Recent data on Kentucky’s economy shows mixed signs, with signs of both economic cooling and continued growth. The data comes as significant national challenges emerge, including massive labor strikes in manufacturing and an impending federal government shutdown.
Although Kentucky is better positioned to face the possibility of an economic slowdown than in the past, business leaders and policymakers should continue to closely monitor economic data. Data released this week by the Bureau of Labor Statistics (BLS) shows an increase in the federal unemployment rate and a decrease in the number of job openings. The number of job openings in July 2023 fell to 112,000, the lowest level reported in Kentucky since December 2020.
During the economic recovery period, the number of job openings increased rapidly, reaching more than 200,000 in March 2022. The average for most months during this period was about 200,000. The number of job openings is 150,000. Since 2021, the number of job openings in Kentucky has exceeded the number of unemployed Kentuckians looking for work. Throughout 2022, there were an average of two job openings for every unemployed person in Kentucky. This ratio he decreased until 2023.
As of July 2023, there were 1.4 job openings for every unemployed person. The job market remains tight for employers, especially compared to 2019, when the state tended to have an average of one job opening for every unemployed person. The ratio of jobs to unemployed may simply be “normalizing” following a historically tight labor market in 2021 and 2022. A similar trend may be developing with respect to unemployment. In February 2022, Kentucky set an all-time low unemployment rate of just 3.9 percent. This rate decreased to 3.7% in April 2023. Provisional data as of August 2023 was 4.0%. Despite a slight upward trend, Kentucky’s unemployment rate remains low. It was 4.1% in August 2019 (4.0% in August 2022).
Two other important indicators are the labor force participation rate and the employment rate. Kentucky’s labor force participation rate remains stubbornly below pre-pandemic levels, at just 57.6 percent, 1.4 percentage points below its August 2019 level. Kentucky’s labor force participation rate is in the bottom 10 of the lowest in the nation. The employment rate in August was 55.3%. As with the labor force participation rate, this was lower than 56.6 percent in August 2019.
Economic data such as job openings, unemployment rates, and labor force participation rates come from monthly government surveys of employers and households. Current data is preliminary and subject to revision. Kentucky’s decline in job openings and rise in unemployment are both likely due to higher interest rates. To combat inflation, the Federal Reserve has been gradually raising interest rates. Such actions tend to reduce economic activity and business investment, with the dual effect of lowering inflation levels and increasing unemployment. Federal Reserve Chairman Jerome Powell said the Fed’s intention to raise interest rates is to achieve a “soft landing” in which inflation slows while the economy continues to grow and add jobs.
Other economic indicators paint a somewhat different picture of Kentucky’s economy than what we see in job openings and unemployment rates. For example, Kentucky employers continue to add new salaried positions (jobs). In March 2023, non-farm employment exceeded 2 million people for the first time in the state’s history. Kentucky employers continued to build on this momentum, adding 8,300 new jobs in August. Information on non-agricultural wages is obtained from employer surveys and is different from information on “employment” obtained from household surveys. Some non-agricultural payroll positions may be filled by the same individual (multiple applicants) or by out-of-state workers.
State revenue data also shows signs of continued economic growth. Last month, state revenue from sales, business and property taxes increased 7.7% from a year earlier. Sales tax revenue, which is often a measure of retail activity and consumer spending, rose 5% year over year.
These mixed signals about Kentucky’s economy come as two major national challenges emerge. The first was a labor strike by the United Auto Workers against Ford, General Motors, and Stellantis. The second is an anticipated federal government shutdown caused by Congress’ inability to pass the necessary legislation to continue funding government operations. As the U.S. Chamber of Commerce noted, both of these events will have a negative impact on the national economy, and that includes Kentucky. In addition to these challenges, rising interest rates and the impact of the war between Ukraine and Russia in Eastern Europe will continue to impact global, domestic and national economies.
As Kentucky’s leaders navigate this time of uncertainty, the state is in a better position than in the past to weather economic challenges. Kentucky boasts a healthy $3.7 billion Budget Reserve Trust Fund and her nearly $850 million Unemployment Insurance Trust Fund. Additionally, the state is more economically competitive than ever before, thanks to major policy changes such as tax reform. Nevertheless, business leaders and policymakers should closely monitor state and national economic data as these events continue to unfold and new information comes in. The Kentucky Chamber Policy Research Center will provide additional updates through The Bottom Line.