Louisville forecast 2022

Uric Dufrene, Ph.D.

Sanders Chair in Business and Professor of Finance, Indiana University Southeast, New Albany

Last year’s outlook expected Louisville metro payrolls to erase job losses by the end of 2021. However, the emergence of the unknown delta variant, record-breaking job openings and supply chain challenges managed to delay the relatively optimistic outlook of last year. Despite these headwinds, the Louisville metro appears to be heading toward the recovery of almost all job losses by year’s end. For 2022, the Louisville metro will see payroll growth in the 2%-3% range. Key to this outlook is that employers are able to successfully fill job openings. Growth in manufacturing, robust consumer activity, and an expanding leisure and hospitality sector all contribute to this favorable outlook.

Louisville metro jobs

As of September 2021 (year-to-date), the Louisville metro added approximately 17,500 jobs.¹ If the metro area remains at this same pace of growth for the last quarter of 2021, total jobs added should come in at approximately 23,000 jobs, putting the percentage gain at 3.6% for the year. National economic growth is expected to decelerate, and this should lead to a deceleration in Louisville payroll growth from 2021. Consequently, Louisville metro payroll growth will likely be in the 2%-3% range for 2022.

Manufacturing

Manufacturers should expect a strong year. Nationally, the inventory-to-sales statistic remains at low levels. Both new orders and unfilled orders continue to run high. The combination of new and unfilled orders and a lean inventory-to-sales ratio will translate to sustained production for manufacturing. Materials shortages and supply chain challenges that have plagued manufacturers this past year should show some improvement, although they will not be entirely resolved. This will provide a boost to local area manufacturing. Expected increases in labor market participation and a growing labor force will also support manufacturing payroll growth. Louisville area manufacturers added approximately 2,300 jobs, as of September year over year,² and should expect to exceed this amount next year.

Leisure and hospitality

The much-anticipated growth in leisure and hospitality hit a few roadblocks due to the emergence of the delta variant. Spending on services should continue to rebound as the sector moves past delta, and leisure and business travel will see gains. As a result, convention activity in Louisville should also continue to rebound, providing a boost to leisure and hospitality employment. Remote work arrangements will likely be a permanent fixture with some employers, but in-office activity should also show increases in 2022. A return to office will provide support to leisure and hospitality employment, particularly in downtown Louisville. Leisure and hospitality added 6,700 jobs (September year over year).³ While it might be difficult to match this level of growth next year, we should expect additional gains in leisure and hospitality employment.

Transportation and warehousing

Transportation and warehousing was one of the strongest growth sectors in employment for the Louisville metro in 2021. Employers added 3,800 jobs (September year over year),⁴ amid labor shortages. Truck drivers and warehouse workers remain in high demand⁵ as manufacturers and retailers work to alleviate supply chain challenges and satisfy consumer demand. Strong hiring will continue into 2022, and we can expect transportation and warehousing to be one of the leading sectors with respect to payroll growth, fitting for the logistics and warehousing hub of Louisville.

Retail trade

Retail trade added 2,200 jobs (September year over year).⁶ This outlook expects a good year for Louisville area retail, but a continued trend away from goods to services will continue. With the shift from goods to services spending, the consumer is still positioned for retail activity. Household balance sheets are quite strong, and net worth is at the highest level in history. Savings rates remain elevated, and the consumer debt service ratio remains lower than the pre-pandemic level. While retail sales gains have been the strongest on record, current supply chain challenges will also serve as a boost to subsequent goods spending. For example, auto sales have been weak over 2021, relative to historical levels. This is not due to a lack of demand, but from a lack of supply. As we move past the supply chain issues impacting auto sales, demand will be sustained due to delayed purchases.

Southern Indiana

Southern Indiana continues to make steady progress in reducing the steep job losses that occurred during the pandemic recession. As of the first quarter of 2021, payrolls were down approximately 2,600 jobs from the previous year.⁷ This is considerable improvement from the second-quarter 2020 deficit that was close to a decline of 12,000 jobs.⁸ Average weekly wages saw significant gains across Southern Indiana. The last quarter of 2020 saw the highest increases in average weekly wages going back to 2001.⁹ This rise in average weekly wages will persist, elevating the importance of cost control across Southern Indiana establishments. To maintain competitiveness, productivity will be crucial. We can expect a greater reliance and need for productivity-enhancing investments. Southern Indiana will continue to see growth through 2022 and should see payroll gains that surpass levels that existed prior to the COVID-19 pandemic.

Summary and outlook

The Louisville metro will see another year of solid payroll gains. An expanding labor force and mitigating supply chain disruptions will support overall payroll growth. Strong household balance sheets will support consumer spending, providing demand for transportation and warehousing. Services spending will accelerate compared to 2021, and this will support leisure and hospitality enterprises. Manufacturing can expect additional growth in 2022 as it continues to work through order backlogs. Automotive will see strong sales relative to 2021, and this will provide another boost to Louisville area manufacturers.

Overall, the outlook for the Louisville metro economy is quite favorable.

Notes