Posts in category: Economic Development

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

The latest data are out at the metropolitan level, and 2022 has been a great year for the Louisville Metro area, which includes the five counties of Clark, Floyd, Harrison, Scott, and Washington counties.  As of September 2022, the region showed year-over-year gains of 30,000 jobs, representing a 4.6% change.  The 30,000 figure is the largest year-over-year change in the past 30 years, not counting the abnormally large changes that occurred as we were coming out of the Covid shutdowns.   Louisville area payrolls exceed the February 2020 level by about 10,000.  As a comparison with neighboring metro areas, Cincinnati is still down about 27,000 payrolls from February 2020, and Indianapolis added 22,500.  Both are larger metro areas, but with a smaller change in payrolls. From the Covid trough of 2020, Louisville has added 113,000 jobs.

These impressive gains were led by education and health services, adding 8,500 jobs over the year. Professional and business services added a strong 7,000 jobs, with most of these occurring in the administrative, waste, and remediation services subsector, most likely temporary labor services.  Leisure and hospitality added 6,700 jobs as the sector continues to rebuild its workforce.  Manufacturing observed the 4^th highest change in payrolls, adding another 2,400. Transportation and utilities added 1,900 positions since last year, a deceleration from last year’s growth. Moving into 2023 and with an expected slowdown in the U.S. economy, we will likely see a continued deceleration in transportation.

For Southern Indiana, county payroll data come with about a 6-month lag. Labor force data are more current however, and this data series also show strong growth across Southern Indiana. The latest year-over-year changes in both the labor force and employment represent the highest changes in the past 30 years, except for the Covid-related changes of 2021.   As of August 2022, labor force and employment show year-over-year changes of approximately 6,500 respectively.   The strong growth in the labor force and employment is producing a low unemployment rate of 2.6%.

Nationally, the Bureau of Labor Statistics released the monthly jobs report last week, and the headline payroll number exceeded expectations.  The equity markets initially had a negative reaction to this “good news is bad news”. However, there were some signs of labor market softening, and markets ended the day with strong gains. One clue of potential softening came with the household survey showing that employment declined by over 300,000, and the labor force showed a small decline of 22,000.  The decline in employment produced an upward tick in the unemployment rate to 3.7%.  The latest unemployment rate is 2/10ths of a percentage point above the trough that occurred back in July.

Even though the unemployment rate increased slightly, the labor market is still very tight. The latest JOLTS (Job openings and labor turnover survey) report unexpectedly showed that nationwide openings increased, reversing the prior month’s noticeable decline.

The anticipated CPI report will be out this Thursday, and it will get widespread attention. The headline rate is expected to show another decline, but all eyes will be on the core inflation rate (CPI minus food and energy).  The last two months showed the core increasing at a pace that was more than expected.   Two reports ago, the equity markets saw a big negative response to the increase in the core rate.   Last month, however,  the market saw an initial dive and then closed higher by more than 800 points. Was this the market’s reaction to getting past peak inflation? We will see this Thursday. We will see another decline in the headline CPI rate.  If the core is less than expected, watch for a big stock market response.

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

Talk about an upcoming recession has been only intensifying.   A recent recession indicator at Bloomberg placed the odds of a recession at 100%, and one frequently cited recession indicator, an inverted yield curve (which means short-term Treasury yields are higher than longer-term yields) also points to a recession.   If we do believe that a recession is imminent, one question to ask is whether it will be a deep or mild recession. Given that the consumer is almost 70% of the U.S. economy, the state of the consumer will help determine the severity of any economic slowdown. If we agree with some of these recession indicators and one is imminent, it will be mild compared to previous recessions.

Not counting the Covid recession, one of the most severe recessions was the Great Recession from 2007 to 2009.   The recession originated with disruptions in the mortgage market with certain types of mortgage-backed securities and then spread to other corners of the financial markets.   The official starting date of the recession was December 2007.    One characteristic of this recession was the significant decline in household net worth. Southern Indiana did not observe the big price declines in home values, but other regions experienced significant wealth destruction due to plummeting home values. In addition to the loss of real estate wealth, households also saw big declines in stock equity values. The combination of losses through home values and the stock market led to a big drop in household net worth.  It then took another five years to fully recover the loss of net worth. This decline in household wealth caused the consumer to retrench, and consumer spending saw significant declines. It took about 4 years for retail sales to get back to pre-recession levels.

In contrast, household net worth saw a smaller drop during the Covid recession, and value was fully recovered in less than 6 months. After that initial recovery, net worth then exploded, experiencing the biggest two-year increase in the past 30 years. Recent stock market turbulence has since produced a decline in net worth, but levels are still high relative to historic numbers.

