By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast
The past couple of weeks or so, the narrative has been changing to include use of the phrase “peak growth”. Several indicators suggest that the nation’s economy will be entering a phase of slower growth, as measured by GDP. This is not surprising and is to be expected. As we move past the pent-up demand phase, and consumers exhaust savings and resume normal consumer behavioral activity, growth is bound to slow down.
Last week, the economy saw an unexpected significant increase in new claims for unemployment. Additionally, the 10-year yield continues to trade under 1.3%, not a strong signal for robust growth ahead. There was also a report that showed consumer sentiment had softened. However, we should ask the basic question of “slower growth” compared to what? For the first quarter of 2021, real GDP growth was 6.4%. The preceding quarter was 4.3%. A rate of 6.4% is the highest since 2003. Even the slower rate of 4.3% exceeds most quarters, except for a couple coming out of the Great Recession, and one in 2014 that registered 5.5%. FactSet estimates annual growth of 6.5% for 2021, and 4.1% for 2022. Estimates have growth declining to 2.3% in 2023, which is more in line with trend growth. As a comparison, the U.S. saw 4.1% annual growth for a quarter in 2015, and 2004 with a rate of 4.3%. So, we are indeed moving past “peak growth”, but strong growth relative to trend, is still in the cards for the rest of this year and into next.
The increase in national unemployment claims prompts a closer look at components of the regional labor market. Continuing unemployment claims across Indiana have been dropping since June 26, when claims stood at 41,504. The most recent continuing claims level in Indiana now stands at 12,955, lower than continuing claims of 19,854 during the last week of February 2020. Indiana initial claims saw a spike in July, from 6,018 to 49,719. Some of this was attributed to manufacturing, with claims running about 3 times the level observed in prior weeks.
Closer to Southern Indiana, employment across the Louisville metro market has been steadily increasing since the first of the year, after mostly moving sideways during the last quarter of 2020 and into 2021. Employment is now about 20,000 under the early 2020 level. Unemployment across the metro area is now comparable to early 2020, just prior to the massive layoffs of the pandemic. While still down by approximately 20,000 from early 2020, the metro labor force has been on an upward trend since early 2021, increasing by roughly 7,000.
We get a glimpse of hiring by observing Burning Glass job postings data for Louisville Metro. Over the past 30 days, the number of job postings across the metro area is lower by about 2,000, compared to February 2020. Compared to a year ago, postings are running about the same. For the entire metro area, registered nurses consistently ranked first with respect to the number of job openings. This was true for both Southern Indiana and Louisville Metro in early 2020. During the depths of the pandemic, truck drivers surpassed registered nurses across Southern Indiana as well as laborers, freight, stock, and material movers. The most recent job postings data show that registered nurses hold the top spot again across Southern Indiana, with a noticeable decline in the number of truck driver postings. In fact, truck driver positions do not even rank in the top 10. Laborers, freight, stock and material movers have also declined, falling to 5th. Holding three of the top five positions include customer service representatives, retail salespersons, and first line supervisors of retail salespersons. Except for the decline in truck driver positions, the most recent job openings picture is more comparable to the job market that existed prior to the pandemic. One interpretation of this is that hiring is beginning to normalize with respect to the types of positions in demand.
With some progress in labor force growth, employment is expected to continue the upswing. Since the start of the year, Louisville Metro has added about 9,000 jobs. This number should begin to accelerate in the 2nd half of the year, especially if labor force growth is sustained.