Home » Analysis: Manufacturing growth in Louisville has come with decline in average weekly earnings

Analysis: Manufacturing growth in Louisville has come with decline in average weekly earnings

By Uric Dufrene
Sanders Chair in Business
Indiana University Southeast

Uric Dufrene is the Sanders Chair in Business at Indiana University Southeast.

(Dec. 21, 2012) — Manufacturing has been one of the leading sectors for Louisville Metro over the past year. As of October, Louisville area manufacturers added 3,300 jobs, down from 4,300 in the middle of the year. Nationally, manufacturing has retreated from a post-recession bump, and some of this decline can be seen with the decelerating growth in Louisville area manufacturing.

Unfortunately, this manufacturing growth in jobs has corresponded with a striking decline in average weekly earnings. As the graph below shows, manufacturing wages in the Louisville Metro area has declined significantly since last year. While this may serve as a boost to profitability and competitiveness of area manufacturers, it certainly will work against gains to personal income, a metric where Louisville Metro has consistently lagged its peers.

Recent data on manufacturing present mixed signals regarding the overall manufacturing outlook. Most recently, Federal Reserve manufacturing indicators out of the New York and Philadelphia areas were mixed. The Empire Manufacturing Survey declined much more than expected, yet the Philadelphia survey surprised to the upside. Both indicators provide early indications for the closely watched ISM Index, a measure that last showed the lowest level of manufacturing activity since mid-2009.

Despite today’s market volatility associated with the latest twist of the fiscal cliff, there were a couple of indicators today that point in the favor of renewed strength in manufacturing. Durable goods orders increased 0.7 percent, higher than the consensus estimate of .05 percent. Minus the volatile transportation component, new orders for durable goods increased 1.6 percent, also higher than the consensus estimate.

In addition to being a favorable report, it helps reverse the recent downward trend in durable goods orders. The graph also shows the relationship between national durable goods orders and total jobs for the Louisville Metro area. Any upturn in durable goods should also provide strength for subsequent job gains in the metro area.


The other favorable indicator today was from personal income and outlays. Personal income showed a strong gain in November, coming in at double than the consensus number. Personal spending also showed a healthy gain. Both numbers are particularly relevant because of the subsequent impact on consumer demand. Consumer demand will be a key to sustaining some of the manufacturing gains enjoyed by Louisville Metro and the Indiana and Kentucky state economies.

State Employment Report

The Bureau of Labor Statistics monthly state employment report was out this morning (Dec. 21), and the results are mixed for Indiana and Kentucky. Kentucky did see an increase of 3,800 nonfarm payroll jobs and a slight decline in the seasonally adjusted unemployment rate, falling from 8.4 percent to 8.2 percent.

On the other hand, Indiana saw a fairly significant drop in nonfarm payrolls. November payrolls declined by 9,100 and the unemployment rate remained flat at 8 percent. Losses in construction and professional and business services were primarily responsible for the overall loss in nonfarm payrolls. The figure below shows the year over year decline in Indiana payrolls over the past quarter. Any decline in manufacturing will exacerbate those losses.