Northeast Indiana is a manufacturing-intensive region in a manufacturing intensive state.
So, in terms of economic indicators relevant to the region, it just makes sense to look at the hours workers have been putting in to glean clues for what might be ahead.
“There is a simple correlation between improving economy and/or a potential recession when you see those numbers going up and down,” said Valerie Richardson, researcher with the Community Research Institute of Indiana University - Purdue University Fort Wayne.
About 23 percent of jobs in Indiana are in the manufacturing sector. That rises near or above 40 percent in some manufacturing dependent counties such as Noble and DeKalb.
At the height of the Great Recession in 2009, average weekly hours in Indiana for all manufacturing employees (including sales, administrative and transportation) and strictly production workers dropped to about 37 hours per week.
Production hours for Indiana workers now average about 43 hours per week. Total manufacturing sector hours in the state are just over 41 hours per week.
“If the hours stay high, if they stay above say, 41.5, then they start hiring more people, ” Richardson said. “If we go below that then they may start laying off.”
However, keep two things in mind when using manufacturing hours as an indicator, IPFW instructor and consultant John Stafford noted.
Going forward, “We have to remember that it happens slowly and not in a linear manner, but we will have lesser reliance on manufacturing employment than we had in the past,” he said.
The nature of manufacturing itself also changed with the Great Recession and the implementation of new technology.
“Virtually everybody does more production today with fewer people,” Stafford said.
Moving onto other indicators, another one that economists typically look at is wages, “and we haven’t seen a lot of wage growth,” said CRI Director Ellen Cutter.
Indiana’s non-seasonally adjusted unemployment rate in October was 4.2 percent, and the rate in the Fort Wayne metropolitan statistical area was even lower, at 4 percent, down from 5.2 percent a year before. The U.S. rate was at 4.8 percent in October.
Although a tighter labor market, theoretically, leads to wage growth because employers have to pay more to get and keep workers, that has not happened as expected with the recovery from the Great Recession, the Federal Reserve noted. Earnings grew a weak 1.7 percent in 2014.
Housing permits also can be used as an indicator of economic health, Cutter said.
For the year-to-date through November, builders obtained permits for 812 new homes in Allen County, a 15-percent increase from 704 permits in the same period of 2014. The average value of the new homes was $240,821, up slightly from $239,980 in the year-ago period, according to data compiled by the Home Builders Association of Fort Wayne.
Commercial construction in Allen County is soaring. The value of commercial permits issued the first 11 months of this year totaled $561.8 million, a 76-percent increase from $319.2 million in the same period last year, a report from the Allen County Building Department said. The higher totals reflect not just the construction of new buildings, but a healthy growth in the money being invested in additions to existing buildings.
“Allen County is a population and earnings hub, so positive growth in Allen County benefits the region,” Cutter said.
With its heavy concentration of auto manufacturers and suppliers, Indiana has benefited greatly from the rebound of the auto industry. In the last few months, production has been at or around an annualized 18 million vehicles a year, and that is about maximum purchasing capacity.
“I’m not suggesting a drop off,” said Stafford, who has heard other analysts make the same point. “But we’re not going to see much more ramping up. The market will only buy so many vehicles, and we’re close to that point. The re-employment in the automotive sector has probably pretty much played itself out.”
Economists also look at weekly initial unemployment claims as an indicator of where the economy is going, although there also are seasonal variations – such as the annual dip Indiana sees in July when automotive manufacturers shut down to retool for the next year’s product lines.
“When layoffs happen, which initiate the new unemployment claims, we have people clamping down on their expenditures, which in turn leads to more layoffs,” Richardson explained. “So a rise in initial claims may spell more bad news in the near future.”
While the slight rise in recent initial claims in Allen County and the 11-county northeast Indiana economic development region “probably” does not mean the economy is immediately heading south, “we should keep an eye on things,” she said.
The Purchasing Managers Index, released by the Institute for Supply Management, is a weighted composite index based on surveys of production level, new orders, supplier deliveries, inventories and employment levels. the PMI is a composite index of five items which ISM gets through surveys.
An index of 50 would indicate the respondents are reporting an equal number of better and worse conditions. Above 50 is good and indicates expansion, Richardson said. As 2015 comes to a close, the index has dropped below 50 for the first time in two years.
The interest rate spread, (the 10-year Treasury constant maturity minus the federal funds rate) also can be a predictor of economic strength or weakness.
“The bottom line is that when these head down, a recession is coming,” Richardson said. “It’s a pretty good indicator. In each of the last six recessions, when short-term rates rose above long-term rates (ie going negative), there was a recession.”
Right now, the spread is described as “flattening,” she said, which could tend to discourage longer-term investment.