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Kokomo Forecast 2019

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Dean, School of Business, Indiana University Kokomo

This article is intended to provide an overview of the well-being of the economy in Kokomo and Howard County, as well as the entire 14-county service region for Indiana University Kokomo.1 While some of the focus will be on the entire region, other parts will focus more heavily on Kokomo and Howard County. In doing so, the article draws upon data for the region’s two largest sectors—manufacturing and agriculture. As it relates to manufacturing, heavy emphasis is placed upon the automobile industry. In this regard, the level of employment, the unemployment rate and the labor force growth rate define a considerable portion of the region’s health. Agriculture is the other primary player within the region. In this regard, the emphasis is on acreage of corn and soybeans planted and harvested, crop yields and market prices for these commodities. Focus also exists on livestock (primarily hogs) and the prices they fetch at market.

Unemployment

Over the course of the last 20 months (January 2017 through August 2018), unemployment rates for the U.S., Indiana and Howard County have seen a sizable reduction (see Figure 1). With the exception of June in both 2017 and 2018, where there were considerable bumps in the unemployment rate within Howard County, the non-seasonally adjusted unemployment rate trended downward. These two bumps were likely caused by a significant number of new entrants to the labor force as schools went on recess for the summer and students began looking for summer jobs. This trend was also consistent across the 14 counties within the region. However, since late 2017—and especially since the first quarter of 2018—Howard County, the other 13 counties, and Indiana as a whole, have seen an increase in the unemployment rate. While the period-ending rate is still lower than the rate 20 months earlier, this trend may be concerning. It has been suggested for the last two years that the continuous long-term declines in the unemployment rate would be less and less likely going forward given the economy was already operating at—or possibly even below—the rate considered to be full employment.

Figure 1: Unemployment rates

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Note: Rates are not seasonally adjusted.
Source: STATS Indiana, using Local Area Unemployment Statistics (LAUS) from the U.S. Bureau of Labor Statistics

Among the 14-county region, Hamilton County consistently had the lowest unemployment rate in 2018 (see Figure 2). Tipton County would be next in that mix. At the opposite end, Grant Country quite consistently had the highest unemployment rates. Most of the remaining counties experienced a very similar pattern of ups and downs. The majority of the other counties found their rates falling to around 3 percent at the low point but jumping back up to between 3.5 and 4.0 percent in August.

Figure 2: Regional unemployment rates, 2018

graph

Note: Rates are not seasonally adjusted.
Source: STATS Indiana, using Local Area Unemployment Statistics (LAUS) from the U.S. Bureau of Labor Statistics

Labor force and employment

The general decline in unemployment comes at the same time that many additional people are joining the labor force. The labor force consists of all those people who are working or actively seeking work. Considerable growth in the labor force was found both for Indiana as a whole and Howard County. For Indiana, from December 2017 to August 2018, the labor force grew by 128,970 people (3.9 percent); meanwhile, employment grew by 102,501 people (3.2 percent). Over the same time frame, for Howard County, the labor force grew by 2,196 people (5.8 percent), while employment grew by 1,880 people (5.1 percent). This growth in both the labor force and employment has brought about the observed decline in the unemployment rate. The greatest majority of those newly entering the labor force are quickly finding employment. Such trends help further the region’s economic vitality. Even longer-term trends in the labor force were recently cited by Bloomberg, which identified Kokomo as the third-fastest growing labor market in the U.S. since the Great Recession.

Industry analysis

Within Howard County and the surrounding region, manufacturing represents the largest percentage of employment by industry, representing nearly one out of five jobs. However, in terms of industries with the fastest job growth, medical and higher education top the list. Manufacturing, however, also accounted for a substantial portion of the job growth. Again, the continued heavy dependence on manufacturing, with its relatively high-paying jobs, leaves the region at greater risk from the effects of an economic downturn. In this regard, the region is continuing to stress the growth of a wider range of industries and the expansion of vibrant downtown communities complete with more service industries. However, more is left to do with regard to expanding on this industry diversification.

Agriculture

Nearly ideal weather conditions throughout the growing season resulted in considerable optimism regarding agricultural production throughout Indiana, and especially within north-central Indiana. The seemingly perfect mixture of heat and sunshine led to both corn and soybean production being well above last year’s totals. The acreage of both corn and soybean planted remained the same as in 2017, and currently the harvest is less than 1 percent behind the level last year at this time. What is remarkable this year is the substantial growth in yield per acre for both corn and soybeans. Corn yield is up over 12 percent to 194 bushels per acre, while soybeans are up over 9 percent to 60 bushels per acre (see Table 1).

