Kokomo Forecast 2021

Alan G. Krabbenhoft, Ph.D.

Dean, School of Business and Professor of Economics, Indiana University Kokomo

This annual article provides an overview of various statistics reflecting the well-being of the 14-county service region for Indiana University Kokomo.¹ Given both IU Kokomo’s location and Kokomo’s prominence as one of the largest cities in the region, this article more heavily focuses on Kokomo and Howard County. Many of these same factors impacting Howard County similarly impact other areas of the service region.

The economy of central and north-central Indiana continues to be highly dependent on two major sectors. Manufacturing is the largest, with as much as one-third of the region’s employment and productivity. Much of this stems from automobile or transportation manufacturers or those in the supply chain. The manufacturing sector significantly impacts the well-being of our region because of its sheer size and the relatively high wages it provides.

The other sector with a vital role in this region is agriculture, as much of the region is committed to growing crops and, to a smaller extent, raising livestock. The number of jobs associated with the agriculture sector pales in comparison to other sectors, especially manufacturing. However, agricultural production serves the needs of the region and other parts of the country and the world. With growing conditions being highly variable, production and prices are subject to considerable fluctuation and year-to-year changes are critical to the region. We will review planted and harvested acreage, crop yields, total production, and crop prices per bushel for corn and soybeans for the state (since data are not provided on a county-level basis in the U.S. Department of Agriculture monthly report). In terms of livestock, we focus here on hog production.

Unemployment

The forecast in last year’s article was relatively spot on for the remainder of 2019 and at least the first three months of 2020. What could not be foreseen was COVID-19 and the tremendous economic disruption it has caused. In March and April, when much less was known about the virus, many states, including Indiana, took drastic measures and virtually shut down all aspects of the economy. Exceptions were made for those businesses deemed essential, but manufacturers, retailers, restaurants and many other businesses were abruptly shut down. With the economy at a standstill, unemployment rates skyrocketed. While rates for the U.S. and Indiana rose to approximately 15%, Howard County had the unenviable position of having the highest unemployment rate in the state at 33.5% (see Figure 1). While the magnitude of the county’s single-month increase is incredible, it is hardly surprising given the county’s heavy dependence on Fiat Chrysler Automobiles (FCA). When the casting and transmission facilities shut down, roughly 8,000 workers were unemployed.

Figure 1: Unemployment rates

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

The precipitous rise in April’s unemployment rate has been followed by a substantial and sustained reduction. In September 2020, Howard County had an unemployment rate of 7.3%. While higher than the Indiana rate, it is below that for the nation. One reason for the sizable decline can be explained by the development of a staged reopening plan by the state of Indiana. To begin, many manufacturers, including FCA, quickly adopted plans to enable line workers to socially distance and required masks. However, residual unemployment continues. Whether the decline continues or unemployment rises again depends on the pandemic and society’s response.

All 14 counties within IU Kokomo’s service region experienced spikes in the April unemployment rate (see Figure 2). Howard County’s unemployment spike was much higher than what was found within any of the other 13 counties. Hamilton County, as in prior years, was the most resilient—with its unemployment rate only rising to just over 10 percent. Like Howard County, the rates fell consistently after the April peak but remain higher than the pre-pandemic rate.

Figure 2: Regional unemployment rates, 2020

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

Industry analysis

In Howard and several other counties in the region, manufacturing plays a considerable role within the economy. It is responsible for one-third of the region’s employment and has historically generated the largest levels of job creation. As the pandemic spread, General Motors (GM) partnered with Ventec Life Systems to manufacture ventilators in GM’s Kokomo facility. The federal government ordered 30,000 ventilators to be produced by August and the result was 1,000 temporary new jobs. Recently, completion of the contract has led to the scheduled closure of the facility at the end of November. Thus, a bump in the unemployment rate may be anticipated when December’s unemployment figures are published.

Aside from manufacturing, sectors that employ large numbers in the region are having mixed results. Health care and social services, which were deemed essential, have been relatively stable. Hospitality and tourism have seen considerable reductions in employment. As less stringent restrictions have been imposed, these areas have somewhat rebounded along with the retail sector. However, these areas do not have the relatively well-paying jobs found in manufacturing. With COVID-19 numbers on the rise, the hope is that manufacturing will be relatively unaffected by any resurgence given that the companies have already taken action to implement safety standards (e.g., masks and social distancing).

Agricultural sector

After the severe flooding of 2019, there was positive news in 2020 for agricultural production and farmers as the state experienced nearly ideal conditions and a roughly 7% increase in acreage planted. By Oct. 1, more acres had been harvested than were planted in all of 2019. Yields per acre were also as good, if not a bit better, than in 2018, which was a record year for farmers. The result was a sizable increase in total production, ranging from about 21% for corn to nearly 25% for soybeans (see Table 1).

