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Kokomo Forecast 2020

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Dean, School of Business, Indiana University Kokomo

This article provides a brief overview of several statistics that factor into measuring the well-being of Kokomo, Howard County and the entire 14-county service region for Indiana University Kokomo.1 The focus of this article will be on Kokomo and Howard County; however, comparisons will be made with the other 13 counties.

Central Indiana, and in particular the region served by IU Kokomo, is heavily influenced by two sectors within the economy.

  • Manufacturing: The local manufacturing sector is heavily represented by and dependent on the automobile industry. Given the labor-intensive nature of this sector, it drives many economic statistics, most importantly employment and the unemployment rate. Both of these statistics offer a great deal of information regarding the economic conditions and welfare of the region and its population.
  • Agriculture: While the level of employment in the agricultural sector may not be comparable to that within manufacturing, agriculture both in terms of grain production and livestock drives a considerable portion of Indiana’s economic output and is integral to Indiana’s importance in international trade. This article looks at both the grain and livestock markets. In terms of grains, the emphasis will be placed upon acreage planted/harvested, yield and total production of corn and soybeans—the two largest crops within the state. Grain prices were also examined to see where changes in crop prices may have influenced the industry. Beyond grains, Indiana’s agricultural sector is also heavily dependent on livestock—primarily hogs. Thus, this article also addresses hog production and market prices.

Unemployment

Looking back over the last 20 months, January 2018 through August 2019, the non-seasonally adjusted unemployment rate for the U.S. has fluctuated around 4 percent. As seen in Figure 1, the unemployment rate in the U.S. was at its highest at 4.5 percent in January 2018 and its lowest at 3.3 percent in April 2019. Within Indiana, a very similar pattern emerged, with the exception that the unemployment rate in Indiana was regularly at least 0.5 percentage points lower than that of the nation. With a rate fluctuating in the low 3 percent range, the high for the period, 4.1 percent, was in January/February 2019 while the low, 2.9 percent, was just three months later in May 2019. Generally, the unemployment rate in Howard County rose and fell in alignment with the U.S. and Indiana, staying between the state and national rates. In November 2018, however, there was a sharp one-month spike in the non-seasonally adjusted unemployment rate for Howard County. Following the November 2018 spike, the county rate stayed above both the Indiana and national rates, experiencing a spike again in April 2019, and then finally moderating from May 2019 through August 2019.

Figure 1: Unemployment rates

Line graph from January 2018 to August 2019 comparing U.S., Indiana and Howard county monthly unemployment rates. Howard County had unemployment spikes in November 2018 and April 2019.

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

As can be seen in Figure 2, the spike in April 2019 was not unique to Howard County. Both counties immediately north and south of Howard (Miami and Tipton, respectively), saw similar large jumps in their unemployment rates this past April. Both one-month spikes experienced by the three counties appear to be anomalies related to short-term labor disruptions at the local automobile plants that coincided with the reporting cycle for unemployment figures. There does not appear to be any consistent or precipitous change over the 20-month period ending in August 2019. Overall, the period ending rates appear to be slightly lower for the U.S., Indiana and Howard County. However, given the regular fluctuation of the rates, there is little to suggest a continuation of this downward trend. Rather, what is more likely to happen is that rates will fluctuate around the average as they have in the recent past. Nothing in terms of economic conditions would suggest there would be a steady increase. At the same time, it has been pointed out for the last two years that long-term declines in the unemployment rate would be unlikely as the economy has already been operating at or possibly even below full employment for some time.

Figure 2: Regional unemployment rates, 2019

Line graph from January to August 2019 showing unemployment rates for the 14 counties in the region.

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

As depicted in Figure 2, among the 14-county region, Hamilton County again was found to consistently have the lowest rate of unemployment through August 2019. This trend is in line with previous years and is not surprising given the substantial growth and economic development in the near-north suburbs of Indianapolis. Tipton and White counties, especially from May through August 2019, have had similarly low rates. Grant County continued to be one of the areas frequently having the highest unemployment rate in the region. However, Madison and Miami counties were also routinely in the mix of the counties having the highest unemployment rates. In general, with the exception of the spikes within Howard, Tipton and Miami counties, the general trend for the unemployment rate seen so far during 2019 has suggested a slightly downward trend. The extent to which that trend can continue is questionable.

