Early Clues for a Trough in Manufacturing

04.17.2009

Louisville Metro manufacturing has lost about 7,000 jobs since the start of the recession in December of 2007. It will take some time to replenish these jobs, and, and some will not return. A combination of a structural shift in consumer buying and the cleaning up of household balance sheets will prove to be significant challenges to manufacturing durable goods sectors and other discretionary sectors such as retail and leisure and hospitality.

Earlier, I suggested that overall Louisville employment losses may be reaching a trough. One statistic I monitor is the national inventory to sales ratio. As this ratio increases, manufacturers will likely decrease production and employment. As the inventories to sales ratio decreases, there is a need for further production to replace inventories, and consequently manufacturing employment would be expected to rise. A red bar above zero means that Louisville manufacturing employment is increasing, and a red bar below o means that employment is decreasing.

Looking at the graph, notice that when the national inventory to sales ratio increases, manufacturing employment in Louisville decreases. When the national inventory to sales ratio decreases, manufacturing employment in Louisville increases. This pattern is fairly consistent with the exception of the 2001 recession.

As you can see from the graph, we have seen significant spikes in the inventory to sales ratio, and this coincides with the significant losses in Louisville Metro manufacturing.

However, the inventory to sales ratio is now beginning to decrease. This is a positive sign for manufacturing in general. Notice that the losses in Louisville manufacturing are beginning to decelerate or slow down, as evidenced by the latest red bar that is beginning to decrease in size.

Data Sources: Bureau of Labor Statistics for Louisville manufacturing
US Census Bureau for inventory to sales ratio

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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.