1. 1 The Kentucky Economy: What Pieces are Working? Christopher R. Bollinger Director, Center for Business and Economic Research University of Kentucky February 2015

2. 2 I’m an Optimist I Guess This would surprise many people! I’m not alone: –Consumer Confidence rose from 81.8 in July 2014 to 92.6 in December 2014. –CEO Confidence at 60 in fourth quarter (over 50 is good). –The monthly Policy Uncertainty Index is at 82 (Jan 2015), down from 95 a year ago, and 204 two years ago. My forecast is guardedly optimistic.

3. 3 Outline Employment: Finally on track? GDP Growth: More robust than expected. Kentucky’s three main cities: –Each in a different place in recovery. Some perspective on Kentucky’s industries: –Kentucky is WAY more than coal, horses and bourbon. My forecast.

4. 4 Employment

5. 5 Employment: 2002-2014. Source: Bureau of Labor Statistics, CES data

6. 6 Employment: Last 2 years. Source: Bureau of Labor Statistics, CES data

7. 7 Employment: Both U.S. and KY employment above pre- recession maximum. Both growing robustly at end of 2014: –The U.S. added 2.8 million for a 2% growth rate, –KY added 50 thousand for a 2.7% growth rate. Kentucky seemed to stall in 2013. And again in summer of 2014. Kentucky’s fall growth was extraordinary!

8. 8 Unemployment. Source: Bureau of Labor Statistics, CPS data

9. 9 Unemployment U.S. unemployment rate falling at a steady pace: now at 5.6%. Kentucky’s unemployment rate bounces around more. Slow decline through 2012 and into 2013, but remarkable at the end of 2014: –Dropped 1% between September and December! Kentucky’s rate usually about ¾% above U.S.: –May see slower decline for KY during early 2015.

10. 10 Labor Force Participation. Source: Bureau of Labor Statistics, CPS data LFP for 16 and older LFP for prime ageLFP for Men LFP for Women

11. 11 Labor Force Participation Labor force participation rates are dropping. But the peak in the early 2000’s doesn’t represent a long run. Male participation has been steadily declining for a long time. Female participation has stopped growing, and may be declining. Jennifer will discuss composition, Ken will discuss the Kentucky experience in detail.

12. 12 Gross Domestic Product

13. 13 U.S. GDP Growth Source: Bureau of Economic Analysis, National Accounting Data

14. 14 GDP The Q1 surprise was largely ignored! –Numbers came out late. –Explained by the Government Shut down. –Robust Growth followed immediately. Q2 was nice at 4.6%, with Q3 at 5%. Q4 was at 2.6%: –Lower Gas prices. –Imports (strong dollar). Overall 2014 GDP growth at 2.4%

15. 15 The Triangle Region

16. 16 Three Cities: Lexington, Louisville and Cincinnati 50% of Kentucky population, 59% of Kentucky employment, 54% of Kentucky businesses. The urban triangle region represents the majority of state economic activity. While I do not want to discount other areas, this region is crucially important. Source: Bureau of Census Population Data, Bureau of Economic Analysis REIS data

17. 17 Employment Growth Source: Bureau of Labor Statistics, CES data

18. 18 Triangle Employment Lexington and Louisville have recovered strongly: –Now well above pre-recession levels, –Relatively strong continued growth, –Last 6 months quite robust. Cincinnati still slower: –Started from a deeper trough, –But trend very steady, –Slower manufacturing rebound.

19. 19 Unemployment Source: Bureau of Labor Statistics, CPS data

20. 20 Triangle Unemployment All three cities well below 6% now: –Lexington at 4.5%, –Louisville at 5.1%, –Cincinnati at 4.3%. Back to rates consistent with 2002-2006. New employment growth must come from: –Increased labor force participation (Cincinnati?) –Migration (Lexington?)

21. 21 Kentucky’s Industries

22. 22 Kentucky’s Industries: The “Big Three” Mining (about 2/3 coal): –0.9% of KY employment, –1.5% of KY earnings, –KY mining workers earn 69% of what US mining workers. Agriculture (including horses): –0.7% farm, 0.4% ag support = 1.1% of employment, –0.5% farm, 0.2% ag support = 0.7% of earnings, –KY farmers earn 81% of what U.S. farmers earn, –KY ag support workers earn 109% of U.S. ag support earnings. All Beverage and Tobacco (includes Bourbon) –0.3% of employment. –0.5% of earnings. –KY beverage workers earn 116% of U.S. workers.

23. 23 What Industries Are Important? Employment: –Government 19%, –Health Care 12%, –Manufacturing 12%. Earnings: –Government 20%, –Manufacturing 16%, –Health Care 13%. Kentucky workers as a whole earn 81% of national –Government 85%, –Manufacturing 86%, –Health Care 95%, Source: Bureau of Economic Analysis, REIS data

24. 24 Employment Growth Industries Government is probably not a growth industry. Manufacturing is healthy in the U.S.: –We produce more than ever before (per worker and per consumer), –Continues to grow in output, –Not in labor: 60+ year decline in employment is not going to change – represents technology changes. Health care is growing. Education is growing.

25. 25 My Forecast

26. 26 Forecast Had to write in November: I was not optimistic enough on employment/unemployment. Concerned that KY has “caught up” to US. –Slower unemployment decline for KY in 2015. GDP growth has been increasing the last 2 years. Slight increase over last year. Inflation –Food and meat, –Low gas prices. Slow growth in manufacturing, following trend.

27. 27 Forecast

28. 28 THANK YOU