Beneath the Headlines: A Softer U.S. Economy Emerges

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 – the national jobs report – came out last week, and it was hard to find much to cheer about.

Over the past three months, U.S. payroll growth has averaged just 35,000 jobs per month. That average includes the 73,000 jobs added in July, but even this figure may be revised lower, as May and June saw steep downward revisions totaling more than 250,000 jobs. Excluding the losses during the COVID recession, we have to go back to the Great Recession (2007–2009) to find job growth as weak.

Following the latest employment report, expectations for a Fed rate cut in September surged. Markets are now pricing in three cuts before year’s end — September, October, and December. As noted previously, the Fed should have cut in July. Two Fed Governors, Waller and Bowman, dissented at that meeting, but the majority kept rates unchanged.

The household survey, which gives us labor force data, offered no relief. It showed employment down by 260,000 and the number of unemployed up by 221,000. The unemployment rate ticked up from 4.1% to 4.2%, and the labor force participation rate slipped from 62.2% to 62.1%. That decline is the opposite of what’s needed to expand the supply side of the economy — a key part of the administration’s growth strategy, especially to offset the drag from higher tariffs.

The promised boost to manufacturing from the highest tariffs in decades hasn’t appeared in the data. In fact, the numbers suggest the opposite. Manufacturing payrolls fell by 11,000 in July, the third straight monthly decline. Since February, the number of unemployed in manufacturing has climbed from 459,000 to 641,000. Year-over-year manufacturing job growth has been negative since October 2023, and the pace of decline has accelerated this year. This will have implications for Indiana and Kentucky.

The ISM Manufacturing Index, considered to be soft data based on a survey, fell to 48.0 in July, below the expected 49.5 and marking the fifth consecutive month in contraction territory. An ISM reading below 50 signals contraction; above 50 signals expansion. The index briefly topped 50 in January and February — the first time since 2022 — but has been stuck in contraction since. New orders, a component of the overall index, have shown some recovery since March but remain below 50. The latest factory orders report showed a decline of nearly 5% last month.

At first glance, the latest GDP report seems like a bright spot, with Q2 growth at 3.0%. But looking under the hood reveals a different story. Most of the gain came from a sharp drop in imports, which mechanically boosts GDP. This followed a Q1 surge in imports as businesses tried to get ahead of new tariffs. Real final sales to domestic purchasers — a better measure of consumer and business demand — rose just 1.2%, down from 1.9% in Q1 and the weakest since late 2022.

As I’ve written before, the outlook comes down to the consumer and the labor market. Right now, neither is strengthening. The U.S. remains a service-driven economy, but service sector growth is showing signs of slowing as well. While inflation remains on their radar, weaker growth will likely take priority, and softer price increases will follow. The September cut seems all but certain — the question is whether it will be soon enough to avoid a recession.

No July Surprise: Inflation and Resilience Will Keep the Fed on Hold

by with No Comment Economic Development

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

A few weeks ago, we noted there was an outside chance of a surprise rate cut in July. A softening labor market and early signs of consumer fatigue created a plausible case for such a move. Even Fed Governors like Christopher Waller publicly acknowledged the justification for a cut. If the Fed wanted to ease, the data offered a reasonable foundation.

But a rate cut isn’t coming in July—because it all comes down to inflation.

Yes, inflation has come down, but not far enough. The latest Consumer Price Index (CPI) showed the core inflation rate (which excludes food and energy) ticking up by 0.1 percentage points to 2.9%. While this was slightly better than expected, the monthly increase accelerated from 0.1% to 0.2%.

At first glance, headline inflation appears to be under control, which might suggest room for a Fed cut. But looking beneath the surface tells a different story.

Take a sampling of goods that rely on imports: prices are beginning to climb meaningfully. Appliance prices rose 1.9% in a single month—equivalent to more than 24% annually. Apparel prices overall were up at a 5% annual rate, but subcategories saw steeper increases. Men’s shirts and sweaters jumped 4.3% in just one month, and women’s dresses experienced a similar spike. Audio and video equipment rose 1.1% monthly, or more than 13% on an annual basis. “Other linens” surged 5.5% monthly, a pace exceeding 30% annually. These price pressures—especially in goods typically sourced through imports—are sending warning signals. So, while a case could be made for a Fed rate cut, July is off the table.

