Economic Update:  Indiana Employment Shows Continued Improvement

06.18.2010

The Bureau of Labor Statistics released the Regional and State Employment and Unemployment report this morning.  Indiana’s unemployment rate remained at 10% for May.  Despite no change in the unemployment rate, the report does show that the state continues to undergo an economic recovery. 

The state labor force increased by approximately 7,000, but the number of unemployed only increased by slightly less than 1,000.    We continue to see signs of an increasing labor force as workers become more encouraged and are entering and returning.  The mismatch between the increase in the labor force and unemployed suggests that entrants and re-entrants to the labor force are finding employment. 

Kentucky’s unemployment rate was 10.4%, down from the 10.6% April rate.   Unlike Indiana, Kentucky actually saw an approximate decline of 5,000 in the labor force.   Similarly, the number of unemployed persons in Kentucky declined by approximately 5,000.   Taken together, this suggests that a number of unemployed individuals may have simply dropped out of the labor force.     Nationally, we do know that unemployment duration has been the highest on record.  While we do not have data on unemployment duration at the state level, I suspect the decline in the number of unemployed and the labor force could be linked to unemployment duration.  Given the contribution of Louisville to the overall Kentucky economy, we may see similar results for Louisville in the next metropolitan report on employment and unemployment.

Indiana gained almost 12,000 jobs from April to May.   Manufacturing continues to recover and added approximately 2,000 jobs for during May.   The initial recovery in manufacturing was attributed to the inventory restocking phase.  However, we are about to enter a phase where consumer demand will have to sustain this recovery.  The consumer has been returning, but last month we saw an unexpected drop in retail sales.   The return of the domestic consumer and exports will determine the extent of a sustained recovery.  Automotive sales are also critical for Indiana and Kentucky.

Construction employment declined slightly under 2,000.   Despite government incentives to support housing, real estate will continue to face challenges.   The expiration of the government tax credit will likely place additional strains on housing and construction.   For example, the government reported this week that housing starts declined by 10% last month, and the Housing Market Index (survey of home builders) saw a significant drop.   Consequently, we will likely see continued slowness in both housing and the commercial real estate sectors.

Trade, transportation, and utilities declined by almost 3,000 for the month of May.    We’ll have to investigate further to determine if these losses can be attributed primarily to transportation or trade (retail and wholesale).   As of this morning, I could not pull the data.  But we might likely find that these losses will be linked mostly to retail.  For the most part, transportation has been gaining jobs due to improvements in manufacturing.   So I would be very surprised to find that transportation declined in employment.    While the consumer is gradually returning, retail continues to see slow growth.   Last month, retail shed jobs nationally, and we also saw a larger unexpected decline in retail sales.

Professional and business services increased by almost 6,000 during May.   This is an impressive gain, and is indicative of an overall economic recovery.  This sector includes temporary labor services and this is also an early barometer for private sector hiring. 

Locally, Louisville Metro has seen four consecutive gains in professional and business services (PBS).  Several months ago, we indicated that we should begin to see positive year over year employment in Louisville Metro in the 2nd half of the year.   Part of this outlook was attributed to the activity we were seeing in the PBS sector.   So I would not be afraid to bet that positive year over year changes in Louisville metro employment are just around the corner.

Education and health services saw another increase in employment and leisure and hospitality also increased from the prior month.  Healthcare has been the most resilient sector during the recession, and we continue to see positive changes in employment.  An increase in leisure and hospitality is another sign that consumers are gradually increasing their discretionary spending.

The government sector added 5,000 jobs during May, and total employment in government is about 1,000 higher than last year.  Some of this is likely attributed to temporary Census hiring however.  If we remove the increase in government hiring, the private sector in Indiana added approximately 7,000 jobs in May.

Over the next couple of weeks, we will provide an update on jobless claims, both national and local, and update you on the Louisville employment situation.   One concern is the stubbornness of a sustained decline in national jobless claims.   At the start of this recession, national jobless claims were approximately 350,000 weekly.   During the recovery, these claims have not dropped below 450,000, an increase of 100,000 weekly.  Until we see claims drop below the 450,000 weekly, we are not going to see a significant drop in the national unemployment rate.  We’ll have more on this later.

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.