Fed says three-state Memphis area economy, including eastern Arkansas, on the rebound

While not as robust as Arkansas, optimism in the agriculture-dependent Memphis zone of the Federal Reserve’s expansive Eighth District rebounded sharply over the past three months as the multi-state jobless rate fell to its lowest level in 15 years, according to the second quarter Burgundy Book report released Monday.

The Memphis zone of the Federal Reserve covers the three-state area of northern Mississippi, eastern Arkansas, and western Tennessee with a total population of approximately 3.1 million people, including the 1.3 million who live in the Memphis metropolitan statistical area (MSAs). It also includes the Jonesboro MSA.

The new report published by the St. Louis Federal Reserve shows that the Memphis zone’s unemployment rate fell to 5.6% in the first quarter, down more than a full percentage point from its average in the fourth quarter of 2015. The first-quarter rate is the lowest since 2001, and business contacts expect continued improvement in local labor markets.

Compared with the previous quarter, nonfarm payroll employment growth accelerated in the zone’s MSAs in the first quarter. Employment growth in the Jackson (2.2%) and Jonesboro (4.2%) MSAs exceeded the nation’s growth in the first quarter, while Memphis’s growth (1.8%) was close to the nation’s rate (1.9%).

Transportation employment growth was especially brisk in Mississippi and Tennessee. Commercial real estate activity in the Memphis MSA remained strong, as the industrial vacancy rate fell to its lowest level on record. New and existing home sales in the Memphis MSA have outpaced the U.S. rate thus far in 2016.

Reports from auto dealers indicated that sales halfway through the second quarter met expectations after a relatively weak first quarter. Moreover, multiple used car dealers reported record sales in April. Auto debt growth remained high in the zone with real auto loan balances increasing at a faster rate than the U.S. average.

However, mortgage debt balances fell in Arkansas for the second straight quarter. Commercial bankers reported that loan demand increased in the second quarter from a year earlier, and a majority expect loan demand to continue strengthening in the third quarter.

Here are some key highlights and anecdotes from Memphis and Arkansas business contacts.

• Real income per capita decelerated across Arkansas, Mississippi, Tennessee, and the U.S. as a whole in the fourth quarter of 2015. Only Tennessee’s growth exceeded the nation’s.
• Transportation sector employment growth accelerated in the Memphis MSA and in Mississippi, despite a slowdown in transportation employment growth nationwide. Transportation employment grew 2.8 percentage points faster in Memphis and 1.8 percentage points faster in Mississippi than in the previous quarter. Transportation employment growth slowed in Tennessee, but remains above the national rate.
• The manufacturing sector grew at a healthy pace in both Tennessee and Mississippi, with increases in both the durable and nondurable goods sectors. In Memphis, growth in the durable goods sector was offset by declines in the nondurable goods sector.
• Return on average assets (ROA) declined 19 basis points at Mississippi banks, but increased 5 basis points at Arkansas banks and 14 basis points at Tennessee banks. The decline in ROA at Mississippi banks was driven by an increase in loan loss provisions and a decline in the average net interest margin at the state’s largest bank.

The following observations were recorded in the Fed document from business leaders in Arkansas:

“Due to the Chinese currency being valued lower, there is a push from vendors in China to be paid as quickly as possible.” – Jonesboro area manufacturer

“Low loan-to-deposit ratios for the smaller community banks in the rural markets continue to strain earnings as interest rates remain at historically low levels.” — Northeast Arkansas banker

“The Jonesboro market continues to see a strong overall economy as consumer spending is strong with retail and restaurant businesses being pleased with current sales.” — East Arkansas contact