What is keeping headline inflation modest? Energy. A large reduction in energy prices is doing the heavy lifting. Energy commodities, including gasoline and fuel oil, dropped nearly 8% on an annual basis. Excluding energy, the headline inflation rate runs below 2.5%.

Meanwhile, the broader economy continues to show resilience. Despite headwinds, retail sales rebounded in May with a 0.6% increase—triple the expected gain of 0.2%. When excluding gasoline stations, sales climbed 0.7%. While there are weak spots, this data doesn’t point to a consumer collapse that would justify a rate cut.

On the labor front, we’re not witnessing a breakdown. Job openings remain roughly balanced with the number of unemployed, indicating a stabilizing labor market. While job growth has moderated compared to last year, it hasn’t contracted. Private payrolls were soft in the last report, but job gains were impressive after adding government payrolls. Manufacturing remains a weak spot, even with the aid of tariffs.

The more concerning labor market indicator is with unemployment claims. New claims remain historically low—well below levels associated with recessions. However, continuing claims are steadily rising and have not reversed since their low point in mid-2022. This suggests that while employers are slow to lay off workers, employment may be more difficult for those who lose their jobs.

In our last Eye on the Economy, we discussed emerging weaknesses beneath the surface of a record-breaking stock market. The warning signs are still present. But for now, the economy continues to chug along—just enough to escape a July rate cut from the Federal Reserve.

Economic Update | Markets Are Up, But Is the Economy?

by with No Comment 1si NewsEconomic Development

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

Back in July 2000, the S&P 500 reached what was then an all-time high. Less than a year later, the economy slipped into a mild recession. While the downturn wasn’t severe, it took nearly seven years for the S&P 500 to recover. The NASDAQ took even longer—almost 15 years—to regain the ground lost during what became known as the “dotcom” recession.

Then, in late 2007, the S&P 500 again hit a peak—just before the Great Recession, the most significant economic contraction since the Great Depression. During the 2010s, markets steadily climbed with periodic corrections. In February 2020, the S&P was once again at record highs, before the COVID-19 shock led to one of the sharpest recessions in history. Thanks to extraordinary federal stimulus and Federal Reserve intervention, markets quickly rebounded and resumed their upward trajectory.

Fast forward to 2025, and the market is again at an all-time high—this time following a sharp pullback associated with “Liberation Day” and the announcement of sweeping tariffs. After several delays, the past week saw a wave of tariff reinstatements on several key trading partners at levels few anticipated.

While markets may be surging, that shouldn’t be mistaken for economic strength. History shows that market peaks have often preceded downturns. In 2001 and 2007, economic weakness followed record highs.  Are we on the verge of repeating 2001 and 2007?

At this year’s Mid-Year Outlook, I projected that the economy would avoid a full recession but likely experience a slowdown. With the latest trade developments, the possibility of a more significant deceleration will grow.

The most recent employment report showed stronger-than-expected job growth—147,000 new jobs—but a closer look reveals that nearly half of those were in state and local government. Private sector growth was a modest 74,000 jobs, well below the expected 120,000. Manufacturing, one of the intended beneficiaries of tariffs, lost another 7,000 jobs.

Meanwhile, continuing unemployment claims are gradually rising, suggesting that displaced workers are taking longer to find new employment. In June, average weekly hours declined, along with average hourly earnings—indicators of a softening labor market.

On the consumer front, spending on both goods and services declined. Foot traffic, while not necessarily the same as sales data, offers more timely insight. Across Louisville Metro, restaurant visits are down 15% from last year. Bars, furniture stores, and department stores also saw declines, though home improvement shows a slight increase.

Are these local trends early signs of a broader national pullback in consumer spending? Time will tell.  Tariff uncertainty, and market volatility are not the conditions businesses need to make long-term investments. The cracks in both consumer and labor markets could open wider.

Southern Indiana’s Next Strategy: The ‘FOURIDOR’

by with No Comment 1si News1si Press ReleaseAdvocacyEconomic Development
By Lance Allison, President & CEO, One Southern Indiana 

Southern Indiana is on the cusp of transformational growth. Recent announcements totaling more than 4,000 new jobs and over $2.5 billion in capital investments are not just numbers on a page, they are real signs of a region on the rise. The challenge now is ensuring these investments translate into long-term success. This moment demands more than celebration, it demands vision, coordination, and a relentless commitment to shaping the future. 

