All posts by : One Southern Indiana

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

The Bureau of Labor Statistics issued the monthly employment report this week, and there were a few highlights worthy of discussion.

First, the headline payrolls number came in much higher than expected.   Consensus estimates had payroll gains at 400,000 plus, and the actual number came in much higher at 678,000. Leisure and hospitality led the way with 179,000 jobs.  Of that number food and drinking places added 124,000.   Employment in leisure and hospitality is still down 1.5 million since February 2020.    We will likely see continued growth in the leisure and hospitality number this year, but headwinds are developing, and these will be discussed in the conclusion.

Professional and business services were next with 95,000 jobs.  This included 36,000 temporary labor services positions.  A strong number in professional and business services is normally a positive signal about the overall business environment and growth in general.

Employment in healthcare increased by 64,000 and remains 306,000 lower than February 2020 employment.   Registered nurses continue to be in significant demand and the occupation with the highest number of openings in Louisville Metro, and nation-wide.   In the past 90 days, there were over 500,000 job postings for registered nurses positions across the country, about 200,000 higher than software developers, the second-highest number of postings.  As a comparison, we know that truck drivers continue to be in significant demand as well, but total postings nationwide were only 242,000.

Other notable gains include transportation and warehousing and retail.  Transportation and warehousing added 48,000 jobs and is 584,000 higher than February 2020.  For Southern Indiana, we see a similar occurrence.  Transportation and warehousing observed the greatest change in jobs across the five counties and is almost 3,000 jobs higher than existed in late 2019.    Retail added another 37,000 jobs is also at a level that exceeds retail jobs in early 2020.   The same applies for Southern Indiana.  Retail jobs based on the latest available data exceed levels of late 2019, and early 2020.

Another industry with importance to Southern Indiana is manufacturing.  The national jobs report showed that manufacturing added 36,000 jobs and remains lower by 178,000 compared to February 2020.    For Southern Indiana, manufacturing is showing the greatest decline among all industries when compared to early 2020.  Even though payrolls are lower, total wages are up.   One inference we might draw from this is that productivity in manufacturing is higher.  Manufacturers, due to labor scarcity, are finding ways to meet demand, and the growth does not necessarily equate to stronger payroll gains.

An important highlight in last Friday’s report was gains to the labor force.  An ongoing challenge for employers has been the availability of labor.    Record job openings and quits point to the challenges that employers face in adding payrolls.  Last Friday’s report showed that the nation’s labor force increased by 304,000, and the labor participation rate ticked upward to 62.3%.    While these numbers don’t get as much attention as the headline unemployment rate or the total payrolls added number, both were quite significant.   As this labor force number continues to increase, along with labor force participation, this will support overall payroll growth.

The other number that was quite significant was average hourly earnings.   It only increased by one cent, over the month.  While there is another geo-political issue that will present additional inflationary pressures,  last month’s average hourly wage muted increase provided some relief against a wage price spiral.

And now the bad news.   Consumer sentiment has been on the decline for the past several months and is now at the lowest level since 2011.   Inflation is the primary culprit for that. Jobs are quite plentiful, and the consumer is in much better shape now than prior to the pandemic.  But the consumer also likes shelves that are stocked and prices that are contained.     However, even with sinking consumer sentiment, consumers continue to spend.  Retail sales remain strong, and the last consumer spending report indicated another solid gain.   We will begin to see greater pressures on some of this spending, however.  As gas prices exceed $4.00 a gallon, consumer sentiment will sour even more.  Stock market volatility and loss in equity values will provide additional support for declining sentiment.     Growth was expected to slow because it was impossible to maintain the level of growth that occurred when the economy was coming out of the pandemic.   Recent developments, however, point to slower growth on top of what was already expected.

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

New data released confirms that the recovery in Southern Indiana is well on its way and quite strong.   STATS Indiana Quarterly Census on Employment and Wages for the 3^rd quarter of 2021 show that the five Indiana counties of the Louisville Metro region added 2,821 from the 3^rd quarter of 2020.   This marks the second-largest quarterly gain since the end of the Covid recession, but a deceleration from the significant increase of the previous 2^nd quarter.   As of the 3^rd quarter of 2021, the region was down only about 663 jobs from the level that existed during the 3^rd quarter of 2019.

The largest gain occurred in the leisure and hospitality sector with accommodation and food services adding almost 1,000 jobs.   This puts accommodation and food services about 450 payrolls short of the total that existed in the 3^rd quarter of 2019.  Challenges faced in accommodation and food services are more about supply as opposed to demand.   Patrons are there to dine out, but establishments continue to face labor scarcity issues and supply availability.    There are certainly anecdotes and media accounts of restaurants closing due to the lack of staffing, for example.

Transportation and warehousing gained another 832 positions from the previous year.  This industry has experienced the largest growth across Southern Indiana since 2019, adding about 2,900 positions.      The economy saw the largest increase in goods spending over a two-year period in the history of the series, and this was the origin of the supply chain issues that we continue to face today.   The supply chain capacity simply was not large enough to accommodate the level of goods spending that occurred.   In essence, the growth in transportation and warehousing payrolls reflects an expansion in the supply chain capacity.

