By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast
Recent data show that the region continues to make a solid recovery, now two years after the recession of early 2020.
In the latest Bureau of Labor Statistics metropolitan employment report, Louisville Metro’s unemployment rate dropped to 2.7%, matching the lowest rate that occurred back in 1998. The year-over-year percent change in jobs was 3.8%, quite high relative to historical changes. Outside the abnormal changes observed last year, this is one of the highest percent changes in the past 30 years. The impressive part about the decline in the unemployment rate was the significant increase in employment. So, the unemployment rate fell for the right reasons, an increase in employment, with a labor force that remained relatively flat. Over the year, Louisville added about 21,000 jobs. Not counting the Covid-related job changes last year, this has only occurred on four other occasions in the past 30 years. So, 21,000 jobs added in one year is significant. The latest count places the metro area about 5,000 jobs short of the level that existed in February 2020.
For Southern Indiana, we just received the latest payroll data at the county level, and the results are equally impressive. The five Indiana counties of the Louisville Metro region added a little over 2,000 jobs from the 4th quarter of 2020 to the 4th quarter of 2021. This is not a record change, but on a historical basis, well above the quarterly average of 500 plus over the past 20 years. This puts the region just shy of the all-time high job total that existed in the 4th quarter of 2019 (about 500 jobs under the 2019 4th quarter total).
The region saw another significant increase in the number of new establishments. One hundred ninety (190) new establishments, from 2020 4th quarter to 2021 4th quarter, is the 3rd largest change since 2001. For two consecutive quarters, the Southern Indiana region has now observed quite positive changes in the number of new establishments.
For the first time, average weekly wages now exceed $1,000 across the five counties. An average weekly wage of $1,018 is the highest observed on record and is $75 higher than the total in the last quarter of 2020. The $75 increase represents the second-highest change in the past 20 years. As the economy cools, we will likely see a moderation of these wage gains. Regional firms will see wage gains stick, however. Try reversing the wage gain for any employee and observe what might happen to employee retention. Successfully navigating these wage increases will either rely on efficiency gains or higher prices, or some combination of the two. This will vary from firm to firm and across industries.
Nation-wide, job openings saw a small decline, but remain at very high levels. Job openings are almost double the number of unemployed. For the rest of the year, we should see these openings decline, as the labor force shows incremental expansion. Labor force growth is the key to alleviating some of the supply problems challenging the economy and moderating wage-price gains.
We will now be entering another phase of “good news is bad news”. We saw this recently with the Institute of Supply Management Report on Business and the most recent national employment report. For the ISM report, the ISM Index came in higher than expected, and the market finished in the red for the day. The most recent national employment report saw a higher-than-expected increase in payrolls, and the equity markets tanked. In both cases, markets interpret positive economic data as an assurance that the Fed will continue tightening or even raise rates higher than initially expected. “Bad news” will have the opposite effect. For example, the last report on personal consumption expenditures, it was mostly good news, but there was also some indication that inflation may begin a cooling period. For any report that points to subsiding inflation, equity markets will respond quite favorably. The market will be closely monitoring the next CPI report out this week. If the data show that inflation may have peaked, you will likely see a very strong, positive reaction in the equity markets.