One implication of this is that households are better prepared to experience a recession. This is one of the reasons why any impending recession will only be mild.

Net worth is only one measure of consumer health, but others draw similar conclusions regarding consumer readiness for a recession. One measure is the consumer debt situation. Household debt, as a percentage of household income, has been increasing. It reached the lowest level in 30 years back in 2021 when consumers were flush with cash from government stimulus programs. Since then, household debt has been increasing. However, levels remain under pre-pandemic levels and lower than the past two recessions prior to Covid.

Even though household debt has been on the upswing, it is under control. Delinquency rates on credit cards and consumer loans remain the lowest in the past 30 years.  Delinquency rates declined during Covid and have experienced upticks this past year. Rates are still under pre-Covid delinquency rates and remain at the lowest in 30 years.

Covid saw the highest savings rates going back to the 1960s, and perhaps among the highest of all time, approaching 35% back in 2020. Consumers did not have many places to spend or enjoy services, like dining and travel. This behavior, combined with government stimulus, produced sky-high savings rates. Savings rates have come down considerably since. The savings rate is well under the level that existed at the start of Covid and is comparable to a savings rate just before the Great Recession. The difference between now and then is with the level of checkable deposits. While savings rates have come down, checkable deposits are at record levels. The additional cash that households have accumulated will serve as a buffer for any economic downturn.

With gains in home values, households are experiencing record home equity levels, but the volume of home equity loans remains at low levels.   This means that the household has unused debt capacity and will be able to tap into this wealth.  Higher mortgage rates will discourage use of home equity, but it does remain a source of cash for the household.

Another factor that supports a shallow recession is the state of the consumer due to the labor market. The unemployment rate will increase during a recession, but this is from an already low rate of 3.5%. Job openings remain at very high levels relative to the number of unemployed with 1.7 job openings available for every unemployed person.  Job openings will also come down, but openings will also soften the blow of an economic slowdown.

If we do enter a recession, the household is favorably positioned to weather the storm.  Consequently, the recession will be mild and not nearly as deep as the Great Recession of 2007.

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

The latest BLS data on metropolitan jobs show that Louisville Metro payrolls have finally surpassed the level that existed in February 2020, just before the Covid shutdown of the economy. While these are preliminary estimates and subject to subsequent revisions, the data do provide a view of the regional labor economy.  The latest report indicated that the region’s labor force showed another uptick, increasing by approximately 3,000 from July to August (non-seasonally adjusted).  The increase in the labor force was accompanied by a decline in the number of unemployed, resulting in a drop in the unemployment rate to 3.1%.

Payrolls were up by 23,000 over the year representing a 3.4% increase.  Over the past 30 years, this over-the-year difference would rank among the highest. The seasonal adjustment had payrolls increasing by 22,000 over the year and about 8,000 from July to August.  Both numbers would be considered above average. Since February 2020, payrolls are up about 4,000 on a seasonally adjusted basis.

Going back to August of 2020, the biggest gainer in jobs was the professional and business services sector, adding about 15,000 jobs. We use August 2020 as a comparison due to the non-seasonality of the data.  The bulk of the job gains in professional and business services came in the Administrative and Support and Waste Management and Remediation Services industry. Leisure and hospitality added about 11,000 jobs since then, but August 2020 was also a depressed level of payrolls. Manufacturing payrolls have increased by roughly 5,000 since August 2020, and transportation and warehousing added just under 4,000.

–With a surge in business establishments

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

New data are out at the county level, and it shows that Southern Indiana continues to see strong job expansion. For the first quarter of 2022, the five Southern Indiana counties that comprise Louisville Metro added another 2,982 jobs from the previous year.  How does this gain compare to previous years? Since 2001, quarterly gains exceeding that number have only occurred on five separate occasions, excluding the outsize changes connected to Covid. So, a gain of almost 3,000 jobs is significant.

The highest number of job changes occurred in the accommodation and food services industry, adding 1,682 jobs from the previous year.  One of the challenges facing this industry has been labor availability.  As consumers shift spending from goods to services spending, food and drinking places, along with accommodation establishments, have faced challenges in meeting demand.  The added jobs reflect the strong demand for food and accommodation and an expanding regional labor force. The expanding labor force is providing the labor for payroll gains, and this is reflected in this large increase.

The second largest gain occurred in the “administrative and support and waste management and remediation services” industry, adding 886 jobs. While this includes everything from garbage pickup to custodial services (BLS states “office administration, hiring and placing of personnel, document preparation and similar clerical services, solicitation, collection, security and surveillance services, cleaning and waste disposal services), the large gains usually reflect changes in temporary labor services.

