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Thursday, November 18, 2021

Economic Headlines Look Good for NKY, But Local Experts Advise Caution

A presentation to NKY Chamber members focused on the regional economy. From left to right: NKY President and CEO Brent Cooper, Janet Harrah of NKU and John Augustine of Huntington Bank.

by Robin Gee

Although it looks like the region is on the road to a full recovery, experts warn that the situation in Northern Kentucky, and across the country, may be more complex — and more volatile — than it seems.

"Yes, the economy is recovering, and yes, we expect that to continue into 2022; however, although the headline numbers look really good, if you look a bit below the surface you can see that there are large pockets of weakness in our regional economy," said Janet Harrah, one of two local economic policy experts who recently addressed members of the Northern Kentucky Chamber of Commerce as part of its "Eggs 'N Issues" series.

Harrah is the executive director of Outreach and senior director, Center for Economic Analysis and Development, with the Haile/US Bank College of Business at Northern Kentucky University. She was joined by John Augustine, chief investment officer at Huntington Bank, to discuss what is happening in our regional and national economy and what may be on the horizon in the year ahead.

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"Looking at this kind of data, from both a regional and national perspective, is invaluable for the business community," said Brent Cooper, president and CEO of NKY Chamber. "We’re all dealing with workforce and supply chain issues, as well as rising inflation."

In particular, the labor shortage has had a big impact on the Northern Kentucky economic outlook and presents challenges on the road to recovery, he noted.

Looking at the jobs market in Northern Kentucky

Fortunately, our region has had a long history of doing slightly better than the national economy in terms of jobs and unemployment, said Harrah, and that should continue. In fact, we are expected to add 3.5% more jobs in 2022, and the unemployment rate in Northern Kentucky is expected to be 3.7% compared to 4% for the nation in 2022. Yet, she said, we are facing challenges and uncertainty on the road ahead.

"Even as the number of employment rises and the unemployment rate falls, the number of people participating in the labor force in the MSA has plunged," she said. MSA stands for the Cincinnati Metropolitan Statistical Area, basically, the Greater Cincinnati region. 

 



"Today there are 35,300 fewer people in the MSA labor market than there was in 2019, so the labor market has shrunk by 3% in 18 months, that’s a huge decline," said Harrah.

She shared a disturbing national statistic as well. The national "quit rates" came out recently showing that 3% of Americans dropped out of the labor force this September alone.

Harrah said there is unevenness when it comes to jobs in the region. While some industries, most notably hospitality and leisure, have experienced drastic job losses, some industries, such as professional and business services, transportation and warehousing, and healthcare have added jobs. 

In Northern Kentucky, we’ve also suffered a loss of almost 10,000 manufacturing jobs.  Some of the local job losses in the government sector (down 6,700) can be attributed to the closing of the IRS facility in Covington, yet, she said, there are losses in local city and county government as well. 

 

Changes in the job market in our region show the uneven impact of the pandemic. Click to enlarge.
 

 Dueling Narratives

"At first blush, Kentucky economic data looks good. It looks like its recovered to pre-pandemic levels BUT only because of substantial federal support to individuals," Harrah said.

She noted that there are "dueling narratives" about several aspects of the economy right now. On the surface, the economy does appear to be rebounding — the good numbers are going up and the bad ones (unemployment rate, for instance) appear to be going down. Yet, scratch the surface, she said, and there are weaknesses.

She used personal income in Kentucky as an example. The headline numbers say personal income in the state is up, but much of that recovery is bolstered artificially.

She presented a chart that looked at personal income in Kentucky by quarter. A dip in the second quarter of 2021 shows where federal support to individuals started to be withdrawn. Without that support, personal income would be much lower, she said.

"From first quarter 2020 through second quarter of 2021, 6% of Kentucky’s personal income was from pandemic programs, totaling more than $77.3 billion."

A look at personal income shows how much federal support programs bolstered the numbers.
Click to enlarge. 

 Biggest Threat: Inflation

"The biggest risk I see is inflation...I’m not sure that anyone can predict with any certainty what is going to happen with inflation, with prices over the next 12-18 months. A lot of it depends on what happens with the supply chain," said Harrah.

"The experts at the Federal Reserve have been telling us for more than a year that this is just transitory and nothing to worry about, but I am not so sure I agree with that. We have not seen sustained levels of inflation above the 3% mark for more than 40 years. So, the millennials in the room have lived their entire lives in an environment where inflation was never greater than 3%. It’s currently double that at 6%." 

At 6%, inflation is the highest it's been in more than 40 years. Click to enlarge.


The effects of inflation are being felt in Northern Kentucky and across much of the nation already, she said. "October CPI [consumer price index] numbers have shown price hikes across a broad array of goods and services. Rents are rising substantially, vehicles, gasoline, medical care. These are the everyday purchases consumers feel first."

Harrah continued, "We are seeing hikes in nominal wages, and that’s good, but adjusted for inflation, these increases are not keeping up with rising prices. Commodity prices will go up and down so once the supply chain clears we expect food and gas to normalize. However wages, rent and health care costs rarely ever come down."

Consumer prices are not the only thing driving inflation, Harrah said. In addition there is also monetary inflation, which involves too much cash supply, and asset price inflation, the rise in the price of assets such as real estate, precious metals and stocks. We're currently experiencing all three types of inflation, she said.

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That nagging supply chain issue

Getting control over the Covid-19 virus is a key factor in the ongoing supply chain crisis, said Augustine.

"The world is recovering unevenly. We are lucky in this country to have Pfizer and Moderna. The rest of the world doesn’t. We would say, part of the supply chain being upside down right now is that many economies are being locked down...They were closing ports in China this summer because of the virus...Getting the virus tamped down would be the greatest help...Right now the epicenter is in Europe due to an uneven vaccination process."

Harrah noted that the United Kingdom and Europe are expected to have significant challenges with energy costs this winter, and the word is out that China has asked its people to stock up on food perhaps in anticipation of another shut down. All this puts pressure on an already stressed supply chain here and abroad, she said. 

Cooper said the NKY Chamber has been making this point about the connections between health and the economy. "Good health is good business," has become a motto for the organization highlighting the correlation between healthy people and a healthy economy.

Looking ahead in Northern Kentucky

The forecast for growth and jobs in our region looks good but caution is the word.
Click to enlarge. 

Summing up, Cooper said, "Both Janet and John did a wonderful job providing context, and a better understanding, of how we got here and where we’re headed. One big takeaway from me was regarding talent. Today reiterated the point that we are in a battle for talent nationally and internationally, and our business community is going to have to focus on growing, attracting and retaining talent if we want our Northern Kentucky metro region to continue to grow and thrive."

The next installment of the Eggs ‘N Issues series will be “Eggs ‘N Issues: Looking Forward to 2022 on Tuesday, December 14. The NKY Chamber website has more information about the event and about membership in the organization.

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