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The IBR is a publication of the Indiana Business Research Center at IU's Kelley School of Business

Richmond Forecast 2015

Assistant Professor of Economics and Finance and Director of the Business and Economic Research Center, Indiana University East

Most areas of Richmond’s economy saw noticeable progress, so 2014 was a cheerful year. The strong growth in 2014 should lay a solid footing for 2015 growth. We will recap the 2014 economic picture first and then make the 2015 forecast for the Richmond region, which includes Fayette, Henry, Randolph, Rush, Union and Wayne counties.

Labor Market

As shown in Table 1, for most months of 2014, both Wayne County and the region have seen an increasing labor force and falling unemployment compared to a year ago. On average, Wayne County’s labor force increased by 179 and the number of unemployed individuals fell by 703 in the first eight months. During the same time period, the broader region saw nearly 800 more people in the labor force and almost 2,000 fewer people unemployed. It’s a healthy outcome to see more people back to the job market and actively seeking a job, as well as more people finding jobs given the improving economic condition.

Table 1: Labor Force and Unemployment for Wayne County and Region

  Wayne Region
  Labor Force Unemployment Labor Force Unemployment
Month 2014 Change since 2013 2014 Change since 2013 2014 Change since 2013 2014 Change since 2013
January 29,635 226 2,274 -881 84,782 -111 6,381 -2,583
February 29,567 -234 2,316 -683 84,929 106 6,628 -1,840
March 29,992 487 2,141 -687 85,775 1,083 6,027 -2,037
April 30,186 133 1,919 -704 86,023 338 5,354 -2,005
May 31,038 476 2,018 -685 87,654 1,001 5,657 -1,866
June 30,636 186 2,144 -634 87,707 898 5,971 -1,723
July 30,160 103 1,995 -665 87,458 1,601 5,621 -1,706
August 30,222 51 1,906 -685 87,626 1,390 5,285 -1,755
January through August Average 30,180 179 2,089 -703 86,494 788 5,866 -1,939

Note: Data are not seasonally adjusted.
Source: U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

The improving labor market can be seen in the falling unemployment rate as well (see Figure 1). Just in a one-year span, Wayne County’s jobless rate surprisingly dipped by more than 2 percentage points and hit 6.3 percent in August, which is the lowest number in the past five years.

Figure 1: Monthly Unemployment Rates

figure 1

Note: Data are not seasonally adjusted.
Source: U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Wayne County and the region’s unemployment rates have historically been far above the national rate. But the data show their unemployment rates are rapidly converging to the national level since the beginning of this year. By August, Wayne County’s rate was the same as the national rate of 6.3 percent, and the regional rate slipped even below that mark (6 percent). We anticipate the local and regional labor market will maintain its vibrancy in 2015, and the unemployment rate will hover in the 5.5-6.5 percent range.

Table 2 presents Wayne County and the region’s employment by industry. After several lackluster hiring seasons, employers finally began a region-wide hiring spree in 2014. In the first quarter of this year, Wayne County gained 930 new nonfarm jobs compared to one year earlier, and the region gained nearly 1,500 payroll jobs. Most sectors saw job growth across the region; and more importantly, the manufacturing sector saw a resilient rebound. There were 202 more manufacturing jobs in Wayne County and 483 manufacturing jobs added in the region. Another two sectors—trade, transportation and utilities and professional and business services—also saw strong employment growth.

Table 2: Employment by Industry

  Wayne Region
2014 Q1 Change since
2013 Q1
2014 Q1 Change since
2013 Q1
Total Nonfarm 29,410 930 61,322 1,459
    Total Private 24,962 856 49,967 1,442
    Goods-Producing 6,256 187 14,399 624
      Manufacturing 5,473 202 11,996 483
    Private Service-Providing 18,707 670 35,572 818
      Trade, Transportation and Utilities 5,744 142 11,345 356
      Information 239 -4 561 -20
      Financial Activities 1,029 -31 2,007 -17
      Professional and Business Services 2,306 378 4,472 367
      Private Educational and Health Services 5,712 84 10,307 93
      Leisure and Hospitality 3,045 79 5,462 85
      Other Services 633 21 1,420 -52
    Government 4,449 75 11,357 18

Note: Some data for Union County are not disclosed.
Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages

The upbeat employment data is a good reflection of improving business confidence in our region. According to the news releases from the Economic Development Corporation of Wayne County, several local companies have pursued business expansions, which in turn created a sizeable number of new jobs in Wayne County so far this year.

