State of the State: Kentucky
Annualized payroll employment growth has slowed in the Fourth District and in the nation, but there are reasons to remain upbeat about the near-term outlook.
The Federal Reserve Bank of Cleveland serves the Fourth Federal Reserve District, which comprises Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky. Like the other Federal Reserve Banks, the Cleveland Fed collects anecdotal reports and analyzes data about the region it serves in order to inform national monetary policy. In the Bank's State of the State series, we share some of what our regional researchers find.
Despite the fact that annualized payroll employment growth in both Kentucky and the US has slowed since the beginning of 2016, largely as a result of softness in the manufacturing and energy sectors, many regions in Kentucky continue to enjoy some of the strongest job growth in the Fourth Federal Reserve District, which comprises Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky.
In the most recent 3-month period for which data are available (July, August, and September 2016), annualized payroll job growth in the Commonwealth was 2.5 percent. This growth is well ahead of the 1.6 percent growth experienced by the US during the same time period and more than 3 times faster than that of the closest Fourth District state, Pennsylvania, at 0.8 percent.
Although the structural changes to the coal industry continue to create significant hurdles for job seekers in rural and eastern Kentucky communities in particular, the recent job gains have been fairly broad based across different sectors and metropolitan statistical areas (MSAs).
In just the past 12 months, annualized payroll employment growth has exceeded 2 percent on 4 different occasions in the Lexington–Fayette MSA, 5 times in the Bowling Green MSA, 8 times in the Clarksville TN–KY MSA, 9 times in the Owensboro MSA, and 12 times in the Elizabethtown and Louisville MSAs. To put these figures in perspective, annualized payroll employment growth in the US exceeded 2 percent just a single time in the same time period.
Job growth has also been fairly broad based across sectors in Kentucky and in the nation as a whole. Two notable frontrunners for the Commonwealth are the financial services and education and health services sectors, both of which have outpaced the nation’s over the past year.
Slowing global economic growth conditions, the strong dollar, and low energy prices have been contributing to weakness in domestic manufacturing and energy sectors in the nation and in the Fourth District. The Huntington–Ashland WV–KY–OH and Evansville IN–KY MSAs, with higher concentrations of manufacturing employment in our District, are the only MSAs in the Commonwealth to experience year-over-year job losses at any point during the past 12 months.
The timing of job gains we have witnessed in the nation and in the Fourth District during the past few years has corresponded closely to the bounce back in consumer spending that began in late 2013 or early 2014.
Since consumer spending, which accounts for roughly 70 percent of the national economy, remains close to its historical average, and household balance sheets remain healthy in the aggregate, there are reasons to remain upbeat about the near-term outlook in the service side of both the nation’s and the Commonwealth’s economies.
While strong job growth can be a positive sign for workers because of expanding opportunities (and often expanding wages and salaries, as well), robust job growth may also lead to a tightening of labor market conditions and result in employers’ struggling to find qualified workers or witnessing their labor costs increase, situations which could potentially dampen economic activity. Between September 2015 and September 2016, the time period of the most recent available data, the unemployment rate, one key metric of labor market tightness, fell from 5.4 percent to 5.0 percent in the Commonwealth and from 5.1 percent to 5.0 percent in the nation overall. Moreover, in a majority of MSAs, the unemployment rate fell at least as sharply as the Commonwealth’s during the past year, and rates are now below pre-Great Recession levels in 6 of the 9 Kentucky MSAs.
Data limitations and reporting lags can make evidence of local tightness difficult to detect in a timely manner. Additionally, because it is generally easier for potential workers to relocate from county to county than from state to state, localized “hot spots” of employment can sometimes cool off rather quickly as workers migrate to better opportunities. Nevertheless, there are genuine reasons to anticipate continued growth in the service sectors of the Commonwealth’s economy, at least for the near term.
Sum and substance: Payroll employment growth is strong in most Kentucky MSAs, and in 6 of them, the unemployment rate has fallen to below pre-Great Recession levels.