Strong gains also occurred in wholesale and retail trade.  Retail added another 367 jobs compared to the first quarter of 2021.  Retail trade establishments have also faced significant challenges in hiring.   Despite some of these hiring challenges, retail trade employment is higher than in the first quarters of 2019 and 2020. The death of brick-and-mortar stores has been greatly exaggerated!   Yes, more shoppers continue to rely on the convenience of online shopping, but it is still possible to succeed in physical retail.

The most significant aspect of the data relates to the number of establishments.  The number of establishments across the five counties increased by 260 compared to the previous year.   This is the largest gain since 2001. The previous high occurred during the first quarter of 2020, the same quarter of the Covid-related shutdowns.  Nation-wide, there was also a significant increase in business formations.  The most recent quarter, however, is perhaps reflective of the attractive environment for business formation and expansion across Southern Indiana.

Average weekly wages increased by $76, representing a 9.1% change from the previous year. The average weekly wage of $913 for the first quarter is the highest on record for first quarter wages. Driving these gains were transportation and warehousing and wholesale trade, increasing by $145 and $143 respectively.

In our last column, we talked about the wild ride that we could expect on September 13th.  As we have discussed in this series, the Consumer Price Index (CPI) is now the most important economic indicator, larger than the almighty monthly employment report.  We saw that play out this past September 13^th;   unfortunately, that was not a wild ride of enjoyment.  The CPI report showed that the core rate (CPI less food and energy) of inflation increased by an amount that was more than anticipated, and at a rate that was double the monthly change in July.   The equity markets threw a major fit, with the Down losing more than 1,000 points.  An increase of 75 basis points by the Fed is just about guaranteed, and there is now an outside chance of 100 basis points (1 percentage point).

(September 16, 2022) – Conexus Indiana announced today results of a comprehensive study measuring the impact of the statewide Manufacturing Readiness Grants program. The $138.9 million in technology adoption projects spurred by Manufacturing Readiness Grants are adding jobs, growing wages and increasing company revenues, resulting in a 26 percent internal rate of return for the State of Indiana.

The Manufacturing Readiness Grants program was launched in 2020 as part of the Indiana Economic Development Corporation’s Economic Activity Stabilization and Enhancement (EASE) program and was extended through a separate appropriation from the Indiana General Assembly in 2021. Since inception, $17.4 million in matching grants through 212 awards have been made to stimulate private sector investments in technologies such as next-generation machines, cobots, machine vision and additive manufacturing to modernize Indiana’s manufacturing industry.

The “Manufacturing Readiness Grants Program 2022 Impact Report” analyzed data from nearly 170 projects to determine technology adoption trends and identify how and why those technologies are being deployed in manufacturers’ operations. A separate survey of 75 Manufacturing Readiness Grants recipients showed the program’s impact on jobs, wages and company revenue.

Key findings from the survey include:

• Companies that adopted a smart manufacturing technology on average added five new positions; they also anticipated wages to grow on average $196,000 per project.
• The average revenue impact to companies was $2.5 million, with 37 percent of those companies reporting that they anticipated revenue growth of more than 10 percent.

“Our data show that Indiana companies and the State of Indiana are clearly benefiting from the Manufacturing Readiness Grants program,” said Ryan Henderson, Conexus Indiana’s director of Innovation and Digital Transformation. “Automation and advanced technologies continue to help companies grow and add new positions, providing additional opportunities for Hoosiers to succeed in the advanced manufacturing industry.”

In its review of projects supported by Manufacturing Readiness Grants, Conexus Indiana uncovered several trends among Indiana manufacturers:

• As automation and advanced technologies become more pervasive in manufacturing operations, companies are adding jobs and increasing wages.
• Indiana small- to medium-sized companies are accelerating technology adoption (i.e., cobots, advanced robotics and machine vision) to a pace similar to their larger counterparts to support growth and improve productivity.
• Digital adoption is demonstrating value across a wide array of industry segments, including fabricated metal products, plastics and rubber, food and beverage and furniture.
• Strategic business drivers for technology investments include improved product quality, customer service improvements and onshoring and expansion into new markets, highlighting how companies are increasing their competitive edge over national and global peers.

Conexus Indiana partnered with Purdue University’s Dauch Center for the Management of Manufacturing Enterprises to analyze technology trends among the dozens of Manufacturing Readiness Grants awardees. Additionally, Conexus Indiana fielded an Impact Survey during the month of April 2022 at the request of the Indiana Economic Development Corporation to gather data on jobs, wages and company growth.

