Economic Update | Heading Toward a Pause in Fed Rate Reductions

by with No Comment 1si NewsEconomic Development

–Expecting mortgage rates to increase 

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

Prior to last Friday, markets were pricing in another ½% reduction in the Fed Funds rate.  The strong employment report now puts this in doubt.  The Fed is now likely to reduce by only a quarter point at their next November meeting.  If the next inflation report, as measured by CPI, comes in higher than expected, and if we see another strong employment report next month, we could see the Fed pause additional rate cuts after November. 

The Bureau of Labor Statistics reported that payrolls increased by 254,000, far exceeding expectations of 159,000. Private payrolls grew by 223,000, almost double the consensus estimate of 114,000. The labor force saw a pickup of 150,000, but the number of employed expanded by 430,000. This combination resulted in a decline in the unemployment rate from 4.2% to 4.1%. 

The reaction in the Treasury bond market was swift, with the 10-Year Treasury yield finishing the day at 3.98%.  Just a week ago, the 10-year Treasury yield was 3.75%. With mortgage rates recently closing at 6.14%, the latest round of economic data means that this will likely be a floor for the 30-year mortgage rate. Over the near term, we can expect mortgage rates to move up from the recent 6.15% neighborhood. 

The employment report showed that average hourly earnings increased by 4% over the year, higher than the anticipated 3.8%.    Recent statements by the Fed indicated that the labor market had moved ahead of inflation as the Fed’s primary emphasis, given that inflation continued the downward trajectory. This higher-than-expected change in average hourly earnings may be the beginning of resurrecting earlier inflation concerns. The next CPI report will be critical and closely watched.  A hot report may even shut the door on two rate reductions for the rest of the year.    

While the latest employment report was quite favorable, and another indicator of why we are likely not headed for a recession this year, manufacturing continues to remain in a slump. The latest ISM manufacturing index showed another month of contraction, coming in at 47.2, under what was anticipated, and in line with the prior month. Manufacturing has been in a contraction state since 2022, except for one month this past year. The surge in goods spending during and coming out of the pandemic continues to shift with moves toward services. This is one of the reasons for the ongoing manufacturing slump. As a result, regional economies that rely heavily on manufacturing are experiencing unemployment rates that exceed the national average. The near-term outlook is not favorable either, with the ISM report showing that new orders and order backlogs are contracting, in addition to employment and production. The national employment report showed a reduction of manufacturing employment, in the presence of an overall favorable release. 

While the goods economy faces challenges, the services side continues to run strong.  The latest ISM Services Index increased to 54.9, higher than the expectation and the prior month. Business activity and new orders both came in very strongly, almost hitting 60. This points to continued robust growth in the U.S. economy. Strong growth of the U.S. economy was confirmed with a 3% quarterly growth rate in the second quarter.  We should not expect a significant slowdown going into the 3rd quarter.   

Data are beginning to point in the direction of an economy that may already be past the slowdown. The keys to watch in the upcoming weeks will be measures of consumer spending, such as retail sales, and inflation. Continued softening of prices will result in additional rate cuts, but any indication of a pause in the disinflation will be met with adverse reactions in the equity markets and an increasing narrative that the Fed’s recent 50 basis cut reduction was a mistake. The markets have already priced in additional cuts, but further strengthening of the labor market, and CPI stubbornness will erode these positions. While disinflation did resume after this year’s first quarter, the economy is still running above the Fed’s desired 2% level. A stronger economy and robust consumer spending will make it difficult to eradicate the inflation dragon, thereby resulting in a pause to rate reductions.    

 

Economic Update | Local Payrolls Accelerated – State Unemployment Rates Increase

by with No Comment Economic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

Job counts by the county level are out for early 2024, and the data show continued growth in payrolls for Southern Indiana (Clark, Floyd, Harrison, Scott, Washington). The latest QCEW (Quarterly Census of Employment and Wages) data show that the five counties added 1,389 jobs, compared to the prior year. This was an acceleration from the last quarter of 2023, after hitting a trough of a plus 609 in the 3rd quarter of 2023. Transportation and warehousing was the leading industry in terms of job creation, adding another 972 positions compared to the prior year. This is the second consecutive quarter that transportation and warehousing saw positive job growth. Coming out of the pandemic, transportation and warehousing job creation had surged but saw retrenchment in late 2022 and 2023. Healthcare payroll growth decelerated from the previous quarter, adding another 687 jobs. While this was a slower pace, healthcare has been the leading industry in job creation since the 4th quarter of 2022.  In that quarter, accommodation and food services led all industries with an addition of 1,524 jobs. 

Manufacturing saw another drop in payrolls. Manufacturing jobs have shown declines in the past four quarters, and from the first quarter of 2023 to the first quarter of 2024, payrolls are down by 855. Nationally, manufacturing has been in a slump, with the ISM Index under 50 since 2022, except for one month.  An ISM under 50 signifies contraction, and this slump shows up in payroll declines across Southern Indiana. Higher interest rates have strained growth in interest rate-sensitive sectors like manufacturing.  Auto sales, a key driver of manufacturing production in Indiana and Kentucky, are at historically low levels, and this is likely contributing to local manufacturing job losses.   

