By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast
Last year’s outlook expected Louisville Metro payrolls to erase job losses by the end of 2021, and the region is on track to recover a large percentage of job losses by year-end. For next year, Louisville Metro will see payroll growth at around 2% to 3%, likely closer to 3%. Filling elevated job openings, and an increase in the labor force are both keys to this outlook.
Louisville Metro Jobs
As of September 2021 year-to-date, Louisville Metro added approximately 17,500 jobs. If the metro area remains at this same pace of growth for the last quarter of 2021, total jobs added for Louisville Metro should come in at approximately 23,000 jobs, putting the percentage gain at 3.6% for the year. National economic growth is expected to decelerate compared to 2020 levels, and this should lead to a deceleration in Louisville payroll growth from 2021. Consequently, Louisville Metro payroll growth will likely be in the 2% to 3% range for 2022. The last time we saw inventories as low as now, as measured through the inventory to sales ratio, was 2011 and 2012. For Louisville Metro, we saw a large percentage change in manufacturing employment, and overall payroll growth exceeded 3%.
Job Postings
We can see the tightness of the labor market by examining job postings relative to the size of the labor force. In late 2019, just before Covid, Louisville Metro’s labor force was about 675,000. Fast forward to November 2021, the labor force is approximately 650,000. Today, compared to late 2019, there are about 1,300 additional job postings. So, the region has a slightly smaller labor force, but a need to fill more positions. The number of unemployed in 2021 is now about the same as the number of unemployed in late 2019.
Before the pandemic, registered nurses were in significant demand, and that has not changed. Job postings, however, are about the same now, as before the pandemic.
The one glaring difference in job postings relates to occupations that support the supply chain. In 2019, truck drivers were in significant demand. Job postings pre covid were running about 350 +, and freight, stock, and material movers were about the same, 350+. Fast forward to 2021, same time, and truck driver postings are now 550+ and freight, stock and material movers are 550+. The increase in job postings falls primarily on occupations connected to transportation and warehousing.
Manufacturing
Manufacturers should expect a strong year. Nationally, the inventory to sales ratio remains at low levels. Both new orders and unfilled orders continue to run high. The combination of new and unfilled orders and lean inventories will translate to sustained production for manufacturing. Nationally, the inventory to sales ratio for automobiles remains in record low territory. Materials shortages and supply chain challenges that have plagued manufacturers this past year will show some improvement, although not entirely resolved. This will provide a boost to local area manufacturing. Expected increases in labor market participation and a growing labor force will also support manufacturing payroll growth. Louisville area manufacturers added approximately 2,300 jobs, as of September year over year, and should expect to match or exceed this amount next year.
Leisure and hospitality
The much-anticipated growth in leisure and hospitality hit a few roadblocks due to the emergence of the Delta variant. Spending on services should continue to rebound as the sector moves past Delta, and leisure and business travel will see gains. As a result, convention activity in Louisville should also continue to rebound, providing a boost to leisure and hospitality employment. Remote work arrangements will likely be a permanent fixture with some employers, but in-office activity should also show a bounce in 2022. A return to the office will provide support to leisure and hospitality employment, particularly in downtown Louisville. Leisure and hospitality added 6,700 jobs, September year over year. While it might be difficult to match this level of growth next year, we should expect additional gains in leisure and hospitality employment.
Transportation and Warehousing
Transportation and warehousing were one of the strongest growth sectors in employment for Louisville Metro in 2021. September year over year, employers added 3,800 jobs, amid labor shortages. Truck drivers and warehouse workers remain in high demand as manufacturers and retailers work to alleviate supply chain challenges and satisfy consumer demand. Strong hiring will continue into 2022, and we can expect transportation and warehousing to be one of the leading sectors with respect to payroll growth.
Retail Trade
Retail trade added 2,200 jobs in September year over year. This outlook expects a good year for Louisville area retail, but a continued trend away from goods spending to services will continue. With the shift from goods to services spending, the consumer is still positioned for retail activity. Household balance sheets are quite strong, and net worth is at the highest level in history. Savings rates remain elevated, although they have declined, and the consumer debt service ratio remains lower than the pre-pandemic level. Delinquency rates for consumer loans and credit cards plummeted during the recession and continue to fall. Consumers have additional debt capacity, and this will provide some tailwinds to continued consumer spending. Households have yet to tap into home equity. The amount of home equity loans outstanding continues to fall and has declined through the entire pandemic.
