By Uric Dufrene
Sanders Chair in Business
Indiana University Southeast
One of the concerns expressed at the mid-year outlook in May was the possibility of a national slow-down. Indicators were simply pointing to slower growth, and this slow growth is now evident in recent payroll numbers and sluggish jobless claims. Last Friday, the Labor Department indicated that only 69,000 jobs were added in the month of May, and the nation’s unemployment rate increased to 8.2 percent.
It was a devastating report, and the equity markets responded with a massive sell off. Unemployment claims increased slightly yesterday, but continue to remain elevated above 350,000. Unemployment claims need to resume the downward trend toward the 350,000 level and lower before we see attractive monthly payroll gains.
Manufacturing indicators have been somewhat mixed. The Chicago PMI came in much lower than expected at 52.7, the lowest reading since mid-2009. A reading below 50 indicates contraction in the Chicago area manufacturing. The Chicago PMI is viewed as an early indicator of the closely watched ISM Index, and the market was prepared for a weak reading. However, the ISM came in stronger than expected, helping ease concerns that manufacturing may be entering another cooling period. Other signs of a slowing economy and weaker manufacturing showed up with a disappointing factory orders report, and the past two durable goods reports were less than expected.
Changes in personal spending changes have exceeded personal income changes 10 of the last 16 months. This is likely not sustainable. Given that the consumer makes up 70 percent of the nation’s economy, a subsequent dip in consumer spending might show up as subsequent weaker growth. Add to this, the volatility in the equity markets, and the adverse impacts on consumer confidence suggest that the consumer may be entering another phase of retrenchment.
Louisville Metro update
Louisville Metro recorded the strongest year over year job gains in the first quarter of 2012. The metro region showed very strong gains in professional and business services, and other sectors such as leisure and hospitality and transportation and warehousing showed impressive gains.
The last Bureau of Labor Statistics metro employment report shows that payroll gains have cooled for Louisville Metro. The metro region lost 6,000 jobs from March to April. Except for one month during 2010, this is the steepest decline in non-farm payrolls since early 2009, the layoff period following the financial crisis of 2008.
The slow-down in metro payrolls does not come as a complete surprise. The pace in the 4th quarter of 2011 and first quarter of 2012 was very strong, and not likely to be sustained. The slow-down in national payrolls also shows up locally, and the last metro report in April is indicative of the national deceleration in payrolls. One of my 2012 predictions late last year was that Louisville Metro payrolls would likely exceed the pre-recession peak. During the Mid-Year Outlook in May, it was suggested that we might see a stalling of payroll growth for Louisville. This is still now possible, and the goal of exceeding pre-recession payrolls may now be a steeper hill to climb.
Southern Indiana update
Recently released data show that the slow-down that occurred last year also impacted the Southern Indiana economy. According to Quarterly Census on Earnings and Employment disclosed by STATS Indiana, Floyd and Clark Counties shed total jobs in the 3rd and 4th quarter of last year. A closer look reveals that the driving force behind these job losses was cutbacks in public administration, likely due to the completion of the 2010 Census.
Despite most of the cutbacks occurring because of Census layoffs, the data also point to an overall slow-down in payroll growth. Removing the public administration numbers show that job gains definitely moderated compared to 2010. Manufacturing cooled and the region also saw reductions in transportation and warehousing. During the last quarter of 2011, the two sectors adding the largest number of jobs were construction and administrative and support and waste management and remediation services. Construction added 291 compared to the same quarter of 2010, and the Administrative subsector added 318. The construction number represents the largest gain in construction since the start of the recession, and the second consecutive quarterly gain.
There were some bright spots in the latest job numbers by county. Both Floyd and Clark saw advances in professional and technical services and management of companies. 4th quarter gains were 41 and 42 respectively. Despite the relatively small size of these sectors, the gains do add to a positive trend for Southern Indiana.