At One Southern Indiana (1si), we believe the formula for success is clear: a strong mix of industrial development, job creation, housing growth, and quality of life enhancements. That formula is already working. At 1si, we understand that true progress comes from collaboration, foresight, and balance. That’s why we continue to work hand-in-hand with private partners, municipalities, and regional stakeholders to ensure Southern Indiana not only keeps its momentum but accelerates it. 

But no community succeeds in a vacuum. The future of Southern Indiana hinges on continued strategic investments not only locally, but also across the state. We must keep pushing for infrastructure upgrades, workforce development, site readiness, and policies that support both large-scale industry and small businesses that make our communities unique. That’s how we ensure our recent wins aren’t fleeting—but become the foundation for a more resilient economy. 

One of our most persistent and paradoxical challenges is also one of our greatest assets: our regional relationship with Louisville, Kentucky. The Ohio River may separate us physically, but Southern Indiana and Louisville are deeply interconnected economically, socially, and culturally. This bi-state dynamic has created complexities when it comes to external branding and targeted industry attraction, but it also offers one of our greatest advantages: access to a broad, skilled workforce and a shared infrastructure that spans two states. 

Rather than shy away from this complexity, 1si is leaning into it. We believe it’s time to reimagine how our region is presented on the national and global stage. Together with our partners, we’re taking bold steps to define a regional identity that reflects our strengths, potential, and unique logistics advantage. 

That’s why we’re excited to unveil a new regional ecosystem identity in the coming months: The FOURIDOR. Developed in partnership with Duke Energy and local collaborators, this brand is more than a name, it’s a statement about who we are and what we offer. Derived from the word “corridor,” the FOURIDOR emphasizes our four R’s: River, Rail, Roads, and Runways. These aren’t just infrastructure assets, they represent a logistics and transportation network that gives our region a competitive edge unlike any other. 

Much like the Research Triangle in North Carolina or Wall Street in New York, the FOURIDOR is designed to encapsulate a place where geography, proximity, talent, and industry align to create something truly exceptional. It reflects the real, strategic advantages we offer companies looking to grow, expand, or relocate. 

Southern Indiana is ready. We are ready to lead, ready to partner, and ready to make the most of this unprecedented moment in our region’s history. The future will be shaped by those who choose to act boldly—and we intend to be among them. As we move forward, 1si remains committed to working alongside our regional, state, and private sector partners to ensure that every opportunity is realized and every challenge is turned into a new path for progress. 

This is our time. Let’s build it—together. 

 

The Fouridor is made possible by the generous funding from the following businesses:
  • Duke Energy
  • The Koetter Group
  • Ports of Indiana – Jeffersonville
  • River Ridge Development Authority
  • Dan Cristiani Excavating Co., Inc.
  • Mac Construction & Excavating, Inc.
  • Frost Brown Todd, LLP
  • Clark County REMC
  • Southern Indiana Works
  • CenterPoint Energy

Economic Update | Southern Indiana’s Strength in a Diversifying Economy 

by with No Comment Economic Development

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

After falling more than 19% following “Liberation Day” on April 2nd, the S&P 500 has not only recovered but surged to reach new all-time highs. Just a few months ago, many were forecasting a grim outlook—stagflation, characterized by rising prices and slowing growth, seemed likely. Consumer sentiment plunged, inflation expectations soared, and financial markets responded with rising Treasury yields and a weakening dollar—an unusual pairing that signaled investor anxiety. 

Fast forward three months, and the landscape looks markedly different. The stock market has fully erased its losses and climbed to record levels. Consumer sentiment is rebounding, and inflation has not yet shown any impact from actual and proposed tariffs. In our last column, we raised the possibility of a summer surprise in the form of a Fed rate cut. Since then, two Federal Reserve Governors—Christopher Waller and Michelle Bowman—have publicly supported a cut in July. While market odds still suggest the first cut is more likely in September, a July move remains on the table. The Fed Watch Tool now shows expectations of three rate cuts in 2025. 

So, what explains this sharp market rebound? 