The Admin. & Support & Waste Mgt. & Rem. Services industry gained 573 payrolls from the previous year. This likely reflects gains to temporary labor services.    As an economy expands, employers will often resort to temporary labor services to help meet demand.   Since 2019, 437 payrolls were added making it the industry with the 2^nd highest level of expansion, second to transportation and warehousing.

Brick and mortar retail is not dead.  Retail trade gained an additional 265 jobs from the previous year, and the industry has a higher job count than existed in 2019.     Significant demand for hires remains.   Job postings data show that retail salespersons rank 3^rd in postings behind registered nurses and truck drivers.

Manufacturing gained another 198 jobs, but total payrolls are still down almost 1,900 from 2019.   Even with a decline of almost 2,000 jobs, total wages are up in manufacturing.  This suggests that overall productivity is higher as manufacturers have been able to meet demand, but with fewer employees.  Average weekly wages are up by $111 since 2019, representing an 11% gain.

The number of establishments saw the second-largest increase (+191) since 2001.  This follows the largest increase (+203) that occurred during the first quarter of 2020.   This points to a favorable long-term outlook for the region and is reflective of the positive economic development trends.

Payroll data at the county level does come with an approximate 6-month lag.  We can get a more recent view with labor force data, however.        Here we see that the region continues to make significant strides in employment recovery. Compared to December 2019, the region is down in employment by almost 2,000.   This is a considerable improvement from the Covid decline of almost 40,000.   The labor force remains down by almost 4,000, and the difficulty that employers face is linked to the availability of this labor.   Gains to the labor force will support payroll growth, and we can expect additional gains to the region’s labor force over 2022.

Data sources:  FactSet, STATS Indiana QCEW

–and labor force shows expansion

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

The BLS released the quarterly report on labor productivity last week and it indicated that labor productivity increased 6.6% in the fourth quarter.   Output increased 9.2%, but hours worked only increased by 2.4%.     Labor productivity did see a bounce during the first year of the pandemic and has been fluctuating back and forth for the past year.   The overall trend, however, has been upward.

Productivity is particularly important now because of the price pressures that producers are seeing.   Productivity will allow producers to keep a lid on unit costs and serve as overall headwinds to inflation.  As an example, the last BLS report indicated that hourly compensation increased by 6.9% in the fourth quarter, but productivity increased by 6.6%.   The net effect was a .3% in unit labor costs.     Productivity will be the key for employers to sustain higher wages.

While we’ve already observed gains to productivity during and after the recession, we have yet to realize additional gains to productivity.   What are some of the clues pointing to gains in productivity that have yet to materialize?

First, we can look at the investment in industrial machinery.   New orders for manufacturing durable goods industrial machinery are at an all-time high, almost double the level that existed coming out of the recession.    As a comparison, new orders for industrial machinery coming out of the Great Recession never caught up with the level that existed just prior to that start.   That is, following the Great Recession, new orders for industrial machinery did not move past pre-Great Recession levels until this past year.   That is a stunning comparison.    This significant acceleration in industrial machinery is not just about meeting demand.    Manufacturers are making significant investments to increase efficiencies with the ultimate objective of increasing productivity.   Gains to productivity following these investments will pave the way for higher sustained wages, along with a stronger focus on the importance of skills.   Simply speaking, it takes a greater skill set to operate a backhoe than it does a shovel.

We are also observing significant investments in software and information processing equipment.  Following the Great Recession, there was a decline in both categories, and it took almost three years to return to the level of investment that existed at the onset.  In the most recent Covid recession, investment in both software and other information processing equipment has been accelerating since last year.   Organizations are making investments in digital technologies that will conserve costs and boost productivity.  At least, that is where the data are pointing.

Boosting productivity due to the installation of new machinery and software does not happen overnight.   The company must do the research, meet with vendors, and make a final decision.  The rollout of the new equipment and software requires training and implementation could even come in phases.   The point is that productivity gains will not show up in one report but over time.

We close with a brief word on the labor force.  The last national employment report was solid on the payrolls front.   The headline number of 467,000 jobs added came in significantly above estimates. The one big takeaway was on developments in the labor force participation rate.   As we have pointed out in previous columns, an available labor force is the key for additional job creation.  Last month, the nation’s labor force increased from 61.9% to 62.2%.   It was the largest increase in the participation rate since June 2020, just as the nation was exiting the recession.  As we see gains to the labor force participation rate, this will also support positive payroll growth.   We can also expect additional gains to the labor participation rate this year.  Approximately 3 million prime-age workers are not in the labor force but indicate that they want a job now.  As we move past the adverse impacts of Omicron on labor supply, and as workers exhaust the benefits of government stimulus, we will see an expanding labor force.

Data sources:  BLS Employment Situation, Census Advance Report Durable Goods, FactSet, FRED, BLS Productivity, and Costs.