Accommodation and food services saw another drop in payrolls, declining by 219 jobs. Accommodation and food services are now down in job growth for three consecutive quarters, reversing some of the strong gains over 2022.   Even with the declines of 2023 and 2024, total payrolls are about 1,000 higher than pre-pandemic totals.    

Statewide, unemployment rates for Indiana and Kentucky saw another uptick for the month of August. Indiana’s unemployment rate increased to 4.2%, compared to 3.4% the year prior. In Kentucky, the unemployment rate inched closer to 5%, with the latest reading at 4.8%.   This compares to 4.2% the year prior. In both states, the number of unemployed increased. Indiana fared better with job growth, with the latest data showing an addition of 20,000 jobs state-wide.  Kentucky saw a small decline in growth for August. 

The Fed threw a surprise last week with a 50-basis points decline in the Fed Funds rate. This was not completely unexpected.  During the prior week, sentiment had shifted, and a decline of 50 basis points became increasingly likely. Initial market reaction was muted, with the major indexes finishing down on the day. However, equity markets surged the day after, with all major indices up more than 1% each. Uncertainties remain, but the economy continues to move in the direction of a soft landing. 

As we move past inflation as the economic indicator to watch, measures about the labor market and the consumer will take on increasing importance. The employment report is back to the top as the Super Bowl of economic indicators, and because the consumer drives 2/3rds of the U.S. economy, consumer-related economic indicators will be watched closely was well. 

Economic Update | An Employment Report for All

by with No Comment 1si NewsEconomic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

The Super Bowl of economic indicators was released last week, and there was news for the pessimists and optimists. On the negative side, payrolls rebounded from the prior month, increasing by 142,000, compared to 114,000 the prior month. While the 142,000 gain was an uptick from July, it was less than the consensus forecast of 165,000. Manufacturing, in a slump for more than a year, saw a decline of 24,000 jobs. The decline was attributed to a 25,000 drop in jobs in durable goods manufacturing.     

Health care continued the upward rise in job creation, adding another 31,000 payrolls. Construction saw an unexpected pick-up, adding 34,000 jobs, higher than the 12-month average of 19,000. The average workweek increased from 34.2 hours to 34.3, and average hourly earnings increased by .4%, higher than anticipated.    

On the plus side, the unemployment rate ticked back down to 4.2%. The labor force expanded by 120,000, but employment increased by 168,000. This combination led to an overall decline in unemployment and the unemployment rate. Last month, the unemployment rate increased, and this was partially attributed to the spike in temporary unemployment. Temporary unemployment fell again this month, and this was one of the reasons for the unemployment rate decline.   

Prior month revisions shaved 86,000 in payrolls from the prior two months. This slower payroll growth will be closely scrutinized by the Fed at the September meeting, along with the higher-than-expected increase in average hourly earnings.   

More signs of a labor market slowdown came last week with the release of the Job Openings and Labor Turnover Survey (JOLTS).  Job openings declined to a level last observed in early 2021 and are almost on par with the number of unemployed. Openings exceeded the number of unemployed by double back in early 2022. The balance between openings and unemployed does reflect the normalization of the labor market, but we should expect the number of unemployed to exceed job openings as we move through 2024 and into 2025.    

Turning to Indiana and Kentucky, we are seeing an overall increase in unemployment rates. Kentucky’s unemployment rate is up to 5.3%, compared to 4.6% last year. Indiana’s unemployment rate is up to 5%, up from 3.7% last year. Job growth in both states has slowed, with manufacturing showing declines from last year. Indiana manufacturing jobs are down 6,000 and Kentucky down by 4,000. 

Softening is also evident across Indiana and Kentucky metro regions.  All Kentucky metro areas now have an unemployment rate that exceeds 5%, except for Lexington. The highest unemployment rate is Elizabethtown at 5.5%, and Lexington had the lowest at 4.3%. Indiana has several metro areas with unemployment rates well above 5%.   Kokomo has the highest at 7%, and Muncie is just behind with an unemployment rate of 6.3%.   

40-year high inflation resulted in higher interest rates, impacting rate-sensitive sectors like manufacturing, and this shows up through weaker payroll growth or losses.   One example of the impact of higher interest rates on IN and KY manufacturing is in the auto industry.  Higher interest rates suppressed auto sales due to the higher cost of financing.  Kentucky and Indiana are heavy auto manufacturing states, and the historically low auto sales nationwide also impact manufacturing employment in both states.  National manufacturing has been in a slump, and heavy manufacturing states, like Indiana and Kentucky, are feeling the effects of this slower manufacturing environment. 

