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Economic Update | Louisville Metro Jobs Machine and Another Inflation Super Thursday

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 4th 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.

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