First, investors appear to have priced in a more moderate version of the Liberation Day tariffs. While some level of tariffs is still expected, the most severe proposals from April seem less likely. Second, recent inflation data have yet to reflect any tariff-driven price increases, which keeps pressure off the Fed and increases the likelihood of future rate cuts. A soft June jobs report combined with continued easing in inflation could be enough to prompt action in July. And third, although some economic indicators have softened, the broader picture still suggests the U.S. is likely to avoid a recession—at least this year. 

One area that continues to struggle, however, is manufacturing. Despite the political rhetoric around tariffs benefiting domestic industry, the data tell a different story. Manufacturing activity remains in contraction, with the ISM Index staying below 50. National manufacturing payrolls have declined in most months since the third quarter of 2023. Regional indicators, such as the Empire State Manufacturing Survey, the Philly Fed, Kansas City Fed, and Richmond Fed indexes, also reflect a challenging environment. Based on the evidence so far, tariffs—or even the threat of them—appear to be doing more harm than good for U.S. manufacturers. 

Meanwhile, Southern Indiana continues to show strength. Recently released payroll data for Indiana metro areas reveal that Southern Indiana posted one of the strongest job growth rates in the state—adding 1,703 jobs in the fourth quarter of 2024 (pre-tariff issue) compared to the same period a year earlier. Only Indianapolis saw a larger increase, as expected given its size. 

Notably, the two most manufacturing-intensive metro areas in the state—Columbus and Elkhart-Goshen—experienced overall job losses. In contrast, the three least manufacturing-dependent metros—Indianapolis, Muncie, and Southern Indiana—all recorded job gains. Other regions with job declines include the Indiana portions of the Cincinnati metro, Evansville, and Michigan City. In each of these areas, manufacturing remains the dominant or near-dominant sector. 

The takeaway is clear: economic diversification matters. Southern Indiana’s continued growth, despite broader manufacturing weakness, underscores the advantages of a more balanced and resilient economic base. 

Economic Update | Data Dependency and the Fed: Are Rate Cuts Around the Corner?

by with No Comment 1si NewsEconomic Development

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

You’ve likely heard the term “data dependent” when Federal Reserve officials, including Chairman Jerome Powell, discuss monetary policy. The phrase is often used to justify interest rate decisions based on evolving economic conditions. 

Last September, for example, the Fed lowered the target Federal Funds rate by 50 basis points, citing signs of a cooling labor market and declining inflation as justification for the cut. A second reduction of 25 basis points followed shortly after the presidential election. Since then, the Fed Funds rate has held steady at 4.5%. 

Today, both political and economic commentators are again weighing in — many arguing that it’s time for another cut. With data dependency still guiding the Fed’s decision-making, the evidence could support both the case for a cut and the case for standing pat. Let’s take a closer look at the data. 

While many expect the Fed to hold rates steady in June, a summer surprise remains very much on the table. 

Inflation: The Fed’s Primary Target 

Inflation remains central to the Fed’s analysis. Back in September 2024, the Consumer Price Index (CPI) stood at 2.4%, with core CPI (excluding food and energy) at 3.3%. Those readings were part of the Fed’s rationale for easing rates at the time. 

Fast forward to 2025: CPI remains at 2.4%, but core CPI has declined to 2.8%, a modest but meaningful improvement. From a data-dependent lens, this continued decline in core inflation strengthens the argument for a rate cut. 

The Fed’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) Price Index, tells a similar story. Last September, core PCE was at 2.7%; today, it stands at 2.5%. Again, this supports the notion that inflation is moving in the right direction. 

Labor Market: Signs of Softening 

Labor market data played a significant role in last year’s rate reductions, and similar dynamics are present now. 

In September 2024, weekly unemployment claims hovered around 230,000. Currently, claims remain in that same range — fluctuating slightly but staying consistent with a stable labor market that shows no imminent signs of recession. 

Payroll growth tells a slightly different story. Last September, payrolls rose by an impressive 230,000 jobs.  But for the first five months of 2025, monthly payroll growth has averaged just 124,000. This represents a notable slowdown from the 165,000 monthly average seen in 2024 — suggesting a gradually cooling labor market. 

Other employment indicators also support the case for easing. The Job Openings and Labor Turnover Survey (JOLTS) shows that job openings continue to exceed the number of unemployed workers by approximately 200,000 — similar to last year, but down significantly from the post-pandemic imbalance. Labor supply and demand are moving into better balance. 