We can still expect a rate reduction of .25% by the Fed at their September meeting. Some are calling for a reduction of .5%, but the economy is not weak enough to justify it.   We’ll likely see similar cuts of .25% in November and December. Last week saw a drop in the 10-Year Treasury yield, so we will likely see additional progress in lower mortgage rates. Declining interest rates will provide a stimulus to interest rate sectors, and the economy overall.  The consumer continues to show some resilience, and while we continue to believe that the economy will be in a soft patch, we are still not ready to call a recession. 

Economic Update | And Still No Recession

by with No Comment Economic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

The Federal Reserve received the data it needed to finally pivot from an inflation emphasis to a focus on employment, and along with that, a signal of the first interest rate cut.  The last CPI (Consumer Price Index) came in weaker than expected, both at the headline number and the core rate (CPI minus food and energy). The PPI (Producer Price Index), issued just a day before CPI, also came in softer than expected. The favorable inflation readings, along with the weak employment report for July, combined to provide a green light to the Federal Reserve for a potential rate cut come September. Equity markets approved and are again pushing all-time highs. The market meltdown from early August is a distant memory.   

Emerging from the pandemic has led to challenges for the economic forecasting industry. Predictions of recessions have yet to materialize. The last national employment report, for example, triggered the so-called Sahm Rule, which basically says that the economy is in a recession if the three-month moving average of the U.S. unemployment rate rises by more than .5 percentage points from the lowest 3-month average unemployment rate over the past 12 months. It has been historically accurate and only produced two false positives since 1959. 2024 may be the 3rd. 

The yield curve, quite accurate for every recession since the early 80s, has also produced a recession signal that has yet to be accurate. The yield curve inverts when rates on 10-Year Treasury securities are lower than shorter-term rates, such as the yield on 2-Year Treasuries. The current yield curve became inverted back in July 2022, and a recession has not been declared. My outlook back in November 2022 included a recession call for 2023, and clues from the yield curve was one of the primary reasons. Higher interest rates have slowed the economy, as intended, but not to the extent of a recession declaration.   

Another measure, industrial production, was also flashing a possible recession signal starting last year.  Industrial production, which measures the output in manufacturing, mining, and utilities, coincides with a recession when year-over-year changes become negative. Going back to the 1920s, a negative change in industrial production not resulting in a recession has only occurred on three separate occasions. Over the past year, year-over-year changes in industrial production have hovered around 0, with 9 of 12 months being negative. So, the current cycle may be the 4th time that industrial production has turned negative, but absent a recession. 

Another economic indicator with some information about the state of the economy is new claims for unemployment.  As the economy slows, layoffs increase, leading to higher unemployment rates, less consumer spending, and an upward spiral of overall slower growth.  For unemployment claims, the number to watch is about 350,000. This is not a precise rule, but when new claims for unemployment approach 350,000 or surpass that level, a recession may be likely. The latest claims for unemployment were at 232,000, and the highest level for 2024 was 243,000.    

During a recession, consumers are expected to spend less on goods and services. But this is not always the case. In the 2001 dot com recession, spending on both goods and services increased from recession start to recession end.   During the Great Recession, spending on services remained just about flat, but goods spending saw noticeable declines. In the quick Covid recession, spending on both goods and services plummeted, but quickly recovered and saw subsequent spikes in both goods and services spending to all-time highs. Goods spending saw some declines from 2023 to 2024 but has stabilized since.  Services spending continues unabated. Based on recessions going back to 2001, reductions in both goods and services spending are not necessarily present during a recession, however.    While we can probably rule out a complete collapse of the consumer, softening in both goods and services spending is still likely.  

Data continue to point to an overall softening of the economy, but not quite a recession, just yet.  The soft landing is in sight once again.   

Jeffersonville Steel Processing Company Chooses Ports of Indiana-Jeffersonville for Major Expansion

by with No Comment 1si News1si Press ReleaseEconomic Development

voestalpine Roll Forming Corporation significantly grows Jeffersonville operations

Jeffersonville, IN. (Aug. 19, 2024)

voestalpine Roll Forming Corporation (RFC) will move forward on a major expansion of its Jeffersonville operations. The expansion includes a new production line for frame rails for several major global customers, including over $77,900,000 in construction, equipment, and other related services. The expansion will also include over 100 new jobs that will meet or exceed the Clark County average wage.

voestalpine RFC, a supplier of roll formed metal, services several different industries, including aerospace, construction, material handling, off-highway, office furniture, solar, and transportation, is wholly owned by voestalpine AG, a globally leading steel and technology group operating in over 50 countries.

“This next chapter of growth for RFC would not be possible without the support from state and local leaders. We look forward to expanding our business operations with this transformative project adding long-term infrastructure, employment opportunities and overall value to the Jeffersonville community for years to come,” said Kevin Dierking, President & CEO, voestalpine Roll Forming Corporation.

“Indiana has a rich tradition of manufacturing and delivering high quality materials that power the world around us thanks to commitment of companies like voestalpine,” said IEDC Chief Strategy Officer Ann Lathrop. “The company’s continued growth and industry partnership in Southern Indiana will help advance critical industries, from aerospace to energy to infrastructure and transportation, while supporting job growth and community development in Jeffersonville and the surrounding region.”

