the town of Mascoutah. A couple weeks later, Lambert announced that it would put a freeze on new cargo business and would begin referring carriers looking to expand to MidAmerica. On the opposite side of the Mississippi River from the Gateway Arch, St. Clair is the largest county in downstate Illinois. The growth of MidAmerica Airport and developments such as the extension of the MetroLink light rail service could serve to enhance the county's integration with the region in coming years Now Boarding At MidAmerica Airport, PanAm now services one flight each day to Gary, Ind., (near Chicago) and Sanford, Fla., (near Orlando). Airport Director Rick Hargrove says that MidAmerica fits right in with PanAm's business plan to fly into secondary airports in large urban areas. PanAm's presence has resulted in about 30 new jobs at the airport, most of which are part-time. But given the negative publicity MidAmerica has faced, PanAm's decision to do business here was more of a psychological boost than an economic one. "It's always hardest to get the first customer in,” says Rick Hargrove, director of MidAmerica Airport. "Every new airport that is built takes three to five years to market and develop. We have other prospects talking to us that are interested in the airport for all aspects of aviation: passenger airlines, air cargo, maintenance repair and overhaul facilities. We have full expectations that the airport will develop relatively rapidly.” Currently, the airport has four gates. PanAm uses just one of them. The excitement over PanAm was tempered by the airline's announcement shortly before its first MidAmerica flight that it was cutting back from two daily flights to Gary to one because of poor ticket demand. Airport officials did not need that news to remind them that plenty of work remains to be done to fill the vacancies at MidAmerica. "We have not just been sitting on our laurels since PanAm's decision to come here,” says Terry Beach, marketing director at MidAmerica. "We are still out there working trade shows and making face-to-face presentations to targeted carriers that we believe should have a logical presence here. Saving Scott "In my view, Scott Air Force Base would be closed today if not for MidAmerica.” If St. Clair County Board Chairman John Baricevic's inclination is correct, the existence of MidAmerica Airport has helped save thousands of jobs at Scott, the largest employer in St. Clair County and the seventh-largest employer in the St. Louis region. Baricevic said that Scott was immune to closure during the Pentagon's first two rounds for technical reasons, but was unprotected during the last round. Closure would have resulted in the loss of more than 4,000 jobs, as well as the spending of more than 8,000 military personnel. In addition, a number of the 30,000 military retirees in the St. Louis area who depend on Scott for certain services like health care more than likely would have been forced to relocate out of the area. "Scott is a major part of our economic backbone,” Baricevic says. "Not just St. Clair County's, but the whole region's.” Why is MidAmerica so critical to Scott? The two entities function under a joint-use agreement, which greatly expands each facility. Hargrove calls the agreement "seamless” from an operational standpoint. Each side can use the other's facilities with no fees attached. Scott, with an 8,000-foot runway, now has access to MidAmerica's new 10,000-foot runway. A new control tower stands directly between MidAmerica and Scott. Currently, the Air Force controls the tower, but if civil traffic ever exceeds military traffic, the military will relinquish the tower to the Federal Aviation Administration. Baricevic points out that there is no guarantee of Scott escaping closure in the future, but he and Hargrove believe that the joint-use agreement greatly lessens those chances. Beyond just keeping Scott surviving, they hope that the enhanced aviation offerings can help attract new business. An example is the Illinois Air National Guard's 126th Air Refueling Wing, which transferred to Scott from O'Hare Airport in Chicago. The move occurred in October 1999 and brought 300 new full-time jobs and 850 part-time jobs to the area. "A Healthy Dose of Paranoia” Comparing MidAmerica Airport with Lambert Field might seem unfair. Lambert has 83 gates, is in the midst of a runway expansion and is the hub of TWA. MidAmerica, however, has plenty of potential: It can be expanded to 84 gates, and the airport sits on about 8,000 acres—three times the amount that landlocked Lambert contains. Hargrove stresses that MidAmerica is not