Fed reports slowdown in employment growth

Because of a recent slowdown in employment growth, the Federal Reserve Eighth District's economy may not be able to maintain its current pace of output growth.

Adam Zaretsky, an economist at the Federal Reserve Bank of St. Louis, told The Regional Economist, a St. Louis quarterly magazine, that the gross state product, or the dollar amount of the final goods and services produced in the state, has been very strong in the Federal Reserve's Eighth District in the last several years.

Zaretsky said the region's payroll employment growth rates have been getting smaller since their peak in 1994. For example, district employment grew 3.3 percent, while the national rate grew 3.1 percent.

However, district employment growth slowed to 1.3 percent in 1997, and national growth fell to 2.3 percent.

"At first glance, this slowdown may appear to bode ill for the district economy," Zaretsky said. "But unemployment rates have fallen as well, which is generally a sign of economic strength."

Zaretsky said that shrinking employment growth and falling unemployment rates are indications that the economy is reaching, or has already surpassed, its capacity.

"A moderate slowing would give the district a chance to catch a second wind and reallocate resources, clearing the way for even more growth in the future," Zaretsky said.

Zaretsky said that one problem with the analysis is that, due to a major change in the way the data was calculated, the most recent information on gross state product is from 1994.

"It's a bit like looking at the stars through a telescope," Zaretsky said. "You're seeing them as they were because it takes so long for the light to travel. Nevertheless, these data are the most recent we have to examine."

In 1994, the seven states of the district Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee produced more than $871 billion in final goods and services. This comprises about 13.5 percent of all U.S. output.

Goods produced at district manufacturing firms, however, made up a relatively large share of national manufacturing output (17.5 percent). Following manufacturing was the district's transportation and public utilities sector. District companies in this category contributed about 14.5 percent to national transportation and public utility output.

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