Economic Update: What effect did "cash for clunckers" have on the GDP? Plus a local employment update
-10.30.2009
Local Employment Update
Unemployment rates in the region continue a downward trend, after reaching a peak during the middle of this year. Unemployment rates for both Floyd and Clark counties continue to be lower than the Louisville Metro area, and lower than national and state averages. Floyd and Clark county unemployment rates declined significantly to 7.4% and 8.2% respectively, from the previous monthly readings of 8.3% and 8.8%.
Figure 1
Source: Bureau of Labor Statistics (metro rate) and STATS Indiana (county rates)
There is one important caveat to the decline in the unemployment rate however. Across the local area, the number of unemployed is declining, but we are also seeing similar declines in labor force numbers. On the other hand, the number employed shows a small increase for Louisville Metro and small declines for Floyd and Clark counties. Combining this information could point to a potential discouraged worker problem. We’ll monitor the data and will keep you posted on this development.
Regarding the discouraged worker problem, the Bureau of Labor Statistics released a new labor utilization rate for states. This alternative measure of unemployment includes discouraged workers and part-time workers for economic reasons. According to this alternative unemployment rate, from the 4th quarter of 2008 to the 3rd quarter of 2009, the average Indiana unemployment rate was 16.6%.
Figure 2 examines year over year employment changes for Louisville Metro. So for example, the first set of bars (January) represents the change in employment for the respective sectors for the month of January (employment in January 2009 minus employment in January 2008). As you can see from the bar chart, employment losses continue to decelerate after hitting a trough during May. The Louisville Metro still has an uphill climb to recover total job losses, but a recovery has begun. Take a look at the red bar, manufacturing. Manufacturing losses have decelerated significantly after also hitting a trough during May. May losses were 10,000 and the latest reading shows losses at 3,900.
Figure 2
Source: Bureau of Labor Statistics
GDP Estimates for 3rd Quarter
The Bureau of Economic Analysis released 3rd quarter numbers for GDP Thursday morning. Advanced estimates show that GDP grew by 3.5% during the third quarter, above what most economists had anticipated. A closer review of the numbers shows that the predominant contribution to this growth was consumption spending, primarily durable goods. The driving force behind this number was the “cash for clunkers” program. Almost 1/3 (1.01) of the 3.5% number came from motor vehicles. So while this report will be celebrated, we have to keep in perspective that this growth was driven primarily by a government program. The question going forward is whether the consumer will continue to answer the call, and drive GDP growth moving forward?
Other components of the report showed that housing contributed ½ of a percentage point to the 3.5% number. The $8,000 tax credit has stimulated buying; allowed existing homes to clear the market; and consequently has spurred home construction. Locally, building permits are on the upswing, with the last quarter running at an annual rate that would exceed 2008 numbers.
National Unemployment Claims
Weekly claims for unemployment were also released Thursday morning and national new claims for unemployment dropped by 1,000. Both Indiana and Kentucky reported declines in new claims that exceeded 2,000. Indiana cited fewer layoffs in manufacturing and automotive industries, and Kentucky cited a reduction in layoffs in manufacturing. While we continue to see a decline in claims nationally, this report simply indicates that the nation continues to experience labor market stress. New claims for unemployment will have to fall considerably from the 500,000 weekly numbers before we see noticeable declines in the nation’s unemployment rate.
Economic Outlook 2010
Don’t forget about the Economic Outlook 2010 program at IU Southeast. The Kelly School will be giving the outlook for national, state, and financial markets, and I’ll be giving the local outlook for 2010. Hope you have a chance to attend. It is a very nice event! For more information, click here:
http://www.ius.edu/business/Outlook.cfm
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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This information is provided by
Uric Dufrene.
Uric Dufrene, Ph.D. holds the Sanders Chair in Business in the School 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.
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