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Strong national jobs report: Expect improving employment growth for Indiana and Kentucky

By Uric Dufrene, Sanders Chair in Business at Indiana University Southeast

Jan. 6, 2012 – The Bureau of Labor Statistics released the monthly employment report this morning, and this was one of the most favorable reports in quite some time.

Non-farm payrolls increased in all sectors, except government. For Kentucky and Indiana interests, manufacturing and transportation and warehousing showed solid gains. Given the sluggishness in transportation hiring over the past year, today’s number is encouraging for transportation-intensive states like Kentucky and Indiana. Likewise, the healthy number in manufacturing will subsequently show up in positive short term payroll growth for both Indiana and Kentucky.

Based on today’s report, we should begin to see the negative payroll growth for Indiana reverse. Over the next 6 months, Indiana payroll growth will move into positive territory, reversing the negative changes of 2011. Similarly, Kentucky will continue to see an expansion of non-farm payrolls. Likewise, Louisville Metro employment will continue to accelerate. My November outlook for Louisville Metro was continued payroll growth, with a question mark on manufacturing. Today’s report suggests that the nation may have moved past the slow-down in manufacturing. Hence, the outlook for Louisville Metro now has more upside potential.

Service sectors registered solid gains during December. Retail added 28,000 jobs, and there was strong growth in wholesale trade. Additionally, professional and business services increased by 12,000, consistent with increases over last year. There was a dip of 7,500 in temporary help services. However, I view this decline as a positive indicator regarding improving labor market conditions. As the labor market continues to improve, and competition for qualified employees increases, employers will navigate away from temporary help, and rely more on permanent employees. Today’s negative temporary help services number may be an early indicator of these improving labor market conditions.

The household survey indicated another drop in the nation’s unemployment rate, declining from 8.7% to 8.5%, the lowest since early 2009. On the downside, there was a slight decline in the labor force, however. Hence, a portion of the decline in the number of unemployed might be attributed to workers leaving the labor force. But all in all, the household survey was quite favorable. The number of employed increased by approximately 100,000 and the number of unemployed declined by approximately 300,000. Additionally, the U-6 rate, an alternative unemployment rate that considers part-time workers who want to work full-time and discouraged workers, declined from 15.6% to 15.2%. Obviously, a U-6 rate of 15.2% is still quite elevated, but the decline is an improvement and the trend is downward.

One particularly interesting number was the unemployment rate by education attainment. Throughout both the Great Recession and the recovery, there have been noticeable differences in unemployment with regard to education attainment. Workers with a bachelor’s degree and higher have enjoyed unemployment rates significantly less than the national average and today’s report showed another decline. The unemployment rate for workers with a bachelor’s degree and higher declined from 4.4% to 4.1%, pointing to further evidence on the role of education attainment in a region’s economic performance. On the opposite end, the unemployment rate for those with less than a high school diploma increased from 13.3% to 13.8%. There was also a small uptick in the unemployment rate for those with some college or an associate’s degree.

Wrap Up
Today’s report will continue to support consumer optimism, a time when there are certainly many reasons for consumers to be quite pessimistic. Housing continues to face challenges, and wage growth has been weak. To be sure, challenges in the economy remain. Slowing global growth will weigh on the U.S. recovery, and provide headwinds to overall growth. This is where domestic demand becomes critically important. Growing employment and reductions in the nation’s unemployment rate will support domestic demand.

One of the wildcards in my November outlook was manufacturing. Manufacturing had experienced slower growth in 2011, and the extent of manufacturing growth in 2012 will influence job creation for Indiana, Kentucky and Louisville Metro. This week’s ISM Manufacturing Index was favorable, and todays’ employment report will do much to support domestic demand. We pointed to the slowdown in manufacturing last year, and this showed up in subsequent weaker employment growth. We now have moved past this slow down, and I anticipate stronger employment growth for both Indiana and Kentucky. As the labor market continues to recover, consumer optimism will continue to improve, and likewise improvement in domestic demand. This will provide support to the regional economies and overall job growth.