94 years of economic insights for Indiana

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

Richmond forecast 2017

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

Economic activity continued to expand in the Richmond region1 throughout 2016. Strong expansion was seen in the size of the Wayne County labor force, and local unemployment rates remained low. Most businesses kept adding jobs, wage growth inched up in several industries, and housing prices and turnover held the line. The 2017 outlook is optimistic based on the most recent survey of the business community, though uncertainties in domestic and global markets could hamper our region’s growth.

Measures of economic activity

The local labor force displayed fairly strong expansion in both Wayne County and the Richmond region (see Figure 1 and Figure 2). The labor force includes employed workers and workers who are unemployed but are actively looking for work. Compared to August 2015, the size of the labor force increased by 2.5 percent in Wayne County and 3.1 percent in the region in August 2016.

Figure 1: Wayne County's labor force and unemployment rate

graph

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

Figure 2: Regional labor force and unemployment rate

graph

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

On average, there were 369 more people in Wayne County and 1,609 more people in the region willing to work in the first eight months of 2016 compared to the prior year. While people either newly joined or returned to the labor market, the unemployment rate remained low at around 5 percent throughout most of the year, except in February and March. In August, the unemployment rate was 5.1 percent in Wayne County and 4.9 percent in the region.

Unemployment rates in Wayne County and the region have been significantly and persistently higher than the Indiana and national unemployment rates since the Great Recession. After a long and shallow recovery, as seen in Figure 3, the unemployment rate gap between our region and the overall state and national unemployment rates has finally closed. These employment trends have been typical for Indiana’s rural counties. The overall Indiana unemployment rate more closely tracks U.S. unemployment due to Indianapolis’s more diversified economy, its superior performance and more rapid recovery from the recession.

Figure 3: Unemployment rate comparison, January 2000 to August 2016

source

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

Table 1 shows changes in employment by industry. As of 2016’s first quarter, 29,738 people were employed in nonfarm sectors in Wayne County and 57,577 in the region, which resulted in a net change of 158 jobs and 657 jobs, respectively, compared with one year earlier.

Table 1: Employment by industry

Wayne County Region
2016 Q1 One-year change 2016 Q1 One-year change
Total Nonfarm 29,738 158 57,577 657
Total private 25,354 257 47,347 646
Goods-producing 6,410 45 13,514 283
Manufacturing 5,556 44 11,272 184
Private service-providing 18,944 212 33,833 364
Trade, transportation and utilities 5,441 -9 10,173 128
Information 212 -12 449 -41
Financial activities 1,046 -7 1,858 -88
Professional and business services 2,476 62 4,409 211
Private educational and health services 5,955 63 9,982 -159
Leisure and hospitality 3,151 59 5,596 225
Other services 664 56 1,365 86
Government 4,384 -98 10,230 11

Note: Union County's information industry data are not disclosed.
Source: Quarterly Census of Employment and Wages from the U.S. Bureau of Labor Statistics

For Wayne County, the major job gains appeared in private educational and health services (+63 jobs), professional and business services (+62 jobs), leisure and hospitality (+59 jobs), other services (+56 jobs), and manufacturing (+44 jobs). The major job losses were concentrated in government (-94 jobs), along with smaller losses in information (-12 jobs), trade, transportation and utilities (-9 jobs), financial activities (-7 jobs).

At the regional level, leisure and hospitality (+225 jobs), professional and business services (+211 jobs), manufacturing (+184 jobs), trade, transportation and utilities (+128 jobs), and other services (+86 jobs) contributed the most new jobs in the region. Unfortunately, the region also lost some jobs in private educational and health services (-159 jobs), financial activities (-88 jobs), and information (-41 jobs).

Changes in average weekly wages were mixed over the last year. In the first quarter of 2016, average weekly wages for total nonfarm employment grew by 1.2 percent to $675 in Wayne County, but diminished slightly by 0.4 percent in the region for the same period (see Table 2). Both local wage averages outperformed state average wage data, which decreased by 0.5 percent.

