Economic Update | Is the Weak Jobs Report an Early Signal?

by with No Comment Economic Development

–And Consumers Power Ahead 

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

The U.S. economy saw the smallest monthly gain in payrolls since 2020.  The BLS monthly employment report showed that payrolls increased by only 12,000 in October, significantly under the 112,000 that was expected. The unemployment rate remained flat at 4.1%. Two hurricanes, including one that occurred during the survey reporting period, along with a major Boeing strike, were cited as possible reasons for the overall weak number. Given the uncertainty, this is not necessarily a signal for a broader slowdown in the economy. We should treat it as a one-off and wait until the next employment report for additional hints of a developing trend. 

Here are some of the reasons why the weak employment number is not part of a broader slowdown. First, we can look at weekly unemployment claims. In the past two weeks, unemployment claims have continued to decline and have come in under consensus estimates.  Last week, claims were at a very low 216,000, which is well under any level associated with a weakening economy.  Secondly the ADP Report, a labor report produced by the private firm ADP on the Wednesday before the BLS report, showed that the nation added 233,000 jobs, well over the consensus of 104,000.  The ADP report is historically volatile and there is debate around its usefulness. Nonetheless, it is a data point, and one that does convey some information about the labor market. Finally, the consumer continues to be resilient.  Making up 2/3rds of the U.S. economy, the consumer continues to drive economic growth. Recent consumer surveys showed increases in consumer optimism, and the latest report on consumer spending showed healthy gains.   

A strong economy was evident with the latest GDP report.  The preliminary report on GDP showed that gross domestic product increased by 2.7% over the prior year, higher than the consensus estimate of 2.5%. Over the quarter, growth was 2.8%, and of the 2.8%, consumers contributed 2.46 points out of the 2.8%. Consumers drove growth in the third quarter, and with rising consumer sentiment numbers, there are no noticeable signs of a consumer slowdown just yet. 

On the inflation front, the Fed’s preferred inflation gauge, the core PCE price index, was a little hotter than expected and above the Fed’s target of 2%. While the Fed has made tremendous progress in driving the inflation rate down, it remains elevated and above target. As we mentioned in the last update, after the Fed’s unexpected cut of ½ percent, the 10-Year Treasury started climbing, and last week, saw additional gains, closing at 4.4%, and up from 3.7% just a few weeks ago. The yield closed higher after the dismal employment report, suggesting that bond participants were not pricing any significant slowdown due to the weaker jobs report. Market participants continue to price two additional rate cuts, but we can likely expect the pace to slow.    

Higher interest rates will continue to impact interest rate sectors like manufacturing, and the latest employment report showed a decline of 46,000 jobs. The ISM Manufacturing Index showed continued contraction in the sector, with the index coming in at 46.5, lower than expected. Slower manufacturing has had an impact on manufacturing intensive states like Indiana and Kentucky, with slower payroll gains and unemployment rates that exceed the national average.   

There had been increasing doubt about remaining Fed cuts this year, due to sticky core inflation and robustness of the consumer.  The weak jobs report sealed the deal for the case for cuts remaining this year. As we go into 2025, expect the pace for cuts to slow and become more uncertain. 

pāco manufacturing Gears Up for Growth: Precision Automation Expands Operations in Clarksville, IN with $157K Investment and Job Creation

by with No Comment 1si News1si Press ReleaseEconomic Development

Clarksville, IN. (Oct. 29, 2024) 

Precision Automation Company, Inc. (pāco manufacturing) will undergo expansion as they merge their New Jersey-located manufacturing operation to Clarksville, Indiana, which will more than double their throughput capacity. In addition to relocating 15 pieces of production machinery and support infrastructure from the New Jersey location, the project involves a total capital investment of $157,017 and will create approximately 14 new full-time positions by 2025. The company has 14 associates at its current location. The move also includes ongoing training for new business activities with $153,000 in expected total training expenditure by 2025. 

Since 1946, Precision Automation Company, Inc. has provided high quality Automation Systems, Contract Machine Work, Fabrication, Machinery, Controls, and related integration services that improve productivity for their customers. Additionally, they work with several industries such as pharmaceuticals, food and beverage, warehousing and distribution centers, and consumer goods. Now, they will continue to serve a diversity of markets both domestically and globally by expanding their Clarksville operation which has been in Indiana since 1953 and the current Clarksville location since 1968. 

Robert Daily, pāco manufacturing vice president, shares “We look forward to our expanded operations in Clarksville, Indiana. This expansion marks an exciting new chapter for our company as we integrate our New Jersey-based manufacturing operation into our Indiana facility. We are committed to investing in our local community by offering competitive wages and training to contribute to our employees’ success. We are excited to increase our capacity, continue providing high quality products to our customers, and watching Clarksville grow stronger because of our efforts.” 

