Statement by Thomas C. Melzer, President, Federal Reserve Bank of St. Louis, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, March 10, 1993 - Statements to the Congress - Transcript

Federal Reserve Bulletin, May, 1993

I welcome the opportunity to discuss the economy of the Eighth Federal Reserve District and my views on monetary policy. As many of you know, one of my responsibilities as a Reserve Bank president is to gather information about the economy of my District and report on it at Federal Open Market Committee meetings. This information--along with similar information from the other Federal Reserve Districts--serves as a backdrop to our discussion on monetary policy.

At the Federal Reserve Bank of St. Louis, we monitor economic conditions in both the nation and the Eighth Federal Reserve District, which includes the State of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee.(1) Reserve Banks monitor the national and regional economies in a variety of ways. For example, we routinely collect economic information from various official sources, both private and public.

Because of the lags in published data, we also attempt to acquire more timely information through informal means. By interacting regularly with District individuals--in 1992, Research Department economists and I participated in approximately 150 programs in our District--we learn firsthand about economic conditions. Through these programs as well as our daily interaction with the District community, we gather information on economic conditions from consumers, labor leaders, homebuilders, bankers, educators, and business people from both small and large firms. Besides collecting information, we solicit opinions and questions on banking and monetary policies, as well as learn how they may be affecting individuals in the District. Although frequently anecdotal, this information can sometimes signal an important trend before it is apparent in the published data.

ECONOMIC STRUCTURE OF THE DISTRICT

Let me note some facts about the Eighth District economy. Based on the most recent county data, the District share of personal income in the nation is 4.3 percent. If we include each of the seven District states in its entirety, that share is 13.3 percent. Per capita disposable personal income levels in District states are below the national average.

The economies of the Eighth District and the nation are very diverse and roughly similar in structure. Some differences, however, are worth noting. Table 1 compares the composition of output for the Eighth District and the entire United States.(2) The table shows the following:

* The Eighth District tends to be more manufacturing-intensive in both durable and nondurable goods than the United States. Nondurables sectors in the District with comparatively high production include rubber and plastic products, food, apparel, paper products, and chemicals. Durables sectors with comparatively high output include transportation equipment--particularly motor vehicles--fabricated metals and wood products.

* The District economy is a major agricultural producer, supplying significant portions of the national output of corn, cotton, rice, and soybeans.

* Transportation services are a relatively important contributor to the District economy, reflecting an extensive network of navigable rivers, the strong presence of railroads, and such airline transportation companies as Federal Express and United Parcel Service.

RECENT ECONOMIC PERFORMANCE IN THE EIGHTH DISTRICT

Although the 1990-91 recession and restructuring have affected both the national and Eighth District economies, the District has fared somewhat better than the nation.

Pockets of Strength

One of the characteristics of a diverse economy is that, even when an economy slows, some regions or sectors may moderate the slowdown. This situation has been observed in our area in recent years, as certain pockets within the District have grown rapidly, bolstering the economic fortunes of our District. Examples follow:

* Northern Arkansas has experienced substantial economic growth in the past few years. The northwestern part is home to some of the nation's fastest-growing companies: Wal-Mart, Tyson Foods, and J.B. Hunt Transport Services. Nucor, as well as several small steel manufacturers, have located in northeastern Arkansas.

* Bowling Green, Kentucky, has attracted major industrial plants, including International Paper and the James River Corporation.

* Memphis, already a significant transportation and distribution center, has exhibited substantial real growth. In December, total payroll employment was 1.8 percent higher than year earlier, real retail sales were up 31 percent, and the area unemployment rate stood at 5.5 percent, well below the 7 percent national average.

Employment, Unemployment, and Restructuring

Payroll employment data provide a useful measure with which to compare the Eighth District and the nation during the recession and the recovery to date. U.S. payroll employment fell at a 2.2 percent annual rate during the recession from July 1990 to March 1991. District employment declined as well but at one-half the national rate. In contrast to previous recovery periods, U.S. payroll employment has essentially remained unchanged since the March 1991 recession trough, whereas Eighth District payroll employment has grown, although only at a 0.5 percent annual rate.