As we enter the fourth quarter of 2026, the year is shaping up to be one of the weakest for payroll growth, nationally, in the past 20 years, not counting recessionary-related years. However, the first quarter of this year looks like it may have been a trough in this rough patch. Since then, year-over-year changes in quarterly averages have been on a slightly upward trajectory, but still under growth from prior years.
There are several factors that might explain the weaker job growth, but one could be the degree of uncertainty in the economy. One measure of uncertainty, the Economic Policy Uncertainty Index, spiked in early 2025 and has remained elevated since. Uncertainty introduces risk into the investment equation, potentially curbing the business appetite for more investment. At least for investment in structures, much of the growth has been driven by data centers. According to data from BofA Global Research, if you remove the impact of data centers, investment in structures would be just about flat, at least from 2020 through 2025.
The national slowdown in payroll growth also showed up in Southern Indiana, where the latest employment numbers pointed to similar weakness. First-quarter data for Southern Indiana (Clark, Floyd, Harrison, Scott and Washington) are now available, and we can also take a longer view at first-quarter performance over the past 20 years. It turns out that the first quarter for Southern Indiana was also among the weakest first quarters in the past 20 years, outside recessionary-related years.
For the first quarter of 2026, Southern Indiana gained 700 jobs, representing a 0.65% change from the prior year. In the first quarter of 2025, the region added more than 900 jobs, or a 0.88% change. There were two other first quarters when job growth was weaker than in the first quarter of 2026, and those were 2017 and 2018.
The region had four consecutive first quarters of negative growth from 2009 to 2012. This was during the Great Recession, which ended in 2009, and the fallout after the recession, as the economy took several years to regain payrolls lost in the greatest contraction of the economy since the Great Depression.
The strongest first quarters came in 2015 and 2016, with growth exceeding 3%. On an absolute basis, the region gained almost 4,000 jobs over the year during the first quarter of 2016, the highest in the 20-year period. The second leading first quarter was in 2022, adding more than 3,000 jobs. We were still seeing recovery from Covid, and this level was partially influenced by a lower base in 2021.
Dragging down the first-quarter numbers for this year was manufacturing, losing 594 jobs from the previous year. For five of the past seven quarters, manufacturers have shed jobs, down about 3,000 since 2020. Healthcare continued adding jobs, gaining more than 600, almost equaling the total added for the entire region. Since 2020, health care has added almost 4,000 jobs.
The second largest increase was in professional, scientific, and technical services, adding almost 400 knowledge-based jobs, a positive sign for the overall region.
Since the first quarter, national payrolls have picked up, although still quite volatile from month to month. It is likely that the 700 jobs gained during the first quarter represent the near-term trough for Southern Indiana, and we’ll see stronger growth for the rest of the year once the data are released.
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