seeking and has never sought to compete with Lambert. Instead, MidAmerica is intended to function as a reliever airport. "Lambert has always been very pro-MidAmerica Airport,” he says. "Lambert's only problem is that it is relatively restricted in available land...this airport is poised to help Lambert out, and that will improve the overall St. Louis region's aviation capabilities.” Jim Pennekamp, executive director of Leadership Council Southwestern Illinois, a regional economic development group, says, however, that there are those in the city of St. Louis who may differ with that line of thinking. "There's a healthy dose of paranoia,” he says. "With the city of St. Louis generating revenue off Lambert, there are some people who have some financial concerns.” Such opposition pales in comparison to the bitter battle in the 1970s between Missouri and Illinois over a proposed commercial airport in the Columbia-Waterloo area, 19 miles southeast of downtown St. Louis. Ground was never broken on that airport, which would have dwarfed Lambert in size and capabilities. Pennekamp adds that people should set aside their parochial interests because the idea that Lambert one day would be unable to accommodate all of the major aviation operations of the St. Louis region is "quite scary. People should be very concerned about that.” Like many people on both sides of the river, Pennekamp feels that the continued existence of TWA at Lambert is critical to the region. If the airline were to fold, Pennekamp says the results would be economically devastating. "Forget MidAmerica, forget any other peripheral issues,” Pennekamp warns. "What happens if you don't have a hub operation here is that you lose major businesses in the St. Louis area immediately...I think that everything possible must be done to secure TWA's existence at Lambert.” A Link to the Future For what it's worth, the St. Louis area in about five years will become the first region whose two main passenger airports are serviced by one uninterrupted light rail line. MetroLink, which currently runs as far west as Lambert Field, will eventually stretch to the MidAmerica terminal when the second phase of the current St. Clair County extension is completed. The first phase, to be completed by next summer, will take MetroLink to the campus of Southwestern Illinois College in Belleville with eight new stops along the way. The most telling aspect of the expansion may be that once phase two is completed, MetroLink will have 26 miles of rails on the Illinois side, compared with 17 Missouri miles. Whereas light rail proponents in Missouri have faced ballot box rejection and discord on where future routes should run, just the opposite has been true in St. Clair County. "We capitalized on MetroLink's success right away,” says Baricevic, who helped lead the push for the half-cent sales tax, which St. Clair voters approved in 1993 to help fund phase one. The sales tax pays only for about 28 percent of the $340 million expansion. The balance is being funded by the federal government. But Baricevic speculates that MetroLink's progress east of the river also stems from the fact that Illinois residents have a greater sense of regionalism than Missourians do. "We appreciate the city of St. Louis,” says Baricevic, who added that nearly one-third of downtown St. Louis workers live in Illinois. "Folks in Missouri tend not to think of Illinois as part of the economic engine of this region. There are notable exceptions to that. But for the most part, I think the average citizen or businessman in Missouri only looks to the east to see if the sun is coming up.” Baricevic and others hope that in future years the progress of MidAmerica Airport and the expansion of MetroLink will be two chief factors in changing those perceptions. St. Clair County, Ill., by the numbers Population 260,050 Labor Force 122,541 Unemployment Rate (County) 6.4% Per Capita Personal Income $22,527 Top Five Employers Scott Air Force Base 4,290 civilian employees 8,041 military employees Memorial Hospital 1,400 Casino Queen 1,250 Union Planters Bank 1,047 St. Elizabeth's Hospital 874 REGIONAL ECONOMIST | OCTOBER 2000 https://www.stlouisfed.org/publications/regional-economist/october-2000/the-gender-wage-gap-and-wage-discriminationillusion-or-reality The Gender Wage Gap And Wage Discrimination: Illusion or Reality? Howard J. Wall After more than a generation since the Equal Pay Act of 1963 and the Civil Rights Act of 1964 together barred employment and wage discrimination, the gap between men's and women's average earnings is still wide. In 1999, women's median weekly