6.9% 4.8% 5.4% 0% 1% 2% 3% 4% 5% 6% 7% 8% MS WV MO VA US OH CS AL GA IL TN NC IN SC KY Employment of Majority‐Owned U.S. Affiliates, 2017, Kentucky, Competitor States, & the U.S. (percentage of total full‐ & part‐time wage and salary employment) Source: Author's calculations using data from the Bureau of Economic Analysis, Regional Economic Accounts & International Data. Note: CS is a weighted average of the competitor states
economy
ec
onomy
Exports
Exports are a vital piece to the state’s economic prosperity. Kentucky’s exports of goods have more than doubled in real dollars over the last two decades. From 1999 to 2018 the compound annual growth rate of Kentucky’s exports is 7.3 percent; this is higher than the U.S. (5%) and competitor states (5.6%). The value of Kentucky’s exports of goods in 2018 was $31.8 billion, which is equivalent to 15.3 percent of Kentucky’s gross domestic product; it was 7.6 percent for the competitor states and 8.1 percent for the U.S. Most of Kentucky’s exported goods go to Canada, which accounted for 24 percent of the total. France was second (10%), followed by the United Kingdom (9%), Brazil (8%), Mexico (7%), and China (7%). Kentucky’s businesses exported to nearly 200 different countries in 2018, but the top six and top ten countries received 66 percent and 80 percent, respectively, of the total value. Some traditional Kentucky products, like “beverages & tobacco products,” which includes distilled products like bourbon, accounted for $530 million in exports, or 1.7 percent of the total. However, over half (55%) of the value of exported goods is accounted for by transportation equipment (e.g., aerospace and motor vehicle industries), followed by chemicals (14%), computer and electronic products (6%), and machinery-except electrical (5%). Combined, the four largest sectors accounted for 80 percent of Kentucky’s exports in 2018.
$0 $5 $10 $15 $20 $25 $30 $35 Kentucky Exports of Goods, 1999‐2018 (constant 2018 billions) Source: Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration, U.S. Department of Commerce.
economy
ec
onomy
A housing start is when a new foundation is laid. Because housing starts represent the first step in a series of cascading future purchases, such as furniture, appliances, and landscaping, a housing start is considered a leading economic indicator and a foundation of determining future economic trends. Going back to 1980, Kentucky’s housing starts peaked in 2004 with 22,623 and declined steadily until hitting its nadir of about 7,400 in 2009. Following the U.S. and competitor state trend, Kentucky housing starts have stabilized since then and increased to nearly 13,830 in 2018. The overall trends nationally have seen relatively strong gains in multifamily housing, such as apartment buildings, and somewhat lackluster growth in single-family homes, which is a much bigger driver of economic growth. In Kentucky, single family homes accounted for 7,780 of the new starts in 2018, or about 56 percent of the total market. The Wall Street Journal reported in a May 2018 article, entitled “Rural America Has Jobs. Now It Just Needs Housing,” that a lack of housing across rural America has become an obstacle for economic development and growth. Increasingly, new housing is being built in urban areas, not rural regions. And rural areas face new difficulties recruiting new industry and keeping younger workers because of insufficient housing stock.
Housing Starts
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Number of New Residential Housing Units, Kentucky, Competitor States, and the U.S., 1980 to 2018 (Per 1,000 Population) US CS KY Source: U.S. Census Bureaueconomy
ec
onomy
Foreclosures
Leading up to the Great Recession, the federal government and the private sector undertook extensive efforts to increase the number of homeowners by keeping mortgage rates low and by allowing small, or nonexistent, down payments. By the fourth quarter of 2007—the peak of the last economic expansion—the homeownership rate was 69 percent nationally and 75 percent in Kentucky. It became clear, however, that many of these new homeowners could not afford their homes, as evidenced in the figure below by a sharp increase in foreclosures beginning in 2008. In Kentucky, the percentage of mortgage loans in foreclosure peaked in the fourth quarter of 2011 at 4 percent. The foreclosure rate has declined since then and currently stands at 1.02 percent; the national rate is 0.84 percent. Kentucky’s 1.02 percent is its lowest foreclosure rate since the second quarter of 2000 when it was 1 percent. By the third quarter of 2019, the homeownership rate was 68.4 percent in Kentucky and 64.8 percent nationally.
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Mortgage Foreclosure Inventory, Kentucky and the U.S., 1979 (Q1) to 2019 (Q3) (foreclosures as a % of all mortgages, not seasonally adjusted) US KY Source: Mortgage Bankers Association
economy
ec
onomy
Community banks—financial institutions with assets less than $10 billion—are fundamentally important for the economic vibrancy of many regions. According to a Council of Economic Advisors Issue Brief in August 2016, community banks provide “the only local source of brick-and-mortar traditional banking services for many counties, as well as key sources of credit for rural communities and small business loans.” Indeed, as Esther George, the President and CEO of the Federal Reserve Bank of Kansas City wrote in 2017, “traditional banks are essential to thousands of communities across the country.” Moreover, the leaders of these banks are integral members of their communities. As President George notes, “these bankers serve on the boards of local schools, hospitals and other civic organizations, providing a key source of leadership in the community.” However, the number of community banks has been declining for many years. There were, for example, 402 community banks in Kentucky at the beginning of 1984, but only 143 at the beginning of 2019—a 64 percent decline. As the figure below illustrates, there has been a similar downward trend in the competitor states and the U.S. overall. While the market forces affecting banking are felt in all regions, analyses by the Federal Reserve Board show that, at least since 2005, the nation’s rural areas and small towns have been disproportionately affected.