Based on the company’s Indiana job creation plans, the Indiana Economic Development Corporation (IEDC) committed an investment in pāco manufacturing of up to $130,000 in the form of incentive-based tax credits. These tax credits are performance-based, meaning the company is eligible to claim incentives once Hoosiers are hired.   

“Indiana’s rich tradition of manufacturing excellence remains strong today thanks to the commitment of companies like pāco manufacturing,” said Ann Lathrop, chief strategy officer at the IEDC. “Indiana has a robust ecosystem of manufacturers statewide that are developing new innovations and supporting high-quality careers, investing alongside our state and communities to create a better future for Hoosiers.” 

Clarksville Town Manager Kevin Baity said “Clarksville is proud to welcome the expansion of pāco manufacturing to our community. With significant investment and the creation of new, high-paying jobs, pāco is not only contributing to our economy, but also enhancing Clarksville’s reputation as a hub for innovation and industry. We look forward to their continued success and are excited to support their growth in our community.” 

“We are delighted about the expansion of Precision Automation in Southern Indiana,” said One Southern Indiana CEO and President Lance Allison. “The 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 pāco manufacturing 
Since 1946, Precision Automation Company, Inc. and pāco manufacturing provides high quality Automation Systems, Contract Machine Work, Fabrication, Machinery, Controls, and related integration services that improve productivity in our customers’ manufacturing and product handling processes. As an ISO 9001:2015 Certified Company and business certified by ISNetworld, they are held to the highest standards of quality in their industry. It is their commitment to continuously improve performance and capabilities in order to maintain their competitive edge. 

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: 
pāco manufacturing 
Robert Daily | pāco manufacturing 
Bobd@pācomanufacturing.com | 812-283-7963 

One Southern Indiana 
Ellinor Smith | Content Marketing and Media Relations Manager 
EllinorS@1si.org | 217-320-4832 

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US Armed Forces contractor announces second major expansion in Southern Indiana 

by with One Comment 1si News1si Press ReleaseEconomic Development

Conco, Inc. Expanding their facility with $71 million investment in Scottsburg.  

Scottsburg, IN. (October 28, 2024) 

Southern Indiana is celebrating another expansion of Conco, a full-time, full-service supplier of ammunition containers and related services. The company plans to invest another $71.4 million to expand their Scottsburg location, adding 150,000 square feet to the existing facility to accommodate increased state-of-the art manufacturing, finishing, and storage capabilities. The expansion will also create an additional 175 full-time jobs with an hourly average wage of $30 per hour. This is in addition to the $54 million capital investment and 175 jobs announced in September 2023, bringing the total on-site employment to 350.  

Conco has served the United States Armed Forces as a full-time supplier since 1967. With a strong reputation for high-quality products, on-time delivery, and technical support, they continue to meet the military’s needs and develop innovative products to adapt to ever-changing requirements. Conco is also a designated “return site” equipped to store, de-militarize, and prepare container models for reuse and resale. Their specialized products include insensitive munitions, rectangular containers, square bell containers, and round bell containers, in addition to their refurbished ammunition container options.  

“The Conco team couldn’t be more excited about our continued growth in Southern Indiana,” said Karen Paschal, President and CEO of Conco. “As we increase our production goals, investing in our Scottsburg facility is the ideal solution and will position us to fulfill our duty as a mission-critical defense partner. We are honored to partner alongside the City of Scottsburg and the State of Indiana to create additional growth and opportunities for our region.” 

Based on the company’s job creation plans, the Indiana Economic Development Corporation (IEDC) has committed to an investment in Conco of up to $1.9 million in the form of performance-based tax credits. These tax credits are performance-based, meaning the company is eligible to claim incentives once Hoosiers are hired. In addition, the City of Scottsburg is offering the company personal and real property tax abatement, phasing in over five and ten years, respectively. 

Mayor Terry Amick of Scottsburg shares, “The expansion of Conco into Scottsburg represents a major milestone for our community. Their combined $125 million in capital investment and 350 local jobs will have a transformative impact on our local economy. We’re eager as a city to support Conco and to see the positive effects their presence will bring to our growing community.” 

“Indiana is playing a critical role in national security thanks to the commitment and collaboration of the state’s defense ecosystem,” said Ann Lathrop, chief strategy officer at the IEDC. “From our federal installations to innovators supporting the global supply chain to defense contractors like Conco, Indiana is keeping citizens safe while supporting continued economic growth. Conco’s latest expansion will bolster the state’s defense sector while creating quality career opportunities and bolstering new community growth in southern Indiana.” 