earnings for full-time workers were 76.5 percent of men's—a gender wage gap of 23.5 cents for every dollar earned by the median man. Many believe that the wage gap is a good measure of the extent of gender wage discrimination, which occurs when men and women are not paid equal wages for substantially equal work. Irasema Garza, director of the Women's Bureau of the U.S. Department of Labor, recently testified to the widespread nature of this view in policy-making circles. Before Congress last June, she outlined steps being taken by the current Administration to eliminate the gender wage gap. Ironically, the gap has increased since 1993, when the Administration took office. After falling steadily between 1979 and 1993, it rose in four of the six years from 1993 to 1999, ending the period a little more than one-half of a cent higher. This uncomfortable trend, however, has little to do with a failure to fight wage discrimination. The weight of evidence suggests that little of the wage gap is related to wage discrimination at all. Instead, wage discrimination accounts for, at most, about one-fourth of the gap, with the remainder due to differences between men and women in important determinants of earnings such as the number of hours worked, experience, training and occupation. Moreover, even this one-fourth of the gap may have less to do with wage discrimination than with the accumulated effects of shorter hours and interrupted careers on women's earnings and promotion prospects. To see this, let's break the wage gap numbers down in greater detail. Breaking Down the Numbers The first step in understanding the composition of the gender wage gap is to see if the correct measure of wages is being used. Because the average woman works fewer hours per week than the average man, defining the gap in terms of weekly earnings, as the Department of Labor usually does, inflates the wage gap artificially.1 Shifting the focus to hourly wages alone eliminates almost one-third of the gap: In 1999, women's median hourly earnings were 83.8 percent of men's, leaving a 16.2 cent gap in hourly earnings. Defining the gender wage gap in terms of hourly earnings not only makes more sense statistically, but also illuminates the labor market gains made by women. As the accompanying chart shows, during the last two decades the gender gap in hourly earnings has fallen faster than the gap in weekly earnings. This has occurred as more women entered the labor force, including much larger proportions of women with children.2 Because the average woman with children works fewer hours per week, this trend has tended to increase the difference between the two measures of the gender wage gap. Chart 1 Understanding the Numbers—The Gender Wage Gap, 1979-99 In 1999, women's median weekly earnings were 76.5 percent of men's, implying a gender wage gap of 23.5 cents for every dollar earned by the median man. The gap has fallen by 13 cents during the last two decades, but has actually risen since 1993. A better measure, the gap in hourly earnings, has fallen faster and more continually during the period, standing at 16.2 cents in 1999. SOURCE: U.S. Department of Labor Still, the gender wage gap of 16.2 cents that remains after correcting for the number of hours worked per week is rather substantial. The next question to examine is how much of the gap is due to human capital variables— such as education and experience—and other variables—such as industry, occupation and union status—that make wages differ between any two groups of workers. A 1997 study by Francine Blau and Lawrence Kahn is representative of the research done on this question. This study was relied upon in a recent analysis of the gender wage gap by the President's Council of Economic Advisers (CEA), which was subsequently cited by Director Garza in her statement to Congress.3 The Blau and Kahn study attributes 62 percent of the gap in hourly wages to such differences—one-third to differences in human capital variables, and 29 percent to differences in industry, occupation and union status. After applying these numbers to the 16.2 cent gap in hourly earnings, 6.2 cents of the gender wage gap remains unexplained. Discrimination or Career Choices? The unexplained, or residual, portion of the gender wage gap could be due to wage discrimination, or to other factors, including labor market variables that are difficult to account for. As the CEA study pointed out, some elements of wage determination are not adequately controlled for in existing studies. For example, primarily because of childbearing, a woman's labor market experience is more