“We are thrilled voestalpine RFC continues to find success in Jeffersonville and has officially decided to significantly grow operations at their Ports of Indiana-Jeffersonville location, adding over 100 new jobs, all of which are at or above the county average wage,” said Mayor Mike Moore. “The City of Jeffersonville’s continued focus on quality of place, complimented with a competitive business environment, has set the stage for this continued momentum and long-term community impact.”

“Our team is very pleased that voestalpine RFC has chosen Ports of Indiana-Jeffersonville for its new operations,” said Ports of Indiana CEO Jody Peacock. “voestalpine RFC is a forward-thinking leader in producing specialized roll-formed metal for vital sectors like aerospace, construction, solar energy, and transportation. Establishing the new facility adjacent to their current operations allows voestalpine to capitalize on the port’s multimodal connections, comprehensive logistics services and operational synergies, thereby strengthening their competitive edge.”

“Voestalpine has operated in this region for years, and when a customer of ours chooses to expand here, it’s a win for Hoosiers,” said Duke Energy Indiana President Stan Pinegar. “We are glad to work with them to help make this possible. This will bring both capital investment and jobs—both permanent and construction—to the community.”

“One Southern Indiana welcomes this announcement from RFC and celebrates another win for our growing community,” said One Southern Indiana CEO and President Lance Allison. “This announcement offers our residents and industry a growing opportunity and is yet another indicator of our regional strength and capacity to support global industry leaders such as RFC.”

Based on the company’s job creation plans, the Indiana Economic Development Corporation (IEDC) will commit an investment in voestalpine Roll Forming Corporation of up to $2 million in the form of incentive-based tax credits and up to $2 million in Hoosier Business Investment tax credits. These tax credits are performance-based, meaning the company is eligible to claim incentives once Hoosiers are hired.

About voestalpine Roll Forming Corporation

voestalpine Roll Forming Corporation supplies custom roll formed metal components into several industries including Aerospace, Construction, Material Handling, Off-Highway, Office Furniture, Solar and Transportation.

In 2000, Roll Forming Corporation was acquired by globally leading steel and technology group voestalpine AG joining the Metal Forming, Tubes and Sections division. In 2001, voestalpine Roll Forming Corporation became a corporate partner to the state of Indiana by adding a manufacturing facility in Jeffersonville, Indiana.

Today, voestalpine Roll Forming Corporation has seven production facilities across three states with five facilities and headquarters located in Shelby County, Kentucky and one facility each in Pennsylvania and Indiana.

About Ports of Indiana: Ports of Indiana is a statewide port authority operating three ports on the Ohio River and Lake Michigan. Established in 1961, Ports of Indiana is a self-funded enterprise dedicated to growing Indiana’s economy by developing and maintaining a world-class port system, and by serving as a statewide resource for maritime issues, international trade, and multimodal logistics. Web: www.portsofindiana.com

About Duke Energy

Duke Energy Indiana, a subsidiary of Duke Energy, provides about 6,300 megawatts of owned electric capacity to approximately 900,000 customers in a 23,000-square-mile service area, making it Indiana’s largest electric supplier.

About One Southern Indiana
One Southern Indiana (1si) was formed in July of 2006 as the economic development organization and chamber of commerce serving Clark and Floyd counties. 1si’s mission is to help businesses innovate and thrive in the Southern Indiana / Louisville metro area via the three pillars of Business Resources, Economic Development, and Advocacy. Web: www.1si.org

Contact:
voestalpine AG
mediarelations@voestalpine.com

One Southern Indiana
Brittany Schmidt, Manager of Programs, Events, and Groups
BrittanyS@1si.org   
812-945-0266

###

Economic Update: Fed Inaction Leads to Market Overreaction

by with No Comment 1si NewsEconomic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

A few weeks ago, the Economic Update suggested that there was an outside chance for the first Federal Reserve cut to come in July, but more than likely we would see the first cut in September. After the last batch of key economic releases, the FedWatch Tool is now pricing, with 100% odds that the first cut will come in September. We predicted that cuts would then come again in November and December. Current probabilities are now pointing to cuts in November and December. Will the economy see a recession in 2024, or will it simply hit an expected soft patch? 

The odds of a September rate cut quickly changed with the release of the July employment report, coming in weaker than expected. The BLS reported that the nation’s economy added 114,000 jobs, far less than the expected level of 175,000. The unemployment rate increased from 4.1% to 4.3%. While the report showed that the labor market is weakening, as we have been expecting, the stock market reaction was probably an overreaction. Payroll growth slowed, but not far under what we would expect as normal job growth. The unemployment rate did notch upward, but a closer look suggests that the increase may not persist.     The number of unemployed increased by 352,000, and of this amount, 249,000 were on temporary layoffs. Without the large increase in temporary layoffs, the unemployment rate would have remained unchanged at 4.1%. 