Wage growth has also moderated. Average weekly earnings, which were rising at a 4.3% year-over-year pace last year, have now slowed to 4%. This easing wage pressure further reduces concerns about a wage-price spiral. 

The household employment survey provides additional evidence of labor market softening. In the lead-up to last year’s 50-basis-point cut, household employment rose by over 600,000 jobs, including a gain of 375,000 in September alone. This year, household employment has declined by 620,000 since January, including a 700,000 drop in May. The unemployment rate has ticked up slightly to 4.2% from 4.1% last fall — another signal of a gradually weakening labor market. 

Uncertainty: Less of a Headwind Today 

One argument for caution is heightened uncertainty, particularly surrounding trade policy and tariffs. But even this concern has moderated somewhat. In late 2024, the NFIB Small Business Uncertainty Index hit an all-time high as election-season rhetoric fueled concerns about tariff policies. While trade policy remains unsettled, today’s uncertainty levels are considerably lower than they were last fall. 

A Summer Surprise? 

If the Fed chooses to hold steady at its June meeting, the stage may still be set for rate reductions later this summer. Given the Fed’s stated commitment to data dependency, both inflation and labor market indicators now point toward conditions that justified cuts just months ago. 

Whether the Fed chooses to act in July or later, one thing is clear: the data may soon leave policymakers with little choice but to begin easing rates once again. 

Economic Update | Tariffs, Trade, and the Market’s Message

by with No Comment 1si NewsEconomic Development

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

Liberation Day, as coined by the current administration, was intended to represent the freeing of the U.S. economy from “devastating” imports, the beginning of the restoration of U.S. manufacturing, and ultimately reducing “destructive” trade deficits.     

But the market had other ideas. 

The announcement of Liberation Day was then met by an almost 1,700-point drop in the Dow Jones Industrial Average. How liberating.    

Given that stock prices are based on a combination of both current earnings and future earnings–along with risk–a significant drop in the Dow is difficult to reconcile with liberation from being “ripped off”.     The violent market reaction on April 2nd reflected one thing: a recalibration toward slower economic growth and weaker earnings potential.    

Just a week later, on April 9th, after a confounding combination of increasing 10-Year Treasury yields and a declining dollar value—increasing Treasury yields usually result in a stronger dollar–the administration announced a 90-day pause, except for China, of the so-called reciprocal tariffs.  The April 2nd tariff calculations could generously be described as bewildering and had spooked the market. The pause, however, sparked a celebration, sending the Dow soaring nearly 3,000 points.  Over the following month, the Dow then added another 641 points.   

Then came May 12th. The administration announced a reduction of the 145% tariffs on China down to 10%, with another 20% for the fentanyl concerns. Once again, markets cheered, and the Dow surged another 1,200 points. As of this writing, the index has stabilized near its May 12th level, still about 2,400 points off the record high. 

So, what have we learned? 

Markets do not like tariffs.  Every pause, rollback, or softening of the tariff rhetoric has been met with a surge.  The message is unmistakable.    

We know what the stock market is telling us about tariffs, but what could happen if tariff increases are ultimately sustained?   

In 2018, tariffs were implemented under the guise of restoring U.S. manufacturing. If that effort had succeeded, we’d expect to see the evidence in key indicators. We do have the data, and it tells a different story.   

At the start of 2018, just prior to the implementation of various tariffs, the ISM Index, a measure of the state of manufacturing, registered just under 60, firmly in expansion territory. In August 2018, shortly after the implementation of tariffs, the ISM peaked at 60 and then began a steady descent, entering contraction territory, and hitting a level of 48, just before the pandemic.    

Industrial production, an overall measure of manufacturing activity, peaked in September 2018, and then declined steadily through 2019, turning negative year over year, just before the pandemic.    

In short, no manufacturing surge followed the tariffs.   

Now, let’s look at jobs. 

One of the marquee moves in 2018 was the 25% tariff on steel, implemented in March. Both Kentucky and Indiana have significant employment in primary steel manufacturing and in fabricated metals, the latter of which uses steel to produce parts for automotive, construction, and consumer goods sectors. So, here’s what happened.     

At the start of 2018, primary steel manufacturers employed 53,000 across Indiana and Kentucky.  Just prior to Covid, employment stood at 54,000, an addition of 1,000 employees that existed prior to tariffs. Most recently, employment in both states was at 56,000, for an overall gain of 3,000 jobs.    