Table 2: Average weekly wages

Wayne County Region Indiana
2016 Q1 One-year change 2016 Q1 One-year change 2016 Q1 One-year change
Total nonfarm $675 1.2% $632 -0.4% $853 -0.5%
Total private $676 1.2% $628 -1.5% $857 -0.6%
Goods-producing $844 -4.3% $823 -5.0% $1,144 -0.3%
Manufacturing $869 -1.5% $853 -4.8% $1,194 -0.9%
Private service-providing $619 2.3% $534 0.3% $756 -0.7%
Trade, transportation and utilities $575 1.2% $570 3.9% $735 -1.1%
Information $698 0.1% $580 -2.5% $1,078 -1.7%
Financial activities $866 -1.1% $729 1.7% $1,265 -4.1%
Professional and business services $693 1.2% $594 -1.1% $944 2.7%
Private educational and health services $787 4.2% $581 -1.8% $799 -1.2%
Leisure and hospitality $274 6.2% $248 1.0% $324 0.6%
Other services $431 1.2% $473 3.1% $562 1.3%
Government $813 -4.2% $747 -1.8% $830 0.7%

Note: Union County's information industry data are not disclosed. The regional data are calculated by averaging the average weekly wage data for the five counties in the region.
Source: Quarterly Census of Employment and Wages from the U.S. Bureau of Labor Statistics

There were a few sectors that still enjoyed sizeable wage increases in Wayne County. For instance, wages in the leisure and hospitality sector increased 6.2 percent on average, which may be attributed to the minimum wage hike during the year, followed by private educational and health services at 4.2 percent. In contrast, however, government (-4.2 percent), manufacturing (-1.5 percent) and financial activities (-1.1 percent) saw average wages fall slightly.

Regional average wages increased most in the trade, transportation and utilities sector (3.9 percent). The most significant wage losses in the region were in the manufacturing sector at -4.8 percent, followed by information at -2.5 percent.

Housing markets continue to recover in Indiana, with more sales and higher median sales prices (see Table 3). But the situation in our region is uneven. Wayne County had only two more houses sold in the same period of this year compared with last year. However, the median sales price was up by a robust 9.6 percent. In the region overall, 966 houses were sold, an increase of only 1 percent, and the median price inched up by 0.7 percent. Notably within the region, Fayette and Union counties actually experienced a further drop in sales, though only Randolph County experienced a lower median sales price.

Table 3: Year-to-date housing market update

Closed sales Median price
2015 2016 Change 2015 2016 Change
Statewide 54,227 58,332 7.6% $134,000 $139,200 3.9%
Fayette 109 84 -22.9% $58,500 $75,200 28.5%
Henry 230 249 8.3% $69,900 $73,000 4.4%
Randolph 105 125 19.0% $66,000 $63,450 -3.9%
Union 11 5 -54.5% $52,250 $60,000 14.8%
Wayne 501 503 0.4% $82,000 $89,900 9.6%
Region 956 966 1.0% $79,450 $80,000 0.7%

Note: Year-to-date data reflect January through August data.
Source: Indiana Real Estate Market Report by the Indiana Association of Realtors, except Wayne County’s data and the region’s median price data, which were provided by Better Homes and Gardens/First Realty Group

Outlook

Overall, Wayne County and the Richmond region continue recovery and economic expansion. This growth momentum is reflected in data we’ve reviewed, but also in the results of the recent 2016 East-Central Indiana Business Survey. This survey was conducted by the IU East Business and Economic Research Center in September 2016 in Fayette, Henry and Wayne counties. Business owners and managers were asked to provide an opinion of various aspects of business performance and the financial environment for 2016, along with their expectations for 2017.

A majority (57 percent) of participants reported their production/business activity increased from the prior year; about one-third (32 percent) hired more employees, and about half of businesses continued to employ the same number of workers as last year.  More than one-third (36 percent) increased investment spending in 2016, and 55 percent maintained investment spending at about the same level as in 2015. In terms of enterprise profitability, 41 percent of participants indicated an increase, 42 reported profits about the same, and only 18 percent realized lower profits. However, more than two-thirds (69 percent) experienced higher costs of doing business (see Table 4).

Table 4: Compared to the same period last year, how has each of the following changed for your business/company?

