Economy and Education & Workforce Development and Manufacturing & Technology and Transportation, Distribution & Logistics

ECONOMIC ANALYSIS: Jobs news is negative however you slice it

April 9, 2007

What's the news on Indiana employment? Odd as it might seem, that phrase is almost a contradiction in terms. For while we do receive very timely, detailed information on how many jobs are carried on Indiana employers' payrolls each month, the practical challenges in keeping close tabs on the latest zigs and zags in the 3 million-strong Hoosier labor force make the interpretation of the fresh data difficult.

Only after the data have sat on the shelf for half a year or more-when they are revised or can be reconciled with other, slower arriving information-can firmer conclusions about the direction of the economy based on job totals be made. And, of course, by that time, the conclusions might be obsolete.

But imperfect information trumps no information, and questions about the health of the Indiana economy right now-not six months ago-aren't going to go away. That is particularly so as the legislative deliberations in Indianapolis move to a decisive stage, and budget commitments are taking firmer shape. So even if we stand on the shifting sands of preliminary estimates, let us ask the question-how is the state economy doing so far this year?

The short answer is: not as well as we would like. After slowing considerably over most of 2006, payroll employment growth has actually turned downward since the end of last year, on a seasonally adjusted basis. A sharp contraction in construction employment in recent months, and the continuation of the downward trend in manufacturing employment that began 12 months ago, have been the biggest reasons why.

The declines have been small. For instance, in February the state's payroll employment total was 0.1 percent below its level of February 2006. And the declines have been matched, or exceeded, in every neighboring state, with the exception of Illinois. But they have also been unwelcome. The question is, given the variability of the most recent employment estimates, are the declines real?

At least in manufacturing industries, where the task of estimating employment is a bit easier, the answer is almost certainly yes. After treading water at about 570,000 jobs for two straight years, Indiana manufacturing employment reverted to its longterm trend, posting a 13,400-job loss over the most recent 12 months. Those losses reflect only some of the downsizings and plant closings that have been announced.

But there is more to the easing in manufacturing activity than just payrolls. After a relatively robust 2006, hours and earnings in manufacturing facilities have fallen to earth with the beginning of the new year. This reflects not only the reduced activity in existing plants, but also the net effect of higher-wage manufacturing job losses being offset by gains in lower-paying industry jobs.

But the real story in Indiana employment growth is what we are much less certain about, namely, payroll growth in the services-producing side of the economy. Industries such as professional business services, transportation and warehousing, and health and educational services have accounted for the lion's share of net job growth, both in the state and the nation, over the past two decades. But has growth in office and warehouse jobs been enough to offset losses elsewhere in the state economy?

In some parts of the state, the answer would appear to be yes. The Indianapolis metropolitan area, the most diversified in the state, managed to grow payrolls by 1.4 percent in the most recent 12 months, while the startup of loan processor Sallie Mae helped Muncie post its biggest year-over-year job gain in over a decade. Yet statewide, the sluggish growth of services employment-as stated in the preliminary data-is the real reason why state employment growth has been disappointing.

Economists such as myself have the luxury of waiting until the data solidify before drawing a conclusion to all this. Indeed, a major revision to the employment data due later this month will shed new light. But even we would have to say that the recent performance of the Indiana economy is cause for concern.



Barkey is a research economist at Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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