For fabricated metals, employment at the start of 2018 was at 83,000 across Indiana and Kentucky.  Just prior to Covid, employment had declined to 81,000. The most recent numbers show that employment in fabricated metals is now at 79,000, an overall loss of 4,000 jobs since early 2018.     

So, the industry that received protection from tariffs gained 3,000 jobs from 2018 to 2025. The industry that uses steel for its products lost 4,000 jobs. Add these together and we get a net result of a loss of 1,000 jobs across Indiana and Kentucky. Nationally, the story is even clearer: the change in jobs for both industries is a net negative of 6,100. Primary steel manufacturers show a plus 900 jobs, but fabricated metals lost 7,000 jobs. 

What we see is textbook tariff economics:  a few winners, often concentrated and visible, and many losers, dispersed and harder to quantify but no less real. The benefits accrue to protected industries, but the costs are spread widely across supply chains, businesses, and consumers. As tariffs increase, so do input costs. That weakens competitiveness, dampens investment, and leads to job losses in downstream industries.  And that’s why the stock market responds so dramatically.  It sees the broader economic damage. In the end, Liberation Day may have made for a strong headline.  But for the economy, and especially for financial markets, it’s been anything but liberating.   

 

Economic Update | Will Hard Data Ultimately Prevail?

by with No Comment Economic Development

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

Since “Liberation Day” we’ve been hearing a lot about the soft and hard data. The soft data includes surveys, like consumer sentiment, confidence, and manufacturing, such as the ISM Index. Hard data include economic releases with real numbers, like unemployment claims, employment reports, consumer spending, and inflation. Soft data has been weak and plunging, and the hard data has yet to point to any significant slowdown. The big question now is whether we will see convergence between soft and hard data.       

Back in 2022, consumer sentiment data was in the tank, as prices rose to a 40-year high. Consumers continued to spend, however. Strong labor markets and household balance sheets propelled the resilient consumer. Despite forecasts of a near recession, the economy avoided one, and equity markets continued to surge in 2023 and 2024. 

Soft data, like the latest consumer sentiment numbers, showed another decline from March. The April reading of 52.2 is inching closer to the bottom of sentiment that hit in 2022, getting closer to the lowest level going all the way back to the 50s.  Will this time be different, with consumers finally putting the brakes on spending, which makes up two-thirds of the economy?  If there is a recession, it will be a consumer-led recession, and that is why this question is the key.   

Expectations about the economy are even worse, reaching the bottom we observed in 2022, and the swiftest decline in consumer expectations since the 1990s. Consumer sentiment continues to nosedive, and the effects of tariffs have not even hit the shelves, no pun intended. We’ll see an economy move from one that was often described as consumer resilience to consumer anger.  Conflicting signals from soft and hard data are all about timing. As we go through time, and assuming that tariffs are not erased with a late-night tweet, the data will converge, and the economy will likely then hit a brick wall. 

Some hard data that might be an early warning is the count of containers coming into key ports. In just the first three months of the year, container counts coming into the Port of Los Angeles have declined by over 100,000, representing a 20% decline. This is prior to Liberation Day, and so we will likely see an additional acceleration of declines in April.   

Yes, a decline in shipments implies a decline in imports, the justification and motivation of tariffs. But every container coming off those ships also represents revenue streams.  Every box in each container is a product line of Main Street USA. These revenue streams make it possible for businesses, both large and small, to meet financial obligations such as payroll, capital investment, and financing expenses. In some cases, products may be replaced with domestically sourced ones, but that will likely be the exception; toaster manufacturers will not pop up overnight. Lower revenue streams equate to business closures and layoffs. It will take some time for this to ripple through the economy, just like the time it takes a wave to hit the other side of the pond, from the unexpected drop of deadweight.    

So far, however, we are seeing the opposite in some of the hard data. Retail sales saw a big increase this month, far exceeding the consensus estimates. Durable goods orders shot up in March, exceeding estimates by a wide margin. Are we seeing the return of animal spirits, where consumers and businesses move fast as we enter a “Golden Age”? Or perhaps there is a rush to purchase before tariffs kick in?   I think it is the latter. The recent surge in spending is simply early planning to avoid higher prices and supply chain disruptions around the corner.       