One dynamic of the labor market over the past year has been the divergence between employment from the household survey and payrolls from the establishment survey. Employment from the household survey increased about 1.3 million (.8%) since last year, with some months showing declines. The establishment survey showed payroll growth at 2.4 million (1.5%), a difference of approximately 1 million. Historically, a divergence between these two series is usually followed by convergence. In the current state,  convergence would require either a slowdown in payrolls or an acceleration in employment. Last week’s report produced a slowdown in payrolls, perhaps the start of slower growth from the establishment survey. The report also showed a decline in weekly hours worked, and a small gain in average hourly wages.    

Following the report, expectations for a Fed cut in rates spiked. The FedWatch Tool is currently showing an almost even split between a reduction of a quarter or half a percent. Unless we get a much weaker payroll report for August, along with very soft inflation reports, the likely cut in September will be ¼% of a point.     

Equity markets sold off with the release of the July employment report, and the signal of a slowing economy. Then came Monday, with the Dow dropping more than 1,000 points. Markets were somewhat relieved and cut losses after the release of the ISM Services report, pointing to expansion in the service economy.   

More encouraging news came later in the week,  with the release of new claims for unemployment.  For the past several weeks, claims had been trending upward, an  indicator of a slower economy. Markets were surprised when claims came in below what was expected and surged as a result.   

The market turbulence last week was a combination of Fed inaction and market overreaction. With CPI less food, energy, and shelter rate running under 2%, a justification could have been made for the first cut in July. Market overreaction came in response to the national employment report on Friday, followed by Monday’s Yen carry trade-related sell-offs.  

The softening of payrolls brought a significant decline in the 10-year Treasury yield, a precursor to lower mortgage rates. 30-year mortgage rates have come down to 6.5%, and this will bring about a boost to the supply of homes, thus applying headwinds to shelter costs.  One reason for the current limited supply of homes has been the “lock-in” effect from homeowners with sub-4% mortgages. A reduction in rates will boost supply, as homeowners exercise options to either scale up or down in home ownership preferences.    

We are not ready to declare a recession just yet. While the labor market will continue to soften, this is also a matter of normalization of the macro-economy. Payroll changes averaged 251,000 a month in 2023, and that is still too high. Unemployment claims have risen from earlier levels but remain low compared to historical levels. Job openings have declined but still at levels that exceed the number of unemployed. Recession territory would need to see the opposite. Negative year-over-year changes in industrial production usually correspond to a recession, but for the last two months, the change in industrial production has turned positive, a reversal from the first quarter. The economy has not escaped a recession just yet. Keys to watch in the coming weeks will be the labor market and consumer spending. If both weaken considerably, recession calls will increase in intensity.  

Expansion on the Horizon: Jeffersonville Steel Processing Company Considers Growth at Ports of Indiana-Jeffersonville 

by with No Comment 1si News1si Press ReleaseEconomic Development

voestalpine Roll Forming Corporation looking to potentially expand Jeffersonville operations. 

Jeffersonville, IN. (Aug. 5, 2024) 

voestalpine Roll Forming Corporation (RFC) is considering a major expansion of their Jeffersonville operations. If Jeffersonville is chosen, the expansion would result in a new production line for frame rails for several major global customers, and would include over $77,900,000 in construction, equipment, and other related services. The expansion would include over 100 new jobs that will meet or exceed the Clark County average wage. 

voestalpine RFC, a supplier of roll formed metal, services several different industries, including aerospace, construction, material handling, off-highway, office furniture, solar, and transportation, is wholly owned by voestalpine AG, a globally leading steel and technology group operating in over 50 countries. 

Several locations are under consideration for the company’s expansion project. As part of its decision-making process, the company is requesting support from the City of Jeffersonville with a final location decision determined and communicated by voestalpine AG on August 19, 2024. Duke Energy has also offered additional incentives. 

“As we look to further develop new markets and grow our business to meet our customer’s needs, we want to thank the Indiana Economic Development Corporation, Duke Energy Indiana, Clark County, One Southern Indiana, Jeffersonville Redevelopment Commission, and the City of Jeffersonville for the support in evaluating where the next chapter of growth will reside for voestalpine Roll Forming Corporation. The cooperation with state and local leaders is a key consideration for us,” said CFO of voestalpine Roll Forming Corporation, Brad Lacy. “It is important to note that we still have a decision to make on an ideal location for our investment for all stakeholders including employees, customers and the communities in which we operate. We will finalize this decision the week of August 12 in partnership with our executive team and an official press release will follow the week of Monday, August 19 from voestalpine AG.” 

“We are thrilled voestalpine RFC continues to find success in Jeffersonville and are now under final consideration to significantly grow their operations at their Ports of Indiana-Jeffersonville location,” said Mayor Mike Moore. “This expansion is yet another reflection of the vibrant economic environment we have fostered over the years, now affording us this opportunity to bring over 100 new high-wage jobs to the community, all of which are above the Clark County average wage.” 

