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.
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