News and Tribune

Clark County

August 18, 2013

Louisville region almost out of recession

Switch in industrial to service based economy

 The region’s economy has recovered from the recession, almost.

Recently released analysis published by the Federal Reserve Bank of St. Louis said the Louisville metropolitan region is well on track to reaching postrecession highs in employment and job growth. The analysis also showed that the metro’s regional economy has transitioned from a manufacturing-based economy to a service economy.

“Last year was a good year for job growth in Louisville, as high as it had been since the late 1990s,” said Uric Dufrene, executive vice chancellor for academic affairs at Indiana University Southeast.

He added, however, that the region was just shy of hitting the prerecession levels of employment found before the 2008 economic downturn.

The prerecession figure for employment in the area was 627,000 jobs. In February, the regional economy reached 625,000 jobs, but took a slight step back in the second quarter of the year with employment dipping down to 620,000 jobs.

“We did see a slowdown in job growth from this year compared to last year,” Dufrene said. “I think we’ll be back on a positive trend based on manufacturing sector.”

Manufacturing growth has helped boost job growth recently.

Manufacturing employment represents about 12 percent of total nonfarm employment in the region, according to the Federal Reserve analysis. Manufacturing employment increased by about 9 percent, or 6,300 jobs, contributing one-third of the new jobs in Louisville over the past year.

These increases in growth are attributable to increased production from auto manufacturers, such as Ford and Toyota. Ford’s truck plant is the fourth-largest local employer, with 8,696 employees. GE Appliances has also picked up employment lately as it added a product line; it now has 5,000 local employees.

“Manufacturing is still important to Louisville metro, it still is a critical component of the economy in Louisville,” Dufrene said. “When you do see a slowdown in manufacturing for Louisville, you see a slow down in the other areas.”

He explained that manufacturing employees spend in retail and service industries and the area’s manufacturing also has an impact on the metro’s logistics industry.

While improvements in the manufacturing segment have helped to boost the economy, Dufrene said the analysis is correct that it is no longer the main driver for the region’s economy.

The main economic drivers, cited by the Federal Reserve, were in health care with Humana, Norton Healthcare and Kentucky-One Health being companies of note. In addition, international restaurant companies, Yum! Brands, Papa John’s pizza and Texas Roadhouse help to drive the area’s economy. Another major segment in the region is logistics, with the UPS World Hub based at Louisville’s International Airport.

Together, the industries have helped to overtake manufacturing as the main employer in Louisville and Southern Indiana.

Dufrene noted the decline in manufacturing is attributed to a number of factors, including a shift to global competition and gains in productivity allowing for a smaller workforce.

“This has been a nationwide trend,” Dufrene said. “It is still a significant component in the economy,” he said of manufacturing.

According to the Federal Reserve analysis, the region is expect to soon surpass its prerecession employment levels.

“Louisville has seen increases in the last year that have outpaced those of the U.S.,” according to the Federal Reserve analysis. “As of March 2013, year-over-year growth in nonfarm employment doubled the national rate of 1.5 percent. This 3 percent growth translates to an increase of 18,800 jobs over a 12-month period.

“These gains have helped to reduce the unemployment rate over the past year to a level consistent with the national rate.”

Another component that is expected to push the area over the prerecession numbers is ongoing projects in the region.

“Additionally, both the Kentucky and Indiana sides of the Louisville MSA have invested heavily in bridge and infrastructure projects, which will lead to more jobs in construction and other skilled areas, as well as improved transportation,” according to the Federal Reserve analysis. “Assuming no major shifts, Louisville can expect its stable-growth sectors of health care and logistics to provide consistency in employment trends moving forward. Coupled with recent vigor in heavy manufacturing, such as in autos, and the large undertaking of the Ohio River Bridges Project, area employment conditions should continue to improve to postrecession bests.”

Dufrene echoed the sentiment.

“I thought it was going to happen last year,” he said of the area surpassing prerecession numbers. “We didn’t quite make it over the hump.”

He said he expects the region to eclipse the prerecession numbers later this year.

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