One indicator that may be another early sign of the slowdown to come is consumer credit.  Only one data point, but the latest saw a drop in consumer credit, where the consensus was a large gain. Expectations for future economic conditions have plummeted, and households are simply moving to get their financial house in order. That explains the big turnabout in consumer credit. After loading up on early purchases, we’ll see a somewhat of a cliff in consumer spending. 

The plus side of all this is that a reduction in interest rates by the Fed may come sooner than later. Probabilities are now showing four interest rate reductions this year. Market participants are pricing a slowdown in the economy;  the Fed may be forced to shift emphasis from inflation control to stabilizing employment. And perhaps best of all, the nation’s trade deficit will shrink, just as prior recessions and slowdowns coincided with either trade surpluses or a reduction in the trade deficit.  “Other than that, Mrs. Lincoln, how was the play?” 

Economic Update | The Southern Indiana Economy

by with No Comment Economic Development

—More diversified from 20 plus years ago, and the importance of exports 

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

Whatever is the outcome, changes in trade policy will have implications for the Southern Indiana economy. In 2023 alone, four of the five counties (Floyd, Clark, Harrison, and Washington) had total exports of approximately $1.1 billion. Total wages paid in the five Southern Indiana counties are approximately $1.5 billion. One conclusion we can draw from this is that exports are a key piece of the business model for many companies located across the region.    Disruptions to this model, such as retaliatory tariffs, will have implications for Southern Indiana business and industry.    

A look back at the Southern Indiana economy will help us understand the changes to key industries like manufacturing, and whether manufacturing has been “hollowed out” as described by some.   

In 2001, total payrolls across Southern Indiana stood at 77,310 with an average weekly wage of $513. Total wages, the collection of all wages paid by establishment firms, were $603 million. Manufacturing was the largest industry back in 2001, with almost 21,000 employees earning an average weekly wage of $637, or 124% higher than the overall average weekly wage. The largest industry in manufacturing was furniture and related product manufacturing, with 23 firms and an average weekly wage of $516. Total wages in manufacturing were about 29% of total wages paid. Think of this as manufacturing being responsible for 29% of all wages paid across the region.   

Let’s jump to 2024, the most recently available data year. Total payrolls across the Southern Indiana metro counties have grown considerably since 2001, now totaling 107,000, and with average weekly wages of $1,113, double the level that existed in 2001. Manufacturing is no longer the largest sector, however.  Total employees in manufacturing are now a little over 15,000, with average weekly wages of $1,226. The wage premium in manufacturing has declined from 2001, now at 110% of the average weekly wage. As a percentage of total wages, manufacturing represents about 16% of total wages paid by establishments across the region. The largest industry in manufacturing is no longer furniture and related products. The top spot is now occupied by, surprisingly, wood products manufacturing, with average weekly wages of $1,035.    

While this is lower than the share in 2001, it is also a sign of greater diversification in the regional economy, an important defense to any national slowdown in the macroeconomy. The largest industry is now healthcare, with over 17,000 employees and an average weekly wage of $1,145.    

How have wages grown compared to wages across Indiana? Relative to Indiana, and given the decline in the share of manufacturing jobs, have we progressed relative to Indiana, or declined? In 2001, Southern Indiana average weekly wages were 86% of the state average. In 2024, average weekly wages in Southern Indiana are up to 95% of the state average. So, despite the decline in manufacturing jobs, average weekly wages have improved relative to Indiana wages.  With a more diversified economy, Southern Indiana has grown to have higher-paying jobs in the service area, like professional and business services, and financial activities.   Both industries employ 2,000 more people than in 2001, and at wages that are significantly higher than manufacturing and overall average weekly wages. 

Much is being said about the loss of automotive manufacturing jobs in Detroit, and the need for protective tariffs to help restore the lost jobs in the automotive capital. 

Since 1995, the change in transportation equipment manufacturing (automotive manufacturing is part of this industry) in ten automotive-producing states was a negative 149,000, with Michigan alone making up 130,000 of that decline. In the nine other states combined, the decline is 19,000, representing an average of just over 2,000 jobs per state. One fact that is indisputable is that technology has made manufacturing more advanced today than in 1995. Manufacturers employ robotics, are more automated than in 1995, and consequently more productive. On a per-automotive basis, manufacturers need fewer people as a result.   