Answer options Has increased significantly Has increased slightly Has remained about the same Has decreased slightly Has decreased significantly Response count
Production/business activity 17.1% 40.0% 26.7% 9.5% 6.7% 105
Number of employees 9.4% 22.6% 50.9% 15.1% 1.9% 106
Capital investment 12.6% 23.3% 55.3% 5.8% 2.9% 103
Cost of doing business 12.5% 56.7% 29.8% 1.0% 0.0% 104
Profitability 5.7% 34.9% 41.5% 13.2% 4.7% 106

Source: The 2016 East-Central Indiana Business Survey, conducted by IU East Business and Economic Research Center, September 2016

When asked about their expectations for 2017’s business operations (see Table 5), a clear majority (66 percent) of business owners or managers expect to see growth in production/business activity. Most (66 percent) expressed a preference for avoiding changing their firm’s employment level, but still 28 percent of businesses report they expect to create new positions. Year-over-year increases in capital investment are planned by 39 percent of responding enterprises, and more than half (54 percent) expect to hold investment spending steady at approximately last year’s level. Positively, more than half (54 percent) of businesses anticipate higher profits over the coming year, with a further 40 percent expecting profits to hold steady, and only 7 percent of respondents foresee decreased profits. Again, most participants (63 percent) expressed concern about the cost of doing business increasing in the region next year.

Table 5: How do you anticipate each of the following will change next year for your business/company as compared with this year?

Answer options Will increase significantly Will increase slightly Will remain about the same Will decrease slightly Will decrease significantly Response count
Production/business activity 15.2% 50.5% 27.6% 5.7% 1.0% 105
Number of employees 2.8% 25.5% 66.0% 4.7% 0.9% 106
Capital investment 10.6% 28.9% 53.9% 5.8% 1.0% 104
Cost of doing business 12.3% 50.9% 33.0% 3.8% 0.0% 106
Profitability 8.5% 45.3% 39.6% 6.6% 0.0% 106

Source: The 2016 East-Central Indiana Business Survey, conducted by IU East Business and Economic Research Center, September 2016

Finally, when asked their opinion of 2017’s business and economic conditions in the region, nearly half of participants (49.1 percent) expressed optimism, and 38.7 percent felt conditions would remain about the same (see Table 6). Only about 12 percent of them projected declining business conditions for next year.

Table 6: How do you project the overall business and economic conditions in 2017 in your area?

Answer options Response percent Response count
Strongly optimistic 8.5% 9
Moderately optimistic 40.6% 43
About the same 38.7% 41
Moderately pessimistic 10.4% 11
Strongly pessimistic 1.9% 2
Total 106

Source: The 2016 East-Central Indiana Business Survey, conducted by IU East Business and Economic Research Center, September 2016

In summary, Wayne County and the Richmond region are likely to continue their recovery next year. However, this growth path could easily be diverted by the political and economic uncertainties in domestic and global markets. Concerns about such uncertainty dominated the recent Group of 20 Leading Economies (G20) summit of finance ministers and central bankers. “The uncertainties and risks facing the world economy have increased as some major economies have entered the general-election season,” said China’s finance minister, Lou Jiwei, this year’s chairman of the G20.2

The U.S. economy has grown 2.1 percent annually since 2009—the slowest growth of any expansion since World War II. Many economists were once optimistic that growth would accelerate following the 2007-2009 recession, but now most forecast that the economy will continue to grow at a slow pace in coming years.3 In the Wall Street Journal’s monthly survey from October 7 to 11, the most recent at the time of this writing, 59 academic, business and financial economists put the likelihood of the next recession occurring in the next four years at nearly 60 percent.4

Considering all global, domestic and local factors, we anticipate business activity will continue expanding moderately in Wayne County and the Richmond region over the coming year. Local unemployment will remain in the 5 to 6 percent range, and most industrial and trade sectors will have relatively small increases in labor demand. Wage increases will generally be small to moderate in general, but selected sectors may offer stronger wage growth. The local housing market is expected to hold steady in terms of both price and sales volume, though these outcomes can still be impacted by local labor market trends and potential increases in interest rates by the Federal Reserve next year.

Notes

  1. The Richmond region includes five east-central Indiana counties: Fayette, Henry, Randolph, Union and Wayne.
  2. Ian Talley, “Political Uncertainty Weighs on Growth,” Wall Street Journal, October 10, 2016, A2.
  3. Josh Zumbrun, “History Suggests Odds on Recession,” Wall Street Journal, October 14, 2016, A2.
  4. Ibid.