Economic Update:  Promising Signs from the Bureau of Labor Statistics

03.12.2010

The Bureau of Labor Statistics released the monthly report on state employment this week, and there were promising signs, but challenges do remain.

The unemployment rate for January remained unchanged at 9.7% from December. Compared to January of 2009, the state's unemployment rate was 8.8%. The state unemployment rate likely peaked at 10.6% in June of 2009, and we’ll now see only small declines in the unemployment rate through 2010.

There were some encouraging signs in the household survey component of the report. The size of the labor force increased by approximately 6,500, and the number of employed increased by 4,600. Even though the actual number of unemployed increased by 1,800, these latest numbers do represent an improvement in the state’s labor market. The increase in the labor force suggests that workers are feeling more confident about job prospects and are gradually returning to the workforce. The month over month increase labor market size also marks the first increase in almost a year.

The establishment survey component of the report also included mixed results. Year over year employment losses continue to decelerate, but Indiana employers shed about 2,000 jobs from December to January.

Construction employment continues to exhibit significant challenges, and fell by approximately 2,000 from December to January. Construction employment continues to be adversely impacted by lower levels of building permits on the residential side, and is also being impacted by declines in activity on the commercial construction side.

The outlook last year for construction employment was favorable following passage of the stimulus package. Since January 2009, construction employment in Indiana has declined by 14,000 however. A large chunk of this decline is in the specialty contractor segment (due to declines in residential construction), but employment declines are also present in construction of buildings and heavy and civil engineering construction.

Manufacturing was the big positive in this report and was the one sector registering the largest gains in employment. Indiana manufacturers added approximately 4,000 jobs from December to January as production continues to restock inventory levels. Last year, manufacturers scaled back production to reduce inventory levels due to perceived and actual subdued consumer demand, and the result was significant layoffs in manufacturing throughout the state.

Inventory restocking is currently driving the recovery in manufacturing, and we’ll likely see continued expansion as this phase of the recovery continues and as consumer demand gradually returns. Following this phase in the manufacturing recovery, the key for a sustained recovery will rest with overall consumer demand. Retail sales out this morning continue to point to additional spending by the consumer, and this is a positive sign for that necessary consumer demand. Exports will also play a vital role in the overall manufacturing recovery for Indiana.

Education and health services saw the largest month over month decline, shedding about 6,000 jobs from December to January. We had been seeing a deceleration of employment gains in this sector since the middle of last year, but this significant decline comes as a surprise. As we are now beginning to observe, health care is not totally immune to labor market challenges. Job losses last year likely impacted compensated care, and health care institutions must also closely monitor costs as a result. As health care institutions work to enhance productivity, employment growth will be challenged, particularly on the non-clinical side. The long term outlook should continue to remain positive however.

Leisure and hospitality decline by almost 2,600, and government employment increased by 2,600. Other sectors saw only small changes in employment.

The state's employment situation has stabilized compared to last year, but challenges remain. I continue to expect the state's unemployment rate to bounce around the 10% level, or under 10%. The rate is no longer increasing at the rapid pace we saw last year, but we should not expect rapid declines in the rate this year.

Kentucky Update

Kentucky employers shed about 12,000 jobs from Dec to Jan, and this was the 2nd highest decline in the country. The state’s unemployment rate increased from 10.6 to 10.7.

Unlike Indiana, Kentucky manufacturers saw no change in manufacturing employment. Kentucky saw significant declines in professional and business services, educational and health services, and construction. Trade, transportation and utilities increased by 3,000, with all gains occurring in retail trade. Given the significant role of Louisville in the overall Kentucky economy, I'm not overly optimistic about the next metropolitan employment report for Louisville Metro. The report is out next week, and we’ll provide the update here in the One Weekly.

Suggestions

If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.

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Uric Dufrene.

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in theSchool of Business at Indiana University Southeast. He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels. He previously served as dean of the School of Business.