Louisville forecast 2023
Sanders Chair in Business and Professor of Finance, Indiana University Southeast, New Albany
Last year’s outlook for the Louisville metro called for another year of solid payroll gains, an expanding labor force and an overall outlook that was quite favorable.
The data through October 2022 show that the Louisville metro did indeed have a favorable year. Looking ahead to 2023, we can expect growth to slow from 2022. As the nation’s economy enters a recession in the next year, we don’t expect Louisville payroll growth to exceed 2022 levels. While we can expect to see an overall deceleration in economic activity, the impact of a national recession will be relatively mild on the Louisville metro. Our 2023 outlook is the addition of 10,000 jobs and an unemployment rate that will approach 4.5%.
The Louisville metro added 30,000 jobs from September 2021 through September 2022. Excluding the abnormally large changes that occurred in 2021 due to the Covid recession, an addition of 30,000 jobs represents the largest absolute year-over-year change in the past 30 years. Louisville payrolls now exceed the February 2020 level by approximately 10,000. Since the payroll trough that occurred in 2020, the Louisville metro has added approximately 113,000 jobs.1
Payroll gains will decelerate into 2023, and the total change in payrolls will be approximately one-third of the change for 2022. However, our outlook does not expect an overall decline in job growth.
The 2022 outlook called for manufacturing payroll changes to exceed 2,300 jobs. Manufacturing indicators, such as unfilled orders and a lean inventory-to-sales ratio, pointed in the direction of strong payroll growth for regional manufacturing. As of September, year-over-year growth in manufacturing was at 2,400 jobs, about the same as last year. National manufacturing has decelerated from earlier in 2022, as evidenced by the decline in the ISM Report on Business, and slower growth in 2023 is likely. However, this outlook does not expect any significant slowdown for area manufacturing. Nationally, automotive sales remain depressed due to lean inventory-to-sales ratios. As inventories improve, sales should also follow due to pent-up demand. This will serve as a tailwind for Louisville-area manufacturing.
Leisure and hospitality increased by 5,700 jobs year over year, consistent with an expected deceleration from last year’s change of 6,700. The continued shift from goods to services spending is expected to continue through 2023. An expanding labor force will also support payroll growth. Total payrolls in leisure and hospitality remain approximately 3,800 below the level that existed in September 2019. This outlook expects growth in leisure and hospitality to decelerate from 2022.
Professional and business services added 7,000 jobs, and we will likely see deceleration over 2023. Transportation and utilities added 1,900 positions since last year, a deceleration from last year’s growth. Moving into 2023 and an expected slowdown in the U.S. economy, we will likely see continued deceleration in transportation. Retail added 700 jobs since last year. With the continued shift from goods to services spending, and an overall slowing expected in the U.S. economy, retail employment will likely see small changes.
Labor force, employment and unemployment3
Last year’s outlook indicated that “an expanding labor force and mitigating supply chain disruptions would support overall payroll growth.” The Louisville metro did see an expansion of the labor force by approximately 23,000 workers, but how does this compare to changes in prior years?
Over the past 30 years, there were only seven other instances, excluding the Covid changes of 2021, with higher year-over-year change. As of August 2022, the metro-area labor force exceeds February 2020 levels by about 12,500 (not seasonally adjusted). Expansion in the area labor force is key to continued payroll growth in 2023, and our outlook anticipates additional labor force growth through 2023. With the overall slowing economy, labor force growth will push the unemployment rate higher, peaking at around 4.5%.
Southern Indiana 4 is seeing very strong growth in both the labor force and employment. In fact, the latest year-over-year changes in both labor force and employment are the strongest they have been in the past 30 years, except for the Covid-related changes of 2021. As of August 2022 (preliminary data), labor force and employment show year-over-year changes of 6,519 and 6,507, respectively. Strong growth in the labor force and employment is producing a low unemployment rate of 2.6%.
Last year’s outlook expected Southern Indiana payrolls to fully recover the jobs lost during the Covid recession. As of the first quarter of 2022, payrolls across the five counties of Southern Indiana added 2,982 jobs compared to the previous year. During the first quarter of 2022, total payrolls surpassed the level that existed in the first quarter of 2020, the start of the Covid recession, by approximately 500. In the first quarter of 2022, the region saw strong gains in the accommodation and food services industry, followed by administration and support and waste management and remediation services.5
Outlook for 2023
This time next year, the nation’s economy will likely be in mild recession. Financial market indicators, such as the inverted yield curve, a slowing housing sector and a cooling of consumer goods spending, point in the direction of a recession. However, it will be a mild recession at worst. While showing some potential weakness with increasing consumer debt, household balance sheets remain strong. Therefore, households are relatively well prepared for the advent of a mild recession. The impact of a nationwide recession on the Louisville metro will be relatively minor. Sustained higher inflation is a risk to this outlook. The region will see an increase in the unemployment rate, topping out near 4.5%, low compared to previous recessions. Unlike prior recessions, the region will not see any declines in total payrolls as the region is expected to add another 10,000 jobs by the end of 2023, contributing to the moniker of a “jobful” recession.
- Sector payroll data from FactSet
- Labor force and employment data from FactSet
- Southern Indiana is defined as Clark, Floyd, Harrison, Scott and Washington counties.
- County payroll data based on STATS Indiana Quarterly Census of Employment and Wages data from the Indiana Department of Workforce Development.