Posts in category: 1si News

–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!