Economic Update:  Unemployment Update and what role customer service plays to the "new normal"

07.31.2009

Louisville Metro Employment Update

Metropolitan employment numbers were released this week, and once again we have mixed results.   The unemployment rate increased from 10.2% to 10.5%, but total employment losses actually decelerated from May levels. 

The small increase in the unemployment rate can be partially attributed to a seasonality component.  Since 1990, the typical increase in the unemployment rate from May to June is about 2/10ths of a percent.  So while this increase was noticeable, it was only slightly above the seasonal increase.  Taking seasonality into consideration, we could probably conclude that there was either no change or a very small change in the unemployment rate.

On total employment losses, we actually saw a deceleration in year over year employment losses from May to June.   From May 2008 to May 2009, total job losses stood at 29,900 and June losses have now declined to 27,100.   In terms of specific sectors, manufacturing, professional and business services, and leisure and hospitality all saw employment losses decelerate.  However, I suspect that some of the gains in leisure and hospitality are probably attributed to seasonality effects.   Educational services and health care continue to show year over year gains, but these gains have decelerated since the first quarter.

So we have decelerating employment losses (a good thing) and an increasing unemployment rate (a bad thing)?   How do we reconcile the conflicting signals?  In terms of year over year employment losses, I continue to believe that these losses have stabilized, and that we have basically reached a trough.  We may see month-to-month up and down movements, as we saw last month with an acceleration of job losses.  However, I don’t think year over year employment losses will go much higher than the upper 20,000 level.  

As we have stated in the past, we will be in for a very wide U shape recovery.  That implies that these month-to-month losses will be fairly stagnant for the intermediate term.  That is, we should not expect significant month-to-month gains moving forward.    Even though we may have bottomed out in terms of employment losses, the unemployment rate will continue to rise due to the duration of unemployment, which is at 24.5 weeks nationally.   The economy will have to begin creating new jobs until we see an overall decline in the unemployment rate.

The “new normal” will see a thriftier consumer with a higher savings rate, and less discretionary spending.  This suggests that the recovery is going to be very slow, and jobs that existed in the past, particularly manufacturing, may not return.  

On the plus side, unemployment rates for Floyd and Clark have been consistently less than Louisville Metro and the national average.  Keep in mind that an unemployment rate is not geographic specific.  So for example, a Floyd County resident who may have worked in Louisville, but is currently unemployed, will show up as unemployed in Floyd County.

From a business strategy perspective, customer service will be paramount.   Retaining customers will require that they perceive greater value for the same or lower price.  It will not be business as usual going forward, and businesses that know how to respond to this “new normal” will prove to be the largest gainers in market share.   In addition to customer service, you have to think about goods and services that will be priced accordingly to appeal to the “new normal”. 

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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.