GOSHEN — Unemployment is trending downward in Indiana as the economy slowly reopens, but when manufacturing will return to pre-pandemic levels is just a guess, economists say.
“I don’t know of anyone making a forecast for the state’s recovery, but it would be difficult to criticize anyone for a forecast given the ahistorical nature of this event,” said Ball State University economist Michael Hicks. “Congress has made some good first steps with its CARES Act, but without more intervention, the loss of state and local tax dollars alone will extend the recession by more than a year, and cut maybe 2% off growth over the next two years. So, right now, I think the most likely projections are the more pessimistic ones.“
Hicks said he agrees with the Congressional Budget Office’s estimate that there will be double-digit unemployment through the end of 2021.
“To be frank, the damage from COVID-19 is likely to carry into 2023 or later,” he added.
Retired Indiana University economist Morton Marcus agrees that the unknowns negate any forecasts.
“It is impossible to really say what is going to happen,” Marcus said. “We have never faced anything like this. We don’t have any experience to base this on. All we can do is work from speculation about these matters.”
The latest economic data about Indiana was released Thursday. The U.S. Department of Labor said new claims for unemployment aid in Indiana continued to fall after peaking in May. The Department of Labor reported 24,000 Hoosiers applied for unemployment benefits last week. That is far below the 139,174 workers who sought unemployment aid in the state for the week of March 28, just after Gov. Eric Holcomb issued his first executive order for a shutdown.
MANUFACTURING WITHERS
Before the pandemic shriveled the state’s economy, Indiana was the top state for manufacturing. Indiana Economic Development Corp. spokesperson Erin Sweitzer said the state had 8,500 manufacturing facilities. One in five jobs in Indiana was tied to manufacturing.
But the manufacturers in Indiana and across the nation have not fared well during the pandemic, according to data from the U.S. Census Bureau.
New orders for manufactured goods fell 13% in April, according to the most recent data from the U.S. Census Bureau. That amounted to a decline of $57.5 billion. There was also an 11% drop in new orders in March as the COVID-19 pandemic impact began to take hold.
“So much of it depends on the auto sector,” Andrew Berger, senior vice president for governmental affairs at the Indiana Manufacturers Association, said. “We surveyed our members and people are still feeling confident. The economy was very strong before the virus hit so that if you see a bounce back in demand at the consumer level, especially in the auto sector, we should be able to recover fairly easy. However there is so many unknowns and so many factors that it is hard to judge. But at least at this point we haven’t seen widespread closures.”
The layoffs that have occurred in manufacturing across the state appear to be short-term, not long-term he said.
Layoffs in March sent unemployment soaring across Indiana. Jobless numbers reached 16.9% across the state in April. In Howard County, where there is a heavy automotive presence, and in Elkhart and LaGrange counties where 80% of the recreational vehicles sold in North America are made, the jobless rates hit 34.1%, 29.3% and 28.8%, respectively.
Employment growth is occurring as the state’s phased reopening is sending workers back to their factories.
Thor Industries, of Elkhart, which is the world’s largest manufacturer of RVs, announced May 29 it was bringing back more workers to plants already open. The reason was pent-up demand for RVs.
“Within the U.S., in particular, dealers are now experiencing low inventory levels of certain products. As a result, we are increasing production volumes where needed to address the higher than originally anticipated dealer demand,” Thor announced in its press release.
Company officials did not respond to requests about the specific number of workers rejoining its payroll.
Factory jobs are also coming back to Howard County. Fiat Chrysler Automobiles has recalled workers to its Kokomo transmission and casting factories and the transmission plant in Tipton.
Elizabeth Kerns, manager of the Kokomo Chamber of Commerce, said FCA’s (Fiat Chrysler) announcement in March that it would spend $400 million to revamp its idled Indiana Transmission Plant II to make turbo engines, is an example of how manufacturers are looking beyond the current pandemic and investing in Indiana locations.
“It’s a huge investment, Kerns said.
The local GM plant is also important to the community, she added, saying it retooled to make ventilators during the pandemic.
Unemployment in Howard County, where Kokomo is located, jumped to 34.1% in April. But since the auto plants have restarted, that number should fall, according to Kerns.
“As they get back to work, the ripple effect throughout our community will be tremendous,” she said.
SOME ADAPT
One piece of good news about manufacturing, according to Kerns, is that few companies went out of business.
Some Indiana manufacturers were able to adapt to the new conditions by converting to making personal protection gear. Berger said one company he know of converted from making windows for vehicles to making sneeze guards for stores.
“Those are all short term. Most of the businesses that have seen a big drop in their orders are hoping, and they are confident, they will be able to get back to more normal demand circumstances so long as we don’t see a reemergence of the virus in a major way that puts people’s employment and their own incomes at risk,” he said.
Consumer confidence is a big factor in ramping up production, Berger said.
“That is normal anytime you see an increase in unemployment,” he said. “So much of any recovery in those types of main manufacturing businesses is getting back to work so they can have steady income to buy a new car or refrigerators or whatever.
“The amount of new unemployment claims are going down, but that doesn’t mean we are seeing wide-scale rehiring at this point even as more businesses come back.”
He said consumer spending is tied to all segments of the economy, including retail, the hospitality industry and government. He expects there will be widespread budget constraints in all those segments for some time to come.
“It is going to be a long road out of here,” Berger said. “But at least presently our members remain confident and hope they will see a rebound in demand in the second or third quarter of 2020.”
GOVERNMENT AID
To help boost rehiring and expansion of the economy, Holcomb announced May 29 he was placing $44 million from the federal CARES ACT into programs to help Hoosier businesses.
The Indiana Economic Development Corp. said the program’s Small Business Restart Fund has $30 million in federal grant funds to help small business with working capital so they can restart.
Small Business Relief & Planning Resources is another of the program’s funds. The Indiana Small Business Development Center has about $3.7 million to supplement the organization’s annual federal appropriations. The money will be used to provide free services, such as counseling and training that have been impacted by COVID-19.
There is also $10 million for manufacturing and long-term growth. The money will be used to support technology and operational advancements in the manufacturing industry, according to information from the Indiana Economic Development Corp.
WILL IT HELP?
Hicks said the state doesn’t have the resources to have a big impact on job creation.
“Indiana has lost 80,000 factory jobs through the pandemic, or about 15% of its jobs,” Hicks said. “Over one quarter that is about $3.8 billion in lost GDP. The governor and IEDC is absolutely right to worry about manufacturing, and for some firms this assistance program may help. But, no state has the fiscal resources to intervene at scale in the employment losses we now face. This program is, for example, a bit over 1% of manufacturing losses so far. It is also important to note that manufacturing entered the pandemic already in a recession because of the trade war.“
Berger also said the money will be used by manufacturers, but the impact will be limited.
“$44 million will certainly help smaller companies, but manufacturing is a $100 billion industry in Indiana and ultimately it is going to be demand that is going to preserve jobs and investment in the state,” he said.