likely to be discontinuous. But little is known about the effects of this phenomenon because studies have controlled only for the total number of years in the workforce, not for discontinuities. Also unknown are the accumulated effects of shorter average hours on women's earnings. Of course, other types of discrimination may have played a part in creating human capital and other differences between men and women. Take, for example, what has been called occupational segregation—many occupations staffed predominantly by women tend to pay less than occupations staffed predominantly by men. Is discrimination responsible for this? Or, as a study by Diana Furchtgott-Roth and Christine Stolba argues, are such occupational differences between men and women due to differences in childbearing and family responsibilities? These two differences, say the authors, account for the fact that women, on average, work fewer hours, and have more and longer gaps in their workforce participation. These differences also mean that women also tend to have greater incentives than men to choose jobs that are time-flexible, and careers in which job skills deteriorate slowest. Which scenario is driving gender differences in occupation? Is elementary school teaching predominantly female because women tend to be shunted into teaching from the male-dominated jobs they would have preferred? Or, are women choosing elementary school teaching because it provides the job flexibility and slow job-skill deterioration that fits their lifestyle? Perhaps the truth lies somewhere in between. One way to gain insight into the unmeasured importance of childbearing is to look at the wage gap for age groups that are less likely to have children. As Blau and Kahn have reported in their more recent analysis, the hourly gender wage gap for women is smallest—5.8 cents in 1998—for those aged 18-24. Furchtgott-Roth and Stolba report that among those who are aged 27 to 33 and have never had a child, women's median hourly earnings are 98 percent of men's, a gender wage gap of only 2 cents. Note that these numbers are not adjusted for differences in human capital and other variables, which would make the gaps even smaller. Eliminate the Gender Wage Gap? Is one to take from the numbers presented here that the gender wage gap of 23.5 cents is mostly an illusion, and that gender wage discrimination is not a serious problem? Well, yes and no. Most of the gender wage gap is due to factors other than wage discrimination, so it is illusory as an indicator of wage discrimination. Nonetheless, no study has been able to explain it away entirely. Even in a world free of all types of gender discrimination, as long as people choose to have children there will likely still be a gap between the average earnings of men and women. Perhaps the gender wage gap is most useful as an indicator of changes in the underlying expectations and social norms that drive men's and women's career and workforce decisions, which themselves may be affected by other types of gender discrimination. Ling Wang provided research assistance. Endnotes 1. Most Department of Labor documents define the wage gap in terms of weekly earnings, although sometimes annual earnings are used. A good source for the Department of Labor's data on the gender wage gap is its Fair Pay Clearinghouse at . [back to text] 2. Between 1980 and 1997, the percentage of married women with children who were in the labor force rose from 54.1 percent to 71.1 percent. [back to text] 3. Unfortunately, the CEA analysis mistakenly applied the Blau and Kahn results to weekly instead of hourly earnings, leading to an inadvertent exaggeration of the extent to which the gender wage gap might be due to wage discrimination. [back to text] References Blau, Francine D., and Lawrence M. Kahn. "Gender Differences in Pay," NBER Working Paper No. 7421 (June 2000). _________. "Swimming Upstream: Trends in the Gender Wage Differential in the 1980s," Journal of Labor Economics (1997), pp. 1-42. Council of Economic Advisers. "Explaining Trends in the Gender Wage Gap," CEA White Paper (June 1998). Furchtgott-Roth, Diana, and Christine Stolba. Women's Figures: The Economic Progress of Women in America. Independent Women's Forum and the American Enterprise Institute, 1996. Garza, Irasema. Statement Before the Senate Committee on Health, Education, Labor, and Pensions, June 22, 2000. Goldin, Claudia. Understanding the Gender Wage Gap: An economic History of Amerian Women. Oxford University Press, 1990. U.S. Department of Labor. "Equal Pay: A Thirty-Five Year Perspective," U.S. DOL Women's Bureau Special