Tariff proponents like to offer Detroit as an example of why tariffs are key to protecting and revitalizing domestic manufacturing.  When we hear talk about restoring the lost automotive jobs in Detroit, then they also need to talk about moving jobs from states like Indiana, Missouri, Kentucky, Alabama, Mississippi, and a few others, because that’s where some of those Detroit jobs likely ended up. 

Economic Update | Will Uncertainty Cause a Slowdown?

by with No Comment 1si NewsEconomic Development

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

With consumers making up 2/3rds of the U.S. economy, they have a large sway over the macroeconomy trajectory.  Over the past year, for example, economic growth remained strong largely due to consumer spending. Making up one of four components of GDP (gross domestic product), along with investment, government spending, and net exports, it was consumption that drove the strong economic growth of the past year. Given the outsized role and the contributions to last year’s growth, consumers will have a large say in what happens to the economic landscape over 2025.       

In a nutshell, signs are beginning to point to some hesitation. Both soft and hard economic indicators show that consumers may balk. 

Coming out of the pandemic, a combination of government stimulus and supply shortages caused inflation to accelerate to a 40-year high. Consumer sentiment plummeted as a result, reaching historical lows. In fact, consumer sentiment was even lower than levels associated with prior recessions, but the U.S. escaped any recession. As inflation decelerated, consumer moods were improving, and sentiment began an upward climb. Consumer confidence, another measure that is tilted more toward the effects of the labor market, also was down, but with the strong job market, levels were not at historically low levels.     

Following the election, optimism, as measured by both consumer confidence and sentiment, surged. It was not just consumers.  Small business optimism had one of the largest spikes in the history of the series.  The last time a similar spike had been observed was after the 2016 presidential election.    

Then uncertainty emerged, kryptonite to markets and the economy. Administration messages of tariffs on and tariffs off. Tariffs up, and tariffs down. Carve-outs and exemptions. The off-and-on-and-ups and downs introduce something called risk. Throw in more risk, especially risk that was not necessarily anticipated, and this will serve as the killer to any stock market. Higher risk means lower asset values, and the NASDAQ moved into correction territory.  Just like that, trillions of value destroyed.  And capital likes to flow to the highest rate of return, other things equal, and the result is an exodus of capital from the USA.  A recent fund manager survey showed the biggest drop in US equity allocation on record, with the US showing the largest decline and the Eurozone showing the largest gain in equity allocations.    

What does this have to do with the economy and the consumer?  As we’ve written in the past, two of the main reasons for consumer resiliency were the labor market and household net worth, driven by a combination of home values and equity investments, i.e., the stock market. Corrections have happened in the past and are part of historical stock market patterns, but investment behavior is also influenced by expectations, and the current level of uncertainty, along with stock market declines and volatility, were not exactly expected.     

We see the impact of uncertainty on consumer activity here in Louisville Metro. Examining foot traffic for seven consumer-related industries, restaurants, shopping centers, home improvement, theaters and music venues, hobbies, gifts and crafts, hotels and casinos, and clothing, we see a stark change in behavior from early December (when expectations were running high) to late February. In early December, five out of the seven industries were running above trend with foot traffic, compared to the year before. The latest data show that six of seven are now running below trend, with negative changes compared to the previous year.  Only hobbies, gifts, and crafts are just slightly above trend. Puzzles anyone? 

Other spinoffs of uncertainty. In the latest NFIB survey, only 12% of owners reported it was a good time to expand their business.  This was down 5 points from the previous survey, and was the largest decline since April 2020, during the height of the Covid recession.   And only 37% of the respondents expect the economy to improve, down 10 points from the previous month. All this is the product of uncertainty, as the uncertainty index rose another four points, the second highest level of uncertainty since the early 90s. With uncertainty, small business owners are less likely to take risks, seek financing, or commit to major capital investment. This will act as a squeeze on the economy, contributing to a slowdown in overall growth.  The latest Atlanta Fed GDP Now estimate of GDP for the first quarter is a minus 1.8%.  A big driver of this is the surge in imports due to the threat of tariffs.  But negative is negative, and that’s where the latest estimate stands. If this holds, it will be the first negative change in GDP since the first quarter of 2022, and who knows, maybe one of the fastest pivots in the economy, from U.S. exceptionalism to a self-inflicted slowdown.