Economic Update:  Positive News in Manufacturing & Employment

04.02.2010

We continue to see reports of solid expansion in manufacturing.  Yesterday’s ISM Manufacturing Index increased to 59.6, suggesting continued expansion in this key sector for the region.  Any number above 50 denotes expansion in manufacturing, and any number below 50 suggests contraction.   The expansion in manufacturing today is stronger than the environment leading to the Great Recession.  In the months leading up to December 2007, the ISM Index fluctuated around 50.   This latest number is approaching 60, and that is very strong (Figure 1).

How does this recent ISM number compare to previous post-recession bounces?    If you observe Figure 2 below, you will notice that the ISM typically hits 60 or exceeds 60 following every recession going back to 1950.  We first talked about the inventory restocking that would drive the manufacturing recovery, and this is now in full force.    The question now is when we begin to see gains on the manufacturing employment side?   

Regionally, manufacturing is probably enjoying the biggest deceleration in job losses.  But we have yet to see sustained gains in manufacturing employment.     Positive gains are around the corner, but it will just take some time.  Gains in productivity are allowing manufacturers to fill orders in this initial stage of the recovery, and is serving has a headwind to accelerated re-hiring.  Following this initial phase, of the recovery however, sustained demand will then cause manufacturers to see more positive employment gains.

Figure 1

Source:  barrons.com

Figure 2

Floyd and Clark Employment

2009 Q3 county employment data were just released.   The data shows an acceleration of job losses from 2008Q3 to 2009Q3, with more than half of these losses occurring in manufacturing.   Since the 4th quarter of 2007, total job losses for Floyd and Clark number approximately 4,000.    Keep in mind that this is backward looking data, and the 3rd quarter of 2009 is believed by many to mark the end of the current recession. 

The two significant gains in the report include health care and public administration.   Health care has been the most resilient sector during the current recession.

Figure 3

National Employment Update

This morning’s employment report showed a gain of 162,000 jobs, the first significant gain than prior to 2007.  The gain was not tied to Census hiring alone.  123,000 private sector jobs were added.  The largest gains were in temporary help services and health care and educational services.   Temporary help services gains provide further of additional future job growth, as employers convert from temporary to permanent status.

Manufacturing employment was positive, linked to some of the issues discussed above.  Transportation and warehousing also added jobs, another positive for the regional economy.  As business and consumer activity continues to accelerate, we should see continued gains in transportation and warehousing.  Retail trade was also up, another positive sign that the consumer is returning.

Returning workers to the labor force will place upward pressure on the unemployment rate if job creation fails to keep pace with re-entrants.   Today’s unemployment rate remained unchanged at 9.7%. 

Summary

Today’s national employment report has to be viewed favorably.  The private sector added over 100,000 jobs, and there was also growth in key sectors.  Revisions to previous reports also showed private sector gains for January and February.  For Louisville metro, we will begin to see positive year over year job changes sometime during the 2nd half of this year. 

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.