Labor force and employment

Both within the state of Indiana and Howard County, the size of the labor force has continued to increase since January 2018. However, while the labor force has increased 0.4 percent for the state, the labor force in Howard County has increased more than eight times that, growing by 3.4 percent. Growth in the level of employment within the state and county has also continued, with the number of jobs in Indiana growing by 1.4 percent in Indiana and 3.7 percent in Howard County. These growth rates are, however, slowing down. As was observed last year for a similar 20-month period, the state of Indiana saw labor force growth of 3.9 percent and a 3.2 percent increase in jobs; meanwhile, Howard County’s labor force grew by 5.8 percent, while the number of jobs grew by 5.1 percent.

Industry analysis

As noted above, within Howard County and much of the surrounding region, manufacturing accounts for nearly one-third of the region’s employment. Furthermore, that industry has grown more jobs than any other industry over the last five years. Also responsible for a sizable portion of jobs and job growth in the region are health care and social services, as well as accommodation and food service. While retail also represents a large percentage of employment, retail employment has slightly declined in the last five years and wage rates in the industry have historically been low.

With the region’s heavy dependence on manufacturing, it finds itself more exposed to risk from an economic downturn. Given that positions in manufacturing typically pay well, the risk is even more enhanced due to the potential ripple or multiplier effects that may run through the economy should jobs in the industry be lost. The Great Recession was evidence of such.

While not as large as the manufacturing segment within the economy, several other industries are gaining some ground, serving as a testament to the region’s efforts to stress the growth of a wider range of industries and the expansion of vibrant downtown communities. Included in these growing sectors are finance and insurance, real estate, and professional and technical services.

Agricultural sector

Unlike 2018, with its nearly ideal weather conditions, 2019 presented the agricultural industry with what might best be described as the perfect storm. Following a cold extended winter, spring 2019 began with regularly heavy rainfall and many flooded or muddy fields. When farmers finally thought fields were ready and began planting, more heavy rain washed away or flooded the hope for a good year, especially for corn. Soybeans were planted where possible in the hope the growing season would be sufficient for a productive harvest.

Nonetheless, total acreage planted in Indiana for both corn and soybeans were down considerably, with corn acreage down 4.6 percent and soybean acreage down even more at 10 percent. In addition to the reduction in acreage due to a late planting season, the heavy rain-extended drought cycles over the summer compounded the problem and negatively impacted yields. Compared to the prior year’s records, 2019 saw a drop in yields of 14.2 percent for corn and 16.5 percent for soybeans. Thus, where last year had proven to be at the top end of the spectrum for farmers, 2019 proved to be near the bottom (see Table 1).

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

2017 2018 2019*
Corn      
 Planted (1,000 acres) 5,350 5,350 5,100
 Harvested (1,000 acres) 5,220 5,200 4,900
 Yield per acre (bushels) 173 189 162
 Production (1,000 bushels) 903,060 982,800 793,800
Soybeans      
 Planted (1,000 acres) 5,950 6,000 5,400
 Harvested (1,000 acres) 5,940 5,960 5,370
 Yield per acre (bushels) 55 58 48
 Production (1,000 bushels) 326,700 342,700 257,760

* The 2019 data represent the forecast from October.
Source: “Indiana Agricultural Report,” U.S. Department of Agriculture’s National Agricultural Statistics Service, October 2019

For corn growers, the loss of production was somewhat offset with positive market prices. While August prices of $4.27 per bushel were down from a July high of $4.55 per bushel, they did represent a nearly 20 percent increase over the August 2018 price of $3.54 per bushel. Unfortunately, for soybean producers the bad news turned even somewhat worse as the considerable drop in production and yield was coupled with market prices falling from $8.85 per bushel in August 2018 to $8.60 in August 2019. Normally, the unimpeded forces of supply and demand make some offsetting correction for productivity, such as in the case of corn. While strides have been made in resolving the trade dispute between the U.S. and China, a major importer of soybeans, more negotiations remain. As noted previously, China continues to target those states, regions and economic sectors where potentially lost votes would be the most detrimental to President Trump and the Republican Party.2

Hogs

The trade dispute continues to impact hog producers in the Midwest as the Chinese have placed trade restrictions on pork products from the U.S. Recently, the thought was that this impact might be reduced due to the continued spread of African Swine Fever (ASF) within China’s vast hog-producing industry. China, which normally produces roughly 50 percent of the world’s pork, has seen its production cut in half during 2019. U.S. producers had hoped that China’s woes might be to their advantage by filling that void and taking advantage of higher prices. Unfortunately, market prices have not consistently risen. In fact, they have fluctuated quite wildly in the last several months, leading to a great deal of uncertainty. Should the Chinese government lift trade restrictions, it is possible that a move to higher pork prices is feasible. However, much remains uncertain regarding the trade relationship between the U.S. and China.

