Updated at 9:20 a.m. to include new Household Economic Stress Index (HESI) data
The most recent federal government employment numbers show Kentucky’s August 2014 unemployment rate at 7.1 percent. This is a 1.3 percent drop from a year before, the best rate of improvement among all 50 states, tied with Michigan. The national unemployment rate is 6.1 percent.
The state added 24,000 jobs in that time.
The Bureau of Labor Statistics hasn’t released Louisville-specific unemployment numbers for August, yet, but the unemployment rate stood at 6.8 percent in July 2014, down from 8 percent the year prior.
Such onward, good news should be expected to continue, says Mekael Teshome, an economist with the PNC Financial Services Group, in Pittsburgh. Teshome watches the local market closely, as he is the PNC economist tasked with keeping closest tabs on Louisville, and Kentucky in general.
He says that even though Louisville, and Kentucky, have higher unemployment rates than the national average they are coming down in an appreciable way. In addition, Louisville’s housing sector also is more balanced than much of the nation’s, he says, meaning it’s steady, and household wealth is in stronger shape than many other parts of the U.S.
The Louisville-area’s economy cycles closely with the nation’s as so many of the big employers in the area respond to consumer needs. “In 2015 I expect a pickup in growth (alongside) better U.S. economic prospects,” he says. “Louisville’s … core drivers follow the U.S. economy.”
These drivers include manufacturing, such as what’s made at General Electric’s Appliance Park, which correlates directly to improved national housing sales. As people buy and refurbish homes they want new appliances.
Ford Motor Co., another large Louisville-area employer, also benefits from an overall healthier U.S. economy as people buy more cars and trucks as they feel more secure in their work.
Logistics is another big economic driver in the area, he says, as exemplified by UPS, which has a major hub in Louisville. At the hub the retail goods made by GE, and everyone else, are shipped worldwide.
Kentucky’s largest export industry is aerospace, and Teshome expects continued growth here as well, as the demands of air travel will continue to require new, more fuel-efficient aircraft. “It’s definitely a growth sector,” he says.
Another area of ongoing growth is, and will be, healthcare, he says. “It will have month-to-month volatility but over the long-term it’s a driver.”
“The key takeaway is that we are getting back to normal,” he says. PNC has a proprietary index to measure economic health called the Household Economic Stress Index (HESI). This index measures unemployment, and inflation, and then subtracts out housing appreciation. Typically a lower number is better, with the long-term U.S. average hovering between 4 and 5. Right now the Louisville-Lexington area’s HESI reading is 7.3, and it was 5.3 at the end of 2013.
Our score would be better, Teshome says, but for the fact that our housing price appreciation isn’t all that dramatic, a consequence of housing prices not having fallen all that much during the recession, versus the rest of the country. Also, unemployment is higher in Louisville than the U.S. average. He says he expects this number to drop in subsequent quarters. “The unemployment rate is steadily in decline and inflation is tame,” he says.
For more information from PNC about the Louisville-Lexington area, click here to read their Louisville-Lexington Market Outlook for the second quarter of 2014.