“Conco’s expansion in Southern Indiana is a significant win for our region and we are thrilled to support their continued growth,” said Lance Allison, President and CEO of One Southern Indiana. “Their investment and job creation in Scottsburg showcases the strength of our local economy and the opportunities that exist for businesses to thrive. Conco’s long-standing service to the United States Armed Forces, combined with their innovative approach, highlights the kind of forward-thinking companies we are proud to have in Southern Indiana.” 

About Conco, Inc. 
Conco is a designated “small business” with 50 years of experience dedicated to the ammunition container market and is ISO 9001:2015 certified. Conco is centrally located in Louisville, KY, and is currently the prime contract container supplier for several U.S. Army ammunition programs. For more information, visit concocontainers.com. If interested in a position at Conco, email resumes to resumes@concocontainers.com. 

About One Southern Indiana 
One Southern Indiana (1si) was formed in July of 2006 as the chamber of commerce and economic development organization, now serving Clark, Floyd, and Scott County. 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: 
Conco, Inc. 
Karen Paschal | President & CEO 
kpaschal@concocontainers.com 

One Southern Indiana 
Ellinor Smith | Content Marketing and Media Relations Manager 
Ellinors@1si.org | 217-320-4832 

### 

Economic Update | The 10-Year Yield Moving Upward Again

by with No Comment Economic Development

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

Ever since the Fed unexpectedly reduced rates by 50 basis points, the bond market for the 10-year Treasury moved in a different direction. Just prior to the September Federal Reserve meeting that produced the oversized and unnecessary reduction of ½%, the rate on the 10-year yield had hit a recent low of 3.66%. The Fed announcement came on September 18th, and two days after, rates on the 10- year yield had climbed to 3.73%.  Since then, rates have moved in an upward direction, with the most recent at 4.08%.    

If we dissect the components of the 10-year Treasury, it is impacted by two primary drivers.  One is anticipated growth in the economy, and the other is expected inflation.   If the market perceives that growth is going to slow down, then we would expect the 10-Year yield to decline. As investors perceive slower growth, they might find bonds to be more attractive than equities, increasing demand for Treasuries, and thereby increasing the price.  Bond prices and interest rates are inversely related.  So, an increase in demand for bonds will push interest rates down.  So, when investors anticipate slower growth, we can expect the 10-year yield to decline. On the contrary, higher anticipated growth will push bond yields higher, as investors move to equities and push bond prices lower and yields higher. An example of higher growth came in the last retail sales report that showed better than anticipated retail sales, and as a result, GDP estimates were revised upward.   

The other component to the 10-year yield is anticipated inflation, and bondholders expect to be compensated for inflation.  Otherwise, bonds lose out to inflation and the result is reduced purchasing power in subsequent years.    Since the Fed announced the reduction in rates, expected inflation, as measured by the difference between 5-year Treasury Inflation Protected Securities (TIPS) and 5-year bonds, increased from 1.98% to 2.23%. Since the oversized reduction by the Fed, the inflation narrative is beginning to resurrect from just a few weeks ago. Expected inflation has moved up, and actual inflation, as measured by the last Consumer Price Index (CPI), came in higher than expected.   As we cited a few weeks ago in Economic Update, the Fed may be approaching a pause on rate reductions, or certainly rate reductions that will be less aggressive. The Fed Watch Tool is showing probabilities that favor four consecutive reductions of 25 basis points each. As we go through the next several months, we’ll likely see the odds revised and the number of cuts reduced.   

The implications of higher 10-year Treasury yields will be felt across several fronts. One is higher mortgage rates. Since the last Fed rate reduction, mortgage rates have moved from 6.14% to 6.52%.  Rates on auto loans and credit cards will also move higher, compounding some of the complications faced in the auto sector and consumer financing.   

Even with higher mortgage rates, homeowners have been tapping into home equity, helping fuel consumer spending. Home values have increased significantly since the pandemic, increasing the net worth of existing homeowners. Higher home values have increased homeowner’s equity, and homeowners are taking advantage of this increased equity through a resurgence in home equity loans. From 2008 to 2021, home equity loans saw consistent declines in volume. Since 2021 however, home equity financing has been on the upswing. Tapping into home equity lines of credit will support additional growth overall. 

To sum up, the 10-year is increasing once again, reflecting a combination of higher growth and inflation. The combination of both will force the Fed to step on the brakes again, and the result will be fewer rate reductions.    

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 One 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

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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.