Table 1: Indiana crop planted, harvested, yield and production

2016 2017 2018*
Corn
Planted (1,000 acres)  5,600  5,350  5,350
Harvested (1,000 acres)  5,470  5,220  5,170
Yield per acre (bushels)  173  173  194
Production (1,000 bushels)  946,310  903,060  1,002,980
Soybeans
Planted (1,000 acres)  5,650  5,950  5,950
Harvested (1,000 acres)  5,630  5,940  5,930
Yield per acre (bushels)  58  55  60
Production (1,000 bushels)  323,725  326,700  355,800

* The 2018 data represent the forecast from October.
Source: “Indiana Agricultural Report,” U.S. Department of Agriculture’s National Agricultural Statistics Service, October 2018

Unfortunately for farmers, the market prices for their crops have not held stable. For example, in May 2018, corn was selling in the range of $4.00 per bushel. As of the end of October, the price was down nearly 10 percent to roughly $3.67 per bushel. While this is up from $3.41 per bushel experienced in July 2018, the fact remains that the drop in revenue per bushel nearly offsets the substantial increase in total production. The picture painted for soybeans is even worse. In March, soybean prices were over $10.75 per bushel. As of the end of October the price per bushel was $8.44 per bushel, roughly a 22 percent reduction.

Certainly the growth in the level of production has contributed somewhat to the drop in crop prices. However, at the heart of the issue has been the substantial retaliatory tariffs placed on such crops by the Chinese government. China, having been the target of multiple tariffs placed by President Trump and his administration, focused in on state and regions that would prove most politically harmful to President Trump and the Republican Party. Thus, much of the Midwest has been hit hard with agricultural products being one of the key targets. The drop in prices has certainly hit farmers hard in the region.

In an effort to cushion the blow, the administration has put forth two program that may provide financial assistance. Once such program is a $12 billion bailout to support such farmers. The other recently promoted program involved support for the use of E15 ethanol fuel blends. Doing so would hopefully expand the demand for corn and, thus, provide additional support for the corn producers.

Hogs

Livestock producers, specifically producers of hogs, have also felt the pinch of the trade war. Again, seeing the Midwest as a politically advantageous target, the Chinese also have placed tariffs on pork products from the United States. In doing so, market prices for hogs have dropped nearly 30 percent since the beginning of the year. While an outbreak of African Swine Fever (ASF) threatens Chinese domestic production of pork, the Chinese government has yet to lift such tariffs to make up the difference in domestic production. Should that happen, a substantial rebound in pork prices remains possible.

2019 forecast

Where does all this point to for 2019? In terms of employment and unemployment, as has been forecast in prior years, the best that can be likely hoped for is that employment growth is moderate and unemployment remains stable. Further decreases in the unemployment rate due to substantial employment growth is unlikely. The fact remains that the economy has somehow managed to continue to operate for most of the last year or more at the level already defined as full employment. Growth that would push the unemployment rate even lower would likely raise already heightened concerns about inflationary pressure and the impact such would have on interest rates. The Federal Reserve has already displayed a much more hawkish tenor with several interest rate hikes already having occurred in 2018 and a willingness to continue such going forward. While this has drawn the ire of President Trump, the Federal Reserve and its board of governors operate in a relatively insulated environment separate from political pressure.

For Kokomo and Howard County specifically, opportunities may continue to exist for growth. Downtown development continues at a reasonably rapid pace. The completion or near completion of multiple housing projects still presents growth potential. Furthermore, the announcement regarding the building of a new convention center, together with a hotel, restaurant and bar increases both the job potential during the construction stage but also job prospects once the facilities are operational and staffing begins. Certainly, the hope is that such attractions will generate additional revenue opportunities for other businesses in and around downtown Kokomo.

The agricultural side, as always, depends heavily on Mother Nature and the weather patterns prevalent during both the planting season and once the plants emerge. One great question, however, is where will crop and livestock prices be when the time comes to sell? If the trade war continues, or possibly even worsens, certainly farmers in the Midwest will continue to be among the hardest hit. The impact will also be felt by domestic automobile manufacturers and other users of steel. The tariffs on imported steel continue to put pressure on manufacturers’ bottom lines. Certainly, the question is how long they can sustain rising costs before they are forced to pass such cost increases on to their customers. If this starts to happen, inflationary pressures will continue to ramp up and threaten to push interest rates even higher as the Fed will work to keep inflation in check.

While there still remains some sense of optimism that the challenges currently being faced may be short-lived, the fact remains that the winds of change are more apt to blow in a negative direction. Care and a watchful eye remain necessary, especially on the international scene, as trade matters and inflation are often precipitators of economic woes.

Notes

  1. The 14-county service region includes Carroll, Cass, Clinton, Fulton, Grant, Hamilton, Howard, Madison, Miami, Pulaski, Tippecanoe, Tipton, Wabash and White counties.

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