While retail sales gains have been the strongest on record, current supply chain challenges will also serve as a boost to subsequent goods spending. For example, auto sales have been weak over 2021, relative to historical levels. This is not due to a lack of demand but from a lack of supply. As we move past the supply chain issues impacting auto sales, demand will be sustained due to delayed purchases.
Overall, this outlook is very optimistic about the consumer, more than 2/3rds of the U.S. economy. There are certainly some downside risks to the consumer, and we are seeing that through higher prices.
Southern Indiana
Southern Indiana continues to make steady progress in reducing the steep job losses that occurred during the pandemic recession. As of the first quarter of 2021, payrolls were down approximately 2,600 from the previous year. This is a considerable improvement from the 2020 Q2 deficit that was close to a decline of 12,000 jobs. Average weekly wages saw significant gains across Southern Indiana. The last quarter of 2020 saw the highest increases in average weekly wages going back to 2001. This rise in average weekly wages will persist.
Transportation and warehousing was the leading sector with respect to job gains, adding almost 1,600 jobs over the year.
The biggest decline came in manufacturing with local employers shedding 1,049 jobs over the year. Average weekly wages increased by $55, exceeding the overall average weekly wage gain of $29 a week. The decline in total wages and payrolls imply that jobs lost were primarily lower wage.
To maintain competitiveness and to support higher wages, productivity will be crucial. We can expect a greater reliance and need for productivity-enhancing investments.
The second-largest decline occurred in accommodation and food services, down almost 1,000 jobs compared to Q1 of 2020. The decline in 1,000 jobs is not necessarily a demand problem. This is one of supply, a supply of workers. As we go into 2022, jobs in accommodation and food services will continue to recover as more workers return to the region’s labor force.
For more recent data, and a view of the labor market, we can examine labor force and employment information for Southern Indiana. Unemployment rates in Southern Indiana are at 3%. Employment is slightly higher than the level that existed in February 2020, and the region’s labor force is almost back to the level that existed in February 2020.
Current job postings in Southern Indiana are running at just over 3,000, compared to 2,400 in November 2019, where the region’s labor force was at an all-time high.
Truck drivers, followed by registered nurses and freight movers are the top three occupations with respect to the level of job postings in Southern Indiana.
In November 2019, there were about 50+ openings for truck drivers. Today, that number stands at 240. Registered nurses’ openings were at 78. Today, that number stands at 160.
Freight movers were at 64 openings in 2019. Today, that number stands at 102.
Southern Indiana will continue to see growth through 2022 and should see payroll gains that surpass levels that existed prior to Covid.
We are seeing significant building permit activity in Clark County, relative to the four other counties in Southern Indiana. As of September, building permits in Clark County have already surpassed 2020 totals. In fact, total building permits in 2020 and 2021 year-to-date exceed total permits that existed in the last permit boom of 2006 and 2007.
We can see the dominance of Clark County with building permits by the share of the overall total. Clark County has about 41% of the population, but in 2020, had 76% of all building permits. In 2021, Clark County has 82% of the building permits issued. In 2021, half of the Clark County permits were in multi-family, and in 2020, about 45% were in multifamily. This is very different from the boom of 2007 where only 1/3 of permits were in multifamily. This level of permits will provide another boost to area retail establishments.
Summary
Louisville Metro will see another year of solid payroll gains. An expanding labor force and mitigating supply chain disruptions will support overall payroll growth. Strong household balance sheets will support consumer spending, providing demand for several sectors, including transportation and warehousing. Services spending will accelerate compared to 2021, and this will support leisure and hospitality enterprises. Manufacturing can expect additional growth in 2022 as it continues to work through order backlogs. Automotive will see strong sales relative to 2021, and this will provide another boost to Louisville area manufacturers.
Overall, the outlook for the Louisville Metro economy is quite favorable.
Data Sources: Burning Glass Technologies, STATS Indiana, Bureau of Labor Statistics, State of the Cities Data Systems