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Economic Update | Low Unemployment Rates Bring Challenges Too!

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

Wishing everyone a happy, prosperous, and healthy new year!

Just as we resume our bi-weekly columns and start another year, we have good news to share. Unfortunately, this good news is the other side of the coin of challenges.

County payrolls data for the 2021 Q2 have been released, and Southern Indiana experienced a significant pick-up in payrolls. Looking back at the dark days of early 2020, the second quarter saw record declines in payrolls due to the Covid pandemic and the temporary closing of many establishments. Total payrolls had declined by almost 12,000 from the previous year, about double the losses that existed during the Great Recession.

We now see a complete reversal of the 2020 deep payroll losses. 2021:Q2 saw an increase of payrolls of 11,572, or almost 12,000. The second quarter of 2021 was one year into the pandemic, and that payrolls total puts the region only down about 1,800 jobs from the second quarter of 2019. Following the Great Recession, it took almost 7 years for the region to recapture the number of jobs lost. So, while the Covid recession was very deep, it was also a very short recession. This recovery of jobs can be explained by a V-shape that we projected early during the pandemic.

All industries showed positive job gains, except for public administration (likely the reduction in Census payrolls). Leading the way was accommodation and food services (+2,355), followed by manufacturing (+2,042), and health care and social services (+1,415). Retail (+969), administration and support, and waste management services (+777), and transportation and warehousing (+754) also showed significant gains from the previous year.

Calculating a year-over-year change from a lower base can magnify the impact. So, to control for the base year effects, we can examine the change in payrolls, wages, and establishments over a two-year period. The results are quite striking. During the Great Recession, as a comparison, the region saw consistent declines in the number of establishments. At the beginning of the Great Recession, the region was home to 5,584 establishments. At the recession exit, that number was 5,324. We see the opposite for the Covid recession. In fact, not only do we see a gain in the number of establishments, but we also observe the largest change in establishments going back to 2001. This is both for one and two-year changes in establishments.

We see similar changes in average weekly wages. Both one and two- year changes in average weekly wages are the largest since 2001, the start of the data series. The most recent quarter shows that average weekly wages increased by $92 over the two-year period, for a 12% increase.

With more recent labor force data, we observe that the recovery in Southern Indiana is well underway. As of November 2021, the unemployment rate for the five-county region was a staggering 1.8%, the lowest going back to 1991, and perhaps the lowest on record. A 1.8% unemployment rate tells us that we have a very tight labor market. We can see this by comparing the size of the labor force to the number of employed across the five-county region. In late 2021, the size of the labor force exceeded employment by only 2,654. These are estimates and subject to revision but clearly point to a labor scarcity. On the bright side, the last three national employment reports did show some positive movement in the size of the labor force. While the headline payrolls number was less than expected, the household survey showed continued gains in the labor force. As we go through 2022, we will likely see labor force gains accelerate, and this applies to Southern Indiana and Louisville Metro. Labor force gains will be the key to employers filling available positions.

Data sources: FactSet, Bureau of Labor Statistics, STATS Indiana

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