To read the full “Manufacturing Readiness Grants Program 2022 Impact Report” visit the Conexus Indiana website at https://www.conexusindiana.com/manufacturing-readiness-grants-program-2022-impact-report/

Manufacturing Readiness Grant awards announced as of September 6, 2022:

• Number of grant awards: 212
• Grant funding: $17.4 million
• Total company capital investment: $138.9 million
• Leverage ratio (calculation of projected capital investment made by industry as a result of grant funding): 7:1. For every $1 of grant funding, $7 of industry investment is generated.
• Total number of Indiana counties where grant awards have been made: 60

 About Conexus Indiana

For more than a decade, Conexus Indiana, one of the Central Indiana Corporate Partnership (CICP) non-profit initiatives, has been positioning the Hoosier State as the best place for advanced manufacturing and logistics industries to innovate, invest, employ and succeed. By collaborating with industry, academic and public sector partners on a shared vision for an innovative, skilled workforce and stronger business climate, Conexus Indiana has helped to create opportunities for advanced manufacturing and logistics companies, prepare Hoosiers to succeed in the state’s largest industry sectors and maintain Indiana’s competitive advantage. For more information, visit conexusindiana.com.

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

As the summer comes to an end, the past two weeks brought us more fun with another ride on the wild roller coaster stock market ride.   The ticket to this ride was made possible by Fed Chairman Jerome Powell, through remarks made at Jackson Hole, WY for the annual Kansas City Federal Reserve annual economic summit.   Uttering the words “keep at it” was enough for a market plunge, shedding more than 1,000 points on the Dow.   About ½ of summer equity rally gains have just about evaporated, with the Dow shaving about 2,000 points in just two weeks.

The Powell talk helped reversed market perceptions that the Fed would be able to pivot away from more aggressive rate increases.    Hence, the reaction was swift and ferocious.   The irony is that the adverse market reaction occurred at the same time economic releases pointed to a deceleration in inflation, what the market was previously anticipating and priced accordingly.  The Fed’s preferred inflation indicator, the Personal Consumption Expenditure (PCI) Deflator was released the same day as the Powell talk, and it showed that inflation had decelerated from the previous month, and on a yearly basis. The last Consumer Price Index (CPI) report also showed that prices were flat over the month and had also decelerated on an annual basis.

Last Friday saw a positive jobs report that some had described as the “Goldilocks” of reports. Payrolls exceeded expectations, with employers adding more than 300,000 jobs.   There were two aspects of the report that were even more favorable and can potentially have stock market implications later this year, thereby reversing the “keep at it” driven market plunge.

The first was the change in the labor force, increasing by a whopping 786,000 in August.  How does this compare to typical monthly changes?   In 30 years, labor force changes greater than that level only occurred 10 times (out of 360 monthly observations).  In the past five years, such a change ranks in the top five, and three of these monthly occurrences were the outsize effects of Covid.   The large jump in the labor force reversed some of the recent declines of this year and moved the economy’s labor force to the highest level of all time.  More about the significance of this later.

The second piece of information from the report was about hourly earnings. Average hourly earnings increased another .3% an hour, but this was less than the consensus and lower than the .47% prior month increase.  Since April, average hourly earnings on a year-over-year basis have been on a steady decline.

Why are these two items important?  Both relate to the price of labor and supply chain issues.   A growing labor force will apply headwinds to average hourly earnings and bring continued relief to supply chain issues, a source of some of the inflationary moves.  Combine this with slowing overall growth, and demand destruction from inflation, and you will see continued declines in the CPI, and these could even accelerate as we enter the last quarter and into next year.  This will have stock market implications to the upside.

The big increase in the labor force should be welcome news for employers.   Even though the economy saw an uptick in the unemployment rate, the labor market remains very tight.  The last JOLTS (Job Openings and Labor Turnover Survey) report showed another increase in job openings.   Job openings now exceed the number of unemployed by about 2.  For every unemployed person, there are 2 job openings available.   Grant it, there may be a mismatch in skills and experience for certain openings, but the large level of openings, relative to unemployed, demonstrates the tightness of the labor market.   This is precisely why the significant pick-up in the labor force was substantial.  The JOLTS report produced a negative market reaction, another example of “good news is bad news” and provided more evidence for the Fed to go with an increase of 75 basis points during their next meeting.

We saw some improvements in the mood of the consumer.  While the Michigan Consumer Sentiment number remains at a historically low level, the index has improved over the past two months, with the latest beating the consensus.  The Consumer Confidence Index, while not at record low levels, also showed improvement from the previous month.   Consumer spending did slow from the prior month but remained slightly positive, and above a consensus of no change.  Cooling inflation, especially through gas prices, will feed improvements in consumer sentiment.

As we mentioned a few weeks ago, the CPI report, at least temporarily, is now the most important economic indicator.   The next report is out September 13, and we should expect another deceleration in price increases.   Depending on the extent of the moderation,  September 13 could be another big day in the equity markets.  Mark your calendars for another wild ride!