submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
The consumer represents 2/3rds of the economy, and despite record-high inflation, has been the major driver of the macroeconomy’s economic growth. Preliminary estimates show, for example, that the last quarter of 2024 would have seen negative growth had it not been for the robust consumer. Even with consumer sentiment hitting lows that previously were associated with recessions, the consumer was not deterred, and the economy forged ahead. Our last Economic Update introduced the possibility of fading consumer optimism and the impact on the overall economy. For example, small business optimism saw one of the largest increases following the election. More recent surveys are now pointing to a decline in optimism, and more troubling, is a significant spike in uncertainty.
The most recent consumer sentiment survey showed a further decline in consumer optimism, along with expected price increases a year out, the highest reading since 1995. Sentiment data have shifted to the expectation of higher prices, added confirmation with the release of the most recent Consumer Price Index (CPI) report showing hotter than expected inflation. As Economic Update pointed out last year, we will likely see fewer interest rate reductions this year, if any. The latest inflation data, inflation expectations, and the labor market have pushed any rate changes back until the earliest of the 4th quarter of this year.
Are we about to see a pivot with consumers and the recent behavioral patterns connected to consumer optimism? The last retail sales report saw one of the steepest drops in retail spending since 2020. Walmart, the nation’s largest retailer, saw sales and earnings per share come in weaker than expected. More alarming, however, was the guidance issued expressing concerns with uncertainties in consumer behavior, global economic conditions, and geopolitical factors. Walmart stock plummeted as investors reacted to the slower growth forecasts.
Emerging from the pandemic, the goods economy was quite strong. Goods spending boomed, and manufacturing benefited as a result. Indiana and Kentucky saw strong growth in payrolls. Since then, goods spending subsided, manufacturing entered a slump, and the service side of the economy propelled growth. Cracks are beginning to surface with services, the engine of the overall economy. A recent survey of purchasing managers saw the largest decline in the index since mid-2022. The index remains above 50, indicating expansion, but the magnitude and abruptness of the decline could indicate an emerging shift in the economy. While the overall index signifies overall expansion in the economy, the services component of the index showed contraction. If there was a silver lining, pricing in the service sector cooled, with prices showing the smallest monthly increase since the pandemic.
Closer to home, Louisville Metro ended the year with a gain of 6,000 plus payrolls and an unemployment rate of 4.4%, close to the Economic Update forecast of 8,000 payrolls and an unemployment rate of 4.5%. These data are preliminary, but the takeaway is that payroll growth was softer in 2024 than prior years. Healthcare led to all job gains, and without the sector’s strong growth, Louisville would have seen flat to negative job growth.
The Economic Update outlook was favorable for 2025 and expecting stronger growth from 2024. That will likely change, as the economy pivots, perhaps unexpectedly, to a self-inflicted slower growth phase, along with sticky prices. Not a good combination for consumer optimism.
SOUTHERN INDIANA — By mid-March, it will have been one year since Murray, Kentucky native Lance Allison was hired as the new president/CEO of One Southern Indiana.
Creation of a versatile public space in south Clarksville that will serve as a hub for cultural and social activities, fostering both tourism and local engagement.
Support construction of the park’s soon-to-be built Outdoor Education Pavilion, which will help serve the hundreds of thousands of people who visit the park each year, including local, school, scout and tourist groups. The pavilion aligns with three of SoIN Tourism’s priority categories: