Economic Update:  Employment changes and how you should adapt

09.04.2009

In a recent column, we reported that employment losses in Louisville appear to be decelerating.  Based on current data, we might point to the month of May 2009 as the trough in employment losses for Louisville Metro.  

Louisville Metro Sector Employment

Figure 1 below presents employment changes on some of the larger sectors in Louisville Metro.     The deceleration in manufacturing losses was the primary contributor to the overall slowing of employment losses for the month of July.  Based on the ISM Index reported this week, we will likely see a continued deceleration in manufacturing employment losses.  Losses must decelerate before we can see gains, and the appropriate direction of change has begun.

July retail shows the largest year over year employment losses since the start of the recession.  The 2,900 year over year decline for retail will likely begin to improve as the country exits the recession.  However, we should not expect a return to the consumer spending that was associated with the height of the home equity ATM machine.    The country’s exit from the recession will produce slow growth, and this is primarily due to the consumer.   Consumers will need some time to continue cleaning up their household balance sheets, and this can only occur through less spending.   The other component impacting consumer spending will be on the credit demand/supply side.    The supply of credit may be available, but the demand will not be there.   

The bright spot for Louisville Metro through the entire recession has been education and health services.    We have seen a deceleration of employment gains experienced during the first quarter, but the change continues to be positive.

Unemployment Rates

As you can see in Figure 2 below, unemployment rates for Floyd and Clark have consistently been below the overall Louisville Metro unemployment rate.    July saw another decline in the local unemployment rates for Floyd, Clark, and Louisville Metro.  Altogether, 3,000 fewer people were unemployed from June to July.

Deceleration of employment losses will begin to show up in the unemployment rates for the region.   As employment losses decelerate, you will begin to observe small declines in the unemployment rate.    We can expect a few month-to-month increases, but the trend will be in a downward direction.   However, we cannot expect to return to rates in the 6% range for quite some time.    We’ll see rates under 10%, and will see local unemployment rates stabilize between the 6% and 10% range, with a bias in the upper area of this range.

National Employment Report

The Labor Department reported this morning that national employment losses continued to decelerate.   The nation lost 216,000 jobs from July to August, and this was better than the consensus estimate.  The nation’s unemployment rate increased to 9.7%.   Even though employment losses continue to decelerate, the nation has yet to add new jobs. 

National Unemployment Claims

New claims for unemployment continue to point in a downward direction.  Yesterday’s weekly report showed that new claims fell by 4,000.   Unfortunately, the 4-week average increased.  Even though the 4-week average increased, we should continue to see a gradual decline in new claims for unemployment.   The series is quite volatile.   So we can expect to see week to week variations of increases and declines.

Going Forward

Employment losses will continue to decelerate.   We will not see as much progress in the unemployment rate however.   As the country exits the recession, growth will be quite sluggish.  Businesses must adapt to this “new normal” through appropriate changes in business strategy.  Businesses that recognize the changes in consumer habits, and creatively capitalize on these changes will be at a competitive advantage.

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.