Home » Analysis: State employment report reveals less-than-ideal labor market conditions

Analysis: State employment report reveals less-than-ideal labor market conditions

By Uric Dufrene
Sanders Chair in Business
Indiana University Southeast

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

The Bureau of Labor Statistics’ monthly regional employment report, released this morning, suggests mixed results for both Indiana and Kentucky.

The unemployment rate for Kentucky increased slightly to 8.3 percent in July, up from June’s 8.2 percent. The small increase in the unemployment rate was accompanied by a small seasonally-adjusted decline in the state’s labor force, and a small gain to the number of unemployed. Taken together, the combination of a declining labor force and an increase in the number of unemployed is not the ideal labor market condition, resulting in the unemployment rate increase.

Results were similar for Indiana, but perhaps more pronounced. The state’s unemployment rate increased to 8.2 percent, up from 8 percent in June. The state’s labor force declined by approximately 20,000 (seasonally-adjusted), and the number of unemployed increased by about 5,000. As in Kentucky, a declining labor force and increasing number of unemployed do not imply favorable labor market conditions, and suggest that the state’s labor market has cooled somewhat.

An examination of the non-farm payroll data provides some indication of this labor market cooling. Statewide, Kentucky added 1,600 non-farm payrolls from June to July. This number is up slightly from the previous month, but lower than the average of 4,400 in the last quarter of 2011 and first quarter of 2012. Manufacturing was the driving force behind this monthly gain for Kentucky, as state manufacturers added 1,800 jobs from June to July. This is likely because of hiring in the automotive and related sectors. Other sectors showed small changes, both up and down, or no over the month changes.

Indiana had one of the largest over-the-month gains in the country. Indiana added 10,700 jobs from June to July. However, the headline number does not always tell the complete story, and today’s number for Indiana is no exception. Private sector job growth for Indiana was not as strong. The 10,700 monthly change in jobs was driven primarily by government hiring, adding 7,400 jobs. Private sector growth in Indiana was positive, but over shadowed by the stronger growth in government sector hiring. Taken together, both private and public sector hiring certainly surpassed the previous month’s drop of 5,300, and the 7,400 gain in government sector hiring was also the strongest since May 2010.

Unlike Kentucky, Indiana’s manufacturing sector showed a small decline in hiring, with payrolls dropping by 200. Construction showed a gain of 2,400, and education and health services and leisure and hospitality showed small gains of 800 and 900 respectively. Other sectors had small changes or were flat.

The bottom line

Despite today’s relatively weak report for both Indiana and Kentucky, there are some positive signs that the economy may be on the upswing again. Retail sales increased last month, unemployment claims have been improving, and industrial production showed a gain this week. Last month’s national jobs report was also quite favorable.

For both Indiana and Kentucky, manufacturing will continue to be a wild card. Automotive hiring has fueled some of this growth as pent up demand for automobiles has stimulated domestic sales. This manufacturing growth significantly supported payroll growth in both states, accounting for almost a third of job growth in both states over the past year. However, manufacturing indicators continue to suggest that employment growth may decelerate, likely one of the reasons why manufacturing growth was basically flat for Indiana last month. This week, for example, both the Philly Fed Survey and the Empire Manufacturing Survey contracted and came in under consensus estimates. The national ISM Survey and the Chicago PMI also showed potential developing problems for manufacturing in recent reports.

Reports on consumer confidence, and the consumer appetite for durable goods and automobiles continue to be important indicators to watch. Labor market conditions in both Indiana and Kentucky have cooled just a bit, and the degree of cooling will depend on the manufacturing sector.