–Slower growth emerging for nation
submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
It has been an exhausting roller coaster ride for the past couple of weeks. As we mentioned in the two updates, we are seeing changes in the indicators that point to a pivot in the economy, from solid to slower growth, and a reversal of optimism, from upbeat to diminishing. Before we start with some of the emerging negatives, let’s take a quick look at some good news: the latest data on Southern Indiana.
County payroll data were recently released, and the results were very favorable for Southern Indiana. Payrolls, or jobs located in the five Indiana counties of the Louisville Metropolitan area, surged for the 3rd quarter of 2024, increasing by 1,816 compared to the prior year. Health care once again led all job gains, with the industry adding over 1,000 jobs. Transportation and warehousing added almost 700 jobs. Since Covid, this industry has gained over 2,000 jobs. Other industries increasing by 200 payrolls, plus or minus, include wholesale and retail trade, professional, scientific and technical services, and educational services. The growth of all these industries points to a strong Southern Indiana economy in the second half of 2024.
Other notable positives in the report include the increase in establishments and wages. Establishments increased by 138, the largest increase since the first quarter of 2023. Total wages, an accumulation of all wages paid by establishments located in the five Indiana counties of the Louisville MSA region, saw the largest increase on record. Total wages increased by $231 million, partly driven by the largest increase in average weekly wages of $139. As a comparison, the largest increase prior to this level was $170 million back in 2022. A closer look at the data indicates that these wage gains were driven primarily by the retail trade sector, showing a significant jump in average weekly wages. The jump is unusual, so this might require some additional scrutiny.
Manufacturing, suffering from the nationwide manufacturing slump, lost more than 700 jobs, now 6 consecutive quarters of payroll declines. Outside of recessions, the most recent time of slower manufacturing growth occurred in 2018 and 2019. Recent national developments point to a deteriorating environment. The latest ISM report, a measure of the state of manufacturing and developed from surveying purchasing managers, edged closer to contraction again, but more alarmingly was the significant drop in new orders and a spike in prices.
This leads us to the national economy. Uncertainty, largely driven by the seemingly daily changes in tariff policy, is having an impact on consumer and business sentiment. The latest Conference Board Consumer Confidence number, a series that had been more positive than the alternative Michigan consumer sentiment measure, dropped, and the decline was larger than expected. Consumer spending, measuring both goods and services spending, dropped 2/10ths of a percent, the largest decline since February 2021. The decline would have been even higher without the large increase in housing and utilities, reflective of higher rent payments and home ownership costs.
The last national employment report showed a solid increase in payrolls. Even though the change was less than expected, an increase of 151,000 provided some confidence that the labor market is maintaining some strength. Unemployment claims spiked to 242,000 the week before last but fell back to a level closer to 200,000. The household component of the employment report was less favorable. Employment declined by more than 500,000, and the labor force participation rate, an important input to the supply side of the economy, declined by 2/10ths of a percent. The result was an increase in the unemployment rate from 4% to 4.1%.
The Beige Book, the Federal Reserve publication based on feedback and input from business organizations throughout each district, shared light to some of the concerns around uncertainty. The St. Louis District portion of the report, which covers Southern Indiana and Kentucky, cited that “contacts across multiple industries expressed uncertainty about the impact of policy changes and were holding off investment until further clarity.” Contacts indicated that the “outlook has declined from slightly optimistic to neutral.” The volatility in equity markets, connected to policy uncertainty, along with a decline in confidence and optimism by both consumers and businesses, will push slower growth over the near term. Treasury Secretary Scott Bessent indicated in a recent interview that one of the goals of the administration was to decrease the rate on the 10-Year Treasury. The 10-Year is in fact, declining, but for the wrong reasons, slowing growth and now a recession on the horizon. One positive is that reductions by the Federal Reserve may now be back on the table sooner than expected from just two weeks ago.
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