“Ports of Indiana is delighted voestalpine RFC is considering the Jeffersonville port for this critical expansion,” said Ports of Indiana Chief Executive Officer Jody Peacock. “This is a visionary company that provides specialized roll formed metal for key industries, including aerospace, construction, solar, and transportation. By locating next to its existing facility, it can further enhance its competitive advantage by leveraging the port’s multimodal connections, logistics services, foreign-trade zone and operational synergies within the port’s steel campus.” 

“Voestalpine has operated in this region for years, and when a customer of ours considers expanding here, it is a win for Hoosiers,” said Duke Energy Indiana President Stan Pinegar. “We are glad to work with them to help make this possible. This would bring both capital investment and jobs—both permanent and construction—to this community.” 

“We are delighted about the potential expansion of voestalpine RFC in Southern Indiana,” said CEO and President of One Southern Indiana, Lance Allison. “This move underscores the attractiveness of our business and economic development environment and the strong network we offer to companies looking to grow in the region.” 

About voestalpine Roll Forming Corporation 

voestalpine Roll Forming Corporation supplies custom roll formed metal components into several industries including Aerospace, Construction, Material Handling, Off-Highway, Office Furniture, Solar and Transportation. 

In 2000, Roll Forming Corporation was acquired by globally leading steel and technology group voestalpine AG joining the Metal Forming, Tubes and Sections division. In 2001, voestalpine Roll Forming Corporation became a corporate partner to the state of Indiana by adding a manufacturing facility in Jeffersonville, Indiana. 

Today, voestalpine Roll Forming Corporation has seven production facilities across three states with five facilities and headquarters located in Shelby County, Kentucky and one facility each in Pennsylvania and Indiana. 

About Ports of Indiana: Ports of Indiana is a statewide port authority operating three ports on the Ohio River and Lake Michigan. Established in 1961, Ports of Indiana is a self-funded enterprise dedicated to growing Indiana’s economy by developing and maintaining a world-class port system, and by serving as a statewide resource for maritime issues, international trade, and multimodal logistics. Web:  www.portsofindiana.com

About Duke Energy 

Duke Energy Indiana, a subsidiary of Duke Energy, provides about 6,300 megawatts of owned electric capacity to approximately 900,000 customers in a 23,000-square-mile service area, making it Indiana’s largest electric supplier. 

About One Southern Indiana 
One Southern Indiana (1si) was formed in July of 2006 as the economic development organization and chamber of commerce serving Clark and Floyd counties. 1si’s mission is to help businesses innovate and thrive in the Southern Indiana / Louisville metro area via the three pillars of Business Resources, Economic Development, and Advocacy. For more information on One Southern Indiana, visit www.1si.org.  


Contact: 
voestalpine AG  
mediarelations@voestalpine.com 

One Southern Indiana 
Brittany Schmidt, Manager of Programs, Events, and Groups 
BrittanyS@1si.org  
812-945-0266 

 

### 

Economic Update | Consumer Preferences of Services Over Goods

by with No Comment 1si NewsEconomic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

The consumer is responsible for almost 70% of the U.S. economy and has been one of the biggest surprises of the post-pandemic economy. Last year, we wrote about the resilience of the consumer, in the face of high inflation, and most recently about a potential pullback of the consumer in 2024.     Any economic slowdown will either be led by the consumer or adversely impact the consumer.  The ideal slowdown for the Fed is one that does not derail the consumer altogether, or significantly trip up the labor market.  Accomplishing this would fit the soft-landing scenario. 

Last week, we learned that the economy accelerated in the second quarter, growing by 2.8% compared to 1.4% in the first quarter. The largest contribution to this acceleration in GDP was once again, the consumer. The consumer contributions of services spending to GDP growth exceeded goods by almost twice the level.  On the goods side, durable goods were the greatest contribution, primarily through auto sales.  On the services side, healthcare spending dominated and was the leading contributor to growth. 

While this news was encouraging, we also must remember that the GDP report is backward-looking. GDP does not reflect current economic conditions, or even the near term ahead.   It is a picture of the economy in the rear-view mirror. Even so, the report still came as another surprise, built on the resilience of the consumer. 

Our last consumer-related column did raise the possibility of an overall pullback of the consumer. Despite the positive GDP report, this is still in the cards.   Goods are cold, and some services remain hot. A slowing consumer will provide additional validation that a cut is now warranted.  Recent reports show that inflation continues to head in the direction that will support a cut in interest rates, now most likely in September.    

High interest rates have had a noticeable impact on durable goods, longer-lasting items that often require financing.  Take automobiles, for example.  Domestic auto unit sales last month were at 1.96 million (seasonally adjusted annual rate).   Just prior to the pandemic, domestic auto unit sales were running just over 3 million.    This pre-pandemic level of 3 million was also a bottom compared to ten years ago when domestic unit sales were close to 6 million.  During the Great Recession, when household finances were devastated from both a housing crash and elevated unemployment rates, domestic unit auto sales hit a bottom of 2.8 million. The current level of new auto sales is at a historic low, and lower than the depths of even the Great Recession. However, foot traffic data by Placer.ai show that visits to car dealerships are about flat compared to last year, but now moving above trend for this time of the year.  Incentives and lower rates may be having an impact and luring buyers back.  Auto sales should see some appreciation from here.

