Louisville forecast 2025

Uric Dufrene, Ph.D.

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

Last year’s outlook for the Louisville metro (defined here as Indiana’s Clark, Floyd, Harrison, Scott and Washington counties) called for a deceleration in job growth from 2023, with risks to the downside.

The 2024 expectation was jobs gains of about 8,000 over the year and an unemployment rate of 4.5%.¹ As of this writing, preliminary estimates point to a year-over-year jobs change of about 4,000 and an unemployment rate of 4.5%.

Looking out to next year, we are expecting an acceleration of payroll growth over 2025 and an unemployment rate that remains about 4.5%. Slower growth was expected for 2024, with an outside chance of a recession. We have now moved past the slower growth phase and can expect higher job growth for the Louisville metro over the next year.

Louisville payrolls

The Louisville metro did see an overall deceleration in payroll growth through 2024. Preliminary estimates place Louisville payrolls at 700,900, the highest on record. This represents a change of 3,700 jobs from the prior year, making it one of the slowest periods of jobs expansion in recent years.²

Sector changes

There is a clear winner with respect to job creation by sector. Education and health services is up by 5,000 jobs since last year, exceeding total jobs added for the entire metro area. Job growth in education and health services has exceeded overall job growth since 2023.³ 

Another sector showing strong growth is mining, logging and construction, with most of these added jobs likely occurring in construction. This represents a reversal of the negative changes occurring in this sector in late 2023.    

Since 2021, leisure and hospitality has been one of the leading sectors by job growth. The pandemic closures of 2020 necessitated expansion as the economy reopened and consumers pivoted from goods consumption to services. Since early 2024, however, leisure and hospitality has lagged overall job growth and is showing a decline since last year. Weaker total job growth can be linked to job losses in the leisure and hospitality sector.

While occupying a smaller percentage of overall jobs, manufacturing remains an important sector for the metro area. Since 2022, national manufacturing has been in a slump, with measures such as the ISM manufacturing index showing contraction. This national slowdown shows up in regional manufacturing payrolls, reflected as mostly negative changes over the past year. For the past two years, manufacturing job change has been flat.

A sector that now exceeds manufacturing in total payrolls is professional and business services, an indication of a more diversified economy for the metro area. Over 2021 and 2022, professional and business services job growth vastly exceeded growth in overall payrolls. Growth over 2023 slowed, and was even negative at times, as the economy adjusted to a higher interest rate environment. Over 2024, professional and business services has been trending upward again, and is just about flat compared to the prior year. As the economy emerges from a softening labor market, the outlook is expecting growth in professional and business services to continue, contributing to overall job growth for the metro. We should view an expanding professional and business services sector as a positive indicator on overall job growth this year.

Labor force, employment and unemployment

Last year’s outlook expected the unemployment rate to be around 4.5%, with potential risks to the upside. The latest data show the region’s unemployment rate at 4.3% (September 2024), compared to 3.5% one year prior. This falls under the Kentucky unemployment rate of 4.9% and above Indiana’s current unemployment rate of 4.3%.

Preliminary estimates show strong growth in both the labor force and employment across the metro region. As the labor force has increased over the past year, the number of unemployed has also drifted upward, thus producing a higher unemployment rate. An expanding labor force will also contribute to payroll growth, in line with the overall positive outlook for the Louisville metro.

Southern Indiana

Southern Indiana payrolls decelerated over 2023. Year-over-year change in quarterly payrolls hit a low of 609 in the third quarter of 2023, marking the lowest job gains since the COVID-19 recession. Since then, payrolls have reaccelerated, gaining 1,389 jobs in the first quarter of 2024.⁴ 

Like the metro region, a manufacturing slowdown contributed primarily to the deceleration in Southern Indiana payrolls. Manufacturing payrolls declined by 855 year-over-year in the first quarter of 2024.

Transportation and warehousing led all industries with an addition of 972 jobs year-over-year, followed by health care and social services (+687 jobs). Transportation and warehousing was the dominant sector during the pandemic, as goods spending escalated nationwide. The large gain of the first quarter of 2024 marks a reversal of declines observed over 2022 to 2023, as nationwide consumers pivoted from goods spending to services. Accommodation and food services experienced the second-largest decline of any sector behind manufacturing, with a loss of 219 jobs. These losses are an acceleration of smaller losses that occurred in the second half of 2023.

Housing

In 2022, the 30-year mortgage rate increased from 3.5% at the start of the year to 6.5% at year end. One result was a significant decline in building permits issued across the five southern Indiana counties that make up the Louisville metro. In fact, building permits declined by 38% in 2022, and Clark County alone experienced a decline of 53%.⁵ Southern Indiana saw an acceleration in building permits over 2023 (with 1,994 permits issued) and is on track to exceed 2023 levels in 2024. Clark County represents 42% of the population in the southern Indiana part of the Louisville metro, but it was responsible for 75% of the building permits issued in 2023. The number of homes available for sale is also up compared to 2023, and the region will not see significant declines or accelerations in home values over the course of 2025.

Outlook for 2025

The last two years for the Louisville metro saw some of the lowest payroll gains in recent years, not counting the pandemic recession. Higher interest rates adversely impacted rate-sensitive sectors like manufacturing, and this was a leading contributor to the overall slower growth. Looking to the year ahead, we expect payrolls to accelerate from 2024. Increases in the labor force will support payroll expansion, and the forecast is for an addition of 10,000 jobs for the metro region. The unemployment rate will remain in the 4% range, with the likelihood of a rate closer to 4%. The economy will avoid a recession and growth will accelerate compared to 2024. Overall, we forecast payroll growth expansion, a continued resilient consumer and a slightly lower unemployment rate.

Notes