Despite the buoyant employment numbers, wages have yet to climb significantly (see Table 3). In the first quarter of 2014, the average weekly earnings only advanced a measly 0.5 percent to $666 in Wayne County. Manufacturing workers had a flat pay raise, while workers in information; financial activities; professional and business services; and private educational and health services even received a smaller paycheck. However, two sectors, leisure and hospitality and other services, had fairly large raises, 4.3 percent and 4.1 percent, respectively. Their base rates are comparatively lower than other sectors though.

Table 3: Average Weekly Wages

  Wayne Region
2014 Q1 Change since
2013 Q1
2014 Q1 Change since
2013 Q1
Total Nonfarm $666 0.5% $636 1.9%
    Total Private $665 0.6% $630 1.9%
    Goods-Producing $841 0.4% $846 2.1%
      Manufacturing $867 0.0% $883 0.9%
    Private Service-Providing $606 0.7% $527 0.8%
      Trade, Transporation and Utilities $559 1.1% $561 2.4%
      Information $666 -0.3% $593 -0.9%
      Financial Activities $832 -1.1% $709 -0.5%
      Professional and Business Services $763 -0.3% $583 -3.2%
      Private Educational and Health Services $749 -0.3% $560 1.0%
      Leisure and Hospitality $267 4.3% $241 4.0%
      Other Services $410 4.1% $424 5.8%
    Government $843 2.4% $783 2.3%

Note: Some data for Rush and Union counties are not disclosed.
Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages

The regional average wages advanced more aggressively at 1.9 percent. Similar to Wayne County, leisure and hospitality and other services overpowered other sectors on wage growth. The reason for the sluggish wage growth might be the increased hiring this year (an increased number of workers earning entry-level salaries would pull the average wage down), accompanied by a pickup in business expansion that could have tightened companies’ budgets for wage raises. Looking to next year, a moderate growth in wages is expected mainly because (1) firms are anticipated to receive more cash inflows under the improved economic conditions, and (2) the lower unemployment rate will force firms to raise wages as they compete for a smaller pool of workers.

Housing

Figure 2 displays building permit applications, which significantly declined in Wayne County, largely due to the 2007 housing market meltdown and a shrinking population base. In 2013, there were only 15 building permits issued in Wayne County, down from 24 permits in 2012. The region’s data follows a similar trend. Only Fayette issued more permits in 2013. All other counties either stayed the same or had fewer permits issued.

Figure 2: Building Permits in Wayne County and the Region

figure 2

Source: U.S. Census Bureau

Residential property sales also chilled off this year after the short-lived housing boom of 2013. In the first eight months of 2014, statewide closed sales fell by 5.5 percent relative to one year earlier. In Wayne County, the sales were essentially the same as in 2013, with two additional sales. The region’s total sales increased by 2.6 percent, mostly attributed by the strong sales in Randolph.

However, median sales price has escalated considerably in our region. The average region’s median sales price rose by 21 percent, led by Union County at 82.8 percent. Double-digit increases were also seen in Fayette, Henry and Rush. Wayne County’s price mildly climbed by 4.3 percent. Randolph County, unfortunately, still had a falling median sales price. The surge in sales price might impute to the tight house inventory, as well as the particular mix of homes that have sold. Since interest rates are expected to rise sometime next year, it could put some downward pressure on the housing market.

Table 4: Year-to-Date Housing Market Update

  Closed Sales Median Price
2013 2014 Percent
Change
2013 2014 Percent
Change
Statewide 52,493 49,794 -5.5% $122,900 $126,000 2.5%
Fayette 93 100 7.5% $47,000 $58,500 24.5%
Henry 239 233 -2.5% $59,900 $67,500 12.7%
Randolph 77 100 29.9% $56,000 $49,000 -12.5%
Rush 10 9 -10.0% $30,500 $42,000 37.7%
Union 10 9 -10.0% $46,500 $85,000 82.8%
Wayne 489 491 0.4% $69,500 $72,500 4.3%
Region 918 942 2.6% $51,567 $62,417 21.0%

Note: Data are for January to August of each year.
Source: Indiana Real Estate Market Report by Indiana Association of Realtors (except Wayne County, which is provided by Prime Property Realty, LLC)

Outlook

The economy of 2014 really gained forward momentum in our region, and this momentum is expected to carry over to 2015. The major concern next year will be the possible interest rate hike, after the Fed ended the long-running bond-buying program in October, which could cause higher borrowing costs for businesses and consumers. Other than that, stagnation in Europe and slowing economic activity in China and Japan can also present some headwinds to the U.S. economy.

Our region’s economy will march on. The ongoing Stellar Community projects will continue to show positive impact to Richmond. Manufacturing could lead the region’s economic growth. The overall private-sector wage growth should accelerate and is expected to be around 2 percent. The housing market activity is expected to be stable, with some moderate growth. Overall, the region will see the pace of economic growth pickup in 2015.