One durable good important to Indiana is the RV, with Indiana holding the place as the largest RV  manufacturing state.  RV purchases are also sensitive to interest rates, and we can see the impact of higher rates on RV shipments coming out of RV manufacturers. During June, RV shipments hit 25,000, and this was up slightly from 2023.    Back in June 2021, RV shipments were double, hitting levels of 50,000 in a month.   Employers rushed to hire more people to keep up with demand. Since then, Indiana’s employment in transportation equipment manufacturing, which includes RV manufacturing, is down by about 10,000. A review of foot traffic of random RV retail establishments across Indiana shows a noticeable decline in customer visits, declining by an average of 19%  from a year ago.  

Retail sales for furniture, furnishings, household equipment, electronics, and appliances are down since the beginning of 2023, and down about 10% compared to the surge of 2021. Government stimulus and mortgage rates below 3% drove significant demand, but higher interest rates have softened sales since. Foot traffic for furniture and home furnishings is down about 10% across Indiana compared to the prior year. Electronic store visits are only down 5%, but this is 25% below the baseline trend.

While interest-sensitive industries have experienced challenges, others, specifically food and drinking establishments, are at an all-time high. Retail sales are expressed in nominal terms, which means that some revenue gains will be due to inflation. Since the start of 2022, food and drinking establishments sales are up about 30%, while overall price levels by 10%. While there is variability within the industry, some of these gains in food and drinking establishments are real increases when compared to early 2022.  Sales are also up by about 4.5% since last year,  higher than the current inflation rate.   As a comparison, food and drinking establishment sales were flat during the Great Recession and it took 7 years to realize the same percentage change in industry sales since 2020.   Challenges do remain, such as labor and food costs, but having enough customers is not the primary concern. Following the pandemic, consumers have gravitated toward valuing experiences over goods, and food and drinking sales are reflective of this.

With inflation now heading in the right direction, the other piece to the soft landing lies in the labor market.   Payroll growth remains strong, but signs continue to emerge of a softening labor market.  Unemployment claims have been edging upward, and continuing claims are the highest since late 2021.   The unemployment rate has been inching upward, exceeding an increase of ½% in some locales. Average hourly wage growth is now under 4%, compared to 5% last year, and almost 7% two years ago.  The July employment report is expected to show additional cooling, and that should be the final validation for a September rate cut, along with increasing headwinds for consumers.  

Economic Update | National Manufacturing Impact on Regional Payrolls – And Rate Cuts are on the Horizon

by with No Comment 1si NewsEconomic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

Coming out of the pandemic, the Indiana and Kentucky economies fared quite well. Kentucky was one of the leading states with respect to job creation, and Indiana consistently saw unemployment rates that were under the national average. As the national economy continues to move toward a softening, along with the ongoing manufacturing slump, we examine the impact of manufacturing job growth across Indiana and Kentucky.   

First, both states have a heavy concentration of manufacturing jobs, and any changes in the macroeconomy will be felt locally. Nationally, manufacturing has been experiencing slower growth, and some have even described it as a manufacturing recession. The ISM Index, a measure used to show growth or contraction in manufacturing, has been under 50 since November 2022, except for one month, March 2024.  A reading under 50 signifies contraction and over 50 expansions. With a slower manufacturing environment, orders are being fulfilled, unlike the supply chain-challenged days of the pandemic. The ISM backlog orders index, for example, has been trending down for all of 2024, signaling that manufacturers are having less difficulty fulfilling orders. Industrial production, a measure of the nation’s manufacturing activity, moved into negative territory last June and has hovered around negative to slightly positive since. Durable goods orders, a leading indicator of future economic activity, have been trending downward for all of 2024. Orders plummeted last month and are now at negative year-over-year changes. The sluggishness in orders does not portend vigorous manufacturing activity ahead.  A declining interest rate environment will work to reverse this trend, but the impact will not be immediate.   

We can see the impact of the national manufacturing slowdown on payrolls across Indiana and Kentucky, as well as the region. The manufacturing employment concentration in Indiana is greater than two, which implies that the proportion of workers employed in manufacturing is twice the national average. In Kentucky, while higher than the national average, the employment concentration in Kentucky manufacturing is 1.5, which implies that the proportion of workers employed in manufacturing is 150% higher than the national average.   Thus, we expect any national slowing in manufacturing will have a greater impact on Indiana versus Kentucky. 

