The state of the economy is a daily topic of discussion on the nightly news and at dinner tables across the country. Indicators such as gross domestic product and the net number of jobs added are often used to measure the economic health of our country and our states, but these numbers do not capture local nuances and they often obscure the economic realities that households and businesses in low- to moderate-income (LMI) communities face. To support a more comprehensive understanding of conditions in LMI communities, many of the 12 regional Federal Reserve Banks have started gathering information from community development and service organizations that can provide first-hand insight on what is happening in these communities.
Each of the participating Federal Reserve Banks uses its own survey methods to gather information. The information, in turn, is used to develop standardized economic and financial indicators that can capture changes in the level of economic stress that LMI communities are experiencing. These selected indicators measure economic opportunity at the community level but can also be used to provide some sense of how LMI households are faring. The Community Development Department at the Federal Reserve Bank of Minneapolis launched its first surveys of LMI economic conditions in the Ninth District during the second and fourth quarters of 2011 and plans to continue collecting this information on a semiannual basis. Indicators used by the Minneapolis Fed that relate directly to the well-being of LMI households include employment opportunities for disadvantaged and dislocated workers, the availability of affordable rental housing, and the level of demand for financial counseling.
The front-line information Reserve Banks gather can be used to monitor economic opportunities and assets at the community level that are not well measured through other data sources. By regularly collecting information from community organizations that serve households and businesses in LMI communities, the survey efforts can begin to fill some of the existing knowledge gaps. Pooling and comparing the survey results can provide a national perspective. Some key themes we heard from our second quarter 2011 survey respondents in the Ninth District that were also observed by other Federal Reserve Banks are:
- Access to credit for businesses that operate in LMI communities has decreased; community development financial institutions are being used to fill the resulting lending gaps.*/
- Consumer debt and the use of alternative financial service providers among LMI households has risen.
- Changes to FHA (Federal Housing Administration) loan requirements have prevented some LMI buyers from purchasing lower-priced homes that are on the market.
- The demand for services, e.g., financial counseling, job training programs, and emergency assistance, has risen.
Front-line observations can help us better understand the context in which service organizations, businesses, and households are operating. Some comments captured through our first survey (conducted in the second quarter of 2011) appear in the sidebar below. In addition, respondents' assessments of whether things are "getting better," "getting worse," or "staying the same" can serve as leading indicators of changes in conditions that are important for neighborhood stabilization and recovery. To date, information gathered through community surveys is helping Reserve Banks gauge whether government programs and regulations are having their intended impact, identify regulatory issues that deserve attention, and recognize emerging issues affecting LMI households. We hope that, over time, our community survey efforts will enable us to gather reliable, real-time information about LMI community conditions that is used and trusted by policymakers.
To learn more about the Minneapolis Fed's LMI community survey effort, Ninth District Community Insight, visit our Ninth District Community Insight home page.
Voices from the Ninth District
The following are selected responses from the Minneapolis Fed's second quarter 2011 LMI community survey.
"As a nontraditional lender, our loan volume has doubled because banks have reduced their small business lending. In 2010, we ran out of capital at the end of the first quarter ... we hope to not run out of money again [this year]." —Respondent in mixed urban-rural Minnesota
"SBA [Small Business Administration] loan activity has decreased, which provides [one] indication that credit is tighter now than it was 12 months ago. We are also seeing a slight increase in liquidations and delinquencies." —Respondent in mixed urban-rural Montana
"The amount of consumer debt that households are carrying has created barriers to homeownership, quality rental housing, and lines of credit. In addition, a large portion of residents are using check-cashing institutions and payday loans to meet their needs because they lack trust in banks and [lack] knowledge about the banking system." —Respondent in urban Minnesota
"Resources needed to conduct foreclosure counseling have decreased significantly. Funds for energy conservation programs and for basic-needs services are also expected to decrease. This is occurring at a time when economic recovery has not yet arrived and service [demand] is 30 percent higher than it was in 2008." —Respondent in rural Minnesota.
"Skill [requirements] seem to be higher for new hires. [Unemployment] rates in rural counties are still numbingly high and probably toughest on former manufacturing workers who are not yet ready for retirement." —Respondent in rural Upper Michigan