Report (June 1998). National and District Data Selected indicators of the national economy and banking, agricultural and business conditions in the Eighth Federal Reserve District Commercial Bank Performance Ratios second quarter 2000 U.S. Banks by Asset Size $100 million$300 million less than $300 million $300 million$1 billion less than $1 billion $1billion$15 billion 1.17 1.28 1.23 1.42 1.30 1.36 1.33 1.08 3.92 4.65 4.64 4.65 4.64 4.62 4.63 3.51 0.99 0.81 0.85 0.72 0.80 0.98 0.90 1.04 1.67 1.34 1.36 1.46 1.40 1.92 1.67 1.67 ALL Return on Average Assets* Net Interest Margin* Nonperforming Loan Ratio Loan Loss Reserve Ratio Net Interest Margin* Return on Average Assets * 1.25 1.30 1.15 1.21 1.01 1.04 1.35 1.37 1.24 1.27 1.25 1.31 1.33 1.33 1.29 1.37 0 .25 .50 .75 1 1.25 4.09 4.09 4.13 4.24 Eighth District Arkansas 3.82 3.85 Illinois 4.42 4.24 Indiana 3.94 4.05 Kentucky 4.43 4.52 Mississippi Missouri 3.78 4.14 4.27 1.75 2 3 percent 3.50 Nonperforming Loan Ratio 0.86 0.93 0.95 0.89 0.65 .6 .7 Illinois Indiana 0.82 0.80 0.75 .8 Kentucky Mississippi Missouri .9 1 Tennessee 1.17 1.1 1.2 1.3 5 5.50 6 1.24 1.26 1.20 1.29 1.35 1.27 1.36 1.31 1.38 1.40 1.35 1.35 1.35 1.43 Arkansas 1.10 0.93 4.50 1.33 1.35 Eighth District 0.76 0.79 .5 4 Loan Loss Reserve Ratio 1.06 1.05 0.52 4.09 Tennessee 1.50 less More than than $15 billion $15 billion 1.4 1.5 percent 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Second Quarter 1999 Second Quarter 2000 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 *Annualized data [16] For additional banking and regional data, visit our web site at: http://www.stls.frb.org/fred/data/regional.html. 1.8 1.9 2 The Regional Economist October 2000 ■ www.stls.frb.org Regional Economic Indicators Nonfarm Employment Growth year-over-year percent change second quarter 2000 Goods Producing United States Arkansas Illinois Indiana Kentucky Mississippi Missouri Tennessee Service Producing 1 total mfg cons 2.4% 2.8 0.9 1.1 2.4 0.2 1.2 1.9 –0.3% 0.7 –0.3 0.7 0.7 –0.8 –2.3 –0.0 4.7% 6.3 1.6 1.7 3.6 –3.5 4.5 4.7 govt 3.6% 3.6 2.0 1.7 2.7 3.5 2.3 3.3 tpu fire3 services trade 2.6% 2.5 0.5 –0.6 2.8 3.5 –0.9 0.2 0.5% 2.5 0.3 0.2 1.9 –1.3 0.7 –0.1 3.7% 3.7 1.6 2.4 3.7 0.8 2.3 2.8 1.7% 2.9 0.3 0.5 2.2 –2.4 1.3 1.7 District Real Gross State Product by Industry–1998 Unemployment Rates percent United States Arkansas Illinois Indiana Kentucky Mississippi Missouri Tennessee 2 Manufacturing II/2000 I/2000 II/1999 4.0% 4.3 4.3 3.4 3.9 5.8 2.6 3.7 4.1% 4.6 4.3 3.1 4.0 5.4 2.6 3.5 4.3% 4.5 4.3 3.1 4.7 5.1 3.7 4.1 Construction Agriculture/ Mining 2.5% 17.6% Trade 10.7% 9.0% 18.6% Government TPU 2 Services United States $8,538 Billion District Total $1,126 Billion Chained 1996 Dollars first quarter Housing Permits Real Personal Income year-over-year percent change in year-to-date levels year-over-year percent change –3.1 –4.3 2000 Construction 2 3.9 2.1 1.8 3.2 3.5 Tennessee 0.6 5 10 15 percent 1999 Transportation and Public Utilities 3.8 2.9 1.5 Missouri 0 3.4 2.7 Mississippi 2.3 –0.2 –2.4 –2.5 –5 Illinois Kentucky – 15.3 –10 3.5 1.7 Indiana 1.9 –0.9 –15 10.5 3.7 1.5 Arkansas 7.6 – 13.0 3.0 United States 7.3 –3.4 –11.5 1 FIRE 3 15.5% second quarter –20 4.2% 22.1% 0 1 2 2000 3 Finance, Insurance and Real Estate [17] All data are seasonally adjusted. 3 4.1 4 1999 5 Major Macroeconomic Indicators Real GDP Growth Consumer Price Inflation percent 9 percent 8 7 6 5 4 3 2 1 0 1995 4.0 3.5 all items, less food and energy 3.0 2.5 2.0 all items 1.5 96 97 98 99 1.0 1995 00 NOTE: Each bar is a one-quarter growth rate (annualized); the green line is the 10-year growth rate. 96 97 98 99 00 (Aug.) NOTE: Percent change from a year earlier Civilian Unemployment Rate Interest Rates percent 6.5 percent 8 10-year 6.0 t-bond 7 5.5 fed funds target 6 5.0 5 4.5 three-month t-bill 4 4.0 3.5 1995 96 97 98 99 3 1995 00 (Aug.) 96 97 98 99 00 (Aug.) NOTE: Except for the fed funds target, which is end-of-period, data are monthly averages of daily data. Farm Sector Indicators U.S. Agricultural Trade Farming Cash Receipts billions of dollars 40 billions of dollars 115 35 110 exports 30 105 25 100 imports 20 crops 95 15 90 10 trade balance 5 0 1995 96 97 98 99 livestock 85 80 1995 00 (Jul.) NOTE: Data are aggregated over the past 12 months. Beginning with December 1999 data, series are based on the new NAICS product codes. 96 97 98 99 00 (Jun.) NOTE: Data are aggregated over the past 12 months. U.S. Crop and Livestock Prices index 1990-92=100 145 135 crops 125 115 105 95 livestock 85 75 1986 87 88 89 90 91 92 93 [18] 94 95 96 97 98 99 00 (Aug.)
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