The year-over-year increase in corn production was roughly offset by the 20% market price reduction from $4.27 per bushel in August 2019 to $3.48 per bushel in August 2020. Producers of soybeans, conversely, experienced price increases from $8.60 to $8.80 per bushel. Frequently, the market forces of supply and demand provide the agricultural industry with a natural source of stability. Given a relatively static demand for grains, changes in supply are the primary movers of prices. Thus, a poor crop year is often offset by higher market prices and vice versa. For corn, this natural tendency seems to have held. Soybeans bucked the trend as crop production rose along with market prices. Efforts to manage trade difficulties between the U.S. and China may have been partly responsible, with some elevation of soybean purchases by China.

Hogs

Hog production was relatively unchanged from 2019 to 2020. The inventory of live hogs/pigs rose only 1%, and the number headed for market was only up 1%. The only noticeable change was a 3% increase in the average number of pigs retained per litter. The lack of growth in the hog market, especially given 2019’s trade restrictions, raises concern that trade matters remain unresolved. Furthermore, COVID-19 hit Indiana meat processing plants particularly hard, with facilities temporarily closed due to widespread infection among workers. This substantially reduced the ability to bring hogs to market and led to meat shortages. The public health measures taken at processing plants have since allowed the processing plants to reopen, but they have not returned to pre-pandemic levels. As noted before, the on-again/off-again trade dispute with China has led to ongoing concerns, which remain due to continued political uncertainty.

Forecast

Any effort to predict what the economic future holds for the region borders on the realm of impossible and is at best an educated guess. Certainly, what changes took place with the national election will have a considerable impact. Of utmost importance in this region is the passage of a second stimulus that contains some form of unemployment supplement. This will be important if the second wave of COVID-19 combines with the onset of the flu season. It is likely public health authorities will implement some restrictions again that will affect nonessential sectors.

Assuming the precautions already taken by manufacturers during the early stages of the pandemic continue and are enforced, the impact of any new restrictions on this particular region may be lessened, though one could still anticipate they would deal a blow to the retail, food service and accommodation industries.

Related to all of this is the successful, broad deployment of a safe vaccine. Until such time, much will depend on individual actions related to masks and social distancing.

The Federal Reserve seems to be maintaining a very soft or dovish stance on ensuring liquidity in the finance markets, in addition to federal legislation assisting organizations continuing to struggle in the face of the pandemic. There is hope that both the U.S. House and the Senate will settle enough of their differences to pay serious attention not only to a stimulus package, but also to matters regarding the federal budget, borrowing limits and such.

Our economic future is also heavily dependent on furthering the diversification of the regional economy. The unemployment spike that hit the region—and especially Howard County—was not a one-off event. Rather, this is a dangerous pattern that continues to repeat itself. Manufacturing needs to expand beyond the automobile and transportation sectors. Manufacturing is not in itself the problem—the issue is having such heavy reliance on a single sector. The Ventec partnership with GM on ventilator production was a good start, but going in, it was known that it would be short-lived. If manufacturing could also move into other areas, especially focusing less on durable goods, it would well serve the region.

Furthermore, any efforts to expand the service sector of our region will also help. Over the last decade, considerable effort has also been focused on reviving the downtown areas of the various communities in the region. This will likely help the small to midsize businesses in our communities. Housing development and efforts to improve the appearance of our downtown regions will support the vision of a vibrant and attractive community that potential businesses may find attractive. Local sports, such as the Kokomo Jackrabbits and the newly announced Kokomo BobKats, are also important to drawing people back to the area once the pandemic is under control.

Forecasting the future of the agricultural side of the region is much like reading tea leaves, gazing into a crystal ball, or possibly even thumbing through the Farmers’ Almanac. Clearly, over the last five years we have had multiple cycles of boom to bust, most often based upon the whims of Mother Nature. If we follow that pattern, unfortunately, one would not hold a great deal of optimism for 2021. However, many other factors, including the election and any resulting impacts on trade policy and supports for the agricultural community, may have as much if not more of an impact. In recent years, as the boom to bust scenario played out, record numbers of farm foreclosures took place. This year being as strong as it was may have bought some farmers some time. But stringing together several solid years is necessary for farmers to feel more comfortable about their industry and their futures.

The possibility of a vaccine for COVID-19 and the hope for less partisanship in governmental spending decisions leave some room for optimism to remain. The longer those things take to happen, the more likely continued optimism will be short-lived. The record expansion that existed over the previous 10 years is over. The key will be how deep this recession will be and how long it will last until we start to see evidence of expansion again.