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Kokomo Forecast 2009

Acting Assistant Professor of Economics, Indiana University Kokomo

November 2008

Recent news from the Kokomo manufacturing sector has not left much room for optimism. Two of the area's largest employers have recently announced large layoffs that could have a significant impact on the area. In addition, a GM/Chrysler merger could lead to substantial job losses in Kokomo. Recent employment increases in the education and health services sector will not be large enough to make up for the local impact of manufacturing cutbacks.

Jobs and Unemployment

In recent months, Kokomo's unemployment has increased substantially. Since January, the lowest reported unemployment rate was 6.7 percent (February and April). In July, the unemployment rate peaked at 9.2 percent. Last year's annual unemployment rate was 5.4 percent. Kokomo has also had a higher unemployment rate than the state of Indiana in all years since 2000 (see Figure 1). For January through September, Kokomo's average monthly unemployment rate has been 2 percentage points higher than the state average. Area employment figures have also been declining the last ten years, indicating a decreasing number of job opportunities in the Kokomo area (see Figure 2).

Figure 1: Unemployment Rate in Kokomo and Indiana, 1998 to 2008

Figure 1: Unemployment Rate in Kokomo and Indiana, 1998 to 2008

Figure 2: Kokomo Employment, 1998 to 2008

Figure 2: Kokomo Employment, 1998 to 2008

Average annual wages have been on the rise, increasing by 3.4 percent from 2006 to 2007 to total $48,844. This is outpacing the inflation rate, which over that time period was 2.5 percent nationally. However, this information conflicts with more recent data on average weekly wages. In the first quarter of 2008, average weekly wages were $852, decreasing in three consecutive quarters from the $988 per week record for the second quarter of 2007.

Howard County's economy is still very dependent upon the manufacturing sector, particularly the automotive manufacturing industry. The manufacturing sector makes up approximately 30 percent of Howard County's overall employment figures. Other important sectors in the Kokomo economy include health and educational services (15 percent of total employment) and retail (13 percent of total employment). This past year's decrease in employment has been particularly difficult for the manufacturing sector with losses of almost 2,000 jobs (a 14 percent decrease). One bright spot was the growth in the health and educational services sector, which saw a 5 percent increase in overall employment from 2006 to 2007.

The Automotive Industry

Two of Kokomo's largest employers, Delphi and Chrysler, belong to the automotive manufacturing sector. These two companies make up more than 20 percent of Kokomo's total employment. Recent Delphi and Chrysler news has not been optimistic. In August, Delphi announced that it would cut 10 percent of its salaried jobs at the Kokomo plant.1 This news came after years of losses and job cuts from the large automotive parts supplier. Chrysler also announced that it would cut back its salaried workforce by 25 percent nationally starting in November.2 The impact that this will have on the Kokomo plant is not entirely clear.

Additionally, GM and Chrysler are currently discussing a merger that could mean large job cuts at the Kokomo plants. This may also impact the pensions that the retired union workers living in Kokomo depend on for their well-being.3

Outlook

The short-term economic outlook for Kokomo is uncertain. With the automotive sector faltering throughout most of the United States, Kokomo should expect continued job losses in this industry. Many of these workers may have to shift to lower-paying industries. The recent decrease in gas prices may give the national automotive industry a short reprieve; however, the uncertainty surrounding the financial and housing sectors is making consumers hesitant to purchase big ticket items such as new cars.

To improve the long-term state of the Kokomo economy, the area will need to attract producers of “new” manufacturing technologies, such as hybrid electric systems or wind turbines. Such producers will find a large pool of skilled laborers who will need little training.

Kokomo's primary and secondary schools must also emphasize the importance of obtaining a college education. The trend throughout the entire United States has been increased wages and job opportunities for individuals possessing a college degree. Encouragingly, Kokomo's high schools are performing well compared to the state averages for both graduation rates and the percent of students seeking a college education.4

Notes

  1. Ted Evanoff, “Kokomo takes another hit with 300 Delphi layoffs,” The Indianapolis Star, August 19, 2008.
  2. Inside Indiana Business, “Chrysler Announces More Cuts, Indiana Impact Not Known,” October 24, 2008, www.insideindianabusiness.com/newsitem.asp?ID=32221 (accessed October 30, 2008).
  3. Ted Evanoff, “Fading Future,” IndyStar.com, October 25, 2008, www.indystar.com/apps/pbcs.dll/article?AID=/20081026/BUSINESS/810260321/1003/BUSINESS (accessed October 30, 2008).
  4. Indiana Department of Education, www.doe.in.gov/ (accessed November 2, 2008).