Indiana manufacturing jobs peaked in August 2022, at 544,000.  Since then, manufacturing payrolls have been on a steady decline, with the latest count at 531,000. This puts manufacturing employment down almost 15,000 jobs over the past 18 months, while overall job growth is up 71,000 over that same period. The metro areas of Elkhart-Goshen, Columbus, and Muncie are experiencing a negative change in payroll growth, with Bloomington and Terre Haute hovering just above 0, basically flat. The decline is not as significant in Kentucky, but the state has less than ½ of the manufacturing jobs of Indiana. Since August 2022, Kentucky has been seeing a small gain in manufacturing, compared to the loss of 15,000 in Indiana.  However, since peaking in October 2023, manufacturing payrolls are now down almost 3,000 in Kentucky. All metro areas in Kentucky are seeing positive job growth, with Owensboro and Louisville Metro seeing growth of less than 1%.     

To be sure, job growth across both states continues to expand, but at slower rates.  Indiana payroll growth has slowed to 1.4%, year-over-year, compared to 2% in early 2023. Kentucky growth has slowed to 1.3% year over year, compared to more than 3% in early 2023.  While manufacturing does not employ the numbers from twenty years ago, both states continue to employ a greater percentage of workers compared to nationally.  Consequently, the national manufacturing slowdown will also have an impact on regional payroll growth. Louisville area manufacturing is down close to 2,000 payrolls over the year, and Southern Indiana saw negative manufacturing job growth for the final three quarters in 2023.  We can also see the overall softening with higher unemployment rates in both states:   4.6% (compared to 4.1% last year) in Kentucky and 3.7% (compared to 3.3% last year) in Indiana. 

The leading contributor to job growth for both Indiana and Kentucky has been healthcare. Over the year, Indiana and Kentucky gained 15,000 and 14,000 healthcare jobs respectively.  In the past two years, these amounts have doubled. Over the past year, health care is responsible for ½ of the job growth in Kentucky and around a third in Indiana. 

In our last column, we suggested that the Fed would likely cut interest rates in September, with an outside chance of one happening in July.   The CPI report was released last week, and it showed inflation came in weaker than expected, declining by .10% over the month. The super core CPI, which strips away food, energy, and shelter, was under 2%.    So, the Fed did receive the CPI print to justify a September cut.  The missing piece for a July cut was on the labor side. The last employment report did show some labor market softening, with another uptick in the unemployment rate. Overall payroll growth was still strong, however, rising by another 206,000. Probabilities are now showing the first cut for September. As the labor market continues to soften, and assuming the disinflation trend, we should see three rate reductions for the rest of the year.   

Economic Update | First Interest Rate Cut Coming in September, or Maybe July

by with No Comment 1si NewsEconomic Development

submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast

After a rocky start to the year, inflation appears to be heading in a downward trend again. After peaking during the middle of 2022, inflation then began a steady ride down. Supply chain issues, one of the causes of the inflationary spike, were being resolved, and this showed up as disinflation in big ticket items such as cars and trucks. As 2023 came to an end, inflation continued to move in a favorable direction, and the Fed opened the door to cuts during 2024.  At the start of the year, the Fed indicated that the economy could expect three cuts to the Federal Funds rate. The market was even more optimistic as it was expecting six cuts across 2024. Disinflation saw gains in consumer indicators like consumer sentiment, rising from a 50-plus-year low.    

Then as 2024 began, inflation was proving to be stickier. The first quarter saw inflation coming in higher than expected, leading the Fed and market to back off the number of anticipated interest rate cuts for this year. Six expected cuts by market participants declined to two, and the Fed signaled a decline from three to one cut for 2024.   

The past couple of months have produced inflation reports that were more favorable for pending interest rate cuts. Inflation was weaker than expected, and odds are now favoring the first cut to occur in September. With a labor market that continues to show some signs of softening, additional weak readings in inflation could eventually result in three rate reductions this year, higher than what current market participants are expecting. 

Declining inflation matters to consumers because of the impact on prices paid. Consumers also feel the sting of inflation with higher interest rates, from credit cards to car loans and mortgages. The barometer rate to watch here is the 10-year Treasury yield, a key determinant of interest rates paid by consumers, and strongly influenced by expected inflation. As inflation falls, interest rates on the 10-year yield will follow.  This means lower interest rates for consumers, particularly mortgage rates. Back in October 2023, the 10-year yield almost crossed the 5% threshold, peaking at 4.92%. Mortgage rates almost surpassed 8%, stopping at 7.9%.  With the most recent slide in the 10-year yield, mortgage rates have also declined, now just under 7%. 

So, what happens to inflation will have a lot to say about Federal Reserve actions on interest rate reductions and the 10-year yield.  The Fed will see another employment report and CPI before the next July meeting.  If inflation comes in weaker than expected, look for the first cut in September.  If we get a weak employment report, with either a weak payroll number or a noticeable uptick in the unemployment rate, look for the odds of a July cut to increase. If we see no Fed action in July,  two to three cuts are likely for the rest of the year.  The combination of a softening labor market, weaker consumer spending, and inflation that approaches the preferred 2% rate will provide the go-ahead for the Fed to begin easing.  The presence of the November election puts the first cut in either July (currently low probability) or September.  This provides an option for subsequent cuts or another pause.  Waiting until November throws politics into the mix, and this is what the Fed will want to avoid. Expect a first cut in either July or September.