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Economic Update | Southern Indiana Payrolls Reach Record High

submitted by Uric Dufrene, Ph.D., Interim Executive Vice Chancellor for Academic Affairs, Sanders Chair in Business, Indiana University Southeast

Recent data releases show that Southern Indiana continues to see strong job growth. The most recent county-level data show that payrolls increased by 4,127 during the 3rd quarter of 2022. This is the highest increase since the Covid pandemic, not counting one outsize increase due to the reopening. Since 2001, there has only been one other quarter where the region observed a greater change in jobs, and that was in the fourth quarter of 2015. The five Southern Indiana counties of the Louisville Metro region are now at the highest level of payrolls in history. The region now boasts 112,807 jobs, exceeding the previous 2022 Q2 high of 111,854.

The largest gains occurred in the accommodation and food services industry, adding 1,397 jobs. The significance of this gain is the industry is now at the highest level of jobs in the history of the series. In fact, the industry has added about 1,000 jobs since the 3rd quarter of 2019, just before the pandemic. Average weekly wages are also at the highest level, at $443, and 15% higher than the previous year. Just prior to the pandemic, average weekly wages in food and accommodation were at $316. So, the industry has seen a sizeable increase in wages, increasing by 40% since the 3rd quarter of 2019. This has implications for pricing, profitability, and labor.

Nationally, the services economy is running strong. The latest ISM Services index came in higher than expected, and well over 50, the mark that shows expansion. The latest report was released on Friday, and the equity markets responded with strong gains. This is one of the challenges of the Fed. The service economy is expanding, and bringing wage growth along, as we see with the strong Southern Indiana wage growth in accommodation and food services.

The second leading industry with respect to job growth is admin. & support & waste mgt. & rem. services, adding another 780 jobs. Most of these gains are likely in temporary labor services. Along with the sizeable increase in payrolls, average weekly wages are also at the highest level in the history of the series, at $976. This represents an increase of $123 from the previous year, representing an increase of 14.4%. Since the 3rd quarter of 2019, average weekly wages have increased by 30%.

Another notable increase came in manufacturing, adding almost 600 jobs over the year. Average weekly wages now stand at $1,188, which is the highest for a 3rd quarter result. Overall, average weekly wages peaked at $1,253 for the 4th quarter of 2021. During the 3rd quarter of 2022, the national ISM Manufacturing Index was hovering right at about 50. In fact, it fell below 50 during the 4th quarter of 2022. Despite the deceleration in national manufacturing, manufacturing payrolls across Southern Indiana were accelerating through 2022. We also saw similar trends across the metro area.

One of the reasons why the region continues to see strong job gains is due to growth in the labor force. Unlike labor force trends that we observed nationally over 2022, the Southern Indiana labor force did see positive traction over the year. The latest data show that the Southern Indiana labor force increased just above 4%, whereas national labor force growth just eked out a .01% gain.

Last month saw strong payroll growth nationally. The monthly employment report showed payrolls increasing by a whopping 500,000 plus. Retail sales saw sizeable gains, and inflation measures also ticked up. All this is making things very complicated for the Federal Reserve. One month is not a trend, but if we see another strong payrolls report for February, along with any pick up in wages, this will change the calculus for the Fed. Markets continue to price in another 25 basis points increase for the next meeting in March. This may change if we see stronger employment reports and additional signs for accelerating inflation. We thought peak inflation was in the rear-view window. The next couple of months will be quite telling, and additional data will give us hints on pending Fed action.

Mar 27, 2023
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