Forecast

Predicting—or for that matter making even an educated guess—where the regional economy will be in the next 12-24 months is a challenge. Several leading economic indicators are beginning to point in the direction of a slowing economy. With that would likely come an increase in unemployment, especially for manufacturers. Durable goods manufacturers are apt to find consumers reluctant to make large purchases on cars, RVs or appliances. Competing against the threat of stormy winds, however, is the apparent hyper-willingness of the Federal Reserve to act to stave off any possibility of a slowdown or recession. While an overall dovish atmosphere prevails with the Federal Open Market Committee, more and more members have been willing to voice their concerns over continued quantitative easing and the fear of inflation. This is despite the administration’s demands that even the current monetary policy is far too restrictive.

The length of the current expansion is without precedent, and some economic correction is reasonable within the foreseeable horizon. The greater question is not if, but rather when and how bad. With that, much depends on several factors. Continued angst within the global economy on multiple fronts presents distinct risks that a contagion effect will make matters even worse. Compounding this risk is the domestic concern that Washington, D.C. is so distracted by matters that are more political in nature and are focusing less time and attention on what the situation is on Main Street or Wall Street. Issues such as infrastructure, health care and other topics of concern to average citizens seem only to be in play by the Democratic presidential candidates. Should the combative focus of the administration and Congress remain for the next 12 months, it is very possible the time or need to act will pass by relatively unnoticed, leaving the economy swaying in the wind until the proverbial election dust settles. However, focusing on kitchen-table matters would allow Congress to keep its eye on the economy and work to engage in both foreign and domestic policies that will best serve the U.S. and its state and local economies.

For Kokomo and Howard County, continued efforts toward industrial diversification are important. Furthermore, the efforts to support further development of downtown are critical. Housing development, both in the immediate downtown area, as well as elsewhere, are key to maintaining the appearance of a vibrant and attractive community. The same is true for other communities in the region. Much remains to be done to revitalize the downtown areas in many of the communities. The development of a new convention center, together with a hotel, restaurant and bar certainly will entice visitors. Furthermore, the development of the new baseball/softball park in Kokomo—together with the necessary hotels and restaurants—will infuse additional dollars into the region and further diversify its base. A critical question that exists is how, if at all, will the change in the mayor’s office impact the efforts to move forward.

On the agricultural side, the whims of Mother Nature play the largest role. As was seen in the last two years, a boom-to-bust scenario played out. Farm foreclosures in the Midwest are proceeding at a record pace, as 2019 proved to be the last and final straw for many small farmers. Weather conditions during winter and spring of 2020 will prove critical for the 2020 planting season, hopefully not too wet but just wet enough. Once crops emerge, the test will be whether the right balance of sun, heat and rain will be in order, or if it will once again be extended periods of each.

Hopefully, lessons have been learned regarding the impact of trade restrictions. Despite what has been frequently said, trade wars are not easy to win. In fact, seldom does either party win. With more open trade comes the renewal of potential markets for crops and livestock. Furthermore, a reduction in political shocks to the marketplace is apt to return some semblance of rationality to market prices and producer/consumer behavior. Opening of trade will also help the domestic automobile manufacturers and others who have been forced to pay more for steel. The reduction or removal of tariffs on imported steel will relieve pressure on company bottom lines. This leaves the critical question regarding the new labor contracts. With General Motors having finalized a deal with the UAW, will FCA and Ford be able to work with the framework of the GM-UAW contract. The Big Three are very different from each other both in nature and size of their workforces. Thus, certain clauses in the GM contract may prove attractive and others may prove to be highly problematic.

Optimism still prevails with the hope that the current challenges are short lived. However, as noted earlier, the current economic expansion is in record territory and the longer it continues, the more likely a change of direction may occur. The critical question is: Where are the eyes focused so the signals are not missed?

Notes

  1. The 14-county service region includes Carroll, Cass, Clinton, Fulton, Grant, Hamilton, Howard, Madison, Miami, Pulaski, Tippecanoe, Tipton, Wabash and White counties.
  2. Alan G. Krabbenhoft, “Kokomo Forecast 2019,” Indiana Business Review, Winter 2018, www.ibrc.indiana.edu/ibr/2018/outlook/kokomo.html.

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